FEDERAL COURT OF AUSTRALIA
Colin R Price & Associates Pty Ltd v Four Oaks Pty Ltd [2017] FCAFC 75
THE COURT:
1. Introduction
1 This proceeding involves an appeal and a cross-appeal from the judgment of a single judge of the Court in a dispute between a syndicate of investors who acquired and renovated a property in Box Hill, Victoria and sold apartments “off the plan” (the Project). The investors each held units in a unit trust named the Twentieth Green Unit Trust (the Trust) which owned the Project. The primary judge made orders on 5 August 2016 and 25 August 2016, pursuant to reasons for judgment handed down on 29 June 2016 (Colin R Price & Associates Pty Ltd v Four Oaks Pty Ltd [2016] FCA 764) (the First Reasons), 5 August 2016 (Colin R Price & Associates Pty Ltd v Four Oaks Pty Ltd (No 2) [2016] FCA 883) (the Second Reasons) and 25 August 2016 (Colin R Price & Associates Pty Ltd v Four Oaks Pty Ltd (No 3) [2016] FCA 1031 (the Costs Reasons), which are the subject of the appeal and cross appeal.
2 The first appellant, Colin R Price & Associates Pty Ltd (CRP) was the builder engaged by the Trust for the Project, and was controlled by its director, Mr Colin Price. The second appellant, Grovan Pty Ltd (Grovan) was a 10% unit holder in the Trust and Mr Price was one of the two directors of that company.
3 The first to third respondents (and cross-appellants) are corporate unit holders in the Trust namely:
(a) the first respondent, Four Oaks Pty Ltd (Four Oaks) which had a 25% interest in the Trust;
(b) the second respondent, Noel Jones (Carnegie) Pty Ltd (NJC) which had a 10% interest in the Trust; and
(c) the third respondent, Eighty-Second Agenda Pty Ltd (ESA) which had a 25% interest in the Trust.
4 The fourth to sixth respondents (and cross-appellants) and the eighth respondent (in the proceedings below who is not a party to this appeal) are the principals of the corporate unit holders, namely:
(a) the fourth respondent, Mr Noel Reynolds, the principal of Four Oaks;
(b) the fifth respondent, Mr Stephen Power, the principal of NJC;
(c) the sixth respondent, Mr Geoffrey Rice, the principal of ESA; and
(d) the eighth respondent below, Mr Clestus Weerappah, the principal of Retail Treasury Pty Ltd (in liquidation) (Retail Treasury), which had a 30% interest in the Trust.
The seventh respondent (and cross-appellant) is Twentieth Green Pty Ltd (Twentieth Green), the trustee of the Trust. Although the first to seventh respondents are also cross-appellants, for ease of reference we usually refer to them simply as respondents.
5 Pursuant to orders made on 6 December 2013, the hearing before the primary judge was a trial of broad separate questions which covered all aspects of CRP’s claims other than the quantum of any amounts payable to CRP, all aspects of Grovan’s claims, and the respondents’ cross-claim. Essentially, the trial was a large building case and the task of the learned primary judge was not straightforward. If we may respectfully say so, his Honour approached the issues before the Court with care and a comprehensive attention to detail.
6 In summary, for the reasons we explain, we agree with his Honour’s decisions on the main issues before the Court, but we respectfully disagree in relation to some of what were, or may have appeared to be, secondary issues.
2. The ISSUES BEFORE THE PRIMARY JUDGE
7 The following is a broad summary of the issues before the primary judge. Where we refer to the primary judge’s reasons we are referring to the First Reasons, which is the main judgment. Where we refer to the Second Reasons or the Costs Reasons we specifically say so.
8 In November 2006 the Trust entered into a written building contract with CRP for the Project (the Simple Works Contract) being, essentially, a fixed price contract. CRP’s central claim was that it was underpaid for the building works on the Project.
9 First, CRP claimed that the respondents represented (and the parties agreed) that the Simple Works Contract would only be used to obtain finance for the Project and would not comprise the terms under which CRP was to perform the building works. It alleged that it performed the building works in reliance on that representation together with a representation that it would be paid the cost of all materials and labour incurred in relation to the works plus a margin of 15%.
10 CRP completed the building works and it was not paid on the basis of costs plus 15%. It claimed that Twentieth Green, with the knowing involvement of the other respondents, engaged in misleading or deceptive conduct and unconscionable conduct in that regard. In the alternative, it claimed that the Simple Works Contract was void for uncertainty or incompleteness and it sought to be paid on an alternative basis, including quantum meruit.
11 The primary judge held that the Simple Works Contract was binding on the parties and that CRP was not entitled to payment on the basis of costs plus 15%. His Honour did not accept that the alleged representations were made and accordingly dismissed CRP’s claims of misleading or deceptive conduct and unconscionable conduct. Those findings are not the subject of appeal.
12 Second, CRP alleged that in April 2008 (at a point when the Project was well behind schedule and CRP had run out of money to complete it) the respondents represented (and the parties agreed) that if CRP funded and completed the remaining work, the respondents would ensure that CRP was paid the cost of all materials and labour plus a margin of 15% (the Variation Representation). CRP completed the building works but was not paid on this basis and it alleged that Twentieth Green, with the knowing involvement of the other respondents, engaged in misleading or deceptive conduct and unconscionable conduct in that regard. CRP also claimed that it was entitled to be paid for the building work on a quantum meruit basis.
13 His Honour found that the Variation Representation was not made and dismissed those claims. CRP appeals against this finding. His Honour also rejected the quantum meruit claim, which is not the subject of appeal.
14 CRP’s claims that it was entitled to be paid costs plus 15% for the building works, or alternatively on a quantum meruit basis, made up most of the quantum of its case. Those claims totalled $1,431,362 (being $678,634 funded by CRP to complete the building works, $453,123 calculated at 15% of the cost of the building works, and $299,605 in interest paid by CRP to its financiers to fund the completion of the works). The primary judge’s rejection of these claims meant that CRP was unsuccessful on the bulk of its claims.
15 Third, Grovan’s central claim was that it had not been paid its full entitlements to the proceeds of the Project. In part, these claims turned on the enforceability of two agreements (the Payment Authorities) pursuant to which Resort Systems Pty Ltd (Resort Systems), a company associated with Mr Power, Mr Reynolds and Mr Rice, advanced monies to CRP so that it could complete the Project, doing so on the basis that it would be repaid from Grovan’s share of the proceeds of the Project.
16 Grovan alleged that the Payment Authorities were not binding on it because Mrs Faye Price, Mr Price’s wife and the second director of Grovan, had not signed them. In the alternative, Grovan alleged that it was unconscionable in all the circumstances for the respondents to procure and rely on the Payment Authorities.
17 The primary judge held that Mr Price did not have actual or ostensible authority to bind Grovan through the Payment Authorities on his signature alone, and they were not enforceable. His Honour also said that by procuring and relying on the Payment Authorities Twentieth Green engaged in unconscionable conduct in breach of s 51AC of the Trade Practices Act 1974 (Cth) (TPA) and the general law. His Honour ordered that Twentieth Green pay Grovan the amount of $100,141, which it wrongly withheld from Grovan’s share of the proceeds pursuant to the First Payment Authority. The cross-appellants appeal against both the finding that Mr Price did not have authority to execute the Payment Authorities and the alternative finding of unconscionable conduct.
18 Fourth, Grovan sought declarations pursuant to s 75B of the TPA that the first to sixth and the eighth respondents were knowingly involved in Twentieth Green’s unconscionable conduct. The primary judge refused to make such declarations, concluding that Grovan’s case in relation to the Payment Authorities was pleaded against Twentieth Green alone and did not allege accessorial liability by the other respondents. The appellants appeal against this finding, but only in respect of the fourth and fifth respondents, Mr Reynolds and Mr Power.
19 Fifth, Grovan sought that any monetary orders made in its favour should be made against all respondents jointly and severally and not solely against Twentieth Green which has no assets. The primary judge refused to do on the basis that Grovan’s claims were against Twentieth Green alone and not against the other unit holders. His Honour said that it may be expected that, as Twentieth Green has no assets, the appellants would seek to recover amounts from other unit holders to pay the amount owing. The appellants appeal against this finding.
20 Sixth, the primary judge decided in the First Reasons that due to “the possibly incomplete state of the evidence” it was inappropriate to decide five claims made by Grovan and one by CRP. After his Honour heard submissions from the parties he ordered them to file any further evidence upon which they wished to rely and that those six claims be dealt with in a short further hearing.
21 Grovan did not press two of its five claims in the further hearing. The primary judge found in Grovan’s favour on two of its remaining three claims and against it on the third claim.
22 CRP’s claim was that it had been engaged by Twentieth Green to perform some additional works to those contained in the Simple Works Contract and for which it had not been paid. His Honour held in CRP’s favour and ordered Twentieth Green to pay CRP $75,300 plus interest for the additional works.
23 Grovan appeals against the primary judge’s decision to refuse its third claim, being a claim for $6,000 which it alleged was wrongly deducted from its share of the proceeds of the Project. The respondents cross-appeal against the primary judge’s decision to permit the parties to adduce further evidence and to find in favour of Grovan and CRP on the three claims.
24 There were a number of other issues before the primary judge which are not the subject of appeal, including (but not limited to):
(a) whether CRP completed the building works by 8 November 2007 as required under the Simple Works Contract. The primary judge held that the respondents were estopped from relying upon the failure of CRP to complete the works by that date; and
(b) whether CRP breached the Simple Works Contract by failing to complete the works to the required standard. The primary judge held that it did not.
3. The appeal and cross-appeal
25 Before us the parties agreed that the issues raised by the appeal and cross-appeal can be broadly summarised as follows:
(1) The unconscionability and liability findings under s 75B and s 82 of the TPA in relation to the Payment Authorities:
(a) Whether the finding of unconscionability against Twentieth Green under s 51AC of the TPA should have been made? - Notice of Cross-Appeal, Grounds 5 - 6.
(b) Whether a claim was made and pressed seeking accessorial liability and compensation? - Notice of Appeal, Grounds 11 - 14.
(2) Whether orders should have been made against all unit holders adjusting their entitlements? - Notice of Appeal, Grounds 7 - 8. In the alternative, the appellants allege in Grounds 9 - 10 of the Notice of Appeal that, if the primary judge was correct in not making orders against all unit holders, his Honour erred in [32] and [34] of the Second Reasons in reducing Grovan’s claim by $7,530. This reduction was in recognition of the fact that Grovan had received 10% of the benefit of Twentieth Green’s failure to pay CRP $75,300 for additional building works CRP had undertaken.
(3) Whether findings of misleading or deceptive conduct should have been made in relation to the Variation Representation at the April 2008 meeting? - Notice of Appeal, Grounds 1 - 4.
(4) Whether the Court should have made an order in favour of Grovan in respect of the $60,000 payment to Gruboc? - Notice of Appeal, Grounds 5 - 6.
(5) Whether the Payment Authorities were binding on Grovan as Mr Price had actual and/or ostensible authority to sign them? - Notice of Cross-Appeal, Grounds 1 - 4.
(6) Whether the Court should have permitted further evidence to be led on the claims dealt with in the Second Reasons in which the appellants succeeded? - Notice of Cross-Appeal, Grounds 7 - 8.
We deal with the appeal and cross-appeal by reference to these issues.
26 The orders sought in the Notice of Appeal and Grounds 9 and 10 of the Notice of Cross-Appeal raise issues relating to the primary judge’s decision (in the Costs Reasons) that the parties should bear their own costs of the proceeding. The parties agree that the Court should deal with the issue of costs after reasons for judgment are given on the substantive questions in the appeal and cross-appeal.
4. The unconscionability findings and liability under s 75B and s 82 of the TPA in relation to the Payment Authorities
Whether the finding of unconscionability against Twentieth Green under s 51AC of the TPA should have been made? - Notice of Cross-Appeal, Grounds 5 - 6
27 Grounds five and six of the Notice of Cross-Appeal state:
5. The learned primary judge erred at [290]-[302] of the First Reasons in finding that it was unconscionable for the first to seventh respondents to rely on the Payment Authorities and in holding at [298] and [301] of those Reasons that in requiring Grovan to enter into the Payment Authorities as a condition for the provision of funds so as to enable CRP to complete the works, Twentieth Green thereby engaged in conduct that was unconscionable in contravention of s 51AC of the Trade Practices Act 1974 (Cth) or contrary to general law principles of unconscionability.
6. The learned primary judge ought to have held that it was not unconscionable for the first to seventh respondents to rely on the Payment Authorities in circumstances where:
(a) Mr Price was a director of each of Grovan, CRP and Twentieth Green (First Reasons at [4] and [296]);
(b) CRP had no assets from which to meet obligations it had incurred to sub-contractors (First Reasons at [171(b)];
(c) CRP was experiencing severe financial difficulty (First Reasons at [173]);
(d) it was most unlikely that CRP could have obtained the funds required to complete the Project other than by way of an advance from Twentieth Green;
(e) CRP was in no position to repay monies advanced from Twentieth Green (First Reasons at [171] and [173]);
(f) Grovan and CRP were both entities controlled by Mr Price (First Reasons at [176]);
(g) Mr Price knew that the money advanced pursuant to the Payment Authorities would be repaid from Grovan’s share of distributions from the Project (First Reasons at [175]); and
(h) Grovan committing to repay any monies advanced to CRP by Twentieth Green was the only way in which CRP could obtain the funds necessary to complete the Project.
28 On 3 September 2008 Mr Power and Mr Reynolds met with Mr Price. Immediately after the meeting Mr Power typed up and Mr Price signed the First Payment Authority which stated:
In consideration of several advances made to C.R. Price and Associates from Resort Systems Pty. Ltd. to the total of $150,000.00
The first such advance of $30,000.00 effected 03/09/08
Colin and Faye Price on behalf of Grovan Pty. Ltd. hereby undertake to repay the total sum together with interest at 10% p.a. calculated daily.
Such repayments will be made by a minimum $50,000.00 being part proceeds from Twentieth Green Pty. Ltd. $50,000.00 being part proceeds from Rose Anna Pty. Ltd. and the balance being part proceeds from Gruboc Pty. Ltd.
