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Class Actions – lawyers costs – the proper approach

In Johnston v Endeavour Energy [2016] NSWSC 1132 Hoeben CJ summarised the proper approach to the task of evaluating the overall reasonableness of a proposed costs deduction from a class action settlement.

The applicable principles have recently been set out by Osborne JA in Matthews. In Courtney v Medtel Pty Limited (No 5) [2004] 212 ALR 311; FCA 1406 at [61] (Medtel) (Sackville J) described his expectation as to the content of the material to be provided to the Court:

“61   It is for the reasons I have given that I suggested to [the applicant] that evidence should be presented from an independent solicitor or costs consultant, directed to the following matters:

(i)    the reasonableness of the terms of the fee and retainer agreements (including the provisions for ancillary services, interest and an uplift factor);

(ii)    whether the fees and disbursements actually charged by the Solicitors have been calculated in accordance with the fee and retainer agreement;

(iii)    confirming that, so far as the solicitor or costs consultant can determine, no significant portion of the fees and disbursements charged by the Solicitors have been inappropriately or unnecessarily incurred in conducting the proceedings on behalf of Mr Courtney and the represented group.

I made it clear that I did not expect the evidence to involve an exhaustive review of the files maintained by the Solicitors. I had in mind an overview that could be undertaken over a period of about two days.”

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Principles that govern an application for approval of a settlement of a group proceeding

In Johnston v Endeavour Energy [2016] NSWSC 1132 Hoeben CJ carefully identified the principles that govern an application for approval of a settlement of a group proceeding.

Confidential opinions of counsel are required to address each of the principles below.

These opinions are usually sealed and handed up to the judge.

The principles are summarised as follows:

  1. The central question for the Court is whether the proposed settlement is fair and reasonable in the interests of the group members as a whole (Rowe v AusNet Electricity Services Pty Ltd and Ors [2015] VSC 232 at [49] – [51]; Matthews v SPI Electricity and SPI Electricity Pty Ltd v Utility Services Corporation Ltd (Ruling No 16)[2013] VSC 74 (Matthews) at [34]; Wheelahan & Anor v City of Casey & Ors [2011] VSC 215 (Wheelahan) at [57] (EmertonJ) citing ACCC v Chats House Investments Pty Ltd & Ors [1996] 71 FCR 250; FCA 1119 at 258 (Branson J) (Chats House).
  2. There will rarely be one single or obvious way in which a settlement should be framed, either between group members and the defendants (inter partes aspects) or in relation to sharing the compensation among group members (inter se aspects) – reasonableness is a range and the question is whether the proposed settlement is within that range (Darwalla Milling Co Pty Ltd v F Hoffman-La Roche& Ors Ltd (No 2) [2006] FCA 1388; 236 ALR 322 at 336 [40] (Jessup J) (Darwalla).
  3. It is not the task of the Court to “second-guess” or go behind the tactical or other decisions made by the plaintiff’s legal representatives, but rather to satisfy itself that the decisions are within the range of reasonable decisions according to the known circumstances and the reasonably perceived risks of the litigation (Matthews, Darwalla, see also Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 6) [2011] FCA 277 at [22] (Flick J) (Pharma); Modtech Engineering Pty Ltd v GPT Management Holdings Ltd [2013] FCA 626 at [12] (Modtech) (Gordon J).
  4. In assessing the fairness and reasonableness of a proposed settlement the court relies heavily upon the candid, frank and confidential opinions provided to it by the plaintiff’s legal representatives requiring them to disclose the factors which were material to the decision to accept the settlement (Thomas v Powercor Australia Limited [2011] VSC 614 at [18] (Beach J) (Powercor); Wheelahan at [75]; Rod Investments (Vic) Pty Ltd v Abeyratne & Ors [2010] VSC 457 at [11] and [18] (Almond J) (Abeyratne); Lopez v Star World Enterprises Pty [1999] ATPR 41 – 678 at 42 – 670; [1999] FCA 104 (Finkelstein J) (Lopez).
  5. The factors adopted in Williams v FAI Home Security Pty Ltd (No 4) [2000] 180 ALR 459; [2000] FCA 1925 (Williams) indicate some of the considerations typically relevant to an assessment of an application for approval. As Goldberg J pointed out in Williams, this is a useful but not exhaustive guide. Those considerations are:
  6. (A)    The complexity and duration of the litigation.
  7. (B)   The reaction of the class to the settlement.
  8. (C)   The stage of the proceedings.
  9. (D)   The risks of establishing liability.
  10. (E)   The risks of establishing damages.
  11. (F)   The risks of maintaining a class action.
  12. (G)   The ability of the defendants to withstand a greater judgment.
  13. (H)   The range of reasonableness of the settlement in light of the best recovery; and
  14. (I)   The range of reasonableness of the settlement in light of all of the attendant risks of litigation.
  15. The factors in Williams are largely directed to the reasonableness of a compromise inter partes. They are, however, also relevant to a consideration of the agreements reached with the insurance intervenors. The procedure should likewise be fair and reasonable “inter se”.
  16. An important consideration is whether group members were given timely notice of the critical elements so that they had an opportunity to take steps to protect their own position if they wished. Once appropriate notice is given, the absence of objections or other response action from group members is a relevant consideration in support of the settlement and all its elements (Dorajay Pty Ltd v Aristocrat Leisure Ltd [2009] FCA 19 (Stone J) (Aristocrat); Abeyratne at [22]; Horshamat [15], [25).
  17. Where a group member objects to the settlement, an important question is whether the objector is prepared to assume the role and risks of being lead plaintiff. It is easy for group members who face no adverse costs risk to want a plaintiff to fight to the very end. The weight to be given to objections will diminish where the objector is unwilling or unable to take on all of the economic and other burdens which the plaintiff otherwise bears (Wong v Silkfield [2000] FCA 1421 at[24] – [30] (Spender J)).
  1. The effect of those considerations is that the proposed settlement must be fair and reasonable and in the interests of all group members who will be bound by the settlement. In this context group members, who are not clients of Maddens, are not directly represented. It is their interests in particular which the Court, in an application of the present kind, is concerned to ensure are addressed fairly, vis-a-vis the plaintiff and other group members and having regard to the overall merits of the claims made on their behalf in the action.
  2. Notwithstanding the reservations expressed by Jessup J in Darwalla regarding lists of criteria, the factors identified by Goldberg J in Williams as typically bearing on an assessment of a proposed settlement provide a useful framework. Those factors are:
  1. The amount offered to each group member.
  2. The prospects of success in the proceeding.
  3. The likelihood of the group members obtaining judgment for an amount significantly in excess of the settlement offer.
  4. The terms of advice received from counsel and from any independent expert in relation to the issues which arise in the proceeding.
  5. The likely duration and cost of the proceeding if continued to judgment.
  6. The attitude of group members to the settlement.
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Nature of a deposit

