Carpetex Pty Ltd v Roadrunner Pty Ltd & Andrew & Martin & Others - [2005] SADC 41

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Appeal Against a Master's Decision)
CARPETEX PTY LTD v ROADRUNNER PTY LTD & ANDREW & MARTIN & OTHERS
Judgment of His Honour Judge Rice
6 May 2005
PROCEDURE
MASTER'S APPEAL - EQUITABLE REMEDIES
The plaintiff leased commercial premises to SA Nut Co Pty Ltd for a three year period - Nut Co's obligations pursuant to lease guaranteed by third defendants - Nut Co entered administration during the three year period - Administrator of Nut Co sold business to first defendant, Roadrunner, and the lease of the premises is assigned to Roadrunner - Roadrunner remained in occupation for the remainder of the lease and thereafter held over on a monthly basis for almost three years - plaintiff claimed that Roadrunner and second defendant (as guarantor of Roadrunner's obligations) failed to make good when it vacated premises - first and second defendants seek contribution from third defendants for the cost of making good because deterioration in premises occurred during both occupations - claims on basis of unjust enrichment and equitable contribution - Master struck out Contribution Notice on the basis that, on the pleaded facts, neither remedy was available.
Held - neither remedy available on the facts as pleaded.
District Court Act 1991 s 43(2)(a); District Court Rules rules 25.04 and 97, referred to.
Fancourt and Another v Mercantile Credits Limited (1983) 154 CLR 87; Kadeh v Gill & Ors (2000) 211 LSJS 88; Pavey & Matthews Proprietary Limited v Paul (1986-1987) 162 CLR 221; Angelopoulos v Sabatino (1995) 65 SASR 1; Albion Insurance Co Ltd v Government Insurance Office (NSW) (1969) 121 CLR 342; Burke v Lfot Pty Ltd (2002) 209 CLR 282; Cockburn and Others v GIO Finance Ltd (No 2) (2001) 51 NSWLR 624; Belan & Anor v Casey (2003) 57 NSWLR 670; Burton v Litton Business Systems Pty Ltd and Data Print (Aust) Pty Ltd (1977) 16 SASR 163 at 170, considered.

CARPETEX PTY LTD v ROADRUNNER PTY LTD & ANDREW & MARTIN & OTHERS
[2005] SADC 41
Introduction

This is an appeal against the decision of a Master striking out the Amended Contribution Notice of the first and second defendants because it failed to disclose a reasonable cause of action against the third defendants.
To understand the arguments on both sides, it is necessary to explain something of the background events and parties involved. For ease of reference, I propose to refer to the parties in their original capacities. Carpetex Pty Ltd (“the plaintiff”) was the lessor of premises at 124 Main Street, Beverley. The plaintiff entered into a lease (“the lease”) with SA Nut Co Pty Ltd (“Nut Co”) whereby the premises were leased to Nut Co for a term of three years commencing on 1st October, 1995. Pursuant to clause 16 of the lease, the third defendants guaranteed performance of all of the covenants in the lease by the lessee, Nut Co.
In or about May, 1998, Nut Co entered into administration and changed its name to ACN 007 706 452 Pty Ltd.
On 16th June, 1998, ACN 007 706 452 Pty Ltd (Administrator Appointed) sold its business to the first defendant, Roadrunner Pty Ltd (“Roadrunner”). The lease of the premises was assigned to Roadrunner by a Deed of Assignment between ACN 007 706 452 Pty Ltd (Administrator Appointed) (as assignor) and Roadrunner (as assignee) and Carpetex (as lessor).
Also on 16th June, 1998, the third defendant, Mr G.M. Andrew, entered into a Deed of Guarantee whereby he agreed to guarantee the obligations of Roadrunner to Carpetex pursuant to the lease. Roadrunner did not seek a renewal of the lease but held over pursuant to the lease on a monthly basis, vacating the premises on 30th June, 2001.
The plaintiff claimed that the first defendant, Roadrunner, when it vacated the premises, failed to carry out its obligations, including the obligation to make good pursuant to the lease. The plaintiff also claimed that the second defendant, as a guarantor under the lease, failed to meet his obligations, including the obligation to make good pursuant to the lease.
