Alexiadis v Zirpiadis
[2013] SASCFC 64
•28 June 2013
SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
ALEXIADIS v ZIRPIADIS
[2013] SASCFC 64
Judgment of The Full Court
(The Honourable Chief Justice Kourakis, The Honourable Justice Gray and The Honourable Justice White)
28 June 2013
ADMINISTRATIVE LAW - JUDICIAL REVIEW - GROUNDS OF REVIEW - PROCEDURAL FAIRNESS - HEARING
EQUITY - GENERAL PRINCIPLES - UNJUST ENRICHMENT - GENERAL PRINCIPLES
The respondent advanced a total of $105,251.99 to the appellant - the appellant has repaid only $15,000 - a District Court Judge held, despite the absence of any such pleading, that the respondent was entitled to restitution on the basis of a claim for money had and received - the appellant appeals against that judgment.
Held (per Kourakis CJ, allowing the appeal): The restitutionary claim was not available as a matter of law – appeal allowed - judgment set aside - respondent's claim dismissed.
Held (per Gray J, allowing the appeal): Appeal allowed – respondent's claim dismissed – inference drawn that there was an illegal purpose to the transactions and that both parties were knowingly involved in that illegality – evidence inadequate to reach any conclusion regarding the true nature of the underlying transaction – no particularity to support claim of unjust enrichment – evidence inadequate to allow any conclusion to be reached as to qualifying or vitiating factors.
Held (by White J) (dismissing the appeal): (1) The Judge did not deny the appellant procedural fairness by finding that the respondent was entitled to a restitutionary remedy. The respondent had sufficient notice at the trial that the claim may be determined on that basis.
(2) Although the Judge could not make a positive finding as to the purpose for which the monies were advanced, he did make some negative findings, which enabled some conclusions about purpose to be reached. He also found that the monies had been advanced in circumstances giving rise to an obligation to repay, and that repayment had not occurred. In these circumstances, it was open to the Judge to make a finding of unjust enrichment as the basis of the order of restitution.
(3) It is inappropriate in the present circumstances for this Court to conclude that the Judge erred by failing to find that the plaintiff advanced the monies for an illegal purpose or that he had knowledge that the defendant may use the monies for an illegal purpose, thereby precluding a restitutionary remedy.
Summary Offences Act 1953 (SA) s 41; Criminal Assets Confiscation Act 1993 (SA) s 91; Companies Act 1882 (Eng) s 131; Keith Mason, John W Carter & Gregory J Tolhurst Restitution Law in Australia Lexis Nexis Butterworth, 2008; Carter J Contract Law in Australia LexisNexis (6th Edition) 2012, referred to.
Coshott v Sakic (1998) 44 NSWLR 667; Gray v Gray (2004) 12 BPR 22; Fox v Percy (2003) 214 CLR 188, applied.
Hire Purchase Furnishings Co v Richens (1887) 20 QBD 387; Heydon v Perpetual Executors Trustees and Agency Co (WA) Ltd (1931) 45 CLR 111; Aubert v Walsh (1812) 4 Taunt. 293; 128 ER 342, discussed.
Zirpiadis v Alexiadis [2012] SADC 89; Williams v Australian Telecommunications Commission (1988) 52 SASR 215; Banque Commerciale SA (in liq) v Akhil Holdings Ltd (1990) 169 CLR 279; H Stanke & Sons Pty Ltd v O'Meara (2007) 98 SASR 450; Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221; Equuscorp Pty Ltd v Haxton (2012) 86 ALJR 296; Baltic Shipping Co v Dillon (1993) 176 CLR 344; Roxborough Ltd v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516; Hurst v Vestcorp Ltd (1988) 12 NSWLR 394; David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353; Holman v Johnson (1775) 98 ER 1120; Parkinson v College of Ambulance Ltd [1925] 2 KB 1; North & Ors v Marra Developments Limited (1981) 148 CLR 42; Noble v Maddison (1912) 12 SR (NSW) 435; Warren v Coombes & Anor (1979) 142 CLR 531; Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; Hightime Investments Pty Ltd v Adamus Resources Ltd [2012] WASC 295; Nelson & Anor v Nelson & Ors (1995) 184 CLR 538; Harry Goudias Pty Ltd v Akakios (2007) 97 SASR 93; Elder v Auerbach [1950] 1 KB 359; North Western Salt Co Ltd v Electrolytic Alkali Co Ltd [1914] AC 461; Donaldson v Freeson (1934) 51 CLR 598; Kearley v Thomson (1890) 24 QBD 742; Re Mahmoud and Ispahani [1921] 2 KB 716; Wilson International Pty Ltd v International House Pty Ltd [1983] WAR 243; Seldon v Davidson [1968] 2 All ER 755; Joaquin v Hall [1976] VR 788; Young v Queensland Trustees Ltd (1956) 99 CLR 560; Birkett v Acorn Business Machines Ltd [1999] 2 All ER (Comm) 429; Rajski v Scitec Corporation Pty Ltd (1986) (Unreported, New South Wales Court of Appeal, Kirby P, Samuels and Maloney JJA, 16 June 1986); Kenny v Ritter (2009) 263 LSJS 158; Singh v Ali [1960] AC 167; George v Greater Adelaide Land Development Company Ltd (1929) 43 CLR 91, considered.
ALEXIADIS v ZIRPIADIS
[2013] SASCFC 64Full Court: Kourakis CJ, Gray and White JJ
KOURAKIS CJ: The controversy between the parties on this appeal arises out of the delivery of cheques by the respondent, Zirpiadis, to the appellant, Alexiadis, on two occasions. I prefer to avoid referring to the delivery of the cheques as advances because the connotation of that word has, in this case, a tendency to pre-judge the very matter in issue.
The first delivery comprised two cheques, one for $50,000 and the other for $18,251.99, on 22 November 2002. The cheques were the part proceeds of the sale of Zirpiadis’ house. I will refer to those cheques as the November 2002 cheques. The second occasion was in December 2003 when Zirpiadis gave Alexiadis a cheque in the sum of $37,000. I will refer to that cheque as the December 2003 cheque.
By his Statement of Claim Zirpiadis alleged that he advanced to Alexiadis, by way of loan, the sum of $90,251.99 by delivering the November 2002 and December 2003 cheques to him. Zirpiadis alleged that Alexiadis had failed to repay the loans save for two repayments totalling $15,000. Alexiadis denied that the cheques were advanced by way of loan. He admitted only the receipt of the bank cheques. Alexiadis pleaded that he received the cheques on Zirpiadis’s request that Alexiadis clear the cheques through his bank account and return the cash to Zirpiadis as a means of concealing the money from Zirpiadis’s de facto partner. Alexiadis also pleaded that he “repaid” all of the cash proceeds to Zirpiadis. Alternatively, Zirpiadis claimed that the money was advanced pursuant to a partnership agreement with respect to an olive plantation on land at Farrell Flat owned by Alexiadis. Zirpiadis claimed a taking of accounts with respect to that partnership. The alternative claim was also denied by Alexiadis.
In short, Alexiadis admitted the receipt of the bank cheques but did not admit the surrounding circumstances pleaded by Zirpiadis, and which were necessary to make out the causes of action on which Zirpiadis relied, or the, unpleaded, cause of action on which the judgment below was founded.
The authorities to which I refer to in [56]-[71] below show that on that state of the pleadings Zirpiadis retained the onus to prove all of the elements of those causes of action.
The Judge dismissed Zirpiadis’ pleaded claims. Indeed, Zirpiadis’ testimony was markedly inconsistent with the pleaded claims. Zirpiadis testified that he had delivered the cheque in the sum of $50,000 in November 2002 so that Alexiadis might hold the proceeds on trust to pay for medical treatment which Zirpiadis believed he would need in the near future. The Judge rejected that testimony.[1] The Judge also rejected Zirpiadis’ testimony that Alexiadis had retained $8,251.99 of the other cheque delivered in November 2002 by way of loan to assist him in establishing the olive grove.[2]
[1] Zirpiadis v Alexiadis [2012] SADC 89 at [94]-[102].
[2] [2012] SADC 89 at [103].
Alexiadis, on the other hand, testified in his defence that Zirpiadis gave him the November 2002 cheques as part of a plan to conceal his financial worth from his then girlfriend, Ms Tanski. Alexiadis claimed that he had returned the cash proceeds of the cheques to Zirpiadis. The Judge also rejected Alexiadis’ testimony.[3]
[3] [2012] SADC 89 at [104]-[106].
Ms Tanski was called as a witness by Alexiadis. Her testimony raised, as a possibility, that Zirpiadis had delivered the cheques to Alexiadis as part of a plan to conceal his worth from the Department of Social Security so that he might dishonestly claim a pension to which he was not entitled. The Judge was not prepared to find that the November 2002 cheques were delivered for that purpose.[4]
[4] [2012] SADC 89 at [107].
The Judge concluded that with respect to the delivery of the November 2002 cheques he was “left in the position of not believing either the plaintiff or the defendant and of being unable to satisfactorily identify the purposes for which the money was advanced in 2002” (emphasis added).[5]
[5] [2012] SADC 89 at [108].
The purpose of the delivery of the December 2003 cheque was equally difficult to discover. Zirpiadis testified that he delivered the December 2003 cheque to Alexiadis as a loan so that Alexiadis could pay household bills and private tuition fees for Alexiadis’ children. The Judge, not surprisingly, found that it was implausible that Zirpiadis would have advanced $37,000 to Alexiadis for that purpose when, on his own account, he had not been repaid the money he had advanced in November 2002.[6] The Judge rejected Zirpiadis’ evidence that that was the reason for the delivery of the December 2003 cheque.[7]
[6] [2012] SADC 89 at [120].
[7] [2012] SADC 89 at [121].
On the other hand, the Judge also rejected Alexiadis’ account of the delivery of the December 2003 cheque.[8] Alexiadis had testified that Zirpiadis arrived unannounced at his door, gave him the cheque and asked him to cash it. Alexiadis went on to testify that he did so and later arranged a third person to deliver the cash to Zirpiadis.
[8] [2012] SADC 89 at [122].
The Judge commented on what he suspected was the real purpose of the delivery of the December 2003 cheque in these terms:[9]
I find that the evidence given by both the plaintiff and the defendant on this issue is entirely unsatisfactory. I believe that the sum of $37,000 was advanced for a purpose which neither the plaintiff nor the defendant wanted to disclose. In my view, there is a real possibility that the money was earmarked for investment in an illegal venture and that the parties hoped that if the venture was successful, the defendant would be able to repay to the plaintiff all of the money he had advanced and possibly more. Interestingly, within a few months of receiving the money the defendant was arrested in relation to large cannabis cultivation in New South Wales and, a short time later, was found in unlawful possession of $56,000. Although I am highly suspicious, I accept Mr Dart’s submission that there is insufficient evidence for a finding that the money was in fact advanced for illegal purposes. (underlining added)
[9] [2012] SADC 89 at [123].
I first observe that the finding I have underlined in the last passage is a finding that both the plaintiff and the defendant deliberately withheld the real purpose of the delivery of the cheques and, by implication, they falsely testified as to the contradictory ostensible purposes for its delivery. Be that as it may, having rejected the testimony of both Alexiadis and Zirpiadis on the circumstances in which the December 2003 cheque was delivered, the Judge concluded that he was again “left in the position of not believing either the plaintiff or the defendant and of being unable to satisfactorily identify the purposes for which the money was advanced in 2003” (emphasis added).[10]
[10] [2012] SADC 89 at [124].