A “deposit” is usually paid at the time of making a contract and has been described as “an earnest to bind the bargain” the subject of the contract. It is a payment that is made before the delivery of the item or property the subject of the contract.

As Lord Justice Cotton says in Howe v. Smith[44], at page 95:—

The deposit, as I understand it, and using the words of Lord Justice James, is a guarantee that the contract shall be performed. If the sale goes on, of course, not only in accordance with the words of the contract, but in accordance with the intention of the parties in making the contract, it goes in part payment of the purchase-money for which it is deposited; but if on the default of the purchaser the contract goes off, that is to say, if he repudiates the contract, then according to Lord Justice James, he can have no right to recover the deposit.
I do not say that in all cases where this court would refuse specific performance, the vendor ought to be entitled to retain the deposit. It may well be that there may be circumstances which would justify this court in declining, and which would require the court, according to its ordinary rules, to refuse to order specific performance, in which it could not be said that the purchaser had repudiated the contract, or that he had entirely put an end to it so as to enable the vendor to retain the deposit. In order to enable the vendor so to act, in my opinion there must be acts on the part of the purchaser which not only amount to delay sufficient to deprive him of the equitable remedy of specific performance but which would make his conduct amount to a repudiation on his part of the contract.

In the same case, Fry L. J., said:—

Money paid as a deposit must, I conceive, be paid on some terms implied or expressed. In this case no terms are expressed, and we must, therefore, inquire what terms are to be implied. The terms most naturally to be implied appear to me in the case of money paid on the signing of a contract to be that in the event of the contract being performed it shall be brought into account, but if the contract is not performed by the payer it shall remain the property of the payee. It is not merely a part payment, but is then also an earnest to bind the bargain so entered into, and creates by the fear of its forfeiture a motive in the payer to perform the rest of the contract.

In layman’s terms it can also be considered a bond for performance, indicating a sincere intention to be bound, which is forfeited if the party breaches the contract.

The common law relating to deposits in a contract for the sale of land is to the following effect.

First, a label or description in a contract of a payment as a ‘deposit’ is not determinative of its character as such: Coates v Sarich (1964) WAR 2, 15; Freedom v AHR Constructions Pty Ltd [1987] 1 Qd R 59, 66.