We hereby authorize and direct the above amounts to be repaid to Resort Systems Pty. Ltd. from settlements at the earliest possible opportunity as circumstances permit.
Dated 3rd day of September 2008
Signed Grovan Pty. Ltd. by Colin Price (signed)
In the presence of
Signed Grovan Pty. Ltd. by Faye Price ……………………….
In the presence of
Signed On behalf of Resort Systems Pty. Ltd. ……………………….
In the presence of
29 Resort Systems was a company associated with Mr Power, Mr Reynolds and Mr Rice. Mr Price signed the First Payment Authority, but neither Mrs Price nor Resort Systems did so.
30 The First Payment Authority incorrectly stated that Resort Systems had already advanced $150,000 to CRP. As the primary judge noted (at [165]), that sum was advanced to CRP later, in five separate payments between 3 September and 17 September 2008.
31 On 24 December 2008 Mr Power again met with Mr Price. Immediately after the meeting Mr Power typed up and Mr Price signed the Second Payment Authority, which stated:
I Colin Price of Canberra Grove Brighton, in consideration of various advances made by Resort Systems Pty. Ltd. and other associated Companies hereby undertake to repay principal and interest out of distributions from Twentieth Green Pty Ltd and Gruboc Pty Ltd. as and when they fall due,
Interest will be calculated at a daily rate of 18% from 24/12/08
Dated this 24 day of December 2008
Signed on behalf of Grovan Pty. Ltd
By Colin Price (signed)
In the presence of (signed)
Name and Address of Witness Brett Maher
1 Seaview Court Dandenong North
32 Mr Price signed the Second Payment Authority. It did not include a place for Mrs Price’s signature. No funds were advanced or paid to CRP pursuant to this Authority.
33 Mr Price gave evidence that he had no recollection of signing the First or Second Payment Authorities but in cross-examination he accepted that he had done so. He testified that had it been explained to him or had he known that by signing the Authorities Grovan’s share of the profits from the Project would be applied to pay CRP’s liabilities, he would not have signed them without first seeking advice from an accountant or a solicitor and obtaining his wife’s agreement.
34 The primary judge accepted Mr Price’s evidence that in early September 2008, before he signed the First Payment Authority, he informed Mr Power and Mr Reynolds that the Project had cost significantly more than the syndicate had allowed, he was unable to obtain more credit from the BankWest facility which financed the Project, he had used up all of his available lines of credit in trying to complete the Project based on the respondents’ earlier assurances that the finances would all be sorted out at the end, and that the syndicate was not reimbursing CRP all the amounts that it had incurred. In effect he conveyed that CRP was unable to complete the Project. Mr Power did not dispute that he was aware of those matters.
35 The primary judge also accepted Mr Price’s evidence that in early September 2008, before he signed the First Payment Authority:
(a) he was under “significant financial duress”, as the Trust had not paid all of CRP’s project costs;
(b) various contractors and trades-people who had provided goods and services in relation to the Project had not been paid, CRP and Grovan had no more money to pay them and some had threatened to commence legal proceedings;
(c) he was receiving calls (both during business hours and after hours) from contractors and trades-people demanding payment; these included calls making threats against him;
(d) he was facing up to the likelihood of having to sell the properties that he and his wife owned to repay bank loans;
(e) his relationship with his wife was very strained due to their financial situation; and
(f) he was feeling quite depressed about the situation.
Importantly, the primary judge also accepted Mr Price’s evidence that he informed the other syndicate members of those matters. Mr Power did not dispute that he was aware of those matters.
36 Mr Power accepted that at the time he requested Mr Price to sign the First Payment Authority he wanted CRP to finish the building works on the Project, and that Mr Price was behaving strangely and was “very stressed”. Mr Reynolds also accepted that Mr Price was under some pressure during 2008 and he said that Mr Price’s contractors complained that “this guy is crazy, you know. There’s something wrong”. Mr Reynolds said: “so I really thought [Mr Price] was - he was under mental stress, quite frankly.”
37 The primary judge found (at [179]) that at the time Mr Price signed the First and Second Payment Authorities he was under significant financial and emotional pressure and that this was evident to both Mr Power and Mr Reynolds. His Honour found that, had Mr Price not been under such pressure, it was likely that he would have sought independent advice and consulted Mrs Price in relation to the Payment Authorities and he may not have signed them. His Honour found that Mrs Price was not aware of the Payment Authorities and did not agree to Grovan entering into them.
38 The primary judge expressed his conclusions in relation to the question of unconscionability (at [299]-[300]). His Honour said:
In paragraph [179] above, I concluded that, at the times Mr Price signed the First and Second Payment Authorities, he was under significant financial and emotional pressure and that this was evident to Mr Stephen Power and Mr Reynolds. In particular, I found that Mr Price conveyed to Mr Stephen Power and Mr Reynolds the substance of the matters set out in paragraph [173] above before the First Payment Authority was signed. In circumstances where (to the knowledge of Mr Stephen Power and Mr Reynolds) Mr Price was experiencing extreme financial difficulties, he was being threatened by tradesmen and suppliers, his relationship with his wife was not good, he was extremely stressed, and he had developed a drinking problem, he was evidently not in a position to look after Grovan’s interests. Putting to one side the construction issues raised by the applicants in relation to the First Payment Authority, the deal that is reflected in the document in effect required Grovan to give up its right to share in a large part of the proceeds of the Project to pay for cost overruns. No other unit holder was required to make a comparable sacrifice. Notwithstanding the possibility that Resort Systems may not have been prepared to provide the money had Grovan not agreed to these terms, it is far from clear that the deal was in the interests of Grovan (a mere 10% unit holder). In any event, it was not in a position (because of the financial and emotional stress that Mr Price was under) properly to consider its best interests. As noted above, Mr Reynolds said in cross-examination: “So I really thought he was – he was under mental stress, quite frankly”. I think that Twentieth Green took advantage of Mr Price’s predicament to extract these terms. In the language of the cases, Twentieth Green’s conduct was not done in good conscience.
In relation to the specific matters set out in s 51AC(3) and (4), I note the following:
(a) in relation to the relative strengths of the bargaining positions of the parties, by reason of the financial and emotional stress that Mr Price was under, and Grovan’s inability to access funds, Grovan was in a weaker bargaining position and Twentieth Green was in a stronger bargaining position;
(b) in relation to whether Grovan was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of Twentieth Green, Grovan was in effect being required to share the whole of the burden of the cost overruns while the other unit holders were not;
(c) in relation to whether Grovan was able to understand the First Payment Authority, while I think it likely that Mr Price understood the basics of the deal, I do not think he was in a position properly to consider Grovan’s best interests;
(d) in relation to whether any undue influence or pressure was exerted on, or any unfair tactics were used against, Grovan, I consider that, given the significant financial implications of the document for Grovan, having Mr Price sign the document shortly after the discussion, without the opportunity to take it away and consider his position, discuss it with Mrs Price or obtain advice, involved undue pressure and an unfair tactic;
(e) in relation to whether parties acted in good faith, I do not consider that either party acted in bad faith.
While the last matter does not support a finding of unconscionability, the other matters do. Taking into account these matters and the other matters referred to above, I consider that the conduct of Twentieth Green was, in all the circumstances, unconscionable.
39 His Honour said that essentially the same circumstances applied in relation to the Second Payment Authority (at [301]) and reached the same conclusion as to unconscionable conduct. However, because no monies were advanced to Grovan pursuant to the Second Payment Authority it is strictly unnecessary to deal with that agreement.
40 The respondents contend that the circumstances in which the Payment Authorities were made ought not to have led the primary judge to conclude that it was unconscionable for Twentieth Green to have relied upon them. They say that Mr Price had enjoyed a long-standing relationship with Mr Reynolds, who had invited Mr Price to become an equity participant in the Project, and that after Mr Price agreed to invest (using Grovan as his investment vehicle) he then negotiated for CRP to be appointed as builder.
41 The thrust of the respondents’ argument is that Resort Systems agreed to advance the necessary funds to CRP only when it became clear that the building works undertaken by CRP had fallen well behind schedule, the building costs far exceeded the sum specified in the Simple Works Contract, that CRP was experiencing significant financial difficulties and that it had insufficient assets to meet the obligations it had incurred to sub-contractors it had engaged on the Project. At that point CRP’s ability to fund completion of the Project depended upon the advance of funds from one or other of the syndicate members.
42 The respondents submit that the Payment Authorities came about in circumstances where CRP, as builder, needed money that it could not otherwise obtain or repay at that stage. They argue that CRP’s sole director, Mr Price, therefore agreed that Grovan (of which Mr Price and his wife were directors) would repay the money from the proceeds of the Project and the other projects they were jointly engaged in. They contend that Mr Price plainly understood this because he gave evidence that he was content for the monies to be advanced to allow the Project to be completed as that allowed Grovan to share in the proceeds of the Project (at [175]). The respondents say that the suggestion that the other unit holders ought to have made a similar commitment is nonsensical. On their submissions, there was no proper basis upon which the other unit holders were required to support CRP as builder or Grovan as unit holder.
43 It is common ground that at the time the Payment Authorities were entered into it was critical that CRP finish the project quickly so that the apartment sales contracts could be settled. The respondents argue that it was not just critical to Twentieth Green but also to the individual investors, including Grovan. The respondents submit that, contrary to the findings of the primary judge at [299], the Payment Authorities were in Grovan’s interest because the timely completion of the Project was in the interests of all the investors. They submit that Grovan obtained a tangible benefit through the Payment Authorities and that their interests in the Project as builder were aligned with the interests of the other investors.
44 They argue that they did not take advantage of Mr Price, as the primary judge found, because he knew that CRP could not finish the Project without further funds and that he would eventually receive a return from the Project and other projects. They argue that, against that backdrop, Mr Price sought that the funds be paid to CRP and agreed that Grovan provide security for the repayment. They argue that the deal had obvious benefits for Mr Price and there was nothing that smacked of heavy-handed behaviour or overbearing conduct by the respondents in relation to a person who had little or no bargaining power.
45 The respondents submit that the primary judge did not take proper account of the fact that Resort Systems, which was not a unit holder, was prevailed upon to provide CRP the funds it required to complete the building contract. They argue that all persons involved in the Payment Authorities recognised that CRP had no prospect of repaying the advance and Mr Price therefore agreed that Grovan would do so.
46 The respondents also argue that the primary judge failed to weigh in the balance the significant implications for CRP of not signing the Payment Authorities. They say that in its parlous financial condition, CRP would have been unlikely to obtain any other funding to repay the contractors that were threatening it and to finish the Project. This would have diminished Mr Price’s and CRP’s reputations and compromised his or its ability to make money as a builder in the future. They also argue that, absent such an arrangement, CRP was likely to become insolvent and be wound up. This would have reduced the funds available to Grovan, which was Mr and Mrs Price’s investment vehicle, because the Project, which had the potential to provide a return to it, was at risk.
47 The respondents submit that there is a degree of unreality in the claims of unconscionable conduct made against them. They argue that the claims ignore the reality that the Project was in fact completed, the apartments sold and distributions made to the unit holders. They seek to characterise the parties’ entry into the Payment Authorities as orthodox financial transactions.
48 The respondents argue that the fact that Mr Price was under a good deal of financial stress did not, in and of itself, make Grovan’s agreement to repay funds advanced to CRP unconscionable. They submit that his Honour erred by ignoring the commercial reality that people in difficult financial circumstances are frequently required to enter into refinancing transactions, which will often be disadvantageous.
49 We do not accept the respondents’ contentions. The assessment as to whether Twentieth Green’s conduct was unconscionable involves questions of degree upon which reasonable minds may differ, but we consider the respondents failed to establish that the primary judge erred in the finding reached.
50 We note that unconscionable conduct under the TPA (and its successor the Australian Consumer Law (ACL) in Schedule 2 of the Competition and Consumer Act 2010 (Cth)) extends beyond that in equity. A business transaction might not be unconscionable in equity but it might still be unconscionable under s 51AC. It therefore suffices to address the respondents’ submissions by reference to unconscionable conduct under the TPA.
51 An assessment of whether conduct is unconscionable pursuant to a statute must have regard to the principles governing that concept in its statutory context including any particular factors prescribed for consideration. We accept, as the respondents contend, that an element of hardship or unfairness in the terms of the transaction in question or in the manner of its performance is insufficient foundation, in itself, to interfere in a contract on grounds of unconscionability: see Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315; [2003] HCA 57 at [26] (Gleeson CJ, McHugh, Gummow, Kirby, Callinan and Heydon JJ).
52 We do not, however, accept the respondents’ contention that it is necessary to show “a high level of moral obloquy” before a finding of unconscionable conduct in breach of s 51AC of the TPA may be made: see Attorney-General (NSW) v World Best Holdings Ltd (2005) 63 NSWLR 557; [2005] NSWCA 261 (World Best) at [121] (Spigelman CJ). In Paciocco v Australia and New Zealand Banking Group Limited (2015) 236 FCR 199; [2015] FCAFC 50 (Paciocco) at [259]-[306] Allsop CJ (with the agreement of Besanko J at [371] and Middleton J at [398]) explained that consideration of what constitutes unconscionable conduct is undertaken by reference to an evaluative statutory standard. Allsop CJ recognised that in World Best Spigelman CJ used the phrase “a high level of moral obloquy” so as to differentiate the moral or normative standard in unconscionability from mere unfairness or unjustness. Allsop CJ then went on to identify the danger in approaching the question of statutory unconscionability through a requirement to meet a standard set by reference to shorthand expressions such as “moral obloquy” or “a high level of moral obloquy”, rather than by reference to the word chosen by Parliament (“unconscionable”).
53 Allsop CJ referred to the values and norms recognised in the relevant statute (at [263]-(269]), to the place of norms and values in equity and commercial law (at [270]-[284]), and to the guidance in the statute itself as to the values that bore upon the question of whether particular conduct was unconscionable (at [285]-[295]). His Honour said (at [296]) that the required evaluative judgment involves a careful examination of all attendant circumstances against the statutory norm, as described in Jenyns v Public Curator (Qld) (1953) 90 CLR 113; [1953] HCA 2 at 119 (Dixon CJ, McTiernan and Kitto JJ), which cited Lord Stowell’s generalisation in The Juliana (1822) 2 Dods 504 at 522; 165 ER 1560 at 1567.