Notwithstanding the rejection of Zirpiadis’ pleaded case, the Judge treated Zirpiadis’ claim as one for money had and received. His Honour gave judgment for Zirpiadis in the sum of the cheques delivered less the payments which Zirpiadis acknowledged had been made.
Alexiadis first complains on this appeal that he was denied procedural fairness because judgment was given on a claim that had not been pleaded. For the reasons given by Gray J and White J, I would dismiss the appellant’s appeal on that ground.
The Judge found for Zirpiadis on the ground that Alexiadis had received the cheques to his benefit in circumstances in which there had been a “total failure of the agreed or contemplated return” for the payment so made.[11] Alexiadis’ second ground of appeal is that the Judge erred in finding that the respondent had established a restitutionary claim on that basis.
[11] [2012] SADC 89 at [138].
The Judge explained his reasons for so finding in the following passage:[12]
In the present case the defendant was enriched by payment to him of $58,251.99 in 2002 and by a further payment of $37,000 in 2003. It matters not that I am unable to identify the precise purpose(s) for which the moneys were advanced. As earlier stated, I am satisfied the moneys were not gifted but were received in circumstances giving rise to an obligation of repayment. In each case the moneys, whether received as moneys lent, as moneys to be held for the benefit of the plaintiff, or on trust were misappropriated by the defendant resulting in a total failure of the agreed or contemplated return. To allow the defendant to retain the enrichment at the plaintiff’s expense would be unjust. Accordingly, the defendant’s unjust enrichment gives rise to a prima facie obligation to make restitution.
[12] [2012] SADC 89 at [139].
Restitution – A remedy for ineffective, not unproven, contracts
There are, in my opinion, three threshold difficulties with the Judge’s reasoning in that passage.
First, if the cheques were delivered “as moneys lent” and not repaid, Zirpiadis’ cause of action was in contract or debt. It was not a claim for money had and received and there was no total failure of consideration. Only rarely will the law of restitution operate in the context of an effective contract.[13] If the cheques were delivered as a loan with a promise of future repayment, the advance was not conditional and Alexiadis was entitled to treat it as his own. Restitution is not available as an alternative to an action on a loan agreement.[14]
[13] Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 389-391 per McHugh J and 350-352 per Mason CJ.
[14] Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 390 per McHugh J.
The rules of restitution were developed to fill gaps in the law and not to assist litigants who fail to prove, by evidence, available causes of action which are capable of providing redress for the alleged wrong.[15] Leaving aside the criminal purpose to which the Judge adverted, this is not a case in which a loan agreement, if made, would be void for an extraneous reason thus leaving Zirpiadis without a cause of action in law.[16] If the purpose of the loan was a criminal one of financing Alexiadis to grow cannabis, the money could not be recovered under the loan agreement because it would be void for illegality but, on that premise, nor could it be recovered as money had and received. I return to this issue and explain the reasons for my conclusion below.
[15] Roxborough & Ors v Rothmans of Pall MallAustralia Ltd (2001) 208 CLR 516 at [75] per Gummow J.
[16] Hurst v Vestcorp Ltd (1988) 12 NSWLR 394.
Nor is this a case of contractual termination justified by a repudiation. There can be no failure of consideration when a contract remains executory.[17]
[17] Keith Mason, John W Carter & Gregory J Tolhurst Restitution Law in Australia Lexis Nexis Butterworth, 2008 at [118].
Having rejected Zirpiadis’ testimony of the nature and purpose of the delivery of the cheques, it is difficult to see how the Judge could give judgment on the basis of a different agreement, of which there was no evidence, which might have been made.
The alternative possibility, that the cheques were delivered on a trust, is subject to a similar objection. First, I observe that a trust over the bank cheque for the purpose of cashing it and returning the proceeds to Zirpiadis pleaded by Alexiadis was not admitted by Zirpiadis, and Alexiadis’ evidence to that effect was rejected by the Judge. Be that as it may, if the cheques were delivered on a trust, Zirpiadis’ claim is one for breach of trust and not for money had and received. True it is that Alexiadis was not free to use the cheques, or their proceeds, delivered subject to a trust for his own purposes, but in the absence of evidence, it cannot be assumed that Zirpiadis is the beneficiary of the trust. In any event, if the money was delivered subject to a trust, Zirpiadis, or anyone else who might be a beneficiary, has a panoply of available equitable claims and remedies for any fiduciary breach which may have been committed by Alexiadis. There is neither need, nor space, for a claim for money had and received.
It is again difficult to understand how, having rejected Zirpiadis’ account of the trust imposed on the cheque for $50,000, the Judge could proceed on the mere possibility that there was some other trust, with another purpose, of which there was no evidence.
Moreover, the elements of the claims, and their remedies, for the transactions postulated by the Judge differ markedly. Nonetheless, judgment was given in favour of Zirpiadis when the Judge was unable to make a finding, on the balance of probabilities, as to the nature of the transaction and therefore as to the facts which were necessary to establish any of the possible claims and grounds for relief.
The second difficulty with the judgment in favour of Zirpiadis on a claim for money had and received, on the face of the Judge’s finding, is that the Judge found that Alexiadis paid Zirpiadis $10,000 on 25 November 2002 and $5,000.00 in April 2004. It follows that in whatever ways Alexiadis may have committed a contractual or fiduciary wrong, or disappointed the expectation of Zirpiadis, a total failure of consideration is not one of them. I acknowledge that the concept of consideration for the purposes of a restitutionary claim is not the same as the contractual concept. Even though the payer receives some benefit from a transaction, the consideration for, or the condition of, the payment, may have failed or not have been sustained. In particular, the consideration on which the payment was premised may be severable from other parts of the transaction.[18]
[18] David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 382-384; Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 at [17]-[20] per Gleeson CJ, Gaudron and Hayne JJ; [106]-[107] per Gummow J.
However, in this case, upon the rejection of Alexiadis’ evidence, there is no other evidence upon which it could be found that there was a total failure of consideration despite the payments made by Alexiadis. In the absence of any finding as to the mutual promises actually made by Alexiadis and Zirpiadis, it is not possible to say that the delivery of the cheques was “made conditionally upon the performance of a promise” by Alexiadis which he failed to perform.[19] Nor is it possible in this case to proceed on the basis of the Judge’s conclusion that there was a total failure of consideration in the absence of such findings.
[19] Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 389 per McHugh J.
Importantly, even if it be assumed that the money was not gifted, it does not follow, without more, that Zirpiadis was entitled under the terms of the crypto-contract or concealed trust, to all, or any of the proceeds of the cheques. If the cheques were contributions to a partnership, as Zirpiadis alleged in his Statement of Claim, the appropriate remedy is the taking of accounts. But the rejection of Zirpiadis’ testimony precludes any such relief. The point I make is that even if the cheques were not delivered as gifts, they still might not have been delivered as a loan. Once Zirpiadis’ testimony about the purposes of the delivery of the cheques is rejected, there can be no proper basis to find that they were delivered by way of a loan instead of some other business transaction. Alexiadis may have been bound to perform any number of terms and conditions in consideration for the delivery of the cheques. He may have partly, or even fully, performed those conditions. Unless the conditions are identified, and Alexiadis’ non-performance or partial performance proved, Zirpiadis cannot succeed in a claim for damages for breach. Again, the rejection of Zirpiadis’ testimony precludes any such findings. Even if the payments were made by way of a loan, the purpose and terms of the loan were capable of negating any obligation to repay, particularly if the loans were made for a criminal purpose. Contrary to the Judge’s view, identification of the purposes and conditions of payment were critical.
The encroachment by restitutionary claims on other well established legal and equitable actions, which have not been sufficiently proved on the facts, undermines the coherence of the law. It also undermines the taxonomical approach to unjust enrichment recently emphasised in Equuscorp Pty Ltd v Haxton.[20]
[20] (2012) 86 ALJR 296 at [28]-[36].
A judgment on a claim for money had and received in favour of a plaintiff, who has not proved the particular purpose for the payment of the money, nor the contemplated, but failed, return, undermines the principles on which the law of restitution rests in two significant respects. First, it has a tendency to treat proof of the first element, a payment to the benefit of a payee at the detriment of the payer, as a sufficient basis for restitution. It does so by presuming the existence of the other elements of the cause of action whenever the first element is proved. The assumption is that a restitutionary claim is available unless the defendant shows that he or she has some entitlement to the payment in good conscience. However, in restitutionary claims it is for the plaintiff to prove a recognised unjust factor. The authors of Restitution Law in Australia explain the point in this way: [21]
It is wrong to treat the defendant as having a general onus to establish the justice of the receipt or retention of the benefit. The error lies in inconsistency with the idea that there are recognised cases in which a prima facie obligation to make the restitution arises. The idea of a prima facie case asserts that the injustice element of unjust enrichment is a matter which must be proved, not assumed, by bringing the facts within one of the established categories such as mistake.
The inability of the Judge to make any findings about the conditions on which Zirpiadis made the payment precludes any conclusion as to whether retention of the money is unjust.
[21] Keith Mason, John W Carter & Gregory J Tolhurst Restitution Law in Australia Lexis Nexis Butterworth, 2008 at [2204].
Secondly, it undermines the well-established principle that no cause of action arises out of illegality.[22] It is a very strong principle of the law that the Courts will not aid participants in a criminal enterprise by adjudicating on their disputes over the proceeds of their wrongdoing. A total failue of consideration is not in itself a sufficient justification for the recovery of money paid pursuant to an illegal transaction.[23] The Courts should be slow to come to the aid of a plaintiff who proves the payment of money to a defendant, but withholds from the Court the true purpose of the payment because the most obvious reason for the suppression of the truth is illegality. If a plaintiff can successfully bring an action by proving only a payment, which has not been repaid, without proving the purpose of the payment, the illegality principle is easily bypassed.
[22] Holman v Johnson (1775) 98 ER 1120; Parkinson v College of Ambulance Ltd [1925] 2 KB 1; North & Ors v Marra Developments Limited (1981) 148 CLR 42 at 60; Noble v Maddison (1912) 12 SR (NSW) 435; Keith Mason, John W Carter & Gregory J Tolhurst Restitution Law in Australia Lexis Nexis Butterworth, 2008 at [2609].
[23] Carter J Contract Law in Australia, LexisNexis (6th edition) 2012 at 622 citing George v Greater Adelaide Land Development Company Ltd (1929) 43 CLR 91.
Failure to prove unjust retention
Even if the conceptual difficulties are put to one side, the Judge’s finding cannot stand on the evidence. This is an appeal by way of rehearing. As the Judge has rejected the testimony of both Zirpiadis and Alexiadis, the case falls to be determined on the objective evidence, which is little more than the fact of the delivery of the cheques. This Court is therefore in a position to make its own findings of fact.[24]
[24] Warren v Coombes & Anor (1979) 142 CLR 531.
There is great difficulty, in my view, in finding that the money was received in the circumstances which gave rise to an obligation to repay when, as the Judge himself acknowledged, there was insufficient evidence to satisfactorily identify the purpose of the delivery of the cheques. Logically it is only possible to reach the conclusion that the delivery of the cheques was attended by an obligation to repay if, on the evidence in the case, the money was advanced for one of a number of purposes, all of which, raised an obligation to repay. That was not the case here.