Second, a deposit fulfils two functions; first, its primary function is an earnest given by the purchaser to bind the bargain and to provide security for its performance; second, it is also a part payment of the purchase price: Howe v Smith (1884) 27 Ch D 89 ; Brien v Dwyer [1978] HCA 50; (1978) 141 CLR 378.

Third, on termination of a contract for breach, at common law the deposit paid by the purchaser is forfeited to the vendor: Brien v Dwyer; Romanos v Pentagold Investments Pty Ltd [2003] HCA 58; (2003) 217 CLR 367; Commissioner of Taxation v Reliance Carpet Co Pty Ltd [2008] HCA 22; (2008) 236 CLR 342. The vendor has an unconditional right to retain the deposit paid by the purchaser because the consideration has not failed. Wickham J in Farrant v Leburn (1970) WAR 179 explained:

The agreement to pay [the deposit] was not in consideration of conveyance but was in consideration of the contract. It was the price or part of the price of the vendor’s promise to sell and this promise, having been given by the vendor, the consideration for the purchaser’s promise was fully executed (184).

This explanation of a deposit at common law resonates with the words deleted from the definition of ‘terms contract’ in the Bill. In Farrant, the vendor had rescinded the contract for the purchaser’s ‘fundamental breach’ in failing to pay a deposit which was payable immediately on entry into the contract.

Further, the vendor can recover any unpaid deposit that has accrued due prior to contractual termination: Bot v Ristevski [1981] VicRp 13; [1981] VR 120. By contrast, on termination for breach, an instalment of the purchase price belongs to the purchaser at common law on the basis that the consideration for the payment, being the conveyance or transfer of the land, has failed and thus the instalment can be recovered, subject to the vendor’s right to counterclaim for damages: McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457.

Fourth, the payment of a deposit within the contractual time stipulation is deemed, at law and in equity, to be an essential term of the contract (Brien v Dwyer) with the consequence that any breach of any nature or degree justifies termination without notice: Koompahtoo Local Aboriginal Land Council v Sampine Pty Ltd [2007] HCA 61; (2007) 233 CLR 115 [48]. Repudiation is a separate and independent ground for summary termination at common law: Koompahtoo [44].

Most of the cases on the subject of deposits to which I have referred concerned deposits which were payable on or around the time of entry into the contract. That accords with the common understanding of a deposit as an upfront payment as an earnest of the purchaser’s intention to perform and as security for the vendor. A bird in the hand, as they say. Gibbs J stated in Brien v Dwyer that the primary purpose of the deposit would not be served unless the deposit were paid at the very time when the purchaser assumed his obligations under the contract (392). This is reflected in the standard form offer and acceptance. The notion of a purchaser’s mere unperformed promise to pay a deposit being the earnest of performance and the security is inconsistent with long established principle. A promise to pay a deposit that survives termination is in substance a liquidated damages clause.

However, it must be accepted that in appropriate circumstances a deposit can be paid by instalments over an extended period: Romanos v Pentagold Investments Pty Ltd. In that case, the majority (Gleeson CJ, McHugh, Gummow, Hayne & Heydon JJ) stated:

In Brien, Jacobs J described a deposit as:

[A]n assurance to the vendor, a security to him pending completion. He can take his property off the market and not concern himself with other offers in case the sale should go off, with the comfort at least that the deposit is there for his security’.
This reasoning is no less applicable to contracts providing for the payment of a deposit in particular instalments at times each stated to be essential. That is the present case. Further, Brien is authority for the proposition that once there has arisen an entitlement to rescind for failure to pay the deposit, that entitlement may be exercised without the necessity that the purchaser first be given notice requiring payment to be made at a reasonable time [20].

How can a deposit be characterised from a something like a part payment?

In Howe v Smith (1884) 27 Ch D 89 Fry LJ said at 101:

Money paid as a deposit must, I conceive, be paid on some terms implied or expressed. In this case no terms are expressed, and we must therefore inquire what terms are to be implied. The terms most naturally to be implied appear to me in the case of money paid on the signing of a contract to be that in the event of the contract being performed it shall be brought into account, but if the contract is not performed by the payer it shall remain the property of the payee. It is not merely a part payment, but is then also an earnest to bind the bargain so entered into, and creates by the fear of its forfeiture motive in the payer to perform the rest of the contract.