54 His Honour explained the approach to the evaluative judgment in the following terms (at [296]-[299] and [304]-(306]):
[296] The working through of what a modern Australian commercial, business or trade conscience contains and requires, in both consumer and business contexts, will take its inspiration and formative direction from the nation’s legal heritage in Equity and the common law, and from modern social and commercial legal values identified by Australian Parliaments and courts. The evaluation of conduct will be made by the judicial technique referred to in Jenyns. It does not involve personal intuitive assertion. It is an evaluation which must be reasoned and enunciated by reference to the values and norms recognised by the text, structure and context of the legislation, and made against an assessment of all connected circumstances. The evaluation includes a recognition of the deep and abiding requirement of honesty in behaviour; a rejection of trickery or sharp practice; fairness when dealing with consumers; the central importance of the faithful performance of bargains and promises freely made; the protection of those whose vulnerability as to the protection of their own interests places them in a position that calls for a just legal system to respond for their protection, especially from those who would victimise, predate or take advantage; a recognition that inequality of bargaining power can (but not always) be used in a way that is contrary to fair dealing or conscience; the importance of a reasonable degree of certainty in commercial transactions; the reversibility of enrichments unjustly received; the importance of behaviour in a business and consumer context that exhibits good faith and fair dealing; and the conduct of an equitable and certain judicial system that is not a harbour for idiosyncratic or personal moral judgment and exercise of power and discretion based thereon.
[297] The variety of considerations that may affect the assessment of unconscionability only reflects the variety and richness of commercial life. It should be emphasised, however, that faithfulness or fidelity to a bargain freely and fairly made should be seen as a central aspect of legal policy and commercial law. It binds commerce; it engenders trust; it is a core element of decency in commerce; and it gives life and content to the other considerations that attend the qualifications to it that focus on whether the bargain was free or fair in its making or enforcement.
[298] The normative standard of a business conscience referred to in the statute is permeated with accepted and acceptable community values: Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90 at [23]; Perpetual Trustee Company Limited v Khoshaba [2006] NSWCA 41 at [64] and Australian Securities and Investment Commission v National Exchange Pty Ltd [2005] FCAFC 226; 148 FCR 132 at 139-140, esp [30].
[299] These considerations may involve behaviour that is best evaluated relationally in a transaction; they may involve conduct that can be evaluated against normative or ethical standards, apart from any particular transaction: see, for instance, National Exchange.
…
[304] In any given case, the conclusion as to what is, or is not, against conscience may be contestable. That is inevitable given that the standard is based on a broad expression of values and norms. Thus, any agonised search for definition, for distilled epitomes or for shorthands of broad social norms and general principles will lead to disappointment, to a sense of futility, and to the likelihood of error. The evaluation is not a process of deductive reasoning predicated upon the presence or absence of fixed elements or fixed rules. It is an evaluation of business behaviour (conduct in trade or commerce) as to whether it warrants the characterisation of unconscionable, in the light of the values and norms recognised by the statute.
[305] The task is not limited to finding “moral obloquy”; such may only divert the normative inquiry from that required by the statute, to another, not tied to the words of the statute. The clearest example of the lack of need for dishonesty, at least in Equity in unconscionable conduct (in the unwritten law), is the lack of criticism of the bank manager in Amadio by Deane J: 151 CLR at 478. See also Johnson v Smith [2010] NSWCA 306 at [5] and Aboody v Ryan [2012] NSWCA 395 at [65]. Such is not to deny that, in many cases of unconscionable conduct in Equity, a degree of moral criticism may attend the evaluation that the relevant conduct was unconscionable.
[306] As Deane J said in Muschinski v Dodds 160 CLR at 616, property rights (and the same can be said of jural relations in trade or commerce) should be governed by law, and not some mix of judicial discretion or the subjective views as to who should win based on the formless void of individual moral opinion. Nothing in Subdiv C and ss 12CB and 12CC or the other statutes with which this case is concerned should be seen as requiring this. The notions of conscience, justice and fairness are based on enunciated and organised norms and values, including the organised principles of law and Equity, taken from the legal context of the statutes in question and the words of the statutes themselves. Employing judicial technique involving a close examination of the complete attendant facts and rational justification, the Court must assess and characterise the conduct of an impugned party in trade or commerce against the standard of business conscience, reflecting the values and norms recognised by Parliament to which I have referred.
(Emphasis added.)
55 In the High Court appeal (Paciocco v Australia and New Zealand Banking Group Limited (2016) 333 ALR 569; [2016] HCA 28) Keane J considered the question of statutory unconscionability at [292]-[294]. There is nothing in his Honour’s reasons (with which French CJ at [2] and Kiefel J at [70] agreed) to indicate any disagreement with the evaluative approach to statutory unconscionability recommended by Allsop CJ. We note that in Commonwealth Bank of Australia v Kojic [2016] FCAFC 186 at [54]-[59] Allsop CJ reiterated his approach in Paciocco (with the agreement of Besanko J at [69] and Edelman J at [85]).
56 The primary judge’s task was to evaluate the facts by reference to a normative standard of conscience, a standard permeated with accepted and acceptable community values as to proper business practices, the content of which values were illuminated by the requirements of the TPA: Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90 at [23] (Allsop CJ, Jacobson and Gordon JJ).
57 Section 51AC of the TPA is titled “Unconscionable conduct in business transactions” and at the relevant time it operated to prohibit conduct in trade or commerce that was, in all the circumstances, unconscionable. It reinforced a recognised societal expectation that, even in the competitive world of business, people acting in trade or commerce must be dealt with honestly, fairly and without deception or unfair pressure.
58 The primary judge was required to consider each of the non-exhaustive list of matters set out in s 51AC(3) and (4), if relevant, because the word “may” in subs (3) and (4) is conditional not permissive. It would have been wrong to focus on one or two of the listed matters at the expense of others: Paciocco 333 ALR 569 at [189] (Gageler J) and at [293]-[294] (Keane J). In our view his Honour paid close attention to those matters (at [300]) and expressly took into account:
(a) the relative strengths of the parties’ bargaining positions (subs (3)(a) or (4)(a));
(b) whether Grovan was required by Twentieth Green to comply with conditions that were not reasonably necessary (subs (3)(b) or (4)(b));
(c) whether Grovan was able to understand the First Payment Authority, or more particularly the effect of the arrangement on its best interests (subs (3)(c) or (4)(c));
(d) whether any unusual influence or pressure was exerted on Grovan or any unfair tactics were used against it by Twentieth Green (subs (3)(d) or (4)(d)); and
(e) the extent to which the parties acted in good faith (subs (3)(k) or (4)(k)).
59 The only relevant matters that the primary judge did not expressly consider was the extent to which Twentieth Green unreasonably failed to disclose to Grovan:
(a) how Twentieth Green’s intended conduct might affect Grovan’s business interests; and
(b) any risk to Grovan arising from its intended conduct
as required by s 51AC(3)(i) and (4)(i).
60 However, had the primary judge expressly done so, in our view, that would have provided further support for the finding of unconscionable conduct. We say this because the evidence supports an inference that Mr Power and Mr Reynolds did not disclose to Mr Price the extent of the deleterious effect that the Payment Authorities would have on Grovan’s recovery from the Project. The evidence indicates that Mr Price did not understand how much Grovan would receive after taking into account the Payment Authorities, and the primary judge found (at [181]), that Mr Power sought to mislead Mr Price in that regard on 19 September 2008.
61 The evidence is that on 19 September 2008 (about two weeks after the 3 September 2008 meeting, and only two days after the final instalment of $150,000 was advanced to CRP) Mr Price asked Mr Power for a letter which he could provide to his bank as an assurance that Grovan would shortly receive its share of proceeds from the Project (and other projects). On that day Mr Power provided Mr Price with a letter which said that Grovan’s share of the proceeds of the Project, due in October 2008, was $170,000.
62 The primary judge found that, if the First Payment Authority was binding, the amount due to Grovan was far less than $170,000. In cross-examination Mr Power accepted that, on his view at the time, Grovan would receive nothing out of the Project and indeed would incur a small debt to the Trust. He accepted that the letter he provided was “entirely misleading”.
63 In our view the evidence supports the finding of unconscionable conduct pursuant to s 51AC of the TPA and we can discern no error in the finding in that regard. The evidence is that in April 2008 Mr Price told Mr Reynolds, Mr Power and Mr Rice that the costs of completing stage one of the Project had been significantly higher than had been allowed for, that the costs of stage two of the Project were likely to be significantly higher than had been allowed for, and that CRP had run into financial trouble as a result. In that context Mr Reynolds (in the presence of Mr Power and Mr Rice) told Mr Price that he should “just get the Project completed so they can settle and get the money in” and “we will sort it out at the end”. As the primary judge accepted, that statement gave “some form of comfort” to Mr Price. It is likely to have reassured Mr Price that CRP’s interests would be reasonably accommodated in some way. Mr and Mrs Price proceeded to draw on their own funds to complete the Project including by using their own property as security. His Honour found (at [329]) that had Mr Reynolds not made that statement Mr and Mrs Price and CRP would not have funded completion of the Project.
64 Further, as the primary judge found, Mr Price subsequently to April 2008 (and before he signed the First Payment Authority) informed the respondents (as set out at [33]-[34] above) that CRP and he were experiencing severe financial difficulties, he was being threatened by tradesmen and suppliers, his cheques were bouncing, he was extremely stressed, he had developed a drinking problem and his relationship with his wife was troubled. Mr Reynolds said that the sub-contractors on the Project were complaining that Mr Price was “crazy” and that there was “something wrong” with him. Mr Power accepted that Mr Price was behaving strangely and was “very stressed” at that time. The evidence indicates, as the primary judge found, that at the time Mr Price signed the First Payment Authority Mr Power and Mr Reynolds knew that he was under significant financial and emotional pressure.
65 As the primary judge found (at [300]), Mr Price was in a much weaker bargaining position than Twentieth Green, Twentieth Green imposed conditions on Grovan that were not reasonably necessary for the protection of Twentieth Green’s legitimate interests and Mr Price was not in a position to properly consider Grovan’s best interests. Twentieth Green had not given Mr Price an opportunity to go away and consider his position on the First Payment Authority, discuss it with Mrs Price or obtain advice and this involved undue pressure and an unfair tactic.
66 As the primary judge found, Mr Power knew that there had been a significant deterioration in Mr Price’s relationship with his wife and yet, notwithstanding that he drafted the First Payment Authority to provide for execution by Mrs Price, he did not seek her signature. While there is no evidence that Mr Power knew of Mrs Price’s opposition to the Payment Authorities, it is relevant that Mrs Price’s unchallenged evidence is that she would not have signed them had she been asked to do so, and would have urged Mr Price not to do so.
67 We would add that Mr Power’s letter in which he sought to mislead Mr Price by stating that Grovan would receive a $170,000 share of the proceeds of the Project, when he understood that Mr Price would receive nothing, reflects poorly on Mr Power’s business conscience and ethics (and through him on Twentieth Green). Mr Power’s state of mind, as the person who acted for Twentieth Green in procuring Mr Price to sign the First Payment Authority, was the relevant state of mind on which to assess whether Twentieth Green acted unconscionably. There is no evidence that Mr Reynolds’ understanding of the effect of the First Payment Authority on Grovan’s share of the proceeds of the Project was any different to that of Mr Power.
68 As the primary judge found (at [299]), having regard to these matters Mr Price was evidently not in a position to look after Grovan’s interests, and Twentieth Green took advantage of Mr Price’s position to extract the First Payment Authority.
69 We agree with the primary judge that the First Payment Authority was not in Grovan’s interests when Mr Power understood, at the time, that Grovan would receive nothing from the Project. The evidence indicates that neither Mr Power nor Mr Reynolds told Mr Price that. Even if, as the respondents contend, Mr Price thought at the time that the First Payment Authority was in Grovan’s interests, in our view that is likely to reflect the fact that:
(a) Mr Price was incapable of protecting Grovan’s interests because of the financial and emotional stress he was under (which Mr Reynolds and Mr Power knew); and
(b) Mr Reynolds and Mr Power failed to disclose to Mr Price that the First Payment Authority would reduce Grovan’s share of the proceeds of the Project to nothing.
70 We agree with his Honour that it was not in Grovan’s interest to make itself, as a 10% unit holder, solely responsible for the repayment of what was effectively a loan to CRP. The effect of the arrangement was that Grovan was required to give up its right to share in the proceeds of the Project so as to pay for building cost overruns which affected all unit holders, not just Grovan. Grovan stood to receive 10% of the profits, yet the arrangement required it to bear 100% of the liability to repay the loan to CRP. None of the other unit holders were requested to make any commitment. Twentieth Green proposed that arrangement when Mr and Mrs Price had already put all of their personal assets into the Project in reliance on Mr Reynolds’ assurance at the April 2008 meeting.
71 Having regard to the values and norms recognised by s 51AC, and taking into account all the connected circumstances, we can see no proper basis to conclude that his Honour was wrong in finding that in all the circumstances Twentieth Green engaged in unconscionable conduct in contravention of the TPA.
72 Accordingly, we dismiss grounds five and six of the cross-appeal.
Whether a claim was made and pressed seeking accessorial liability and compensation? - Notice of Appeal, Grounds 11 - 14.
73 Grounds 11 to 14 of the Notice of Appeal state:
11. The learned judge erred in holding at [40] of the Second Reasons that Grovan’s case in respect of the Payment Authorities did not include allegations of accessorial liability against the individuals and unit holders.
12. The claim of accessorial liability:
(a) was made in paragraph 1(d) of the Originating Application in which the applicants sought declarations that the Individual Respondents had aided, abetted, counselled or procured, or were directly or indirectly knowingly concerned in, or a party to the conduct of the Corporate Respondents which was in contravention of sections 52 and 51AC of the TPA;
(b) was pressed in written closing submissions of the applicants.