The Judge made no finding as to any particular purpose disclosed by the evidence which would carry with it an obligation to repay. Indeed, as I have already recounted, he rejected the lawful purposes of which Zirpiadis testified. The Judge made no finding as to any other reason for Zirpiadis lending money to Alexiadis, or for delivering the cheques to be held on trust. It is not logically possible in those circumstances to make a finding that there was an obligation to repay. It is equally impossible to find that the money was misappropriated in the absence of a finding as to the purpose, or possible purposes, for the delivery of the cheques.
To prove a count of money had and received by reason of a total failure of consideration, Zirpiadis had to prove that:[25]
1He paid the money to the benefit of Alexiadis at his, Zirpiadis’, detriment;
2There had been a total failure of the contemplated return on the payment; and
3In the circumstances it was unjust that Alexiadis retained the advance.
[25] Keith Mason, John W Carter & Gregory J Tolhurst Restitution Law in Australia Lexis Nexis Butterworth, 2008 at [146], [916] and [922]; Equuscorp Pty Ltd v Haxton (2012) 86 ALJR 296 at [28]-[36].
There is no dispute about the first element.
Alexiadis impugns the judgment on the ground that Zirpiadis failed to establish that there had been a total failure of consideration, and that the retention of the money was relevantly unjust. It will be remembered that even though the Judge declined to find that the money was advanced for an illegal purpose, his Honour did not find the converse, that the cheques were delivered for a lawful purpose, and made no finding on the balance of the probabilities as to the purpose of the delivery of the cheques. The Judge did find, as he was entitled to, that, save for the sum of $15,000 to which I earlier referred, the money was not repaid. However, Alexiadis complains that the mere non-payment of the balance of the proceeds of the cheques is not evidence that there was a total failure of consideration when the purpose of the delivery of the cheques remains unknown.
The gravamen of Alexiadis’ complaint is that, having regard to the strong evidence of illegality, it cannot be presumed in this case, as it might in others, that the cheques were delivered for a lawful purpose and in circumstances which render it unjust for Alexiadis to retain the proceeds of the cheques. On the rejection of Zirpiadis’ testimony as to the purposes of the delivery of the cheques, proof of the second and third elements required, as a practical evidential matter, proof, on his part, that the purposes were not criminal. If the cheques were delivered for an unlawful purpose, such as drug production or trafficking, it is not possible to find that their delivery was attended by an obligation to repay because of a total failure of the contemplated return. It would be speculation to find that there had been a total failure of a contemplated criminal return. It is not known whether a cannabis cultivation was commenced but abandoned because of the risk of, or actual, police intervention. It is not known whether a cultivation was successful but the proceeds stolen.
It is equally difficult to find that the proceeds of the cheques were unjustly retained if Zirpiadis delivered them to Alexiadis for a criminal purpose. In Restitution Law in Australia, the authors give an example of a clear case in which restitution is not available, that is, a payment to a contract killer who does not perform the condition on which the payment was made.[26] A payment by Zirpiadis to Alexiadis to establish a cannabis cultivation is an equally obvious case in which the law would not impose a restitutionary obligation. A payment for that purpose could never be characterised as a severable loan which is recoverable despite the criminality. The terms as to the time for repayment and the “interest” consideration for the payment will be inextricably linked to the criminal purpose. Considerations such as those which arise in cases of statutory illegality, or when the criminal purpose is not itself the subject matter of the transaction, are not applicable in a case of a joint enterprise to commit a crime.[27]
[26] Keith Mason, John W Carter & Gregory J Tolhurst Restitution Law in Australia Lexis Nexis Butterworth, 2008 at [2614].
[27] Nelson & Anor v Nelson & Ors (1995) 184 CLR 538; Harry Goudias Pty Ltd v Akakios (2007) 97 SASR 93 at 105-106.
I deal with the question of onus further in [56] to [71] below.
The difficulty in finding that the delivery of the cheques was for a lawful purpose is best illustrated by descending to the particular and imagining some theoretically possible lawful purposes for the delivery. In my respectful opinion it is a matter of “imagining” possible purposes because once the evidence of both Alexiadis and Zirpiadis is rejected, the remaining evidence offers no satisfactory foundation for anything more than speculation.
I deal first with the November 2002 cheques. Having regard to the Judge’s finding that Zirpiadis probably left for a holiday in Greece on 22 November 2002, it might have been the position that he wished Alexiadis simply to hold the money until he returned, but no such explanation was given. In any event, that explanation was inconsistent with Zirpiadis’ failure to demand restitution of the money immediately on his return. The Judge, as I earlier observed, declined to find that the purpose was to defraud the Commonwealth by dishonestly obtaining pension payments.
Obviously enough, the November 2002 cheques were not paid so that Alexiadis might invest it for Zirpiadis in the stock market or some other traditional investment.
No finding could reasonably be made that the November 2002 cheques were advanced to Alexiadis to help with his household expenses. Nor could a finding reasonably be made that they were advanced to Alexiadis so that he might hold it on trust for the education, support and advancement of Zirpiadis’ family. It is fanciful that Zirpiadis might have advanced such a large proportion of the proceeds of sale of his most substantial asset for those purposes and with no security. It is as fanciful to imagine that the November 2002 cheques were delivered for such a purpose as it is to imagine, as Zirpiadis testified, that the 2003 cheques were advanced for that purpose. The Judge having rejected that purpose with respect to the December 2003 advance, it could hardly be accepted as the purpose of the delivery of the November 2002 cheques.
One could continue to list possibilities, such as the ones I have already referred to, in an infinite series but they would all remain fanciful because both Zirpiadis and Alexiadis, for their own reasons, deliberately, as the Judge found, withheld the true purpose.
It is even more difficult to think of a lawful purpose for the delivery of the December 2003 cheque. The possibility of advancing the money on trust or to defraud Social Security is even less likely than it was in November 2002. Having rejected the lawful purpose for the loan claimed by Zirpiadis, the possibility of a different lawful purpose is speculative in the extreme.
The position is simply that the rejection of Alexiadis’ and Zirpiadis’ testimony as to the purpose of the delivery of the cheques left the Judge, and leaves this Court, in the position that it is not possible to satisfactorily identify a lawful purpose for which the cheques were delivered. From that agnostic position, it is impossible to find either that there was a failure of the contemplated return for the delivery of the cheques or that the delivery of the cheques gave rise to an obligation to repay.
Against my view that there is no evidence to support a finding that the cheques were advanced for a lawful purpose which raised an obligation to repay, two items of evidence are suggested as possible sources for such an inference. I deal with each in turn.
The first is that Alexiadis admitted in his defence, and his testimony, that he was obliged to repay Zirpiadis. In the generality of cases, an admission of that kind would be very probative evidence. However, in this case the Judge rejected the very premise which founded the admitted obligation. Alexiadis acknowledged an obligation to pay Zirpiadis the proceeds of the November 2002 cheques only because, on his evidence, they were given to him as part of a scheme to conceal Zirpiadis’ wealth from Ms Tanski. If that were so, there was clearly an obligation to repay, and Alexiadis’ acknowledgement of that obligation is not surprising. However, the Judge rejected Alexiadis’ testimony that the November 2002 cheques were paid for that purpose and the probative force of Alexiadis’ acknowledgement of an obligation to repay necessarily dissipated as a result. It is trite that a Judge may generally reject one part of a witness’ testimony but accept another. However, that proposition is sound only if the parts are not interdependent. It is not logically possible, at least in the circumstances of this case, to reject Alexiadis’ testimony about the purpose of the advance but to hold over against him his acknowledgement of an obligation to repay money which, on this premise, he must have received for some other unknown purpose.
The same reasoning pertains to Alexiadis’ acknowledgement of an obligation to repay the December 2003 cheques. That acknowledgement was premised on Alexiadis’ evidence that he was asked to, and had, cashed a cheque for Zirpiadis. However, that testimony, too, was rejected.
Once it is accepted, as the Judge did, that both Alexiadis and Zirpiadis have dishonestly concealed the real purpose of the delivery of the cheques from the Judge, it is not surprising that Alexiadis also falsely testified that he had repaid the money. No inference that the cheques were delivered in circumstances which were attended with an obligation to repay can be drawn from Alexiadis’ false claim that he had repaid money when the evidence so strongly suggests a criminal purpose. The existence of an unlawful purpose is an equally plausible reason for inventing the false story that he had repaid the money. Even a party to a criminal enterprise might feel bound by an obligation to compensate another party to that enterprise, but the law will not necessarily enforce it.
The other item of evidence which is said to found an inference that the cheques were paid in circumstances attracting an obligation to repay is the finding that Alexiadis was in financially strained circumstances and that he therefore had a motive to misappropriate the proceeds of the cheques delivered by Zirpiadis. The existence of a motive to misappropriate, in the absence of any other evidence, proves nothing about the purpose for which the money was advanced. Nor does it prove anything about whether there was an obligation to repay or that there was a total failure of consideration. In particular, if the cheques were delivered for a criminal purpose, the enterprise might have been embarked upon before it failed.
Ultimately this is a case in which Zirpiadis simply did not prove a particular lawful purpose for the delivery of the cheques and, for that reason, could not prove that there had been a total failure of a contemplated return. Indeed, as I have observed, there is a substantial body of evidence that the purpose was unlawful.
First, the cheques were delivered for relatively large sums without any documentation. Secondly, the cheques were cashed by large withdrawals from several different banks within a short period of time. Thirdly, Zirpiadis delivered the December 2003 cheque even though the proceeds of November 2002 cheques had not yet been returned to him. Fourthly, Zirpiadis delayed much longer than would be expected in bringing the proceedings to recover the proceeds of the cheques if they had been delivered for a lawful purpose. Fifthly, Alexiadis was convicted of offences associated with cannabis production in the period before, between and shortly after the delivery of the cheques. Finally, neither Zirpiadis nor Alexiadis gave any acceptable evidence of a lawful purpose.
The probative weight of the final consideration cannot be overstated. Zirpiadis and Alexiadis must both know the true purpose for the delivery of the cheques and yet both withheld that truth from the Court. I have tried to imagine a lawful, but personally embarrassing, reason for the delivery of the cheques which Zirpiadis may have wished to suppress. The deceit of Ms Tanski might have been such a reason but that relationship had broken down and she gave evidence for Alexiadis. Indeed, Zirpiadis gave two different accounts of the transactions, both of which have been rejected.
The Onus
When a claim in contract is defended on the ground of illegality, the onus of proving that illegality rests on the defendant. It is said that legality is presumed. That principle is illustrated by the decision in Hire Purchase Furnishings Co v Richens,[28] but that case can be distinguished on four grounds.
[28] (1887) 20 QBD 387.
First, Hire Purchase Furnishings was a contract case. The decision in Hire Purchase Furnishings does not hold that the plaintiff need not adduce any evidence of purpose in a claim for money had and received and can rely, instead, on a presumption of legality. The plaintiff, in a claim for money had and received, must prove that the defendant has unjustly retained the money. The rejection of Zirpiadis’ testimony leaves that onus undischarged.
Secondly, the presumption, such as it is, does not assist to prove a total failure of contemplated return. To establish a total failure of consideration an identifiable purpose must be proved. At the very least it must be proved that in all of the possible circumstances in which the money was paid there must have been a total failure of consideration.
Thirdly, in Hire Purchase Furnishings the plaintiff, a corporation in liquidation, adduced evidence of a prima facie lawful contract. The defendant by way of special defence, alleged a statutory illegality by reason of the plaintiff’s failure to prove that the contract was made “for the beneficial purpose of the winding up”, as was at that time required by s 131 of the Companies Act 1882 (Eng). Zirpiadis, having been disbelieved, has not adduced any acceptable evidence of a purpose, lawful or otherwise.