In Commissioner of Taxation (Cth) v Reliance Carpet Co Pty Ltd [2008] HCA 22; (2008) 236 CLR 342 the High Court said at 351-352 [27] (footnotes omitted):

The expression “an earnest to bind the bargain” reflects, as Fry LJ put it in Howe v Smith, the adaptation by the common law of “[t]he practice of giving something to signify the conclusion of the contract, sometimes a sum of money, sometimes a ring or other object, to be repaid or redelivered on the completion of the contract, [which] appears to be one of great antiquity and very general prevalence”. The practice was received from Roman law into the mediaeval common law by the time of Bracton, and thus preceded the development of the modern law of contract and of the equitable principles which it includes. The quotation by Fry LJ from Bracton indicates that where something was given by way of a deposit before delivery then if the buyer repented and wished to resile from the contract the buyer lost the deposit; if the seller was responsible for the non-performance then the seller was required to return double the amount of the deposit. Writing in the same period as Fry LJ, Benjamin said that in the modern law “the true legal effect of earnest is simply to afford conclusive evidence that a bargain was actually completed with mutual intention that it should be binding on both [parties]”.

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Product liability

Source: www.fasterway.com.au

This is a typical fracture surface. This is a threaded connection (hence the appearance of a depression around the circumference).

The fracture surface was smooth, flat, and perpendicular to the principal axis of the bolt. Crack progression marks (beach marks) extended radially from one side of the bolt and covered approximately 90% of the fracture surface area. The remaining small region towards the outer edge of the bolt exhibited features consistent with an overstress failure. The large area of fatigue cracking and small overstress area indicated that failure of the bolt was due to high cycle low stress fatigue cracking.

Bolt fracture surface showing evidence of fatigue crack progression (beach) marks

Bolt fracture surface showing evidence of fatigue crack progression (beach) marks

Source: ATSB

On 30 May 2015, a Fasterway powered parachute, recreational registration 19-7677, collided with terrain near Theodore, Queensland. The pilot, the sole occupant, died as a result of the accident.

Submitted eyenut and fractured bolt

Source: ATSB – Investigation title: Technical assistance to Recreational Aviation Australia in the examination of a fractured eyebolt from the collision with terrain involving a Fasterway Powered Parachute, near Theodore, Qld. on 30 May 2015

Investigation number: AE-2015-075

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Strike out considerations – echoes from an appeal

To summarily to dispose of the proceedings is one which calls for the exercise of “exceptional caution”. [1]

The power cannot be exercised “once it appears that there is a real question to be determined whether of fact or law and that the rights of the parties depend upon it.” [2]

It is only to be exercised “when the action is clearly without foundation and … to allow it to proceed would impose a hardship upon the defendants which may be avoided without risk of injustice to the plaintiff”. [3]

The “Court is not concluded by the manner in which the litigant formulates his case in his pleadings.” [4]

The fatal defects in the plaintiff’s case must be very clear before the Court will intervene to strike out a pleading. [5]

A “high degree of certainty” that the plaintiff’s case will fail if it goes to trial is required. [6]

References

1.General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125 (at 129) per Barwick CJ.

2. Dey v Victorian Railways Commissioners [1949] HCA 1; (1949) 78 CLR 62 (at 91) per Dixon J.

3. Cox v Journeaux (No 2) [1935] HCA 48; (1935) 52 CLR 713 (at 720) per Dixon J.

4. Ibid.

5. Shaw v State of New South Wales [2012] NSWCA 102 (at [30]ff) per Barrett JA (Beazley, McColl, Macfarlan JJA and McClellan CJ at CL agreeing); Brimson v Rocla Concrete Pipes Ltd [1982] 2 NSWLR 937 (at 944 – 945) per Cross J.

6. Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552 (at [57]) per Gaudron, McHugh, Gummow and Hayne JJ.

 

Taken from [6] of Perera v Genworth Financial Mortgage Insurance Pty Limited [2016] NSWCA 53 (Slattery J)

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Interrogatories in medical negligence

Principles set out in [6]-[13] Rice v Ghabrial [2016] NSWSC 313

The issue of interrogatories is governed by the rules and generally requires that the interrogatories be “necessary”. In the case of personal injury matters, the rules also require that there be “special reasons” for the administering of the interrogatories.

These matters were dealt with by the Court, as presently constituted in Chong v Nguyen [2005] NSWSC 588. In Chong, the Court said:

“12 There has been some debate about the requirement for the question to be ‘necessary’. Most often reference is made to Boyle v Downs [1979] 1 NSWLR 192 at 204-5. The Court (Cross J) there confirmed that the word ‘necessary’ was to be interpreted as meaning ‘necessary for a fair trial’.