13. His Honour should have found that Reynolds and S Power, being the natural persons directly involved in procuring the Payment Authorities from CRP, were liable as accessories for Twentieth Green’s conduct that was held to have been unconscionable under s 51AC of the TPA.
14. His Honour should have made orders against Reynolds and Power that they compensate Grovan for the loss and damage it suffered by reason of that conduct, such loss and damage being the sum of $100,141 together with interest.
74 In proposing orders to give effect to his Honour’s findings that Twentieth Green contravened s 51AC of the TPA, before the Court below the appellants sought a declaration of accessorial liability pursuant to s 75B of the TPA against the first to sixth and eighth respondents. His Honour refused to make the declarations sought and said (at [40] of the Second Reasons):
Insofar as the applicants seek a declaration relating to the individuals and unit holders (the third declaration sought by the applicants), I do not think it would be appropriate to make such a declaration. Grovan’s pleaded case in relation to the Payment Authorities did not allege accessorial liability against the individuals or unit holders (see paragraphs 12 to 12J of the amended fast track reply and defence to cross-claim.) This is to be contrasted with other parts of the applicants’ case which did allege accessorial liability (see, eg, paragraph 30 of the Fast Track Statement). It is true that the Originating Application seeks (in paragraph 1(d)) a declaration that the individual respondents aided, abetted, counselled or procured, or were knowingly concerned in, or party to, the conduct of the corporate respondents that was in contravention of ss 52 and 51AC of the Trade Practices Act. But I think this must be read together with the pleadings which indicate the part of the applicants’ case to which this declaration relates. For the reasons indicated, Grovan’s case in relation to the Payment Authorities did not include allegations of accessorial liability against the individuals and unit holders.
75 Before us the appellants challenge this finding, but only in relation to the conduct of Mr Power and/or Mr Reynolds as outlined above, upon which the finding of contravention of s 51AC by Twentieth Green was based. It is unnecessary to deal with the question of accessorial liability in relation to the allegations of misleading or deceptive conduct as the primary judge found the relevant representations were not made. In our respectful view his Honour erred in refusing to make orders for accessorial liability in relation to Mr Power and Mr Reynolds.
76 We respectfully disagree with his Honour that no case of accessorial liability was pleaded against the first to sixth and eighth respondents below. In our view Grovan made sufficiently clear claims of accessorial liability against those respondents in relation to Twentieth Green’s unconscionable conduct.
77 In the initial Originating Application and the initial Fast Track Statement Grovan pleaded that there was an agreement (the First Agreement) between Mr Reynolds, Mr Rice, Mr Power, Mr Price and Mr Weerappah that each would contribute such funds as were required to complete the Project in proportion to their unit holdings in the Trust. On completion of the Project (and after payment of all borrowings and liabilities) the balance of the monies held by the Trust would be distributed to the unit holders in proportion to their unit holdings in the Trust. Grovan claimed that all respondents had failed to give Grovan its proper share of the profits derived by the Trust. Its claim was not restricted to Twentieth Green.
78 In the Fast Track Response and Cross-Claim the respondents pleaded by way of defence that the unit holders reached an oral agreement about the way in which the profits of the Trust were to be distributed which differed in some respects from that pleaded by Grovan. In particular the respondents alleged that Twentieth Green paid $100,141 to Resort Systems (and therefore withheld this from Grovan’s share of the profits) as repayment of monies owed by CRP and/or Mr Price to Resort Systems pursuant to the Payment Authorities.
79 In the Fast Track Reply and Defence to Cross-Claim Grovan alleged that, even if CRP or Mr Price owed Twentieth Green or Resort Systems the monies alleged, which they denied, Twentieth Green was not authorised to deduct the monies from Grovan’s share of the profits as, amongst other things, the Payment Authorities were not binding on Grovan because they were not signed by Mrs Price and because in all the circumstances it was unconscionable for the respondents to rely on them.
80 CRP and Grovan filed an Amended Originating Application and an Amended Fast Track Statement (AFTS) which, in our view, sufficiently pleaded a claim of accessorial liability against the first to sixth and eighth respondents.
81 We say this, first, because:
(a) paragraph 1(c) and (d) of the Amended Originating Application alleged:
CRP and Grovan seek declarations that:
…
(c) a declaration that the Corporate Respondents (as that term is defined in the AFTS):
…
(ii) engaged in unconscionable conduct within the meaning of section 51AC of the TPA.
(d) A declaration that Individual Respondents aided, abetted, counselled or procedure (sic), or were directly or indirectly knowingly concerned in, or a party to the conduct of the Corporate Respondents which was in contravention of sections 52 and 51AC of the TPA.
(Emphasis added.)
“Individual Respondents” are defined in the AFTS as Mr Reynolds, Mr Rice, Mr Power and Mr Weerappah. “Corporate Respondents” are defined in the AFTS as Twentieth Green, Four Oaks, NJC and/or ESA;
(b) paragraph 3(b)(ii) of the Amended Originating Application alleged that Grovan made claims “as against all of the Respondents” seeking “an amount to be determined representing Grovan’s share of the profit derived by the Unit Trust…from the Project”;
(c) paragraphs 12C(c)(iii), (d) and (e) of the Amended Fast Track Reply and Defence to Cross-Claim (AFTR) made claims of unconscionable conduct against all respondents in relation to procuring the Payment Authorities, as follows:
(c) if Mr Price did sign the First Payment Authority (which is denied) he did so under a special disadvantage of disability in that:
…
(iii) to the knowledge of the Respondents, he was under significant financial and emotional distress and duress caused by the Respondents’ failure to pay CRP for the work carried out on the Project and CRP and he and his wife were facing financial ruin;
…
(d) the Respondents took unconscientious advantage of Mr Price’s position of special disadvantage or disability in procuring his signature on the First Payment Authority.
(e) in the premises, Grovan is entitled to avoid the First Payment Authority and have it set aside and/or delivered up and cancelled.
(Emphasis added.)
The same matters are pleaded in relation to the Second Payment Authority at 12H(c)(iv), (d) and (e); and
(d) paragraph 33A of the AFTS reiterated the claims in paragraphs 12C and 12H of the AFTR, and alleged:
CRP and Grovan further refer to and repeat paragraphs 12A to 12J of their Amended Fast Track Reply and Defence to Cross-Claim.
82 We do not accept the respondents’ submission that Grovan made its only monetary claims in the proceeding at paragraph 3 of the Amended Originating Application and none of them concerned the Payment Authorities or the claim under s 51AC. Pursuant to paragraph 1(c)(ii) of the Amended Originating Application Grovan sought a declaration that the Corporate Respondents engaged in unconscionable conduct contrary to s 51AC of the TPA. Pursuant to paragraph 1(d) Grovan sought a declaration that the Individual Respondents were accessories to that conduct. Pursuant to paragraph 3(c)(i) Grovan sought monetary relief by way of damages under s 82 of the TPA, which provides for recovery in respect of contraventions of s 51AC.
83 Second, to the extent that it is not clear from the pleadings, the appellants’ written opening and closing submissions show that Grovan made and pressed claims of accessorial liability against the first to sixth and eighth respondents below in relation to the taking of the Payment Authorities, as follows:
(a) the opening submissions stated at paragraph 50:
The circumstances under which [the Payment Authorities] were signed were such that Price was at a special disability which was known to the Respondents at the time they required him to execute the payment authorities. The financial position he was in was caused by them. They took unconscientious advantage of his special disability, such that it would be unconscionable for the Respondents to rely upon those authorities as the basis for appropriating Grovan’s share of profits from the Project.
The submissions referred to unconscionability claims made against the “respondents”, referring to them in plural as “they” and “them” which, in our view, made it sufficiently clear that Grovan made a distinct claim of accessorial liability against the respondents who were individuals in relation to the taking of the Payment Authorities;
(b) the opening submissions stated at paragraph 55:
The CRP and Grovan Unconscionable Conduct Claims
CRP also brings in unconscionable conduct claiming under s 51AC of the TPA against each of the Corporate Respondents which each of the Individual Respondents were involved in within the meaning of section 75B of the TPA. CRP and Grovan contend that the Respondents’ conduct in relying upon the Contract and the Payment Authorities is unconscionable in all the circumstances, meaning “showing no regard for conscience; irreconcilable with what is right or reasonable” or unethical or morally tainted.
(Citations omitted.)
The heading and the second sentence of this paragraph made it sufficiently clear that Grovan advanced the claim of unconscionable conduct against all respondents. In our view the paragraph advised the respondents that the claims of unconscionable conduct were based in either or both of the contract claim and the taking of the Payment Authorities; and
(c) paragraph 186 of the closing submissions reiterated paragraph 55 of the opening submissions. Paragraphs 187 and 188 said:
187 The following circumstances led to that conclusion:
…
(m) Seeking to obtain Colin Price’s signature on the Payment Authorities:
(i) at the time and in the circumstances referred to in paragraphs 206 to 208 below;
(ii) when they had caused him to expend all of his funds and go into huge debt to complete the Project on the strength of assurances that everything would be sorted out at the end of the Project;
(iii) to their knowledge the parties had operate (sic) on the basis of trust for 20 years in the past;
(iv) they sought to avoid bearing their fair share of the additional cost of completing the Project and to force a 10% unitholder to bear the entire additional cost;
(v) they had provided a letter to Price after the signing of the First Payment Authority to give to his bank representing that Grovan’s share of the further profits of approximately $170,000 would be paid to Grovan in around November 2008.
188 This conduct was unconscionable contrary to s 51AC of the TPA.
(Emphasis added.)
84 As Mason CJ, Wilson, Brennan and Dawson JJ said in Water Board v Moustakas (1988) 180 CLR 491; [1988] HCA 12 at 497:
In deciding whether or not a point was raised at trial no narrow or technical view should be taken. Ordinarily the pleadings will be of assistance for it is one of their functions to define the issues so that each party knows the case which he is to meet… It is necessary to look to the actual conduct of the proceedings to see whether a point was or was not taken at trial...
When regard is had to the pleadings and to the opening and closing submissions we consider the appellants made and pressed the claim that the corporate unit holders (Four Oaks, NJC and ESA) and the individual respondents (Mr Reynolds, Mr Power, Mr Rice and Mr Weerappah) were accessories to Twentieth Green’s unconscionable conduct. The respondents were on notice of that claim.
85 The respondents then sought some comfort in the fact that the pleadings alleged that all the respondents were knowingly involved in Twentieth Green’s unconscionable conduct, whereas the appeal only relates to the primary judge’s refusal to find that Mr Power and Mr Reynolds were accessories. Nothing turns on that. The appeal in relation to Mr Power’s and Mr Reynolds’ accessorial liability is a subset of the case made and pressed.
86 Third, we do not agree with the respondents’ contentions that the primary judge did not consider whether to make orders against the individual respondents in respect to the Payment Authorities, that it is doubtful that his Honour made the factual findings that would allow us to consider this issue, and that there are insufficient factual findings concerning Mr Power and Mr Reynolds and their relationship to Twentieth Green to conclude that one or other of them were knowingly involved in Twentieth Green’s unconscionable conduct.
87 Mr Power and Mr Reynolds were both directors of Twentieth Green and it acted through them. The primary judge made factual findings as to their direct role in procuring the First Payment Authority and providing it to Twentieth Green, their knowledge of Mr Price’s predicament, and Mr Power’s unfair tactic in having Mr Price sign the agreement on the spot. His Honour found that Twentieth Green through Mr Power and/or Mr Reynolds took advantage of Mr Price’s predicament in procuring the First Payment Authority, and that Twentieth Green through Mr Power took advantage of Mr Price’s predicament in procuring the Second Payment Authority.
88 Twentieth Green’s unconscionable conduct was entirely conducted through Mr Power and/or Mr Reynolds. The primary judge found (at [290]) that the evidence shows that “it would be unconscionable for the first to seventh respondents to rely on the Payment Authorities”. If, as the respondents contend, the primary judge did not consider that Mr Power and Mr Reynolds had the requisite knowledge to meet the test for knowing involvement in the contravention of s 51AC, one might ask how it would be unconscionable for them to rely on the Payment Authorities.
89 On our view of the evidence, Mr Power and/or Mr Reynolds were personally involved in all stages of Twentieth Green’s conduct and each of them knew the essential facts that together constitute the contravention found. It was their knowledge of Mr Price’s vulnerability and his poor bargaining position, Mr Power’s unfair tactics and undue pressure, and their taking advantage of Mr Price’s predicament that made Twentieth Green’s conduct unconscionable. The appellants were not required to show that Mr Power and/or Mr Reynolds knew or recognised that the facts constituted unconscionable conduct: Yorke v Lucas (1985) 158 CLR 661; [1985] HCA 65 at 667 (Mason ACJ, Wilson, Deane and Dawson JJ); Rural Press Ltd v Australian Competition and Consumer Commission (2003) 216 CLR 53; [2003] HCA 75 at [48] (Gummow, Hayne and Heydon JJ). On our view of the evidence Mr Power and Mr Reynolds were directly and knowingly concerned in all stages of the impugned conduct and knowingly involved in Twentieth Green’s breach of s 51AC pursuant to s 75B of the TPA.
90 Contrary to the respondents’ submissions, we can see no unfairness to Mr Power or Mr Reynolds in considering the question of accessorial liability on appeal. The issues surrounding Mr Power and/or Mr Reynolds’ conduct in taking the Payment Authorities were strenuously contested at trial, they each gave evidence and were cross-examined in that regard and they denied taking advantage of Mr Price’s predicament (but their evidence was not accepted).
91 Fourth, we can see little substance in the respondents’ contention that, although the primary judge found that it would be unconscionable for the first to seventh respondents to rely on the Payment Authorities, only Twentieth Green in fact relied on them and wrongly withheld monies owed to Grovan. The respondents contend that there is no evidence of any knowing involvement in that failure to pay by Mr Power or Mr Reynolds.