On 19th January, 2004, the first defendant (Roadrunner) and the second defendant (Mr Andrew) issued a Contribution Notice against the third defendants. This Notice was amended and finally an Amended Contribution Notice was filed.
The proceedings as between Carpetex and the third defendants have settled, subject to the third defendants obtaining a release from the Contribution Notice. The first and second defendants have refused to provide such a release. In that situation the third defendants filed an application seeking orders that the Amended Contribution Notice filed against them by the first and second defendants be struck out on the basis that it disclosed no cause of action known to the law. Alternatively, the third defendants sought summary judgment in their favour in the contribution proceedings.
On 17th November, 2004, the Master made the following orders:-
“1.I strike out the Amended Contribution Notice.
2.I award to the third defendants against the first and second defendants their costs of and incidental to the contribution claim including the cost of the application and argument.”
This appeal is against those orders.
Nature of the appeal
The appeal is brought pursuant to s 43(2)(a) of the District Court Act 1991 and District Court Rule 97. DCR 97 provides that this appeal be by way of rehearing. No additional material has been filed. There is no need for the appellant to show error and the Court simply considers the matter afresh.
Nature of the application by the third defendants in proceedings before the Master
It is convenient at this stage to say something about the nature of the application before the Master, being what is commonly called a “strike out application” (or summary judgment on the Notice). The same principles apply before this Court as applied before the Master. An application such as this is governed by DCR 25.04 which provides as follows:-
“25.04(1) Where a defendant wishes to obtain summary judgment in an action or for any part thereof he shall:
(a)file his defence or affidavit in answer to the plaintiff’s affidavit;
(b)make an application for summary judgment in the action;
(c)file an affidavit showing why the plaintiff’s claim cannot succeed or cannot succeed in this Court as the case may be on any possible view of the facts or the law.
(2)On the hearing of the application the Court may if it is satisfied that the defendant’s contentions are correct enter judgment for the defendant, stay the action or make any other order which the justice of the case may require or treat the application as an application for directions.”
The caution with which to approach an application for summary judgment is well-known. Various formulae have been used. There are a number of authorities that refer to the relevant principles. In Fancourt and Another v Mercantile Credits Limited (1983) 154 CLR 87, the High Court said this (at 99):-
“The power to order summary or final judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried: see Clarke v Union Bank of Australia Ltd (1917) 23 CLR 5; Jones v Stone [1894] AC 122; Jacobs v Booth’s Distillery Co (1901) 85 LT 262. In our view, it is not possible to say without doubt, on the whole of the material, that there is no real question to be tried....”
In Kadeh v Gill & Ors (2000) 211 LSJS 88, Doyle CJ (Williams and Wicks JJ concurring) explained the test in these words (at paras 27-29):-
“In South Australia a defendant as well as a plaintiff can apply for summary judgment; see R 25.04 of the District Court Rules 1992 (SA). But whether the application for summary judgment is made by a plaintiff or by a defendant, the power to enter summary judgment ‘should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried’: Fancourt & Anor v Mercantile Credits Ltd (1983-1984) 154 CLR 87 at 99. Whether the questions to be decided are questions of law or questions of fact, the applicant must demonstrate that the ‘action should not be permitted to go to trial in the ordinary way because it was apparent that it must fail’: Webster & Anor v Lampard (1992-1993) 177 CLR 598 at 602 Mason CJ, Deane & Dawson JJ.”
For these purposes I assume the truth and accuracy of the matters pleaded.
Consideration of the Amended Contribution Notice (“ACN”)
The factual background is referred to above. The plaintiff maintained in its pleading that certain works were required to make good the premises (ACN para 3).
The basis of the claim for contribution is set out in para 4 of the ACN:-
“4The lastmentioned works do not only relate to alleged events or omissions which occurred during the period that Roadrunner was in occupation of the Premises (i.e. from 16 June 1998 to 30 June 2001) but include alleged events or omissions which occurred during the 33 month period that the lessee was in possession of the Premises i.e. from 1 October 1995 to May 1998.”
In other words, the deterioration in the premises, and hence the obligation to make good, spanned the entire period of the lease, the Nut Co being the original lessee and Roadrunner (first defendant) the second lessee by assignment. As noted, the third defendants guaranteed the obligations of the original lessee and the second defendant guaranteed the obligations of the second lessee.