His Honour said:

‘In considering the meaning of the word “necessary” in Part 23 Rule 14 – a rule relating to discovery and inspection similar to Rule 5 in Part 24 relating to interrogatories – Rath J in Percy v General Motors-Holden’s Pty Ltd [1975] 1 NSWLR 289 interpreted it as “necessary in the interests of a fair trial”. This definition is similar to the one I have suggested; for in Griebart v Morris [1920] 1 KB 659, Scrutton LJ interpreted “necessary for disposing fairly of the cause or matter” (under the English rules relating to interrogatories) as “necessary for the fair trial of the action”.’

13 The Court of Appeal has referred with authority to that passage in Schutt v Queenan [2000] NSWCA 341 at [11], [12], [13], [14] and [15]. His Honour the President said:

‘The answers which are sought are material in the sense that they may enable the claimant either to maintain her own case or to destroy the case put against her’ (see Griebart v Morris [1920] 1 KB 659 at 664).

14 While other views have been expressed at various levels of the judicial hierarchy, the overwhelming authoritative view is that the Court must be satisfied that the order is ‘necessary in the interests of a fair trial’.

15 It is, in this case, essential in light of the arguments pressed, to examine the meaning of the word ‘necessary’ in that context.

16 The word ‘necessary’ when used in relation to a requirement on the exercise of a power granted to a court should generally and does here mean ‘reasonably required or legally ancillary’ to the achievement of the goal, in this case, of a fair trial. I refer to the joint judgment of Gaudron, Gummow and Callinan JJ in Pelechowski v Registrar, Court of Appeal (1999) 198 CLR 435 which, while determining whether there was a valid basis for contempt proceedings, examined the power of the District Court to issue injunctive relief. They said:

‘The term “necessary” in such a setting as this is to be understood in the sense given it by Pollock CB in Attorney-General v Walker (1849) 3 Ex 242, namely as identifying a power to make orders which are reasonably required or legally ancillary to the accomplishment of the specific remedies for enforcement provided in Division 4 of Part 3 of the District Court Act. In this setting, the term “necessary” does not have the meaning of “essential”; rather it is to be “subjected to the touchstone of reasonableness” (State Drug Crime Commission of NSW v Chapman (1987) 12 NSWLR 477 at 452).’ (my emphasis)”

Thus, in the context of UCPR r 22.1, the plaintiff must satisfy the Court that interrogatories are “reasonably required or legally ancillary” to the achievement of the goal, in this case, of a fair trial. In that sense, the word “necessary” in the relevant rule of the Court does not require that the order is “essential”.

Further, by operation of UCPR r 22.1(3), the Court is not to make such an order unless it is satisfied that “special reasons exist that justify the making of the order”.

A purposive construction of the above rule should be given. The purpose of requiring the Court to be satisfied of “special reasons” is to ensure that interrogatories in personal injury matters are not the ordinary course and to restrict the circumstances in which a Court will order interrogatories. As explained by Hall J in Keating v South East Sydney Illawarra Area Health Service (Supreme Court (NSW), Hall J, 7 July 2006, unrep at [24]-[25]), one relevant but not necessarily determinative criterion is the availability of the evidence otherwise.

The term “special” has been defined in a number of ways. The Macquarie Dictionary defines the term as “relating or peculiar to a particular person, thing, instance; having a particular function, purpose, of a distinct or particular character; being a particular one; extraordinary or exceptional”. In a somewhat circular fashion the aforesaid dictionary defines “exceptional” as “special” and the Oxford English Dictionary defines the term “exceptional” as “of the nature of or forming an exception; out of the ordinary course; unusual, special”.

It would seem on the basis of the foregoing and given the context in which the Court is required to be satisfied of special reasons, the UCPR provide that the Court must be satisfied that the basis for the issue of the interrogatories is unusual or out of the ordinary in the context of the class of personal injury actions.

I approach the exercise of my discretion with that test in mind and in the context of the provisions of s 56 of the Civil Procedure Act 2005 and following, namely, the achievement of an outcome that facilitates the quick, cheap and just resolution of the real issues in dispute between the parties.