Fourthly, even if, contrary to my view, there is some evidence which could support a finding of a lawful purpose, and an associated failure of the contemplated lawful return, the evidence is not, in the words of Bowen LJ in Hire Purchase Furnishings “equally consistent with the transaction being legal or illegal”. The evidence, for reasons I have just given, more strongly suggests an illegal purpose.
The question of onus in an unjust enrichment claim has been recognised as a complex one.[29] Whether illegality is a true defence or an element of the action is subject to some uncertainty. In particular, it has been observed that where the restitutionary claim is put forward as a cause of action independent of an illegal contract, it is in practice often difficult to be confident as to the placement of the onus.[30] In an illegal contract case the illegality must be established by the party denying the contractual claim before the restitutionary claim can arise.
[29] Keith Mason, John W Carter & Gregory J Tolhurst Restitution Law in Australia Lexis Nexis Butterworth, 2008 at [2601]-[2603].
[30] Keith Mason, John W Carter & Gregory J Tolhurst Restitution Law in Australia Lexis Nexis Butterworth, 2008 at [2603].
However, in this matter that is not the case. Zirpiadis has not proved the existence of any contract and so no occasion for Alexiadis to prove illegality has arisen. In this case Zirpiadis has proved only that which was admitted on the pleadings – the delivery of the bank cheques. That fact alone fails to establish a cause of action.
In Heydon v Perpetual Executors Trustees and Agency Co (WA) Ltd,[31] Perpetual brought an action seeking to recover as money lent, or in the alternative, money had and received, an inter vivos payment of the testator to Heydon. Heydon denied that the deceased had lent her the money. Heydon testified that the testator had given her a cheque and that the testator had insisted that she accept it as a gift. The trial judge held that Heydon carried the burden of establishing that the money was gifted and directed that Heydon be dux litis. The trial judge then treated the case as a claim made by Heydon on the deceased’s estate and, for that reason, held that it required corroboration. The trial judge found against Heydon, not because her account had been disproved by other evidence, but because of the absence of corroboration. The decision was reversed by the High Court which held that the evidence was incapable of establishing the executor’s case and entered judgment for the defendant.
[31] (1931) 45 CLR 111.
Gavin Duffy J, delivering the leading judgment of the court, held:[32]
In this case the plaintiff sued for money lent and money received by the defendant as trustee for the deceased. The defendant denied these allegations and said the money was given to her as a gift. At the trial the learned judge thought that the onus of proving there had been a gift lay on the defendant. We are respectfully of the opinion that the burden of proving the facts in support of either one or other cause of action set out in the statement of claim, lies on the plaintiff.
[32] (1931) 45 CLR 111 at 113.
Dixon J concurred. He added a reference to Aubert v Walsh (“Aubert”),[33] “as a further authority in support of the view that the burden of proof was upon the plaintiff”.
[33] (1812) 4 Taunt. 293; 128 ER 342.
In Aubert the plaintiff brought an action for money had and received. The defendants gave notice of a set off relying on the mere payment to the plaintiff of substantial sums of money by way of cheque. The defendants did not plead the circumstances accompanying the payment of the cheques, nor did they plead on what consideration, or for what purpose, the cheques were delivered. The plaintiff objected that the pleading was bad. Judgment was given for the plaintiff. The rule nisi obtained by the defendant, that the judgment for the plaintiff be set aside, was discharged by the Court of Common Pleas. Mansfield CJ held that proof of the giving of a cheque was, in itself, insufficient to prove a debt. I observe that in Aubert there was no pleading of a gift and the relationship between the parties was a commercial one. The principle for which Heydon and Aubert are authority is therefore not limited to disputes over whether the money was paid by way of gift or loan. For example, in a commercial relationship money may be paid to discharge a pre-existing liability. The point of principle is that it is not for a defendant to plead and prove such a reason for the payment; it is for the plaintiff to prove the facts necessary to bring the claim for repayment within a cause of action at law.
More recently, a contrary position has been taken in England. In Seldon v Davidson,[34] it was held that in a claim for the recovery of money alleged to have been advanced by way of loan, an admission of receipt of the money shifted the persuasive onus to the defendant to prove that the money was a gift.
[34] [1968] 2 All ER 755; 1 WLR 1083.
The decision of the English Court of Appeal was not followed by Jenkinson J in the Supreme Court of Victoria in Joaquin v Hall[35] because it was contrary to the decision of the High Court in Heydon. In that case a plaintiff claimed that the money paid by him to the defendant was by way of a loan repayable on demand. The defendant denied that there was an agreement for a loan and alleged that the money was paid by way of gift. Jenkinson J held that the burden of proof lay on the plaintiff to establish that the money was lent, not given. Jenkinson J distinguished Joaquin in the following way:
First, the analysis of the Court of Appeal appears to treat the defence pleaded as a confession and avoidance. I think the defence in that case, as in this, to be a denial of an essential ingredient in the cause of action. Second, the presumption of an obligation to repay from the fact of payment to a stranger is one which the report of Heydon’s Case shows to have been denied in the High Court. When counsel for the plaintiff contended for a presumption of a resulting trust from the fact of payment, Dixon, J. interposed: “Godefroi, 3rd ed., at p. 195, 4th ed., at p. 145, says chattels which pass by delivery are not within the rule, and the presumption arising from the delivery of them is that a gift was intended, in the absence of circumstances; and in George v. Howard (1819), 7 Price 646, at p. 651; 146 E.R. 1089, at p. 1090, Richards, C.B. says: ‘If I deliver over money … to another, even although he should be a stranger, it would be prima facie a gift.’” Lewin on Trusts (16th ed.) at p. 118 suggests that there are conflicting dicta on the point whether there is a presumption of a resulting trust for the transferor where shares, money or other pure personalty are transferred to a stranger, but none of the cases cited in support of that suggestion throws any doubt, in my opinion, on the proposition that no such a presumption is raised by payment of money to a stranger.
[35] [1976] VR 788.
In this case, Alexiadis has admitted the receipt of the money but he has denied that it was received in the circumstances pleaded by Zirpiadis. Zirpiadis has failed to prove those circumstances. Once it is accepted, as the authorities of Heydon and Aubert require, that the mere receipt of money, does not, without more, establish an obligation to repay, it follows that Zirpiadis has failed to prove the additional necessary elements of any cause of action on which the orders of the Judge could be founded.
When a plaintiff’s action depends on proof of matters which constitute or evidence the illegality, the plaintiff will fail.[36] That principle should not be subverted by upholding a restitutionary claim when the plaintiff has not adduced sufficiently satisfactory evidence to allow a finding to be made as to the conditions on which the payment was made.[37]
[36] Keith Mason, John W Carter & Gregory J Tolhurst Restitution Law in Australia Lexis Nexis Butterworth, 2008 at [2603]; North & Ors v Marra Developments Ltd (1981) 148 CLR 42 at 60; Elder v Auerbach (1950) 1 KB 359 at 371; Noble v Maddison (1912) 12 SR (NSW) 435 at 436; North-Western Salt Co Ltd v Electrolytic Alkali Co Ltd [1914] AC 461 at 469; Donaldson v Freeson (1934) 51 CLR 598 at 611
[37] Parkinson v College of Ambulance (1925) 2 KB ; Keith Mason, John W Carter & Gregory J Tolhurst Restitution Law in Australia Lexis Nexis Butterworth, 2008 at [2630] citing Kearley v Thomson (1890) 24 QBD 742 at 746; Re Mahmoud and Ispahani [1921] 2 KB 716 at 729, 732 and Wilson International Pty Ltd v International House Pty Ltd [1983] WAR 243 for the proposition that the principle of ex-facie illegally applies equally to prevent recovery on an illegal contract and on a restitutionary claim.
I acknowledge that the rejection of the implied contract theory of restitution and its replacement with the concept of unjust enrichment, at a theoretical level, reduces the scope for illegality to defeat an unjust enrichment claim.[38] However, that observation about the change in conceptual analysis should not be misunderstood as indicating greater judicial willingness to assist a payee to recover money paid over in an illegal transaction. Rather, the point of the observation is that a payee who is a party to an illegal transaction is less likely to have established a prima facie case of unjust enrichment and so no occasion to deny the payee’s claim on the ground of illegality will arise. If the payee has established unjust enrichment notwithstanding the taint of illegality, the prevailing conceptual analysis of restitutionary claims promotes, as the authors of Restitution Law in Australia observe, “a more rational inquiry, namely, whether the policy infringed negates the imposition of the liability”.[39] These observations reinforce the importance of establishing the precise grounds on which the retention of the money is unjust by reference to recognised factors or categories.
[38] Keith Mason, John W Carter & Gregory J Tolhurst Restitution Law in Australia Lexis Nexis Butterworth, 2008 at [2607]-[2608].
[39] Keith Mason, John W Carter & Gregory J Tolhurst Restitution Law in Australia Lexis Nexis Butterworth, 2008 at [2608].
Failure to Plead Illegality
The weight of the evidence of unlawful purpose is such as to support a finding that the cheques were delivered for an unlawful purpose. It is not necessary for me to make that finding because of my conclusion that a claim for money had and received is not available in a case in which the payer has not proved the terms of a contract, or conditions, by which he claims that money was paid. It is available only in the case of a proven failure of a proven condition of payment whether by reason of the invalidity of the contract or otherwise. It is also not necessary for me to make that finding because of my conclusion that the plaintiff’s onus, on such a claim, to show that the money was unjustly retained obliges the plaintiff to negative illegality.
Nonetheless, I record my view that it was open to the Judge at trial to find that the cheques were delivered for a criminal purpose if he was so persuaded. It is also open to this Court to do so. For obvious reasons the parties to an unlawful or criminal arrangement may choose not to plead it in a subsequent legal action brought to resolve a controversy between them. However, if the unlawful purpose clearly appears in the evidence, the forensic decisions of one or both of the parties cannot blind the Court to its existence.[40]
In this case the evidence clearly supported an inference of criminality.
Indeed, Zirpiadis claimed in his evidence that the cheques were used for that purpose by Alexiadis without his knowledge. The Judge raised the issue of illegality in the course of submissions. The respondent was made well aware that his account of the purpose of the delivery of the cheques was under challenge. The respondent was well aware of the possible connection between the delivery of the cheques and the appellant’s cultivation of cannabis. Zirpiadis was expressly asked whether he knew of that purpose when he delivered the cheques. He denied any such knowledge.
The appellant’s counsel recognised and acknowledged the strength of the evidence of illegality in his submissions. The circumstance that counsel submitted that the Judge should not make such a finding was no doubt the result of a forensic decision as to what best advanced his client’s case. That decision cannot bind the Court. The circumstance that the respondent was unrepresented makes the position difficult. However, that is a consequence of his lack of representation.
In all of the circumstances, despite the failure to plead a criminal purpose, the trial was conducted in a way which made it clear to the parties that the question was a live one.
The hearing of the appeal in this matter was called back on so that the parties could make submissions on whether or not this Court was in a position to make a finding of criminal purpose having regard to the way in which the trial was conducted. On that hearing, Mr Zirpiadis acknowledged that there was no other evidence which he could have adduced at trial or before this Court on that question. In my view, apart from the difficulties which Mr Zirpiadis faced as a litigant in person at trial and on appeal, he would suffer no prejudice if this Court were to proceed to make its own finding as to purpose because his case depends entirely on his evidence which was rejected by the Judge.