92 The cause of Grovan’s loss was that Twentieth Green relied on the First Payment Authority to withhold payments to which Grovan was otherwise entitled, which authority it had unconscionably procured. The actions of Mr Power and Mr Reynolds were central in procuring the First Payment Authority, which was the principal cause of Twentieth Green withholding the payments to which Grovan was entitled and distributing payments to the other unit holders to which Grovan was entitled.
93 We uphold grounds 11 to 14 of the appeal.
5. Whether orders should have been made against all unit holders adjusting their entitlements? - Notice of Appeal, Grounds 7 - 8.
94 Before the primary judge the appellants contended that to the extent that Twentieth Green (as trustee of the Trust) was ordered to pay Grovan any monies, the other unit holders (as beneficiaries) were obliged to reimburse Twentieth Green. They argued that if Twentieth Green was unwilling to bring proceedings requiring those beneficiaries to do so, Grovan was entitled to be subrogated to Twentieth Green’s rights as trustee and to bring proceedings against the other beneficiaries requiring them to indemnify Twentieth Green for the amount it was obliged to pay Grovan. The result would be that those payments would be made to Grovan. They submitted that Twentieth Green as trustee, and all of the beneficiaries of the Trust, were before the Court and had a full opportunity to be heard, and it was appropriate that orders be made against them in the present case.
95 The first to seventh respondents argued that an order for payment of monies to Grovan should not be made against all of the respondents, and that only Twentieth Green should be ordered to pay any amount found to be due.
96 The primary judge said (at [44]) of the Second Reasons:
In my view, the order for payment of the relevant amount to Grovan should be made against Twentieth Green alone rather than against Twentieth Green and other respondents. Grovan’s claim is that Twentieth Green, as trustee, has not carried out its duties (both to account to Grovan for its share of the proceeds of the Project and not to make payments other than for proper purposes). These are claims against Twentieth Green as trustee; they are not claims against other unit holders. It is evident that Twentieth Green does not presently have any assets; it may be expected that Twentieth Green will seek to recover amounts paid to other unit holders and third parties to enable it to pay Grovan the amount to which it is entitled. If Twentieth Green were unwilling to take action to recover the relevant amounts, Grovan may wish to institute proceedings, either in Grovan’s own name or in the name of the trustee: see JD Heydon and MJ Leeming, Jacob’s Law of Trusts in Australia (7th ed, 2006), [2303]. But it remains to be seen whether this will be necessary and any such claim is beyond the scope of the present proceeding.
97 Under grounds seven and eight of the Notice of Appeal the appellants allege:
7. The learned judge erred in failing at [44] of the Second Reasons to make the orders for payment of monies in favour of CRP and Grovan against all Respondents, alternatively against the other Unitholders of the Twentieth Green Trust.
8. Having regard to the fact:
(a) the entitlements of the parties to profit out of the Twentieth Green Trust was a matter to be determined in the proceeding below;
(b) the orders for payment of monies by Twentieth Green necessarily required a rebalancing of the entitlement of the unitholders to profit out of the Trust;
(c) the claim by CRP for $75,300 in respect of additional work done by CRP and for which Twentieth Green had been paid was rebalanced by adjustment down by 10% to account for the benefit Grovan had received in respect of that amount: [32] and [34] of the Second Reasons;
(d) that Twentieth Green was apparently devoid of assets;
(e) that each of the Unitholders would be obliged to put Twentieth Green in funds to enable it to satisfy the money orders made by the Court;
the trial judge should have ordered all Respondents, alternatively each of the other Unitholders, to make payment to CRP and Grovan.
98 The respondents argue that these grounds make a new claim, not advanced in the proceeding below, namely that:
(a) since Twentieth Green has been ordered to make payments to CRP and Grovan there must necessarily be a rebalancing of the entitlements of the unit holders of the Trust; and
(b) since Twentieth Green is devoid of assets, each of the unit holders is obliged to put in funds to satisfy the orders of the Court.
99 They argue that the contention that the unit holders are liable together with Twentieth Green has the following serious difficulties:
(a) clause 1(7) of the deed of trust provides that unit holders are not liable to indemnify Twentieth Green against any liability it incurs. Grovan had the benefit of this clause, and it must have known that Twentieth Green could not expect to be indemnified by other unit holders;
(b) there is no disclosed juridical basis upon which respondents other than Twentieth Green could be liable to effect a “rebalancing of the entitlement of the unit holders” or to “put Twentieth Green in funds to enable it to satisfy the money orders made by the Court”;
(c) any such order would be unsupported by authority and would be a radical rewriting of trust law to allow claims against an impecunious trustee to be visited on the beneficiaries;
(d) aside from allegations of accessorial liability, such claims were not the subject of any pleadings or opening or closing submissions; and
(e) the expectation of the primary judge that Twentieth Green would seek monies from other unit holders and third parties was irrelevant. The liability of the first to sixth and eighth respondents (if any) was not a matter of judicial discretion such that the primary judge could take into account expectations of the post-trial conduct of Twentieth Green in deciding the question. In any event, his Honour’s comments were obiter.
100 In our respectful view the learned primary judge erred in not making orders against the other unit holders in the Trust.
101 First, we respectfully disagree with his Honour’s view that Grovan only made claims against Twentieth Green as trustee and not against the other unit holders. We note that:
(a) in paragraph 3(a) of the Amended Originating Application Grovan sought orders requiring “the respondents”, plural, to repay such monies as they received from Twentieth Green as dividends or return of capital from the Project;
(b) in paragraph 3(b)(ii) of the Amended Originating Application Grovan made claims against “all respondents” seeking “an amount to be determined representing Grovan’s share of the profit derived by the Unit Trust…from the Project”;
(c) In paragraph 33 of the AFTS Grovan made the following claims:
Grovan contends that in breach of the terms of the First Agreement and the terms of the trust deed for the Unit Trust, the Respondents have failed to:
(a) account to Grovan for the profit or loss derived from the Project after payment of all liabilities incurred in relation to the Project and after repaying monies borrowed by Twentieth Green from financiers;
(b) account to Grovan for the returns of capital to the unit holders in the Unit Trust after payment of all liabilities incurred in relation to the Project and after repaying monies borrowed by Twentieth Green from financiers;
(c) provide to Grovan any accounting for the activities of the Unit Trust;
(d) reimburse Grovan for its contribution of capital to the Project; and
(e) distribute to Grovan in accordance with its unit holding in the Unit Trust the profit derived by the Unit Trust from the Project after payment of all liabilities incurred in relation to the Project and after repaying monies borrowed by Twentieth Green from financiers.
(Emphasis added.)
As we said (at [77] above), the alleged First Agreement between Mr Reynolds, Mr Rice, Mr Power, Mr Weerappah and Mr Price comprised an agreement that on completion of the Project and the sale of the apartments and after payment of all borrowings and liabilities, the balance of the proceeds of the Project would be distributed to the unit holders in the Trust in proportion to their unit holdings.
(d) in paragraph 40 of the AFTS Grovan claimed loss and damage by reason of breach of the First Agreement. It stated:
As a result of the breach of the First Agreement Grovan has not been repaid in full Grovan’s Capital Contribution or the amount of the profit derived from the Project by the Unit Trust after payment of all liabilities incurred in relation to the Project and after repaying monies borrowed by Twentieth Green from financiers… The amount of that profit is not known by Grovan as the Respondents have failed and/or refused to provide any accounting for the activities of the Unit Trust to Grovan. The amount of capital contributions repaid to the unit holders of the Unit Trust is not known by Grovan as the Respondents have failed and/or refused to provide any accounting for the activities of the Unit Trust to Grovan.
The claim of breach of the First Agreement is a claim brought by Grovan against the trustee, the other unit holders and their controllers.
102 Second, contrary to the respondents’ submission, there is a juridical basis for such a claim. Where “special circumstances” exist, a beneficiary under a trust such as Grovan may bring proceedings that ordinarily should be brought by the trustee in his, her or its own right against a third party or other beneficiary on any cause of action, legal equitable or statutory, that the trustee has against that defendant. The beneficiary must join the trustee and the third party as defendants if such special circumstances exist: TAL Life Ltd v Shuetrim (2016) 91 NSWLR 439; [2016] NSWCA 68 (TAL) at [54] (Leeming JA with whom Beazley P and Emmett AJA agreed); Lidden v Composite Buyers Ltd (1996) 67 FCR 560 (Lidden) at 563-564 (Finn J); Ramage v Waclaw (1988) 12 NSWLR 84 (Ramage) at 91-93 (Powell J); Sharpe v San Paulo Railway Co (1873) LR 8 Ch App 597 at 609-610 (James LJ). See too: Heydon JD and Leeming MJ, Jacobs’ Law of Trusts in Australia (7th ed, Butterworths, 2006) at [2303].
103 In Alexander v Perpetual Trustees WA Ltd (2004) 216 CLR 109; [2004] HCA 7 (Alexander) at [55]-[56] Gleeson CJ, Gummow and Hayne JJ (and see also Callinan J at [163]-[164] with whom McHugh J agreed at [67]) said that one reason for the restriction – to where there are “special circumstances” of a beneficiary’s right to sue a third party directly on a cause of action that ought to be properly brought by a trustee – was to avoid the vexation of the third party by multiple suits. Their Honours approved what Powell J said in Ramage at 91-92, that the “special circumstances” were not confined to collusion between the trustee and the third party or the insolvency of the trustee. Their Honours went on to say that the general principle was to be found in the following passage from Scott on Trusts (4th ed, 1989) Vol 4 at [282]:
The interests of the beneficiaries of a trust are protected against a third person acting adversely to the trustee through proceedings brought against him by the trustee and not by the beneficiaries. As long as the trustee is ready and willing to take the proper proceedings against the third person, the beneficiaries cannot maintain a suit against him.
104 In Alexander, Gleeson CJ, Gummow and Hayne JJ (at [56]) and Callinan J (at [163]) referred, with apparent approval, (as did Leeming JA in TAL at [54]) to the advice of the Privy Council given by Lord Templeman in Hayim v Citibank NA [1987] AC 730 at 748, namely:
[The] authorities demonstrate that a beneficiary has no cause of action against a third party save in special circumstances which embrace a failure, excusable or inexcusable, by the trustee in the performance of the duty owned by the trustees to the beneficiary to protect the trust estate or to protect the interests of the beneficiary in the trust estate.
(Emphasis added.)
105 In Lidden (at 563-564) Finn J explained that the requirement for “special circumstances” should not be limited to claims that a trustee has against the third party for equitable relief, and that such action could also be brought by a beneficiary in respect of claims at common law or under statute. His Honour said:
…it is not at all apparent to me why, today, we should insist on a multiplicity of suits - as the older equity rule, unmodified, would require - for the purpose of resolving a matter which gives rise to claims for other, as well as equitable, relief: cf Federal Court of Australia Act 1976 (Cth), s 22.
The distinction between claims for equitable and for other relief has not commended itself to United States courts or text writers. Likewise it seems to have been ignored in observations made in Privy Council cases. So, for example, it is said in Scott and Fratcher, The Law of Trusts (4th ed), Vol 4, par 282.1:
“If the trustee improperly refuses to bring an action against a third person who commits a tort with respect to the trust property, the beneficiaries can maintain a suit in equity against the trustee to compel him to do his duty and to bring the proper action against the third person. In the earlier law this was all that the beneficiaries could do. It was later held, however, that the whole controversy can be settled in a single suit, and in order to avoid multiplicity of suits the beneficiaries were permitted to join the third person as a co-defendant with the trustee, thus avoiding the necessity of two suits, one in equity by the beneficiaries against the trustee and another at law by the trustee against the third person. In such a proceeding the trustee is a necessary party defendant if he can be subjected to the jurisdiction of the court.”
To illustrate this approach, this time in a contractual setting, the authors refer to observations of Lord Wright in the Privy Council in Vandepitte v Preferred Accident Insurance Corporation of New York [1933] AC 70 at 79:
“a party to a contract can constitute himself a trustee for a third party of a right under the contract and thus confer such rights enforceable in equity on the third party. The trustee then can take steps to enforce performance to the beneficiary by the other contracting party as in the case of other equitable rights. The action should be in the name of the trustee; if, however, he refuses to sue, the beneficiary can sue, joining the trustee as a defendant.”
I should add that to like effect in my view are the comments of the Privy Council in Hayim v Citibank NA [1987] AC 730 at 748, though the relief there sought was equitable. See also G G Bogert, G T Bogert and W K Stevens, The Law of Trusts and Trustees (Revised 2nd ed, 1977), par 869 where the subject is considered at length.
In the absence of any compelling reason in a Judicature Act system to limit the right of a beneficiary to claim equitable relief alone, in light of the approach taken in the authorities I have referred to, and given the undesirability of adhering to an approach which promotes multiplicity of suits, I am prepared to hold that, provided the other - the “exceptional” or “special” circumstances - requirement of the rule is met, it is not necessary in a Judicature Act system that the relief be equitable or equitable alone that is sought by the beneficiary instituting proceedings for a trust.
106 Here, the Trustee, Twentieth Green, was controlled by individual respondents who caused the payment of the moneys that were due to Grovan instead to be made to the corporate respondents which they controlled. In those circumstances, all the relevant parties were joined to the proceedings. On the primary judge’s findings the payments were wrongfully made by the Trustee.
107 Third, the evidence demonstrates that Twentieth Green cannot pay any amount to Grovan. As the primary judge noted (at [44] of the Second Reasons) Twentieth Green has no assets. In the appeal we admitted into evidence the affidavit of Anthony Brooke Watson which concerns events that have occurred since trial: see CDJ v VAJ (1998) 197 CLR 172; [1998] HCA 67 at [114] (McHugh, Gummow and Callinan JJ). His evidence shows that Twentieth Green went into liquidation on 11 November 2016, there is no prospect of any recovery from it, it has not met any part of the judgment in favour of Grovan, and that although Twentieth Green continued to contest the litigation vigorously it has funded its defence of the litigation and its cross-appeal through loans from the other unit holders.