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How a quantum meruit claim is to be established

Jason and Michelle Zammit trading as Zammit’s Quality Constructions v Saul Markunsky and Shereen Markunsky [2015] NSWCATCD 21 at [47],[48]

At [47] – Judgement of Bryne J. in Brenner v First Artists’ Management Pty Ltd [1993] 2 VR 221 as summarised in Dorter & Sharkey Building and Construction Contracts in Australia, Second Edition as setting out the following principles:

1.‘The courts task is not to assess damages for breach of contract, but to ascertain what is fair and reasonable compensation for the benefit of the services performed, and accepted actually or constructively by the recipient;

2.The enquiry is not primarily directed to the cost to the plaintiff of performing the work since the law is not compensating that party for loss suffered; however, the actual cost should not be ignored;

3.Any price or commission agreed between the parties may be received as evidence of the value the parties themselves put on the services performed, even where the services have not been totally performed, but the agreed amount is not determinative of the matter.’

At [48] – Principles relevant to how a quantum meruit is assessed were also discussed by Barrett J in Eddy Lau Constructions Pty Ltd v Transdevelopment Enterprise Pty Ltd.

At [70] – paragraph 82 of Barratt J’s decision in Eddy Lau Constructions Pty Ltd v Transdevelopment Enterprise Pty Ltd justifies an approach where defective work is taken into account in the assessment of a quantum meruit claim. His honour stated:

‘The quality of the work and matters such as its correspondence with specification and fitness for its intended purpose are thus elements of the process of valuation of work for quantum meruit purposes. It follows that the referee was correct in applying a deduction for defects rectification in determining the quantum meruit sum.’

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Recovery on a quantum meruit

Jason and Michelle Zammit trading as Zammit’s Quality Constructions v Saul Markunsky and Shereen Markunsky [2015] NSWCATCD 21

 

 

Section 92 (2) of the Home Building Act states as follows:

‘A person must not demand or receive a payment under a contract for residential building work (whether as a deposit or other payment and whether or not work under the contract has commenced) from any other party to the contract unless:

(a)  a contract of insurance that complies with this Act is in force in relation to that work in the name of the person who contracted to do the work, and

(b)  a certificate of insurance evidencing the contract of insurance, in a form prescribed by the regulations, has been provided to the other party (or one of the other parties) to the contract.’

Section 94(1) of the Act states as follows:

‘(1) If a contract of insurance required by section 92 is not in force, in the name of the person who contracted to do the work, in relation to any residential building work done under a contract (the uninsured work), the contractor who did the work:

(a)  is not entitled to damages, or to enforce any other remedy in respect of a breach of the contract committed by any other party to the contract, in relation to that work, and

(b)  is not entitled to recover money in respect of that work under any other right of action (including a quantum meruit).’

Section 94(1A) of the Act states as follows in connection with the above sections:

‘(1A) Despite section 92 (2) and subsection (1), if a court or tribunal considers it just and equitable, the contractor, despite the absence of the required contract of insurance, is entitled to recover money in respect of that work on a quantum meruit basis.’

The effect of the above sections is that builder are not entitled to recover on their claim for money due under the contracts they allege were entered into with owners. Further, builders will not be entitled to recover on a quantum meruit for the work they allege that they have carried out for owners and not been paid for unless recovery be deemed just and equitable.

Section 94(1A) of the Act was considered by Barrett J in Eddy Lau Constructions Pty Ltd v Transdevelopment Enterprise Pty Ltd [2004] NSWSC 273. At paragraphs 43 – 61 of his judgement his honour considered the ‘just and equitable criterion under section 94(1A)’ of the Act and the factors bearing upon the just and equitable assessment.

In considering the just and equitable criterion Barrett J. referred to a number of authorities which establish that the words just and equitable are of wide significance. His honour referred to a passage of the judgement of Sheller JA in Stephenson v State Bank of NewSouth Wales (1996) 39 NSWLR 101 where his honour quoted from a decision of the High Court in Talga v MBC International Limited(1976) 133 CLR 622.

The passage quoted was:

‘Stephen, Mason and Jacobs JJ dealing with the issue raised for the Court by the Banking Act 1974 of whether it was just and equitable that a transaction should be treated as valid, said: ‘The court will have before it an existing transaction replete with all its surrounding facts and circumstances and in their light will determine what is just and equitable. In doing so it will certainly be exercising a wide discretion that this is a commonplace of the curial process; the court will be bound to act judicially, exercising its discretion by reference only to such considerations affecting the transaction as, on an examination of the legislation, may be seen to be material to the decision which it is called on to make. Irrelevant matters, matters such as the plaintiffs instanced in the course of argument, which have no rational connection with the policy of the regulations but would be expressive only of the personal predilections of the Court, cannot be allowed by it to play any part in its decision.’

Barrett J. observed that this approach was endorsed by Campbell J in Sullman v Sullman [2002] NSWSC 169.