Contract on Terms Unknown
If it is accepted that the Judge’s reliance on a restitutionary cause of action was misplaced, the question arises whether there could be judgment for the plaintiff on a contract that the money was advanced for purposes to be agreed but repayable on reasonable notice when the terms of the contract are otherwise unknown. There are several insurmountable objections to that course. First, the Judge was unable to make a finding differentiating between contract or trust, and I am not prepared to do so. Secondly, for the reasons given earlier, I am not persuaded on the balance of probabilities that there was a contract or trust. The only contract between the parties which I would be prepared to find is a joint enterprise to commit a crime or crimes, which the parties would not have intended to be legally enforceable. Thirdly, as White J has observed, that was not the way Zirpiadis put his case. That is not surprising. A claim based on an agreement to lend money for unspecified purposes immediately raises for enquiry what the contemplated purposes were. That enquiry returns us to the second difficulty because a claim so made, given my view of the evidence, is one in which Zirpiadis would prove the illegality by proving his claim.
Conclusion
Zirpiadis failed to satisfy the persuasive onus on his pleaded case, or on the alternative case he presented through his testimony. I would hold that the restitutionary claim on which judgment was given in favour of Zirpiadis was not proved. It follows that any claim in contract, trust or by way of restitution, must fail. I would allow the appeal and set aside the judgment below. I would order instead that Zirpiadis’ claim be dismissed.
GRAY J.
This is an appeal against a judgment entered in favour of a plaintiff for money had and received.
Introduction
The plaintiff and respondent, Carolos Zirpiadis, claimed by his statement of claim the sum of $90,251.99 as debts due and owing by the defendant and appellant, Nick Alexiadis. In the alternative, Mr Zirpiadis claimed that this sum was advanced pursuant to a partnership agreement between the parties. In the further alternative, Mr Zirpiadis claimed that he had suffered loss and damage as a result of Mr Alexiadis’ default in repayment.No claim was made for money had and received.
By his defence, Mr Alexiadis admitted that he had received advances totalling $90,251.99,[41] but asserted that full repayment had been made. Mr Alexiadis denied that the monies had been a loan and denied the alternative claims advanced by Mr Zirpiadis. Mr Alexiadis claimed that the monies had been advanced to him at the request of Mr Zirpiadis to be held until repaid.
[41] The advances which were admitted totalled $105,251.99. The sum of $90,251.99 was claimed by Mr Zirpiadis because an amount had been repaid.
Mr Zirpiadis was represented until the commencement of the trial. However, he appeared unrepresented throughout the trial and on this appeal. Mr Alexiadis was represented by counsel throughout.
Mr Zirpiadis’ case at trial involved the assertion that all of the monies had been advanced by way of loan to Mr Alexiadis. By the end of his case, it appeared that Mr Zirpiadis was asserting that about $8,000.00 had been advanced by way of loan to enable the establishment of an olive grove plantation, that $50,000.00 was advanced to pay for Mr Zirpiadis’ medical treatment and that the balance had been advanced by way of loan to enable Mr Alexiadis to pay various debts.
Mr Alexiadis maintained that he had repaid the total amount that had been advanced.
The Judge, in published reasons, conducted a detailed review of the evidence. His Honour addressed the credibility and reliability of the witnesses and, in particular, that of Mr Zirpiadis and Mr Alexiadis. The Judge reached the conclusion that both witnesses lacked credibility in important respects. A witness called by Mr Alexiadis gave evidence that, on Mr Alexiadis’ request, he had delivered a bag containing cash to Mr Zirpiadis. The Judge rejected the evidence of this witness. Mr Alexiadis also called Marie Tanski, a female acquaintance of Mr Zirpiadis at relevant times. The Judge generally accepted her evidence.
The Judge addressed the evidence of Mr Zirpiadis as follows:[42]
[Mr Zirpiadis’] evidence has a number of unsatisfactory features. First, it is inherently implausible that [Mr Zirpiadis] a pensioner with limited financial assets, would have given [Mr Alexiadis] and Ms Tanski a total of $100,000 to pay for his possible medical expenses when such payments could have been made by him with money from his own bank account. It is even more unlikely that he would have made such an arrangement before having the operation which he claims was conducted to determine his condition. It should also be observed that [Mr Zirpiadis] never said in evidence that he received medical advice before the operation that he would require post operative treatment, less still treatment costing in the order of $100,000.
If [Mr Zirpiadis] did have an operation on 1 November and was subsequently advised that he did not have cancer or require any further treatment it is likely, for the reasons expressed above, that he would have received the advice within a short time of the operation. Settlement, however, occurred three weeks after the operation. There is no sound reason for [Mr Zirpiadis] failing to cancel his arrangement with [Mr Alexiadis] and Ms Tanski before settlement. Even if [Mr Zirpiadis] did not receive advice about not requiring further treatment until after settlement had taken place, say just before he had demanded repayment from Ms Tanski in January 2003, there is no explanation for his failure to demand repayment from [Mr Alexiadis] until late 2003.
Furthermore, I doubt whether [Mr Zirpiadis] suffered from a serious respiratory condition. On balance I prefer Ms Tanski’s evidence on this topic. Consistent with her evidence I find that [Mr Zirpiadis] developed his respiratory problem some time after he commenced renovating his home at Woodville South in 2002; that it was never suggested to him that he had cancer or any other serious ailment; that he never used oxygen equipment; and, that he did not have surgery on 1 November 2002. As earlier observed, the medical reports tendered by [Mr Zirpiadis] do not advance his claims. As far as I can determine, they are entirely consistent with Ms Tanski’s evidence. It also strikes me as odd that on [Mr Zirpiadis] account he had been receiving ongoing treatment and tests for about 18 months and that following his operation on 1 November 2002 he was still so sick that he could not get out of his house, but by January 2003 treatment was no longer required.
…
I accept Ms Tanski’s evidence that at the time of the relevant events [Mr Zirpiadis] told her that he wanted to place $50,000 into her bank account for the purposes of protecting his pension and expressed to her his intention to ask [Mr Alexiadis] to assist him in the same way. I suspect that [Mr Zirpiadis] may have acted on his declared intention and arranged for [Mr Alexiadis] to receive from him the sum of $58,291 for the same purpose. However, I am not in a position to make any conclusive findings in that regard. The fact of the matter is that neither [Mr Zirpiadis] nor [Mr Alexiadis] suggested that the money was paid into [Mr Alexiadis’] account for such a purpose. There is insufficient evidence to establish otherwise.
[42] Zirpiadis v Alexiadis [2012] SADC 89, [94]-[96], [107].
The Judge found that he was unable to determine the purposes for the advance of the monies in 2002 and 2003. He concluded that the monies were not a gift. He found that there was an obligation on Mr Alexiadis to return the monies, drawing that inference from the pleaded defence that the monies had been repaid. The Judge then concluded that Mr Zirpiadis was entitled to the remedy of restitution on the basis of an unpledged claim for money had and received.
In reaching his conclusion as to restitution, the Judge addressed the High Court authorities of Equuscorp Pty Ltd v Haxton[43] and Roxborough v Rothmans of Pall Mall Australia Ltd.[44] The Judge noted that failure of consideration has been treated as a factor that makes retention of a benefit unjust. His Honour identified the principle behind the concept as being a total failure of the agreed or contemplated consideration. The Judge was not troubled that he was unable to identify the purposes for which the monies were advanced. His Honour’s reasoning rested on the fact that the monies were not gifted and were received in circumstances that gave rise to an obligation to repay. The Judge suspected illegality, but considered that there was insufficient evidence to conclude on the probabilities that the transaction was permeated by illegality. This led his Honour to conclude that there was no need to consider the circumstances where conduct in furtherance of an illegal purpose may defeat a claim for money had and received.
[43] Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498.
[44] Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516.
The Judge made specific findings in regard to the advances of $50,000.00 and $8,251.99 made in 2002. The Judge noted that after Mr Alexiadis had deposited cheques in those amounts, he proceeded to make six withdrawals from separate banks in different amounts over a period of 10 days. The six withdrawals totalled $67,500.00 and, having paid an account of Mr Zirpiadis, Mr Alexiadis retained $58,251.00. Mr Alexiadis claimed that he stored $58,000.00 in cash in the roof of his home. The Judge rejected this assertion, concluding that he was satisfied that Mr Alexiadis misappropriated the monies. The Judge was unable to make any specific finding as to how the monies were used.
The Judge then addressed the $37,000.00 advanced in 2003. The Judge was satisfied that Mr Zirpiadis’ cheque in that amount was deposited into Mr Alexiadis’ bank account on 22 December 2003. On the following day, three cash withdrawals in different amounts were made from different branches of the bank. The amounts were $8,000.00, $12,000.00 and $15,000.00. A further $1,000.00 was withdrawn from an ATM at Salisbury.
The Judge rejected Mr Zirpiadis’ claim that the advance of $37,000.00 was an interest-free loan to help Mr Alexiadis meet bills for council rates, housing expenses and private tuition fees. In part, the Judge found this claim to be implausible, having regard to the failure of Mr Alexiadis to repay the earlier advance. The Judge also noted that, at the time, Mr Zirpiadis was in the process of purchasing a property and, having withdrawn $50,000.00 for that purpose, he was left with only $3.00 in his account.
At the same time, the Judge rejected Mr Alexiadis’ evidence that Mr Zirpiadis visited his home and, without explanation, requested Mr Alexiadis to cash the cheque. The Judge also rejected Mr Alexiadis’ assertion that he had stored monies in the roof of his home before making repayment in cash.
Unsurprisingly, the Judge considered the evidence of both parties to be totally lacking in credibility and reliability. In the view of the Judge, there was a real possibility that the monies were earmarked for use in an illegal venture and that the parties hoped that if the venture was successful, Mr Alexiadis would be able to repay to Mr Zirpiadis all of the monies, and possibly more. The Judge noted that within a few months of receiving the monies, Mr Alexiadis was arrested in New South Wales in relation to a large cannabis cultivation. Shortly thereafter, he was found in unlawful possession of $56,000.00. The Judge expressed the view that he was highly suspicious that the whole transaction was tainted by illegality. However, he accepted the submission of counsel for Mr Alexiadis that there was insufficient evidence for a finding that the monies were in fact advanced for illegal purposes.
The Judge, as discussed above, had considerable reservations about the credibility and reliability of both Mr Zirpiadis and Mr Alexiadis. The Judge was not prepared to accept either party’s evidence concerning the purposes of the advances. The Judge’s reservations would appear to be well-founded.
Mr Zirpiadis presented a very different case in evidence to that pleaded. No satisfactory explanation was provided for his change of position. The Judge speculated that a portion of the advances was made in an effort to avoid a reduction in Mr Zirpiadis’ pension entitlements, or alternatively, that advances were made for other illegal purposes associated with the drug trade. However, the Judge was unable to make any findings as to these matters.
Mr Alexiadis had a history of criminal offending. His offending included dealings in illicit drugs. This offending occurred in circumstances which gave rise to the inference that he was in financial difficulty at relevant times. The Judge rejected Mr Alexiadis’ evidence that, following the withdrawal, he had kept substantial cash in his ceiling.
There was no challenge to the Judge’s conclusions on the lack of credibility and reliability of the parties. Those conclusions were plainly open on the evidence.
The Appeal
Mr Alexiadis’ complaints on appeal raise an issue of procedural fairness. It was said that the Judge decided the claim on the basis of a cause of action which had not been pleaded, had not been advanced at trial and had not been the subject of any consideration or submission at trial. It is said that the Judge erred in not dismissing the claim as the pleaded causes of action had been abandoned and, in any event, had not been made out.