Paras 6 and 7 of the ACN detail the factual basis of the claim for contribution and the causes of action it provides. Those paragraphs provide as follows:-
“6If, despite the matters pleaded in the defendants’ Defence and Counterclaim, it is found that they are liable to the plaintiff for the cost of making good the Premises in respect of events or omissions which occurred prior to Roadrunner entering into possession of the Premises, then the defendants say that they should receive contribution, or alternatively indemnity in respect of such costs to the degree that the lessee was responsible for such events or omissions, and the guarantors failed to guarantee the performance of the lessee in respect of those events or omissions under the Lease.
7The defendants say that in the absence of such contribution or indemnity the third defendants would be deriving a benefit (namely having the defendants pay for what would otherwise be their liability to the plaintiff pursuant to the guarantee) at the plaintiff’s expense in circumstances which were unjust (namely the defendants would be paying for works in relation to events or omissions of the lessee for which the lessee was responsible pursuant to the terms of the Lease and the third defendants were responsible pursuant to the terms of their guarantee), and would thereby be unjustly enriched.”
Finally, the orders sought are (Part 2):-
“The orders sought are:
3.In the premises, the defendants say that they are entitled to one or more of the following:
3.1    An award of restitution for such unjust enrichment;
3.2    Equitable contribution or recoupment;
3.3    Equitable damages or compensation;
from the third defendants to the extent that the defendants are found to be liable for the cost of works to rectify events and omissions of the lessee, and for which the third defendants would be liable to the plaintiff pursuant to their guarantee.”
I endeavour to put it more simply. If, despite their assertion, it is found that the first and second defendants are liable to the plaintiff, then the first and second defendants say that they should get some contribution because the deterioration is not all their fault, it spanned both lease periods and should be shared between the Nut Co (guaranteed by the third defendants) and the first and second defendants.
Examination of facts in more detail
It is necessary to look at some of the terms of the various agreements between the parties. The lease of the premises, between Carpetex and the Nut Co, was to commence on 1st October, 1995 for a term of three years (with a right of renewal for a further three years). The third defendants were guarantors of the Nut Co.
The lease contemplated an assignment of it by the Nut Co. Any assignment consented to by the lessor (Carpetex), if given, was to include the following condition:-
“2.5.1.9that it shall be deemed that the assignor shall remain liable for the performance of the Lessee’s covenants in respect of the period expiring at the end of the term or extended term of the lease during which the assignment takes place;”
That is, the Nut Co remained liable, as did its guarantors, after the assignment.
The lease also provided that, if there was a breach by Nut Co, Carpetex could treat the guarantors as principals under the lease.
The assignment of the lease by the former Nut Co to Roadrunner has clauses that bear upon this issue. The central clauses are 8.3, 9, 10 and 11 and they are reproduced:-
“8.The Assignee hereby covenants and agrees with the Assignor and as a separate and individual covenant with the Lessor as follows:-
8.1    ......
8.2    ......
8.3    to indemnify the Assignor and the Lessor from and against all actions proceedings costs claims damages expenses and demands for or in respect of the non-observance or non-performance of all or any of the terms covenants conditions provisos agreements and restrictions in the Lease whether expressed or implied in or by the Lease or by law as and from the date of assignment.
9.The Assignor hereby covenants with the Assignee that it will at all times keep the Assignee fully and effectually indemnified against all actions proceedings costs claims damages expenses and demands whatsoever by reason or on account of the non payment of the rent reserved by or the breach non‑observance or non‑performance of any other terms covenants conditions provisos agreements or restrictions on the part of the lessee to be observed or performed under the Lease up to the date of assignment.
10.The Assignor hereby covenants and agrees with the Lessor that it will at all times keep the Lessor fully and effectually indemnified against all actions proceedings, costs claims damages expenses and demands whatsoever by reason or on account of any breach non‑observance or non‑performance by the Assignee of any of the terms covenants conditions provisos agreements or restrictions on the part of the lessee to be observed or performed under the Lease on and after the date of assignment up to and including the 30th day of September 1998.