108 Fourth, it is uncontentious that the effect of the 6 December 2013 orders was that the trial of the separate questions covered all aspects of Grovan’s claims. The primary judge indicated an expectation that Twentieth Green would seek to recover amounts paid to other unitholders and third parties to enable it to pay Grovan the amount to which it is entitled pursuant to the primary judgment, and said that if Twentieth Green was unwilling to take action Grovan may wish to institute proceedings either in its name or in the name of the trustee.
109 In our respectful view, in circumstances where:
(a) the proceedings were structured so that the trustee, the directors of the trustee, the unit holders, and the directors or controllers of the unit holders were all before the Court;
(b) Grovan advanced claims against those parties seeking repayments to be made by the unit holders to the extent that they had been overpaid and sought orders for payment to Grovan; and
(c) Twentieth Green has no assets
his Honour erred in refusing to make orders against the unit holders in favour of Grovan in respect of those amounts which he found were due to be paid to Grovan by Twentieth Green. The pool of profit from the Project was fixed and any order in favour of Grovan properly involved making adjustments between the unit holders for distributions or other payments made in error or in breach of trust, and making orders for repayment of monies by unit holders who were wrongly paid. Orders in favour of Grovan may have also properly involved orders against any director of Twentieth Green who caused the payments in breach of trust.
110 Consistently with the requirements of s 22 of the Federal Court of Australia Act 1976 (Cth) his Honour should have completely and finally determined all matters of controversy between the parties so as to avoid a multiplicity of proceedings. Section 22 provides:
Determination of matter completely and finally
The Court shall, in every matter before the Court, grant, either absolutely or on such terms and conditions as the Court thinks just, all remedies to which any of the parties appears to be entitled in respect of a legal or equitable claim properly brought forward by him in the matter, so that, as far as possible, all matters in controversy between the parties may be completely and finally determined and all multiplicity of proceedings concerning any of those matters avoided.
111 In Thomson Australian Holdings Ltd v Trade Practices Commission (1981) 148 CLR 150; [1981] HCA 48 at 161 Gibbs CJ, Stephen, Mason and Wilson JJ said that the power in s 22 was:
… designed to ensure that the Court can grant relief which is appropriate to both legal and equitable claims and to avoid multiplicity of proceedings. Its effect is to enable the Court to dispose of all rights, legal and equitable, in the one action, so far as that is possible...
112 The provision is to be construed liberally in order to achieve the object of the Act in attempting to prevent the necessity of a multiplicity of legal proceedings to be entered into by a party seeking relief. The critical question is the meaning to be given to the expression “properly brought forward”, and that expression should be construed liberally so that its operation may not be unnecessarily restricted: McLeish v Faure (1979) 25 ALR 403; [1979] FCA 72 at 413 (Sweeney, Evatt and Northrop JJ), citing Roberts v Gippsland Agriculture and Earthmoving Contracting Co Pty Ltd [1956] VLR 555 at 564 (Smith J) in relation to an equivalent section in the Supreme Court Act 1986 (Vic).
113 The present case is a good example of the importance of s 22. The appellants accept that the issue as to whether an underpaid beneficiary of a trust (such as Grovan) could seek repayment from an overpaid beneficiary (such as the other corporate unitholders) was not the subject of argument before the primary judge. They argue however, and we accept, that was because the respondents did not plead or run any argument that:
(a) the claims made by Grovan were not available to it; or
(b) before Grovan could bring such claims it was required to commence a new proceeding against Twentieth Green.
114 Grovan had, however, made and pressed claims for the corporate unit holders to repay such dividends or return of capital as Grovan was able to establish had been distributed to them by Twentieth Green in error or in breach of the Trust. Grovan claimed its share of the profits derived from the Project from Twentieth Green, the other corporate unit holders, and the individual respondents (who were also directors of Twentieth Green). Grovan pleaded claims and sought orders such that, if the Court found that the other unit holders had received an amount in error or in breach of trust, it was within the scope of the proceeding for the Court to make orders that the corporate unit holders be required to repay that amount to Grovan. We reiterate that all of the unit holders and the trustee of the unit trust were parties to the proceedings and there was a clear issue that the unit holders other than Grovan had been overpaid at its expense. The Trustee, Twentieth Green, was controlled by the other respondents who brought about the overpayments. In light of the evidence before the primary judge that Twentieth Green had no assets it was within the scope of the proceeding to make orders against the other unit holders on the principle that “special circumstances” existed. The trustee was not then acting independently of the respondents who controlled it, but in their interests in making the overpayments to the respondent unit holders. In any event, the trustee is now in liquidation and that circumstance is sufficient to amount to “special circumstances”: Ramage at 91-92.
115 We note also that the Project was a financial disaster for CRP, Grovan, and Mr and Mrs Price as they liquidated all of their assets to complete it. At the conclusion of an eight-day trial, for which they had posted $265,000 as security for costs and in which they were only successful on part of their claim, they were left with money judgments which have proved empty. The appellants say, and we accept, that it is untenable to expect them to now embark on further litigation. Nor should Court resources be further occupied in dealing with this dispute.
Fifth, the respondents seek to rely upon the trust deed which excludes a right of indemnity in Twentieth Green against unit holders for debts incurred by the trustee. However, Grovan’s claim is not based on rights of subrogation for an indemnity for debts properly incurred by the Trustee. It is an independent personal claim against the other unitholders for recovery from them of the payments or distributions wrongly made to them from the trust funds.
116 We uphold the appeal on grounds seven and eight. It is therefore unnecessary to decide grounds nine and ten of the appeal.
6. Whether findings of misleading or deceptive conduct should have been made in relation to the Variation Representation at the April 2008 meeting? - Notice of Appeal, Grounds 1 - 4.
117 Grounds one to four of the Notice of Appeal state:
1. The learned judge erred in failing to find at [271] of the First Reasons that Twentieth Green and/or Reynolds, Rice and S Power had engaged in misleading and deceptive conduct contrary to s 52 of the Trade Practices Act 1974 (Cth) (TPA) and s 9 of the and/or s 9 [sic] of the Fair Trading Act 1999 (Vic) (FTA) having regard to the following matters:
(a) the Variation Representation alleged by the First Applicant (CRP) (referred to at [14(i)] of the First Reasons) encompassed a representation that if CRP continued to undertake the works still to be completed, and funded the costs to complete these works, the Respondents would ensure that CRP was paid the cost of all materials and labour;
(b) the learned judge found at [148]-[152] and [329] of the First Reasons that:
(i) Mr Price had told the Fourth Respondent (Reynolds), the Sixth Respondent (Rice) and the Fifth Respondent (S Power) that the costs of completing stage one of the project had been significantly higher than had been allowed for; that the costs of stage two of the project were likely to be significantly higher than had been allowed for; and that CRP had run into financial trouble as a result;
(ii) Reynolds told Price that CRP should just get the project completed so they could achieve settlements on sales of apartments and that “we will sort it out at the end”;
(iii) that in reliance on those words Mr and Mrs Price drew on their own funds and used their own property as security in order to complete the project; CRP also used its own resources to finance the project over and above the amounts funded by BankWest through various borrowing facilities;
(iv) had words to that effect not been spoken, Mr and Mrs Price and CRP would not have funded the project in that way;
(c) the amount of the additional expenditure incurred by CRP to bring the project to completion was $678,334.89 pursuant to the Variation Order referred to in [187] of the First Reasons;
(d) the learned judge ought to have found that the words spoken amounted to that part of the Variation Representation that if CRP continued to undertake the works still to be completed, and funded the costs to complete those works, the Respondents would ensure that CRP was paid the cost of all materials and labour so incurred.
2. Having regard to:
(a) Twentieth Green’s failure to reimburse CRP for the additional expenditure it had made to bring the project to completion; and
(b) the evidence of Reynolds and Rice that CRP was bound by a fixed price contract and that it was obliged to complete the works at its own cost;
the learned judge ought to have found:
(c) that in making the Variation Representation, the first to seventh respondents did engage in conduct that was misleading or deceptive or was likely to mislead or deceive contrary to s 52 of the TPA and/or s 9 of the FTA;
(d) each of Reynolds, Rice and S Power, were persons involved in the contraventions by the others referred to in subparagraph (c) above for the purposes of sections 75B of the TPA and section 145 of the FTA.
3. The learned judge ought to have found that in reliance on the said misleading and deceptive conduct CRP suffered loss and damage in the sum of $678,634 being the sum paid to complete the project and interest paid to its financiers on borrowings in the sum of $299,605 and ordered the first to seventh respondents to pay that sum to CRP pursuant to s 82 of the TPA and s 159 of the FTA.
4. In the alternative, the Applicants will apply on the hearing of the appeal for leave to further amend the Fast Track Statement to allege a representation in the terms referred to in paragraph 1(a) above in order to bring the pleadings into conformity with the case as run and the findings made.
118 In the trial the appellants alleged that in early 2008 Mr Reynolds, Mr Power, Mr Weerappah and Mr Rice represented that if CRP continued to undertake the building works still to be completed and funded the cost of those works, they would ensure that CRP was paid the cost of all materials and labour plus a margin of 15% (defined as the Variation Representation). The primary judge found (at [152]) that Mr Price met with Mr Reynolds, Mr Power and Mr Rice in about April 2008 and informed them that the costs of completing stage one of the Project had been significantly higher than had been allowed for, that the costs of stage two of the Project were likely to be significantly higher than had been allowed for, and that CRP had run into financial trouble as a result. In the presence of Mr Power and Mr Rice, Mr Reynolds told Mr Price that he should “just get the Project completed so they can settle and get the money in” and “we will sort it out at the end.” The primary judge accepted that these statements gave “some form of comfort” to Mr Price and that in reliance on them Mr and Mrs Price proceeded to draw on their own funds to complete the Project including by using their own property as security. His Honour found (at [329]) that had words to that effect not been spoken Mr and Mrs Price and CRP would not have funded the Project in this way.
119 In December 2009, about a year after the Project was completed, Mr Price wrote to Mr Power seeking $678,634.99, being the additional cost which CRP had incurred to bring the Project to completion. CRP also incurred interest of $299,605 in funding the completion of the Project. CRP was not paid the additional costs or interest it incurred.
120 The primary judge held against CRP on the basis that Mr Reynolds’ statements did not amount to a clear commitment to pay CRP its cost or its costs plus a margin (at [152]). The primary judge found that Mr Price did not raise, and the other syndicate members did not say, that CRP would be paid on the basis of costs plus a margin for past or future work on the Project, and his Honour was not satisfied that the Variation Representation had been made.
121 In the appeal CRP contends that the primary judge fell into error in two ways.
122 First, it argues that the primary judge erred by deciding whether the Variation Representation was made by searching for spoken words of a commitment by Twentieth Green to pay CRP’s costs in concluding the Project.
123 Second, it argues that the primary judge erred by determining the allegation of misleading and deceptive conduct by reference to the pleaded representation alone. Although the only pleaded representation was the Variation Representation, CRP argues that Mr Reynolds’ statement conveyed the representation that Mr Price should provide the funds for completion of the Project and that CRP would be reimbursed at the end after funds on settlement of apartment sales had come in.
124 CRP contends that, unless Mr Reynolds’ statement conveyed that CRP would be reimbursed at the end of the Project after monies from apartment sales had been received, there was nothing otherwise to sort out at the end. It argues that the phrase “we will sort it out in the end” was unnecessary if all that was intended to be conveyed was that CRP should complete the Project at its own cost. It alleges that it was to the respondents’ commercial benefit that Mr Price fund the costs for completion of the Project and Mr Reynolds intended to induce Mr Price to do so, which is what he did. CRP argues that in such circumstances it may more readily be inferred that the alleged representation was in fact conveyed by Mr Reynolds’ statement: see Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640; [2013] HCA 54 at [55] (French CJ, Crennan, Bell and Keane JJ).
125 We reject CRP’s argument. We concur with the primary judge’s findings in this regard.
126 CRP alleged a specific representation, the Variation Representation, that the respondents (through Mr Reynolds) represented that if CRP continued to perform the building works still to be completed as at April 2008, and funded the cost of doing so, Twentieth Green would ensure that CRP was paid the cost of all materials and labour. Yet the only statement upon which CRP sought to rely to establish the representation was Mr Reynolds’ assurance that “we will sort it out at the end”. In our view, the primary judge was correct in finding that vague statement was insufficiently clear to amount to the Variation Representation.
127 We say this because there is no challenge to the primary judge’s finding that the Simple Works Contract governed CRP’s performance of the building works. It follows that the Project was commenced on the basis of that contract rather than on the understanding that CRP would be paid its costs plus a margin. Any representation that Twentieth Green was prepared to pay costs plus a 15% margin would have had significant financial repercussions for Twentieth Green and the other unit holders. At the time the alleged Variation Representation was made in April 2008 the Project was running well over time and budget, and that was impacting on the profitability of the Project. If Mr Reynolds made the Variation Representation it would have meant that Twentieth Green had abandoned its earlier contract and agreed to a significant new obligation to pay CRP for all of its material and costs plus a 15% margin, notwithstanding the losses Twentieth Green had already suffered through cost and time overruns for which CRP was responsible. It is unlikely that Mr Reynolds would have done so.
128 Any such arrangement would have reallocated the risk of past and future cost and time overruns to Twentieth Green, when those risks lay principally with CRP under the Simple Works Contract. By April 2008 it was critical that the Project needed to be finished quickly. It is most unlikely that Mr Reynolds would have represented that things would be “sorted out” regardless of the pre-existing contractual position or when CRP ultimately finished the Project. Once it is accepted that CRP already had contracted with Twentieth Green to perform the building works on an essentially fixed price basis, the proposition that Mr Reynolds’ imprecise statement represented that the respondents were prepared to abandon the written contract and substitute a fundamentally different bargain is unlikely. His Honour was entitled to so find for the reasons that he gave.
129 Further (as the primary judge found at [7](a) and [243]) the conduct of the parties in signing the Simple Works Contract evinced an objective intention to be bound by that agreement in relation to the building work for the Project. The primary judge did not accept that the Project was commenced on the basis that the parties agreed to pay CRP its costs plus a margin.