Further, the findings of unjust enrichment and of a failure of consideration were said to be flawed. It was complained that the Judge erred in concluding that there were no defences available to a claim of unjust enrichment. In particular, it was said that Mr Alexiadis was not afforded an opportunity to lead evidence or advance any defence to a claim of unjust enrichment.
The Approach of the Appeal Court
This Court, in the circumstances of this proceeding, is in the same position as the trial Judge in drawing inferences once the Judge’s findings of credibility and reliability are accepted. In Fox v Percy, Gleeson CJ, Gummow and Kirby JJ relevantly observed:[45]
[45] Fox v Percy (2003) 214 CLR 118, [25]-[27].
Within the constraints marked out by the nature of the appellate process, the appellate court is obliged to conduct a real review of the trial and, in cases where the trial was conducted before a judge sitting alone, of that judge's reasons. Appellate courts are not excused from the task of "weighing conflicting evidence and drawing [their] own inferences and conclusions, though [they] should always bear in mind that [they have] neither seen nor heard the witnesses, and should make due allowance in this respect". In Warren v Coombes, the majority of this Court reiterated the rule that:
"[I]n general an appellate court is in as good a position as the trial judge to decide on the proper inference to be drawn from facts which are undisputed or which, having been disputed, are established by the findings of the trial judge. In deciding what is the proper inference to be drawn, the appellate court will give respect and weight to the conclusion of the trial judge but, once having reached its own conclusion, will not shrink from giving effect to it."
As this Court there said, that approach was "not only sound in law, but beneficial in ... operation".
After Warren v Coombes, a series of cases was decided in which this Court reiterated its earlier statements concerning the need for appellate respect for the advantages of trial judges, and especially where their decisions might be affected by their impression about the credibility of witnesses whom the trial judge sees but the appellate court does not. Three important decisions in this regard were Jones v Hyde, Abalos v Australian Postal Commission and Devries v Australian National Railways Commission. This trilogy of cases did not constitute a departure from established doctrine. The decisions were simply a reminder of the limits under which appellate judges typically operate when compared with trial judges.
The continuing application of the corrective expressed in the trilogy of cases was not questioned in this appeal. The cases mentioned remain the instruction of this Court to appellate decision-making throughout Australia. However, that instruction did not, and could not, derogate from the obligation of courts of appeal, in accordance with legislation such as the Supreme Court Act applicable in this case, to perform the appellate function as established by Parliament. Such courts must conduct the appeal by way of rehearing. If, making proper allowance for the advantages of the trial judge, they conclude that an error has been shown, they are authorised, and obliged, to discharge their appellate duties in accordance with the statute.
[Footnotes omitted.]
These observations guide my approach to this appeal.
Procedural Fairness
On the topic of the failure to plead or claim for money had and received, the Judge, at the conclusion of his reasons, observed:[46]
In conclusion, I should indicate that [Mr Zirpiadis’] failure to plead the claim upon which I am prepared to grant relief has not, in my opinion, caused any relevant prejudice to [Mr Alexiadis]. [Mr Zirpiadis’] departure from his pleadings was obvious from the beginning of the trial. There was no suggestion by … counsel for [Mr Alexiadis], that it would be unfair to proceed with the trial in those circumstances.
[46] Zirpiadis v Alexiadis [2012] SADC 89, [141].
On the hearing of the appeal, no evidence was advanced to support the allegation of a want of procedural fairness. The submissions advanced by Mr Alexiadis relied on the transcript from the trial.
Following Mr Zirpiadis’ opening, counsel for Mr Alexiadis raised the question of whether the claim should be dismissed. The following interaction occurred:
[COUNSEL FOR MR ALEXIADIS]: The obvious comment about the opening is that it bears no relationship to the pleadings. The pleaded case is that there was a loan agreement. He's given no evidence of a loan agreement. The pleaded case is that he entered into a partnership as the caveat claims, a partnership. There is no mention of a partnership.
HIS HONOUR: That may be to your advantage.
[COUNSEL FOR MR ALEXIADIS]: Obviously so, but this is going to be a difficult case however it pans out. What are we to do when the opening bears no relationship to the pleaded case?
HIS HONOUR: Ordinarily, if you were suffering from some forensic difficulty, you would have an adjournment to deal with the forensic issues, but would you really want it in this case?
[COUNSEL FOR MR ALEXIADIS]: Not so much. I'm just trying to bring to mind a case I was involved in 15 years ago. After the opening, Debelle J granted judgment for the defendant because all the matters in the opening proved it didn't make out the pleaded case. I don't really know if he was caught on the hop. I assume [Mr Zirpiadis] was going to say he entered into a loan agreement. One of the problems with the case in the way it's pleaded, there are alternatives applied which are not really alternatives. Either you agreed in 2002 to enter into a partnership and you arranged money for the purpose of the partnership or you agreed in 2002 that $68,000 was a loan. It's got to be one or the other because if you came into an agreement, it's impossible that you came to both of those agreements. It's got to be one or the other. The problem is in the opening, the partnership has been abandoned. It seems there's no suggestion there was a partnership about the olive groves. There are very elaborate pleadings as to how the partnership was to work, who it was do what, pleaded at great length. Are we to understand that the partnership is abandoned then because there was no mention of it in the opening?
HIS HONOUR: There is at least a loan in the sum of $8,000, isn't there?
[COUNSEL FOR MR ALEXIADIS]: Yes.
HIS HONOUR: Arguably.
[COUNSEL FOR MR ALEXIADIS]: Arguably the rest of its status is now unclear. It's certainly not said to be a loan. Almost like a holding of money in some way, but we wouldn't want to lose the case on some restitution ground that is not pleaded.
HIS HONOUR: I would be loath to adopt the approach Debelle J took in the case of unrepresented litigants.
[COUNSEL FOR MR ALEXIADIS]: No, I understand that, that is the difference. I think it was Nicholson v Bank SA but I can't find it. There was legal representation; a different matter. I'm content with your Honour's proposition about the opening being evidence-in-chief if that is what your Honour is suggesting and we go into cross-examination, unless [Mr Zirpiadis] wishes to say anything else?
At the conclusion of Mr Zirpiadis’ case, no application was made for judgment to be entered in favour of Mr Alexiadis. There was no submission that Mr Zirpiadis’ case failed in that his pleaded cause of action had either been abandoned or was not supported at all by the evidence.
Counsel for Mr Alexiadis opened the case with the following statements:
Just a brief opening. We came to meet two cases; a case of a loan and a case of partnership. Given the evidence, the partnership seems to have been abandoned or accepted it didn't exist. The evidence is very clear that there was no partnership. There was no intended partnership. What [Mr Zirpiadis] said was he gave a loan of $8,000 to expand that to $20,000 to plant some olives. The partnership appears to have disappeared, although there is a credit issue, obviously. The other claim which is raised is the whole amount of the moneys advanced were advanced by way of loan, that is what the pleading said but the evidence is contrary to that from [Mr Zirpiadis]. He doesn't now say that that was all a loan. I think the only fair reading of his evidence, the only amount that was a loan was $8,000, the balance being held for safekeeping. That's about as clear as it seems to be.
The Judge then raised the question of unjust enrichment. This led counsel for Mr Alexiadis to make the point that a claim for unjust enrichment had not been pleaded and, following a short discussion on that topic, counsel then said:
In answer gently to the proposition, anyway we say all the moneys had been returned and [Mr Alexiadis] will give evidence about returning the first wad of money and then a separate witness I refer to, Mr Turner, he will give evidence about returning the second lot of money. So if your Honour accepts that evidence, of course it doesn't matter what the nature of the claim is, it's been returned. Our case is there was never a partnership.
Counsel then outlined the evidence to be presented, including the assertion that the monies had been repaid by an associate of Mr Alexiadis delivering a bag of cash to Mr Zirpiadis. Counsel concluded by informing the Judge, “[s]o the case will largely turn on your Honour’s findings of credit”.
It is relevant to observe that counsel for Mr Alexiadis raised no objection to the trial proceeding. It is apparent that Mr Alexiadis was prepared to have the case fought out on the question of whether or not there had been a repayment. One can understand the tactical reasons for such an approach. Mr Zirpiadis had departed materially from his pleaded case in a way that could be expected to reflect poorly on his credit. Mr Alexiadis was to give evidence of repayment which was to be supported by the evidence of the associate who was to depose to the delivery of the bag of cash. The other alternative would, in all probability, have led to an application to formally amend the pleadings to specifically plead a claim for money had and received and, if necessary, provide particulars of unjust enrichment. Presumably, Mr Alexiadis did not want this to occur.
At the conclusion of the evidence, Mr Alexiadis’ counsel addressed the Court first. He commenced with a submission that it was accepted that there was no onus on Mr Zirpiadis to prove that there had been no repayment. The onus was on Mr Alexiadis to prove the fact of repayment. The following interchange occurred:
[COUNSEL FOR MR ALEXIADIS]: Firstly, a couple of things. I hand up one case to your Honour which sort of may stand against us, but it's really a facts case. The case I hand up is the case of Young in the High Court. I hand it up to your Honour because it deals with the question of onus in relation to whoever is in acknowledged receipt of money and a defence of repayment. It's against us in the sense that it makes clear that the onus is not on [Mr Zirpiadis] to prove no repayment but on [Mr Alexiadis] to prove actual repayment. So that's probably a foundation, a legal proposition for your Honour to read, and I don't propose to read it to you, but it seems to be of the leading case of onus in these sorts of cases where it's clear that the money was not intended to be a gift. What the money was is still unclear but it's certainly not intended to be a gift.
HIS HONOUR: So is the action in those circumstances money had not received.
[COUNSEL FOR MR ALEXIADIS]: I was going to suggest that to your Honour. The full term of that is money having received to the use of a plaintiff, I think that's as close as we're going to get.
Counsel for Mr Alexiadis then drew the Judge’s attention to an academic text on the law of restitution in Australia as follows:
HIS HONOUR: Thank you very much for referring me to Young.
[COUNSEL FOR MR ALEXIADIS]: That's all right, it's part of my duty even if it doesn't particularly assist. I haven't brought it with me, but if your Honour wishes to research how this all sits together, I think there's a book called 'Mace & McArthur: the Law of Restitution in Australia' the textbook. Certainly in the Supreme Court library there's [sic] various editions, but the Supreme Court library has got a number of copies of that book. It deals with an obligation to repay money relies on restitutionary circumstances, certainly it deals with money having received. So that would be the starting point if your Honour wishes to explore that.
HIS HONOUR: Thank you very much.
Counsel then proceeded to develop his submissions as to the credibility and reliability of the witnesses and the reasons why the Judge should reach the conclusion that Mr Alexiadis had satisfied the onus that he had repaid the monies advanced.
A review of the transcript of the proceedings and, in particular, the passages set out earlier in these reasons, demonstrates that Mr Alexiadis was aware that the Judge was considering the claim as being a claim for the repayment of money had and received.
Once the Judge had determined to allow Mr Zirpiadis to advance a claim for money had and received, it was important that the claim be adequately particularised. It was necessary for Mr Zirpiadis to plead his case of unjust enrichment.