11.Nothing herein contained shall prejudice or effect the original reservation of rent or the binding effect of the several stipulations contained in the Lease and the Assignor hereby covenants and agrees with the Lessor that the Assignor will be jointly with the Assignee and severally liable to the Lessor for the due and punctual payment of all rent and other monies reserved by the Lease and for the due and punctual performance and observance of all of the terms covenants and conditions on the part of the Lessee (as defined in the Lease) contained in the Lease.”
To put those clauses together with the other documents, the claim for contribution can be put in this way. The plaintiff has sued both sets of defendants (first and second on the one hand, third defendants on the other) for breaches of the obligation to make good. The first and second defendants say that, if they are liable to the plaintiff, then they are entitled to a contribution from the third defendants to the extent that the original lessee (Nut Co) (whose obligations the third defendants guaranteed) was responsible for some of the deterioration of the premises during the term of its occupation.
Legal issues – unjust enrichment and equitable contribution
Unjust enrichment
The appellants recognise that their claim as based on unjust enrichment has legal problems to which I will turn shortly. However, they argue that this is a developing area of the law where the principles are far from settled and more so their application to different factual circumstances. It was submitted that, notwithstanding the legal impediments to the claim based upon unjust enrichment, that should be permitted to go to trial alongside the better-credential claim as based upon equitable contribution.
The principles involved in a claim based upon unjust enrichment were discussed by the High Court in Pavey & Matthews Proprietary Limited v Paul (1986-1987) 162 CLR 221. In that case a licensed builder brought an action for quantum meruit for building work done, based upon an oral contract. However, the Builders Licensing Act 1971 (NSW) precluded recovery for building work where there was no written contract between the builder and the other party. The contract, by the terms of the legislation, was “not enforceable”. The High Court held (by majority) that the legislation did not prevent the builder claiming for the work on a quantum meruit basis. Mason and Wilson JJ (at 227) adopted the analysis of Deane J:-
“Deane J., whose reasons for judgment we have had the advantage of reading, has concluded that an action on a quantum meruit, such as that brought by the appellant, rests, not on implied contract, but on a claim to restitution or one based on unjust enrichment, arising from the respondent’s acceptance of the benefits accruing to the respondent from the appellant’s performance of the unenforceable oral contract.”
And later (at 228):-
“However, when success in a quantum meruit depends, not only on the plaintiff proving that he did the work, but also on the defendant’s acceptance of the work without paying the agreed remuneration, it is evident that the court is enforcing against the defendant an obligation that differs in character from the contractual obligation had it been enforceable.”
Deane J himself said (at 256):-
“Indeed, if there was a valid and enforceable agreement governing the claimant’s right to compensation, there would be neither occasion nor legal justification for the law to superimpose or impute an obligation or promise to pay a reasonable remuneration. The quasi-contractual obligation to pay fair and just compensation for a benefit which has been accepted will only arise in a case where there is no applicable genuine agreement or where such an agreement is frustrated, avoided or unenforceable. In such a case, it is the very fact that there is no genuine agreement or that the genuine agreement is frustrated, avoided or unenforceable that provides the occasion for (and part of the circumstances giving rise to) the imposition by the law of the obligation to make restitution.”
Further (at 256-7) on the concept of unjust enrichment:-
“It constitutes a unifying legal concept which explains why the law recognizes, in a variety of distinct categories of case, an obligation on the part of a defendant to make fair and just restitution for a benefit derived at the expense of a plaintiff and which assists in the determination, by the ordinary processes of legal reasoning, of the question whether the law should, in justice, recognize such an obligation in a new or developing category of case:”
It is clear from Pavey’s case that the essential elements of unjust enrichment include:-
1.A benefit which has been obtained by the defendant.
2.The benefit was obtained at the expense of the plaintiff.
3.It would be unfair or unjust for the defendant to retain the benefit.
What is clear from Pavey’s case is that there is no scope for a claim based upon unjust enrichment where there is a contract or contracts that determine the rights and obligations of the parties: (see also Angelopoulos v Sabatino (1995) 65 SASR 1 at 6 (Doyle CJ). Whilst there is no agreement between the first and second defendants on the one hand, and the third defendants on the other, those groups of defendants have separate agreements with Carpetex (the plaintiff) guaranteeing lease obligations of different lessees concerning the same premises for successive periods. However, those agreements are sufficient to determine the rights and obligations of these parties and are sufficient to preclude a claim based upon unjust enrichment.