At paragraph 49 of his judgement Barrett J. stated in connection with section 94(1A) of the Act:

‘The inquiry directed by the statute is therefore, in effect, whether the surrounding circumstances are such as to justify the creation of a right and an obligation as to the payment of the sum separately determined to represent fair remuneration. The Act, as I see it, does not attempt to control quantification. That is left to the general principle imported by the expression “quantum meruit”. The Act is concerned with factors influencing a decision whether, in the particular circumstances in which the court finds the parties, it is fair that one receive the quantum meruit sum and the other pay it.’

Decision of Hall J in Pender v Robwenphi Pty Limited & Anor [2008] NSWSC 1144. In that case Hall J stated, commencing at paragraph 41, in connection with the decision of Barrett J in Eddy Lau Constructions Pty Ltd vTransdevelopment Enterprise Pty Ltd:

‘In relation to the analysis undertaken by Barrett J in Eddy Lau Constructions (supra), the following propositions may be derived from the judgment:-

(1) The words “just and equitable” are of the widest significance and involve evaluations of questions of fact.

(2) In exercising the wide discretion under the provision, a Court or Tribunal is to have regard to considerations affecting the particular transaction as are material to the decision to be made. Irrelevant matters are those that have no rational connection with the policy of the statutory requirement.

(3) The statutory discretion under s.94(1A) must be exercised judicially in light of the whole of the circumstances surrounding the relevant subject matter.

(4) Inquiry is directed to ascertaining whether the surrounding circumstances are such as to justify the creation of a right and an obligation as to the payment of the sum separately determined to represent fair remuneration.

(5) The Act is concerned with factors influencing a decision whether, in the particular circumstances in which the Court finds the parties, it is fair that one receive the quantum meruit sum and the other pay it.

It is apparent from the analysis by Barrett J in Eddy Lau Constructions (supra) that the conduct of the party in breach is an important matter for consideration. In that respect, ignorance or oversight of the statutory requirement under the Act stands in marked contrast to a contravention that is wilful or deliberate.

In the present case, the determination of the Tribunal was, in effect, that the first defendant’s contravention was an inadvertent one, it being a company accustomed to undertaking commercial and industrial work and not home building or renovation work. The Tribunal accepted, as it was entitled to, the evidence given which explained the first defendant’s ignorance or inadvertence. These were matters of fact for the Tribunal’s determination.

In the circumstances of the present matter, on the evidence there was no identification of any particular form of disqualifying conduct by or on behalf of the first defendant that was material to be taken into account in determining what was “just and equitable”.

The Tribunal was also entitled to have regard, as Barrett J did in Eddy LauConstructions (supra) to the fact that, if the first defendant was not granted relief under s.94(1A), the plaintiff would receive the benefit of the work undertaken by the first defendant without having to pay for that work and for the materials supplied. I will return to this issue of “benefit” below.

Finally, there was no factor establish(ed) that resulted in any detriment flowing to the plaintiff by reason of the particular breaches or contraventions by the first defendant. Again, such matters involve a factual determination for the Tribunal.’

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Duty to mitigate loss for defective building work

The Owners – Strata Plan No 76674 v Di Blasio Constructions Pty Ltd [2014] NSWSC 1067 at [42] to [47]

Relevant legal principles

Generally speaking, a person who suffers loss as a consequence of a breach of contract is required to act reasonably in relation to that loss in order for the loss to be recoverable. An important aspect of this general principle is that the party who has suffered a loss is under a duty to mitigate its loss. Sometimes the use of the word “duty” in this context is criticised, since there is no requirement that the plaintiff act in a particular way and no requirement that the plaintiff minimise its loss: see, eg, J Carter, E Peden and GJ Tolhurst, Contract Law in Australia, (5th ed, 2007, LexisNexis) at [35-35]. Rather, the principle is that the plaintiff is not entitled to recover losses attributable to its own unreasonable conduct. As O’Connor J explained in Hasell v Bagot, Shakes & Lewis Ltd [1911] HCA 62; (1911) 13 CLR 374 at 388:

[O]ne of the principles on which damages are assessed [is] that a party to an agreement suffering injury from the other party’s breach of its terms is bound to exercise reasonable care in mitigating the injurious consequences of the breach, and is not entitled to recover from the party in default any damage which the exercise of reasonable care on his part would have prevented from arising.