The purpose of pleadings is to define the issues between the parties and to give fair notice of the claim being made against a party.[47] On this topic, King CJ in Williams v Australian Telecommunications Commission relevantly observed:[48]
… The fundamental purpose of pleadings is to provide a structure or framework for the litigation designed to promote a just outcome. Pleadings achieve this purpose by performing two basic functions. The first is to define the issues between the parties thereby providing the basis for the determination of questions as to discovery before trial and admissibility of evidence at trial and of questions as to what the litigation has decided for the purpose of the Rules as to res judicata and issue estoppel. The second function is to give to the parties fair notice of the case to be made against them at trial thereby minimising the risk of injustice resulting from surprise. …
[47] Williams v Australian Telecommunications Commission (1988) 52 SASR 215, 216.
[48] Williams v Australian Telecommunications Commission (1988) 52 SASR 215, 216.
The Judge did not make an explicit finding as to when the misappropriation occurred. However, evidence in the form of bank statements showed a series of cash withdrawals from the defendant’s bank account, totalling $65,026.16 within two weeks of the defendant’s receipt of the monies in November 2002.[89] Another bank statement shows cash withdrawals totalling $36,000 from the defendant’s bank account within one week of his receipt of the second advance. This suggests that the misappropriation occurred in each case almost immediately after the defendant’s receipt of the monies. There is no indication that the plaintiff was aware of the misappropriations at the time that they occurred.
[89] These withdrawals must have included the $10,000 repaid to the plaintiff on 25 November 2002.
In effect, the Judge found that, whether the monies had been provided as a loan or on trust, they had been advanced in circumstances giving rise to an obligation to repay, and that the defendant had misappropriated them by using them for a purpose other than that for which they were advanced and in a way which precluded repayment. Understood in this way, there was a failure of consideration because of the defendant’s failure to perform his promise. This is the sense of total failure of consideration discussed by McHugh J in Baltic Shipping Co v Dillon:[90]
When a contractual payment is made conditionally upon the performance of a promise by the payee, the right to retain the moneys after discharge of the contract is dependent upon whether the promise has been performed. If the promise has not been performed, there has been a total failure of consideration by reason of the non‑fulfilment of the condition, and the money is recoverable as money had and received to the use of the payer. In this context, consideration is not necessarily the same concept as the consideration which supported the formation of the contract. In a case where a promise and not an act or forbearance is the consideration for the contract, it is the performance of the promise which constitutes the consideration for the purpose of the law of restitution. As Birks says:
Failure of the consideration for a payment … means that the state of affairs contemplated as the basis or reason for the payment has failed to materialise or, if it did exist, has failed to sustain itself.
Furthermore, where the condition upon which the money was paid has failed, the payer is entitled to the return of the money advanced, even though that person has obtained some benefit from the contract.[91]
(Citations omitted)
This is also the meaning to which the plurality in Equuscorp[92] referred in the passage quoted earlier in these reasons.
[90] (1993) 176 CLR 344. See also David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 382.
[91] Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 389.
[92] Equuscorp Pty Ltd v Haxton [2012] HCA 7; (2012) 86 ALJR 296.
In my opinion, it is immaterial that the plaintiff did receive some repayment in November 2002 and again in April 2004. The law looks to the purpose for which the payer made the payment, and the question is whether that purpose was fulfilled.[93] The defendant’s misappropriations almost immediately after the two advances meant that it was not fulfilled in the present case.
[93] Ibid at [31]; 308.
Accordingly, it was open to the Judge to find that the appellant had been unjustly enriched by his use of the monies for his own purpose. This Court, which intervenes on appeal in the event of established error, should respect that finding. For this reason, I consider that the defendant’s second ground of appeal also fails.
I add that in my opinion it may have been inappropriate for a different reason for the Judge to award a restitutionary remedy. That is because it seems possible that the plaintiff had a remedy in contract. The Judge’s findings seem to permit an analysis that the plaintiff advanced the monies to the defendant on terms that the monies would be held or used by the defendant for a purpose or purposes agreed, or to be agreed, between the parties but in any event obliging repayment to the plaintiff on reasonable notice. The defendant breached that contract (or contracts) by appropriating the monies for his own use and purposes. This suggests that the plaintiff may have had a remedy by way of damages for breach of contract. If the plaintiff did have such a remedy, then it would have been inappropriate for the Judge to grant a restitutionary remedy.
As already seen, this is not the way in which the plaintiff advanced his case at the trial. However, the fact that this analysis is available suggests that this Court should be reluctant to allow the appeal on grounds relating to unjust enrichment if the effect would be to deny the plaintiff any recovery altogether. Alternatively, if the remedy in unjust enrichment was to be disallowed on the basis that the plaintiff has a remedy in contract, it would be appropriate for this Court to re‑visit the question of a remedy in contract. That is because, on the Judge’s findings, it would be incongruous that the plaintiff should not be entitled to recover monies advanced to a defendant who, although receiving them subject to an obligation to repay, misappropriated them for his own purposes. However, I take the view that it is unnecessary for this Court to re‑visit the question of a remedy in contract.
I add that the defendant did not contend on the appeal that a remedy in restitution was inappropriate because of the availability of a remedy in contract.
Illegality
Since preparing and circulating the body of the above reasons, I have been provided with the reasons of Kourakis CJ and of Gray J. Each takes a different view as to the outcome of the appeal and each would conclude, in any event, that the plaintiff provided the monies to the defendant for an illegal purpose and accordingly that any claim in contract, trust or restitution must, for that reason alone, fail. Respectfully, I do not share that view.
First, a decision based on illegality would mean that the plaintiff’s claim has been determined against him on a basis which was not agitated at the trial. As noted in the body of my reasons, it was incumbent on the defendant, if he wished to raise illegality in relation to the plaintiff’s contract, to plead that in his defence, and he did not do so. Apart from Ms Tanski’s evidence concerning the protection of the plaintiff’s pension entitlements, the topic of illegality arose at the trial only because of some interventions by the Judge. During the course of the plaintiff’s cross‑examination, the Judge asked the following questions:[94]
[94] T66-7.
QDid you know he was growing marijuana in 2002?
ANo.
QWhen did you find out about that?
A[When] he tried to adjourn the court case here.
QWhen did you find out that he was growing marijuana.
ALast December.
…
QYou didn’t find out during 2002?
ANo, he wouldn’t say anything.
QDid you find out that he was growing marijuana in New South Wales during 2003?
AThrough this application for adjournment of the case last December.
QSo you first became aware of him growing marijuana in December last year?
AThat’s right.
QThese monies that you gave him had nothing to do with growing marijuana?
ANo way, I wouldn’t.
All but the last of the Judge’s questions went to the plaintiff’s possible knowledge of the defendant’s marijuana growing. Only the last question related to the purpose for which the plaintiff had advanced the money.
It seems that the Judge asked these questions because of the pleading in the defence that the Farrell Flat land had, since July 2002, been at risk of being seized by the Crown because of an allegation that it had been used to grow marijuana. The Judge’s reference to marijuana growing was the first such reference in the trial.
There were no other questions to the plaintiff concerning a possible illegal purpose for his advances to the defendant.[95] It is also to be observed that the last of the Judge’s questions related only to a specific form of illegal purpose.
[95] The defendant’s counsel did (at T67) ask one question of the plaintiff concerning his knowledge of the defendant’s marijuana growing, but there was no suggestion that the plaintiff had any involvement, whether direct or indirect, in that cultivation.
The next reference to possible illegality occurred in the cross‑examination of the defendant, and again was raised in questions from the Judge:[96]
QDid you borrow money from him to help grow cannabis?
ANo.
QIs that why you borrowed a large amount of money from him. Is that why he gave you a large amount of money at the end of 2002?
ANo.
QIs that why he gave you a large amount of money in late 2003 before you got involved in growing cannabis in New South Wales in 2004?
ANo.
[96] T146.
Apart from Ms Tanski’s evidence concerning pension entitlements, that was the extent of the evidence concerning a possible illegal purpose for the advances, although the Judge did ask the defendant several questions concerning his own involvement in growing marijuana.
During the final address of counsel for the defendant, the Judge raised with him a number of possible purposes for the advances. The third of the Judge’s alternatives was that the monies had been advanced because the plaintiff wished, in effect, to “hide” his assets in order to protect his pension eligibility. The fourth was that the monies were advanced “for some other illicit reason, for example, as part of a joint venture between the plaintiff and the defendant, and perhaps other persons, to grow marijuana”.[97]
[97] T227.
In response, the defendant’s counsel noted (in effect) that illegality had not been pleaded and noted the effect in law of a finding that a contract had been made for an illegal purpose. He also referred the Judge to a relevant authority, Harry Goudias Pty Ltd v Akakios.[98] However, although it may have suited the defence position in the trial, counsel did not adopt the Judge’s suggestion and instead submitted that there was insufficient evidence for a finding of illegal purpose to be made.[99] During the course of the plaintiff’s final submissions, the Judge did not raise with him at all any issue concerning possible illegality,[100] nor did he point out to the plaintiff the possible significance in the trial of a finding that the monies had been advanced for an illegal purpose.
[98] [2007] SASC 81; (2007) 97 SASR 93.
[99] T227.
[100] Passages in the plaintiff’s final address at T257-8 and 268 appear to be a denial on his part of any involvement in, or advancement of monies for the purpose of, drug cultivation.
In these circumstances, it is readily understandable that, in relation to the advance in 2002, the Judge did not make any reference in his reasons to a possible illegal purpose, apart from his allusion to the possibility that, as with the advance to Ms Tanski, the plaintiff had been attempting to protect his pension by avoiding holding money in his own name.[101]
[101] Zirpiadis v Alexiadis [2012] SADC 89 at [107].
In relation to the monies advanced in 2003, the Judge did go further, saying:
I find that the evidence given by both the plaintiff and the defendant on this issue is entirely unsatisfactory. I believe that the sum of $37,000 was advanced for a purpose which neither the plaintiff nor the defendant wanted to disclose. In my view, there is a real possibility that the money was earmarked for investment in an illegal venture and that the parties hoped that if the venture was successful, the defendant would be able to repay to the plaintiff all of the money he had advanced and possibly more. Interestingly, within a few months of receiving the money the defendant was arrested in relation to a large cannabis cultivation in New South Wales and, a short time later, was found in unlawful possession of $56,000. Although I am highly suspicious, I accept Mr Dart’s submission that there is insufficient evidence for a finding that the money was in fact advanced for illegal purposes.[102]
However, despite his belief that the sum of $37,000 had been advanced for a purpose which neither the plaintiff nor the defendant were willing to disclose, the Judge accepted expressly the defendant’s submission that there was insufficient evidence for a finding of illegal purpose.
[102] Ibid at [123].
When regard is had to the actual evidence concerning agreement for an illegal purpose referred to above, it can be seen that the quoted passage amounts to speculation by the Judge. There was no foundation in the evidence for a finding of fact to be made in accordance with that speculation and the final sentence in the quoted passage indicates that the Judge accepted that that was so.
This is not a case in which the advances were manifestly illegal, so that relief should be refused, even in the absence of a pleading or allegation by a party.[103]
[103] Cf North Western Salt Company Ltd v Electrolytic Alkali Company Ltd [1914] AC 461 at 469; Edler v Auerbach [1950] 1 KB 359 at 371; Birkett v Acorn Business Machines Ltd [1999] 2 All ER (Comm) 429.
The defendant’s grounds of appeal and his summary of argument did not raise illegality. In the original oral submissions of the defendant’s counsel on appeal, the issue was touched on but only in a limited way. The plaintiff made only a vague allusion to the topic in his submissions to this Court.
