MTECC News 22.09 ||| Restitution after Mann

The High Court’s decision in?Mann?v Paterson?(2019) 267 CLR 560?resolved fundamental questions concerning the relationship between the law of contract and the law of restitution in Australia.?In addition to dispensing with the “rescission fallacy” (at [8]) a plurality of the court cited?decisions of superior courts to the effect that the law of restitution should yield to parties’ agreed allocation of risk under a commercial contract (at [14] to [18]).

The Victorian Supreme Court’s decision in?J?Hutchison?v Port Melbourne Land Custodians?[2022] VSC 339, however, demonstrates that questions concerning the interaction between contracts and restitutionary remedies remain.?The court commented that the law of restitution was “notoriously complex and controversial” and made orders allowing a builder to join an owner of land as a defendant to a claim in restitution notwithstanding that there was a contract between the builder and a developer in respect to the same works.

Facts

Abbot Kinney?is the owner of land at 320 Plummer Street, Port Melbourne (the?Land).?It engaged Port Melbourne Land Custodians (PMLC) to develop the Land.?PMLC and Abbot Kinney have a common director.

PMLC then entered into a contract with J?Hutchison?to design and construct a mixed residential and commercial development on the Land?for $153,625,000 (the?contract sum).?As part of the building contract Hutchison was required to provide two unconditional undertakings each?representing 2.5% of the contract sum ($3,840,625).?

The parties fell into dispute regarding PMLC’s entitlement to liquidated damages and Hutchison’s entitlement to payment for variation work.?

PMLC attempted to call on the unconditional undertakings.?Hutchison applied for injunctions against PMLC restraining it from doing so.?Interim injunctions were granted subject to Hutchison depositing a portion of the amount secured by the unconditional undertakings into an interest-bearing account.?

Hutchison further issued summons upon Abbot Kinney.?That summons was dismissed upon Abbot Kinney providing an undertaking that if a court or VCAT found PMLC liable to Hutchison?it would pay Hutchison the?amount that court or VCAT ordered PMLC to pay?up to the value of the securities.?

Orders were made requiring the parties to file short?points of claim and points of defence.?Hutchison provided draft points of claim?which included claims against Abbot Kinney seeking, among other things, restitution for additional works performed on the Land.??The court?subsequently ordered Hutchison to provide a proposed statement of claim?setting out its claims against Abbot Kinney.?

PMLC opposed the joinder of Abbot Kinney on the basis that Hutchison’s restitutionary claim did not disclose an arguable cause of action.

The parties' submissions

PMLC argued that English and Australian superior and appellate court decisions?- including?Pavey & Matthews?v Paul?(1987) 162 CLR 221;?Lumbers?v W Cook Builders?(2008) 232 CLR 635;?Hendersons Automotive Technologies Pty Ltd (in liq) v Flaton Management Pty Ltd?(2011) 32 VR 539;?Skilled Group Ltd v CSR Viridian Pty Ltd?[2012] VSC 290;?Costello v?MacDonald?Dickens & Macklin?[2012] QB 244?and Mann?-?established that?“the law will not superimpose an obligation to pay a reasonable remuneration on an open contractual regime”.?As a result, it said that?cases where restitutionary claims had succeeded involved the absence of a contract.?

It further argued that Abbot Kinney had not freely accepted the benefit of Hutchison’s works as the obligations it had accepted were limited to those set out in its contract with PMLC.??

Hutchison argued that:

• the case law did not disavow free acceptance as a basis for restitutionary liability;
• its claim was distinguishable from those considered in previous High Court cases (particularly?Lumbers) as Abbot Kinney was aware of PMLC's?contract with?Hutchison as PMLC and Abbot Kinney?shared a common director;
• there was inconsistency between the High Court’s previous decisions in?Lumbers?and?Liebe v Molloy?(1906) 4 CLR 347?which held that an implied contract arises when a person does work for another without any express contract;
• the proposed statement of claim pleads the necessary ingredients for an unjust enrichment claim on the basis of ‘free acceptance’; and
• the restitution claim would impose only a marginal additional evidentiary burden on Abbot Kinney as it is primarily a legal issue.

Decision

The court acknowledged that the authorities cited by PMLC –?MacDonald?in particular - may “provide a substantial obstacle to the plaintiff’s claim to restitution” (at [57]). Notwithstanding that, it allowed the joinder of Abbot Kinney.?

In doing so, it noted that:

• the law of restitution is notoriously complex, such that the application of decided principles is best determined after the finding of all relevant facts at trial;
• it was not appropriate for the court to speculate as to the matters to be found at trial;
• the authorities cited by PMLC included English authorities in circumstances where the law of restitution in Australia had diverged from the principles enunciated by English courts since at least?the 1980s; and
• the proper interpretation of some of the decided cases – in particular the High Court’s decision in?Lumbers?– was contested.

The Court’s decision provides some insight into lingering issues that may arise at the junction between contractual and restitutionary claims following?Mann.?Riordan J’s summary of the relevant authorities at [45] to [56] is also helpful, and may provide practitioners with a useful starting point for disputes involving both contractual and restitutionary claims.

Bill Stephenson

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