130 Nor do we accept the appellants’ contention that the primary judge fell into error by determining the case by reference to the pleaded representation. We accept that, where it is clear that a case is conducted on the footing that a particular representation is before the Court, even if the representation is not pleaded, the Court may make a finding that the respondent engaged in misleading or deceptive conduct on the basis of that representation. That proposition is unremarkable: see Miba Pty Ltd v Nescor Industries Group Pty Ltd (1996) 141 ALR 525; [1996] FCA 834 at 542-543 (Merkel J) (affirmed on appeal in Nescor Industries Group Pty Ltd and Ors v Miba Pty Ltd (1997) 150 ALR 633; [1997] FCA 1431 (Nescor) (Davies, Tamberlin and RD Nicholson JJ); Thompson v Ice Creameries of Australia Pty Ltd and Anor [1998] FCA 54 (Lehane J). However, they are not the facts of the present case.
131 In Nescor (as Davies J said at 638) the trial judge made it clear to counsel during the course of the trial that he would not necessarily be limited to the manner in which the case had been pleaded. RD Nicholson J described the relevant circumstances in the following terms (at 650):
This was not a case where each party expressly agreed to the issue becoming a live one in the trial. It was not a case where it can be said there was implied acquiescence. Rather it was a case where the trial judge asserted the issue was a live one and the present appellants conducted their case on the basis they could meet that in closing submissions. They failed to call the evidence which they may have wished to call in the event their closing submission did not answer the repeated view of the trial judge the issue was a live one. This is a case where the way the case proceeded and the notice given to the parties that the issue was live, would make it narrow or technical to say the trial proceeded unfairly or with prejudice.
132 That stands in contrast to the present case. In the hearing before the primary judge CRP strenuously maintained the allegation that Mr Reynolds’ statement conveyed the Variation Representation. We were taken to nothing to show that CRP put the respondents on notice that they were required to meet a case that Mr Reynolds only represented that CRP should find the funds to complete the Project and it would be reimbursed later. CRP did not suggest before us that (as in Nescor) the primary judge had informed the parties that he considered some alternative representation was available.
133 In any event, his Honour’s rejection of CRP’s case went further than finding that Mr Reynolds did not represent that Twentieth Green would reimburse CRP on the basis of its costs plus a 15% margin. His Honour found that Mr Reynolds’ statement “did not amount to any clear commitment to pay CRP its costs or its costs plus a margin”. That is, his Honour found that Mr Reynolds did not convey a representation that Twentieth Green would reimburse CRP even its costs without a margin.
134 We agree with his Honour’s view. We do not consider Mr Reynolds’ indefinite statement could reasonably be understood as representing that Twentieth Green was prepared to abandon the (essentially) fixed price Simple Works Contract, take on the risks of cost overruns and delays itself, and pay CRP whatever costs it incurred in finishing the works no matter how long it took.
135 We dismiss grounds one to four of the appeal.
7. Whether the Court should have made an order in favour of Grovan in respect of the $60,000 payment to Gruboc? - Notice of Appeal, Grounds 5 - 6.
136 These grounds of appeal relate to other property developments that Grovan and some of the other respondents were involved in through unit trusts. One such development, an apartment block in Bell Street in Coburg, Victoria was being undertaken by the Gruboc unit trust (Gruboc) in which Grovan had a 15% interest.
137 In the 2008-2009 financial year Twentieth Green’s accounts for the Project recorded an expense of $60,000 to Gruboc for consulting fees. Grovan claimed that this was not in fact an expense of the Project. If it was correct in that claim it was entitled to a $6,000 increase in its share of the proceeds of the Project, being a 10% share of the increased proceeds through the disallowance of this expense item.
138 The primary judge accepted that there was no evidence of communication by Mr Price in which he agreed that a consultancy fee of $60,000 should be paid to Gruboc (at [22] of the Second Reasons). Mr Power gave evidence that he did not know why Twentieth Green was paying $60,000 to Gruboc but he assumed it was the wages of Mr Robert Power (who the syndicate members had commissioned to go and find sites for other projects). The primary judge did not accept that Mr Power’s evidence established that the payment was for that purpose (at [25] of the Second Reasons).
139 The primary judge accepted that there was no evidence to show that this expense was properly incurred by Twentieth Green so that it could be set off against the distributable profit of the Trust. However, the primary judge approached the issue of Grovan’s loss in a practical manner and concluded that Grovan did not establish that it suffered any loss (at [25] of the Second Reasons). In effect his Honour held that, because Grovan had a 15% interest in Gruboc, Grovan had obtained 15% of the benefit of the $60,000 payment to Gruboc which was greater than Grovan’s loss.
140 In the appeal Grovan does not directly challenge his Honour’s approach to the question of loss but alleges, as it did in the proceeding below, that there is no evidence that Twentieth Green actually paid the amount of $60,000 to Gruboc. It appeals against the primary judge’s finding that the evidence indicates that the amount was paid by Twentieth Green to Gruboc (at [25] of the Second Reasons).
141 Grounds five and six of the Notice of Appeal state:
5. Having regard to the following matters, the learned judge erred in finding at [25] of the Second Reasons that it was not shown that the Second Applicant (Grovan) had suffered a loss by reason of the payment by Twentieth Green of $60,000 to the trustee of the Gruboc Unit Trust, as Grovan held 15% of the units in that trust:
(a) There was no evidence of whether the $60,000 was in fact paid to the trustee of the Gruboc Unit Trust;
(b) There was no evidence of how the payment of $60,000 (if it had been so paid) was treated by the trustee of the Gruboc Unit Trust such as to have permitted the trial judge to conclude that Grovan obtained the benefit of that payment;
(c) The respondents had been given the opportunity to put on evidence going to those matters, but did not do so.
6. Having found at [25] of the Second Reasons that the $60,000 payment was not in respect of Mr Robert Power’s wages, (that being the only explanation for the payment advanced by the Respondents) his Honour should have found:
(a) that the payment was not a proper payment for the purposes of the Twentieth Green Trust; and
(b) that Grovan was entitled to an adjustment to its entitlement to profit from the project by payment of an additional $6,000.
142 In our respectful view the primary judge erred in concluding that the evidence indicates that Twentieth Green paid Gruboc a $60,000 fee. We say this because:
(a) the 2008-2009 accounts of the Trust show an expense to Gruboc for consultancy fees in the amount of $60,000, but the bank account statements of the Trust do not show any payment to Gruboc;
(b) handwritten accountants’ notes for the Trust for the 2008-2009 period contain an entry for a $60,000 manager’s fee to Gruboc, but that entry is matched with an entry of $60,000 for Gruboc as a creditor; and
(c) Twentieth Green’s bank records do not show that $60,000 was paid to Gruboc.
The respondents did not adduce evidence from any witness that the payment was actually made.
143 We do not accept the respondents’ contention that the primary judge’s finding was correct because Grovan had the onus of showing that $60,000 was not paid to Gruboc which it failed to meet. That is because Grovan alleged that there was no such payment to Gruboc and discharged the onus on it to prove that there was no such payment as the available evidence did not show that actual payment was made. Twentieth Green was in possession and control of its records in that regard. If Twentieth Green had records which could establish the payment was actually made they were its records to produce. Alternatively, they could have called a witness to give evidence that the amount was actually paid. They did not do so and it may reasonably be inferred from the absence of such evidence that it did not exist. Mr Power’s evidence was just speculation about the purpose of an accounting entry of which he had no personal knowledge.
144 We are in as good a position as the primary judge to decide the question. There was no evidence before the primary judge and none before us which shows that Gruboc was in fact paid $60,000, why any such payment would have been made, or if it was paid whether Grovan received any benefit from that payment. In the absence of any proof that the payment was actually made in our view there is no proper basis for a deduction of a 10% share of that payment from Grovan’s share of the proceeds of the Project.
145 In our respectful view his Honour erred in rejecting this claim and we uphold grounds five and six of the appeal.
8. Whether the Payment Authorities were binding on Grovan as Mr Price had actual and/or ostensible authority to sign them? - Notice of Cross-Appeal, Grounds 3 - 4.
146 Grounds three and four of the Notice of Cross-Appeal allege that:
3. The learned primary judge erred at [278]-[288] of the First Reasons in finding that by reason of the absence of a signature of one of Grovan’s co-directors (namely, Mrs Price), the Payment Authorities were not binding on Grovan.
4. The learned primary judge ought to have found that:
(a) in substance, if not in name, Mr Price was the Managing Director (or equivalent) of Grovan;
(b) in all relevant respects, Mr Price held himself out as having authority to bind Grovan without the need for Mrs Price’s signature;
(c) Mr Price had actual and/or apparent authority to bind Grovan in the absence of Mrs Price; and
(d) the Payment Authorities were binding on Grovan.
147 Given our rejection of the respondents’ attack on the primary judge’s finding that it was unconscionable for Twentieth Green to rely upon the Payment Authorities, it is strictly unnecessary to deal with these grounds of cross-appeal. The Payment Authorities are not binding upon Grovan.
148 For completeness we note that we are not persuaded that the primary judge erred in finding that Mr Price did not have actual (express or implied) authority or ostensible authority to sign the Payment Authorities. The primary judge cited with approval (at [278]) the principles in relation to actual and ostensible authority in Junker v Hepburn [2010] NSWSC 88 (Junker) at [39]-[48] (Hammerschlag J). The respondents did not contend that his Honour erred in doing so.
149 In relation to express authority, the respondents did not argue that Grovan’s constitution authorised Mr Price to bind it through agreements such as the Payment Authorities on his signature alone, or that Grovan resolved to authorise Mr Price to do so. The thrust of the respondents’ argument below, and before us, is that Mr Price had implied actual authority or, alternatively, ostensible authority to do so. We note that because Mrs Price was a director and secretary of Grovan (as Mr Power must have known by reason of his inclusion of a requirement for her signature in the First Payment Authority) no assumption under s 129(5) of the Corporations Act 2001 (Cth) could be made that either Payment Authority had been duly executed by Mr Price alone, as one director of Grovan. In the circumstances, s 127(1)(a) required two directors to sign before a person could assume that either Payment Authority had been duly executed by Grovan.
150 In relation to implied authority, the Court’s inquiry concerns the intention of the principal in conferring authority on the agent. Ordinarily, where a company has more than one director, a single director does not have implied authority to bind the company. A director’s normal power is to bind the company only by joining with other directors in a resolution of the board of directors: Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146; [1990] HCA 32 (Northside) at 198, 205 (Mason CJ, Brennan, Dawson, Toohey and Gaudron JJ); Junker at [42].
151 An implied grant of authority can result from acquiescence in a course of behaviour by persons who have actual authority to delegate. For example, if directors stand by while a single director enters into transactions outside his or her authority the board may be taken to have impliedly granted actual authority to do so: Junker at [43]. However, to confer implied authority there must usually be not only the acquiescence of the individual directors but evidence of a communication by word or conduct of their respective consents to one another and to the agent: Austin A, Ford H, Ramsay I, Company Directors: Principles of Law and Corporate Governance (LexisNexis Butterworths, 2005) at [3.41], citing Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480; Junker at [43].
152 The question of whether Mrs Price impliedly granted authority to Mr Price to enter into agreements such as the Payment Authorities must be viewed through the prism of the surrounding facts and circumstances. The evidence shows that Mr Price’s execution of the Payment Authorities:
(a) fell outside the ordinary course of business for Grovan. Through the Payment Authorities Grovan agreed to an obligation to pay 100% of the future liabilities incurred by CRP the builder of the Project even though it had only a 10% interest in the Project, and when none of the other unit holders took on any similar obligation. There was no evidence of previous similar agreements by Grovan; and
(b) occurred at a time when Mr Price was suffering significant financial and emotional stress, was drinking excessively, and when his marital relationship with his co-director, Mrs Price, was strained.
153 Those matters point away from the conclusion that Mrs Price impliedly authorised Mr Price to enter into such an agreement. There was no evidence of intent on the part of Mrs Price to do so and no evidence of communication of consent by Mrs Price. Her evidence was that the first she heard of the Payment Authorities was when the respondents relied upon them in the proceeding below. She gave unchallenged evidence that, had she been aware of the Payment Authorities, she would not have signed them and would have urged Mr Price not to do so.
154 Instead, the respondents argue that Mrs Price stood by and acquiesced in Mr Price representing himself as a person who was able to bind Grovan on his signature alone. They rely on the following matters:
(a) Mr Price’s evidence was replete with references to meetings of the investors which he attended and Mrs Price did not, and where he used the pronoun “I” to describe Grovan. He also signed all correspondence from Grovan. However, as the primary judge found, those matters do not show that he had any power beyond that of an ordinary director;
(b) Mr Price, alone, signed the accounts for Grovan. But signing the company accounts is different to entering into an agreement such as the Payment Authorities, and it does not show that Mr Price had implied actual authority to enter into such agreements. In this regard we note that the Directors’ Declarations accompanying the accounts said that they were made in accordance with a resolution of the Board of Directors. That is, on the face of the accounts, Mr Price’s power to sign the accounts appears to be the subject of a direct authorisation; and
(c) Mr Price did not agree to Mrs Price attending a meeting in March 2010, and he gave evidence that he controlled Grovan. Like the primary judge we take little from the fact that, after the dispute between the parties arose, Mr Price objected to Mrs Price’s attendance at a meeting.
We can see no error in the primary judge’s conclusion that neither Grovan nor Mrs Price impliedly authorised Mr Price to enter into an agreement to effectively guarantee CRP’s liabilities, on his signature alone.
155 The respondents sought to argue that the present circumstances were similar to those in Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279 (McGarvie, Marks and Beach JJ) where the Victorian Supreme Court of Appeal found implied authority. In our view the facts of that case are quite different.
156 Importantly, a finding that the Payment Authorities were binding would require Twentieth Green to have entered into them with Mr Price because it understood he had authority to bind Grovan on his signature alone. Yet the First Payment Authority was drafted by Mr Power, a director of Twentieth Green, so as to also require execution by Mrs Price. We set out the terms of the First Payment Authority at [28] above. It said “Colin and Faye Price, on behalf of Grovan, hereby undertake to repay the total sum…” and provided for execution by “Grovan Pty. Ltd. by Faye Price” in the presence of a witness, as well as for execution for Grovan by Mr Price.