The obligations of courts in litigation involving litigants in person are well established. The relevant principles have in the main been developed in relation to criminal prosecutions, but they also have application in civil proceedings. Courts are under no obligation to advise unrepresented litigants how to conduct their cases but they should attempt to diminish, so far as is possible, the disadvantages which litigants in person suffer by reason of being unrepresented.[104] This usually requires courts to ensure that litigants in person are fully aware of the substantive and procedural aspects of the case, thereby allowing them to make effective choices.[105] The degree of assistance in a given case will vary according to the circumstances.[106] One relevant circumstance will be the extent to which the court can be satisfied that the litigant in person has received legal assistance in relation to preparation and conduct of the case.
[104] Rajski v Scitec Corporation Pty Ltd (1986) (Unreported, New South Wales Court of Appeal, Kirby P, Samuels and Maloney JJA, 16 June 1986) (Samuels JA).
[105] Kenny v Ritter [2009] SASC 139 at [18]; (2009) 263 LSJS 158 at 161-2 (Gray and Layton JJ).
[106] Ibid at [23]; 163.
In the present case, the Judge did not give any explanation at all to the plaintiff as to the potential implications of the illegality issue which he himself raised. Nor on the original hearing of the appeal, did this Court provide the plaintiff with any such explanation. There is no indication that the plaintiff has been advised independently of the significance of a finding of unlawful purposes for his advances, whether at first instance or in relation to the appeal, so as to be given the opportunity to address it meaningfully. It would be unrealistic to infer that the plaintiff would have understood from the Judge’s questions to the defendant’s counsel the possible implications of a finding of illegal purpose. That is to say, there does not seem to be present any circumstance which would have relieved the Judge, or this Court, from their respective duties with respect to assisting the unrepresented plaintiff in relation to this issue.
In part because of these difficulties, the Court called the matter back on for further hearing. It invited submissions from the parties on two issues, one of which was whether it was open to this Court to make a positive finding that the plaintiff had caused the cheques to be delivered to the defendant, knowing that the proceeds would be used for a criminal purpose. At the same time, the Court encouraged the parties to have representation by counsel at the further hearing.
At the further hearing, the defendant’s counsel submitted that, despite the evidence and attitude of the defendant at trial, it was open to this Court to make a finding that the monies had been advanced for use in a criminal enterprise of the defendant himself. This was not an attractive submission given the limited grounds of appeal advanced by the defendant. There is, in any event, an obvious tension between a litigant denying on his oath an illegal purpose but, when it suits his purpose, inviting the Court to find such a purpose but without being willing to inform the Court in a proper way of that purpose. Courts should be slow to allow litigants to adopt such positions.
As the submissions of the defendant’s counsel on the further hearing proceeded, it became apparent that they involved an invitation to this Court to engage in a form of speculation about a variety of possible criminal purposes.
In my respectful opinion, this Court should reject that invitation. The defendant’s submission ignored the manner in which the trial had been conducted, including the fact that he had then positively disavowed such a suggestion. If the defendant wishes to advance illegality, he should do so in a context in which he can be cross‑examined, on his oath, on the topic. This Court should not readily condone the circumstance of a party to civil litigation inviting the Court, for his own perceived advantage, to find that he participated in a transaction illegally, but without particularising the illegality and without submitting himself, if required, to cross‑examination on the matter so particularised.
It should be remembered that the making of submissions on appeal is not the same as debating a topic in the abstract. In that circumstance, one has the freedom to advance possibilities, reasonable or otherwise, within the context of the topic being debated. An appeal, on the other hand, takes place in the context of the conduct of the parties in the trial, the content and course of the evidence at trial, the positions of the parties in relation to that evidence, and the reasons of the trial Judge.
Regrettably, the plaintiff was still unrepresented at the time that this Court heard further submissions. The limitations on his ability to make useful submissions on the topic of whether he had knowledge of an illegal purpose were obvious. It is not at all apparent that the plaintiff understood the potential significance of a finding of knowledge of illegal purpose. In addition, the plaintiff was invited simply to rely on his evidence at the trial at which (other than in the respects outlined earlier) illegality had not been an issue.
The position with respect to the possibility that the plaintiff could have led further evidence or, at least, have pointed to the omission of the defendant to adduce evidence apparently available to him, is a little unsatisfactory. At the further hearing, the following exchange occurred:
QMr Zirpiadis, can I ask you this: when you gave Mr Alexiadis the cheques, or at any time when you spoke to him about the cheques, was there anyone else present?
ANo. His wife knew about it, and ... conversation.
QYes, but no one independent of him was ever present in any conversation you had with him –
ANo, I –
QJust a minute – when you delivered the cheques or when you talked to him about the cheques?
ANo, there was nobody else present.
In my respectful opinion, it would not be safe on the basis of this exchange to conclude that there was no further evidence available to be led at trial by either the plaintiff or the defendant on the topic of illegality. It is not entirely clear whether the plaintiff was answering in the negative to one or both of the alternatives in the questions. Nor is it clear whether the plaintiff was referring, in his answer, to both advances. Further again, although the questions were intended to refer to discussions preceding, or accompanying, the delivery of the cheques, it is not clear that the plaintiff understood that. It is also to be remembered that the plaintiff had not himself delivered the cheques to the defendant in November 2002: that had been done by the conveyancer.
It can also be seen that while the plaintiff answered the questions in the negative, he did suggest that the defendant’s wife had some knowledge of the purpose of the advances. The basis of that knowledge was not explained or explored.
In these circumstances, I consider, with respect, that this Court cannot be satisfied that, had the issue of illegality been raised properly at trial, no further evidence could, in any event, have been led.
Finally on this aspect of the matter, I again note that on the appeal the defendant did not challenge any of the Judge’s findings of fact.
In summary, pension eligibility aside, illegality was not raised as an issue at trial by either party; it was raised as an issue by the Judge but, with one exception, only with the defendant; the Judge did not make any finding of illegality; no ground of appeal complained that the Judge had not made such a determination; in circumstances in which there is no indication that the plaintiff has been independently advised of the implications in law of a finding of illegality, neither the Judge nor this Court has given him an explanation of that significance; and, finally, apart from some vague allusions, the plaintiff did not address any submissions at trial, or on appeal, to the issue of illegality. In my respectful opinion, these circumstances make it inappropriate for this Court to make a positive finding that the plaintiff advanced the monies to the defendant for an illegal purpose or, at the time of the advances, had knowledge that the monies would, or may, be used by the defendant for an illegal purpose.
The second matter I wish to address is the effect of a finding of illegality. In my respectful opinion, it is inappropriate to reason from a finding of illegality that a plaintiff’s claim for relief, in contract, trust or restitution, will necessarily fail. The statement of Lord Mansfield in Holman v Johnson[107] that “[n]o court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act” is not to be applied in a literal or absolute manner. Instead, a finding of illegality is an occasion for the exercise of a broad discretion. In Nelson v Nelson,[108] McHugh J, having made the observation, went on to note that Lord Mansfield’s dictum is subject to exceptions which allow relief to be granted despite the presence of illegality and continued:
First, the courts will not refuse relief where the claimant was ignorant or mistaken as to the factual circumstances which render an agreement or arrangement illegal. Second, the courts will not refuse relief where the statutory scheme rendering a contract or arrangement illegal was enacted for the benefit of a class of which the claimant is a member. Third, the courts will not refuse relief where an illegal agreement was induced by the defendant’s fraud, oppression or undue influence. Fourth, the courts will not refuse relief where the illegal purpose has not been carried into effect.[109]
(Citations omitted)
Later in Nelson, McHugh J elaborated on the circumstances in which illegality should not preclude a grant of relief:
Accordingly, in my opinion, even if a case does not come within one of the four exceptions to the Holman dictum to which I have referred, courts should not refuse to enforce legal or equitable rights simply because they arose out of or were associated with an unlawful purpose unless: (a) the statute discloses an intention that those rights should be unenforceable in all the circumstances; or (b)(i) the sanction of refusing to enforce those rights is not disproportionate to the seriousness of the unlawful conduct; (ii) the imposition of the sanction is necessary, having regard to the terms of the statute, to protect its objects or policies; and (iii) the statute does not disclose an intention that the sanctions and remedies contained in the statute are to be the only legal consequences of a breach of the statute or the frustration of its policies.[110]
[107] (1775) 1 Cowp 341 at 343; (1775) 98 ER 1120 at 1121.
[108] (1995) 184 CLR 538.
[109] Ibid at 604-5.
[110] Ibid at 613.
In Harry Goudias Pty Ltd v Akakios,[111] Gray J (with whom Doyle CJ and David J agreed in substance) identified a number of the questions to be answered before relief should be refused on the grounds of illegality. It is not necessary to quote that passage presently. It is sufficient to record my view that the manner in which the issue of illegality was raised at trial, and the Judge’s approach to it, makes it impossible for this Court to address those questions and to conclude that relief to the plaintiff should be refused on the ground of illegality.
[111] [2007] SASC 81 at [52]; (2007) 97 SASR 93 at 105-6.
It is particularly appropriate to exercise caution in relation to illegality in the context of restitutionary claims. As the authors of Restitution Law in Australia have said, “[t]he defence of illegality is a complex one”.[112] On the one hand, there is the public interest in courts not, by awarding a remedy, recognising or encouraging illegal conduct. On the other hand, it is to be remembered that a defence of illegality in a restitutionary claim based on unjust enrichment arises for consideration when a court concludes that it would be unjust for the defendant to retain the benefit. It is less easy in this circumstance to conclude that it would be contrary to public policy for the remedy to be awarded.[113]
[112] K Mason, JW Carter and GJ Tolhurst, Restitution Law in Australia (2nd ed, 2008) at [2601].
[113] Ibid at [2608].
Account must also be taken of the respective degrees of wrongdoing of the litigants. If the defendant’s culpability exceeds that of the plaintiff, then it is difficult to conclude that public policy warrants refusal of the remedy in a circumstance in which the Court would otherwise conclude that the defendant has been unjustly enriched.
It is also to be kept in mind that refusal of relief on the ground of illegality will often have the effect of granting a benefit to one of the two parties involved in the illegal transaction. That is so in the present case. A decision to withhold relief to the present plaintiff on the grounds of the illegal purpose of the agreement would have the effect that, despite the defendant having received the monies subject to an obligation to repay, and despite him having misappropriated them for his own purposes, the burden of their loss is to rest with the plaintiff. As the Privy Council observed in Singh v Ali[114] in somewhat similar circumstances to the present, this is not a welcome outcome.
[114] [1960] AC 167 at 178.
Finally, on the topic of illegality, I consider, with respect, that this Court should be circumspect before inferring from the Judge’s rejection of the parties’ evidence as to the purpose of the advances that that purpose must necessarily have been illegal. A number of other possibilities present themselves. These include confusion, or a lack of meeting of minds at the time the advances were made; agreement on a lawful purpose at the time of the advances but the plaintiff’s later acquiescence to some different, but unlawful, purpose; a purpose involving personal embarrassment but not illegality; or an admittedly illegal purpose but one about which the plaintiff had only limited knowledge. No doubt there are other possibilities. The fact that such possibilities exist means, in my respectful opinion, that this Court should be slow to infer an illegal purpose; and, even if it does, even slower to reason that it was the kind of illegality which should disentitle the plaintiff to relief.
For these reasons, I do not consider that this Court should conclude that the Judge erred by failing to find that the plaintiff advanced the monies for an illegal purpose or that he had knowledge that the defendant may use the monies for an illegal purpose, thereby precluding a restitutionary remedy.
Conclusion
For the reasons given above, I would dismiss the appeal.
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