The duty to mitigate, however, is not the only example of the application of the general principle. Another is the principle that a plaintiff whose property is damaged or defective as a consequence of the defendant’s breach is generally entitled to recover the costs of reinstating the property so that it corresponds to the contractual promise, except to the extent that it is unreasonable to insist on reinstatement: Bellgrove v Eldridge [1954] HCA 36; (1954) 90 CLR 613 at 618-9.
In the case of building contracts, it is also generally accepted that the owner must give the builder a reasonable opportunity to rectify any defects. Often, of course, the building contract itself requires the owner to repair defects or sets out a procedure by which defects are to be made good: see, eg, Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWSC 1302; (2010) 26 BCL 335. But, even if it does not, the owner is required to give the builder an opportunity to minimise the damages it must pay by rectifying the defects, except where its refusal to give the builder that opportunity is reasonable or where the builder has repudiated the contract by refusing to conduct any repairs: see J Bailey, Construction Law, (Vol II, 2011, Informa Law) at [14.109]; Cassidy v Engwirda Construction Co (No 2) [1968] Qd R 159 (reversed on other grounds in Cassidy v Engwirda Construction Co (No 2) [1968] QWN 47 (HC); (1968) 42 ALJR 168). That obligation may be an aspect of the duty to mitigate, since it may be less expensive for the builder rather than a third party to rectify the defects, particularly if the builder is still on site. But the obligation is not simply an aspect of the duty to mitigate. The cost to the builder of undertaking the repairs is likely to be less than the amount that a third party would charge the owner for the same work. In that case, the owner is not mitigating its loss, but rather the builder’s damages.
The question of what is reasonable depends on all the circumstances of the particular case. One relevant factor is what attempts the builder has made to repair the defects in the past and whether, in the light of the builder’s conduct, the owner has reasonably lost confidence in the willingness and ability of the builder to do the work: see A Chambers, Hudson’s Building and Engineering Contracts, (12th ed, 2010, Sweet & Maxwell) at [4-144]; Eribo v Odinaiya [2010] EWHC 301 (TCC) at [70].
It is for the defendant to prove that the plaintiff has acted unreasonably. It is not for the plaintiff to prove that it acted reasonably: TC Industrial Plant Pty Ltd v Robert’s Queensland Pty Ltd [1963] HCA 57; (1963) 180 CLR 130 at 138; Burns v MAN Automotive (Aust) Pty Ltd [1986] HCA 81; (1986) 161 CLR 653 at 673 per Brennan J; TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 at 158 per Hope JA (with whom Priestley and Meagher JJA agreed); Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 at [187] per Giles JA (with whom Handley and Stein JJA agreed).
The obligation not to act unreasonably does not come to an end once court proceedings have commenced. But the existence of court proceedings is relevant to the content of the obligation. Once there is a dispute concerning whether a plaintiff has failed to mitigate its loss, or failed to act reasonably in some other respect, the plaintiff is entitled to have that question tested in court; and the mere fact that it does so is not itself evidence that it has failed to act reasonably. As Oliver J explained in Radford v de Froberville [1978] 1 All ER 33; [1977] 1 WLR 1262 at 1287E-F:

[O]nce proceedings have been commenced and are defended, I do not think that the defendant can complain that it is unreasonable for the plaintiff to delay carrying out the work for himself before the damages have been assessed, more particularly where his right to any damages at all is being contested, for he may never recoup the cost. If, therefore, the proceedings are conducted with due expedition, there seems to me to be no injustice if, by reason of the time that it takes for them to come to trial, the result of inflation is to increase the pecuniary amount of the defendant’s ultimate liability…

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Legal nature of a cheque

Paciocco v Australia and New Zealand Banking Group Limited [2014] FCA 35 (5 February 2014)

Para 93

  1. The issue of a cheque by a customer, or the giving of a payment instruction or withdrawal request to its bank, which would have the effect of overdrawing a customer’s account, is construed as a request by the customer for an advance or loan from the bank, and the bank has a discretion to approve or disapprove the loan: Cuthbert v Robarts, Lubbock & Company [1909] 2 Ch 226 at 233; Barclays Bank Ltd v W J Simms Son & Cooke (Southern) Ltd [1980] 1 QB 677 at 699-700; Ryan v Bank of New South Wales[1978] VicRp 54; [1978] VR 555 at 577; Narni Pty Ltd v National Australia Bank Ltd [1998] VSC 146 at [37] and Narni Pty Ltd v National Australia Bank Ltd [2001] VSCA 31 at [21];

See also Weaver GA and Craigie CR, The Law Relating to Banker and Customer in Australia, (Thompson Lawbook Co) at [2.140] (update 62).