157 That stood in contrast to the Second Payment Authority (set out at [31] above) which made no provision for Mrs Price to sign, and which made provision for signature by Mr Price “on behalf of” Grovan, that is, as an agent. Those matters tend to show that Mr Power gave some thought to who was required to execute the First Payment Authority and the requirement for execution by Mrs Price in the First Payment Authority was not just boilerplate. As Senior Counsel for the respondents conceded, Mr Power did not explain why he drafted the First Payment Authority in that way or why the respondents did not insist upon it being executed in the way that it was drafted. Having regard to Mr Price’s revelation to Mr Power and Mr Reynolds of his personal difficulties, including the state of his marriage immediately before Mr Power drafted the First Payment Authority, Mr Power’s silence as to why Mrs Price’s signature was not required can be seen as telling. In all the circumstances we are not satisfied that Twentieth Green in fact relied on any acquiescence by Mrs Price in the conduct of Mr Price.
158 In relation to apparent or ostensible authority, such authority may exceed implied actual authority. Again, in the absence of some representation made by the company, an ordinary individual director of a company does not have ostensible authority to bind it. Directors can only act collectively as a board: Northside at 205; Junker at [48]. As we have already said, we are not satisfied that Twentieth Green in fact relied upon any representation that Mr Price had apparent or ostensible authority to execute the First Payment Authority on Grovan’s behalf, on his signature alone. Had it done so, Mr Power, as a director of that company, would have drawn the First Payment Authority to require only Mr Price’s signature.
159 We can see no error in the primary judge’s conclusion that the evidence did not establish that Mr Price had actual authority (either express or implied) or ostensible authority to enter into the Payment Authorities.
160 We dismiss grounds one to six of the cross-appeal.
9. Whether the Court should have permitted further evidence to be led on the three claims dealt with in the Second Reasons in which the appellants succeeded? - Notice of Cross-Appeal, Grounds 7- 8.
161 Grounds 7 and 8 of the Notice of Cross-Appeal state:
7. The learned primary judge, having found in the First Reasons that it was not appropriate to determine whether Grovan was entitled to succeed on its claim:
(a) for approximately $7,000 relating to the percentages in the Unity Holders’ Loan Account (the Loan Account Issue) because the evidence was possibly incomplete (First Reasons at [312] and [336(c)]);
(b) relating to a payment of $52,670 from Twentieth Green to Resort Systems Pty Ltd (the Resort Systems Payment Issue) because the evidence was possibly incomplete (First Reasons at [316] and [336(d)]); and
(c) relating to “extras” in relation to work performed on apartments owned by Refam Investments Pty Ltd, GJR Corp Pty Ltd and GJR Investments Pty Ltd (the Extras Issue) because the evidence was possibly incomplete (First Reasons at [323] and [337]),
his Honour erred in permitting the parties to adduce further evidence on these three issues and subsequently finding each of them to have been made out by the applicants (Second Reasons at [8]-[13], [14]-[19] and [26]-[32].
8. The learned primary judge ought to have held that the applicants should fail on the claims relating to each of the Loan Account Issue, the Resort Systems Payment Issue and the Extras Issue in circumstances where:
(a) the Court had previously ordered that certain matters – including the Loan Account Issue, the Resort Systems Payment Issue and the Extras Issue – be determined at a trial of separate questions;
(b) a full hearing was conducted on the separate questions;
(c) the applicants were given a full opportunity to lead any evidence they wished on the separate questions;
(d) the applicants did not seek to re-open their case after it had closed; and
(e) his Honour found that it was not appropriate to determine the Loan Account Issue, the Resort Systems Payment Issue and the Extras Issue because of a possible incompleteness in the evidence.
162 The background of these grounds of cross-appeal is that the Court made orders on 6 December 2013 for the determination of broad separate questions before the determination of any other issue. It is uncontentious that the effect of these orders was that the trial of the separate questions was to cover all claims, other than the quantum of any amounts payable to CRP. The perceived utility of such orders likely lay in the fact that if the respondents succeeded in establishing that the Simple Works Contract applied, the time and expense incurred in establishing the quantum of CRP’s entitlement to payment for the building works could be avoided.
163 On 28 June 2016, the day before handing down the First Reasons, the primary judge raised with the parties the prospect of dealing with some issues in a later judgment. His Honour said:
…I indicate, just to give you context, that apart from these five points my draft reasons are very well advanced and I could deliver judgment very soon…
But with these five points it may be that I form the view that the state of the evidence is unsatisfactory or possibly incomplete making it inappropriate for me to determine at this stage these five points. Now, as a trial judge hearing separate questions it’s always a matter of the trial judge’s discretion whether to answer the questions, and so a possible way of dealing with it would be for me to excise from the separate questions these five points and defer them for later consideration. And that may be on the basis of further evidence from both sides.
The problem is with some of these points it’s not clear which way they go towards in terms of which party would win the points if matters are left in an incomplete and somewhat unsatisfactory state and the concern is [that to] decide the matter with the state of the evidence in that way might cause injustice to one party or the other.
Senior Counsel for the respondents opposed his Honour’s proposed approach.
164 The primary judge then handed down the First Reasons. At [336]-[337] his Honour said that the evidence in respect of six of the applicants’ claims was “possibly incomplete” and that it would be inappropriate to decide those issues as part of the determination of the separate questions. The primary judge made no orders at that stage and listed the matter for mention. His Honour heard submissions from the parties as to whether the Court should allow an opportunity to adduce further evidence and, against the respondents’ submissions, decided to fix the outstanding claims for hearing and allow the parties to put on further evidence.
165 In the further hearing the appellants relied on a further affidavit by Mr Price who was cross-examined by the respondents. The respondents chose not to file further evidence. The primary judge subsequently handed down the Second Reasons, finding (at [8]-[13], [14]-[19] and [26]-[32]) that Grovan had established two of the three claims it pressed (it having abandoned two other claims) and that CRP had established the claim it made. The orders provided that Twentieth Green pay:
(a) $7,008 and $5,267 respectively to Grovan; and
(b) $75,300 to CRP for additional works CRP had undertaken at its request.
166 The respondents contend that the primary judge erred in adopting this course and that his Honour should have found that the appellants had failed to establish these six claims and should have made orders accordingly. The respondents do not accept the primary judge’s description of the orders of 6 December 2013 as providing for separate questions for trial and they contend that the orders merely operated to split the questions of liability and quantum. In effect the respondents contend that the primary judge gave the appellants leave to reopen their case in circumstances where the case did not fall into any of the established categories for doing so and where no applicable new category was suggested or present. They argue that the respondents inevitably suffered prejudice as a result.
167 We do not agree. The 6 December 2013 orders referred to the determination of some issues before the determination of any other issues and, in our view, it was within his Honour’s discretion to modify those separate questions. The respondents did not identify any error in his Honour’s exercise of the discretion in the sense described in House v The King (1936) 55 CLR 499; [1936] HCA 40 at 505. Our view in this regard does not, however, turn on whether the first hearing is characterised as a determination of separate questions, but rather on the interests of justice in the proceeding.
168 In Inspector-General in Bankruptcy v Bradshaw [2006] FCA 22 (Bradshaw) Kenny J said (at [24]):
The authorities indicate that, broadly speaking, there are four recognised classes of case in which a court may grant leave to re-open, although these classes overlap and are not exhaustive. These four classes are (1) fresh evidence (Hughes v Hill [1937] SASR 285 at 287; Smith v New South Wales Bar Association [No 2] (1992) 108 ALR 55 at 61-2); (2) inadvertent error (Brown v Petranker (1991) 22 NSWLR 717 at 728 (application to recall a witness); Murray v Figge (1974) 4 ALR 612 at 614 (application to tender answers to interrogatories); Henning v Lynch [1974] 2 NSWLR 254 at 259 (application to re-open); (3) mistaken apprehension of the facts (Urban Transport Authority of NSW v Nweiser (1992) 28 NSWLR 471 (“UTA”) at 478; and (4) mistaken apprehension of the law (UTA at 478). In every case the overriding principle to be applied is whether the interests of justice are better served by allowing or rejecting the application for leave to re-open: see UTA at 478; also The Silver Fox Company Pty Ltd as Trustee for the Baker Family Trust v Lenard’s Pty Ltd (No 2) [2004] FCA 1310 (“Silver Fox”) at [22] and [25].
(Emphasis added.)
169 Kenny J’s approach to the authorities has been approved on many occasions: see for example, Matthews v SPI Electricity Pty Ltd (Ruling No 28) [2013] VSC 523 at [20] (J Forrest J); Spotlight Pty Ltd v NCON Australia Ltd [2012] VSCA 232 (Spotlight) at [25]-[26] (Harper and Tate JJA, Beach AJA); Blank v Commissioner of Taxation (No 2) [2014] FCA 517 at [11] (Edmonds J); Murray on behalf of the Yilka Native Title Claimants v State of Western Australia (No 5) [2016] FCA 752 at [1903] (McKerracher J).
170 The facts in Spotlight have some parallels with those in the present case. In Spotlight the Court of Appeal of the Supreme Court of Victoria held that the trial judge erred in allowing a case to be reopened in which the parties had closed their respective cases and judgment had been reserved. Although their Honours agreed with the remarks of Kenny J in Bradshaw, they said that powerful reasons must exist before a court may allow such a case to be reopened (at [17]-[18]). Examples where this Court has permitted reopening after reasons for judgment but before orders have been made or entered include The Silver Fox Company Pty Ltd v Lenard’s Pty Ltd as Trustee for the Baker Family Trust (No 2) [2004] FCA 1310 at [22] (Mansfield J) and ICI Chemicals & Polymers Pty Ltd v Lubrizol Corp Inc [1999] FCA 662 at [16] (Emmett J).
171 Contrary to the respondents’ contentions we consider the present case properly falls within the category of cases described in Bradshaw in which reopening is permitted so as to allow fresh evidence. Importantly, the present case satisfies the overarching principle to be applied in deciding whether or not to allow a case to be reopened, namely that it must be in the interests of justice in the proceeding
172 The proceeding below was conducted as a fast track matter and orders for discovery were not made against the first to seventh respondents. During the trial the appellants sought and were granted leave to serve two notices to produce relating to the accounting for the Project. In response the respondents produced documents upon which the appellants cross-examined the respondents' witnesses. The primary judge noted (at [21]) that this meant that some of the matters raised with the respondents’ witnesses during cross-examination were not the subject of evidence adduced by the appellants and had not been the subject of prior particularisation by the appellants. It was in this context that the primary judge expressed a concern about the “unsatisfactory or possibly incomplete state of the evidence” which might cause injustice to one or other of the parties.
173 That situation appears to have arisen out of case management decisions that permitted the appellants to adduce documents into evidence after the appellants’ case had been closed and that allowed for cross-examination of the respondents’ witnesses on claims that had not been particularised. We know nothing of the circumstances in which those case management decisions were made and we mean no criticism of the primary judge in that regard. In such circumstances we can see no appealable error in the primary judge’s decision to address the possibility of injustice to one or other of the parties by allowing the parties to put on further evidence and submissions limited to the six claims in issue.
174 Brennan, Dawson, Toohey and Gaudron JJ said in Smith v NSW Bar Association (1992) 176 CLR 256; [1992] HCA 36 at 266-267:
If an application is made to re-open on the basis that new or additional evidence is available, it will be relevant, at that stage, to enquire why the evidence was not called at the hearing. If there was a deliberate decision not to call it, ordinarily that will tell decisively against the application. But assuming that that hurdle is passed, different considerations may apply depending on whether the case is simply one in which the hearing is complete… or one in which reasons for judgment have been delivered… It is difficult to see why, in the former situation, the primary consideration should not be that of embarrassment or prejudice to the other side.
(Emphasis added.) (Citations omitted.)
175 There were good reasons for his Honour’s decision to provide the parties with an opportunity to put on further evidence. Indeed, had the parties not been given that opportunity it would have been open to the parties to assert that there had been a lack of procedural fairness. The respondents may have been fixed with findings based on cross-examination of their witnesses on claims which had not been properly particularised, or the appellants may have been caught short in their evidence because important documents were adduced into evidence after their witnesses had been called and they had closed their case. Moreover, the respondents did not articulate any basis on which the course taken by his Honour caused them any prejudice or resulted in injustice. They had the opportunity to further cross-examine Mr Price and to lead any further evidence, but chose not to do so.
176 The circumstances surrounding the primary judge’s decision show that it was in the interests of justice and we can see no error in his Honour’s decision. We accordingly dismiss grounds seven and eight of the cross-appeal.
Costs
177 We direct the parties:
(a) within seven days, to confer in an endeavour to agree on orders to give effect to these reasons, including to recalculate the interest on the judgment sum payable to Grovan;
(b) within 14 days, to file any agreed minutes of orders, or in the absence of agreement to file the minutes of order for which they contend together with written submissions not exceeding two pages in relation to the draft orders in dispute; and
(c) within 14 days, to file written submissions in relation to costs not exceeding 2.5 pages in length, and within seven days thereafter to file written submissions in reply not exceeding 1.5 pages in length.
I certify that the preceding one hundred and seventy-seven (177) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Rares, Murphy and Davies. |
Associate:
VID 1021 of 2016 | |
NOEL REYNOLDS | |
Fifth Respondent: | STEPHEN POWER |
Sixth Respondent: | GEOFFREY RICE |
Seventh Respondent: | TWENTIETH GREEN PTY LTD (ACN 007 258 933) |
Eighth Respondent: | CLESTUS WEERAPPAH |
TWENTIETH GREEN PTY LTD (ACN 007 258 933) | |
Third Cross-Appellant: | EIGHTY-SECOND AGENDA PTY LTD (ACN 006 329 326) |
Fourth Cross-Appellant: | GEOFFREY RICE |
Fifth Cross-Appellant: | NOEL REYNOLDS |
Sixth Cross-Appellant: | STEPHEN POWER |
Seventh Cross-Appellant: | NOEL JONES (CARNEGIE) PTY LTD (ACN 005 522 289) |