In addition to that, the third defendants raise other legal impediments to the success of a claim based upon unjust enrichment, namely:-
(a)that the party claiming unjust enrichment has done something at their expense which runs to the benefit of the other party, which has not happened here;
(b)being a contingent liability that will not crystallise until judgment, it is incompatible with unjust enrichment (although see the qualification under the discussion of equitable contribution);
(c)the first and second defendants put themselves into a position whereby they were exposed to a potential detriment; and
(d)that there was no “fair and just restitution” that should be made by the third defendants.
Without separately considering those matters, in my view they properly support the submission that there is no scope here for an argument based upon unjust enrichment. I agree with the learned Master in this regard.
Equitable contribution
The principles applicable to this doctrine were the subject of detailed discussion in Albion Insurance Co Ltd v Government Insurance Office (NSW) (1969) 121 CLR 342, particularly Kitto J (at 349-351), and in the later case of Burke v Lfot Pty Ltd (2002) 209 CLR 282. In Burke’s case, Gaudron A-CJ and Hayne J (at 292-3) say this:-
“In general terms, the principle of equitable contribution requires that those who are jointly or severally liable in respect of the same loss or damage should contribute to the compensation payable in respect of that loss or damage, either equally where they are liable in the same amount or proportionately, where the amount of their liability differs. The principle has regularly been applied between co-sureties, co-insurers, partners, co‑owners, where payment is made by one in discharge of a common liability, and co-trustees who are in pari delicto.
The doctrine of equitable contribution applies both at common law and in equity. It is usually expressed in terms requiring contribution between parties who share ‘co-ordinate liabilities’ or a ‘common obligation’ to ‘make good the one loss’. More recently, in BP Petroleum Development Ltd v Esso Petroleum Co Ltd, the right to contribution was said to depend on whether the liability was ‘of the same nature and to the same extent’.
The notion of ‘co-ordinate liability’ is one that depends on common interest and common burden.”
McHugh J expressed it in this way (at 298-9):-
“Both common law and equity give a person the right to obtain contribution to a payment made by that person in discharging ‘a common obligation’ that is owed by that person and others. In determining whether there is ‘a common obligation’, the traditional test is whether the liability of each party ‘is of the same nature and to the same extent’.”
And later (299):-
“In accordance with the maxim that equality is equity, equity requires the common burden to be shared equally so that none of those owing the common obligation will pay more than his or her share of the burden. An order of contribution prevents the injustice that would otherwise flow to the plaintiff by the defendant being enriched at the plaintiff’s expense in circumstances where they have a common obligation to meet the liability which the plaintiff has met or will have to meet.”
It is clear from these discussions that the principles surrounding unjust enrichment are closely allied with those of equitable contribution. As can be seen, the foundation of liability in equitable contribution employs the concept of “co-ordinate liability” or whether the liability was “of the same nature and to the same extent”.
It also seems clear from Burke v Lfot Pty Ltd (supra) per McHugh J (at 294), referring back to Kitto J in Albion (supra) that the “doctrine of equitable contribution is founded on concepts of fairness and justice – ‘natural justice’....” As McHugh J said:-
“In this context, ‘natural justice’ requires that if ‘one of several persons has paid more than his proper share towards discharging a common obligation’ he is entitled to be recompensed by those who have not.”
Although it is not necessary, for the purposes of this case, to give detailed consideration to what is meant by “co-ordinate liability” and “of the same nature and to the same extent” in the decided cases, some observations need to be made.
The first point relates to the fact that here the obligations of the third defendants arose at a much earlier point in time and by a different instrument than the obligations of the first and second defendants. However, that is not determinative of the matter. In this regard, I rely upon Cockburn and Others v GIO Finance Ltd (No 2) (2001) 51 NSWLR 624. Mason P, with whom Davies A-JA agreed, said this (at 631-632):-
“The right of contribution depends on matters of substance, not form. Thus, ever since Dering it has been no answer to a claim by one surety against another that their respective contracts with the creditor arose by separate instruments, at separate times, or in circumstances where neither surety knew of or relied upon the existence of the other.”
Similarly, “....there can be a common obligation notwithstanding the presence of different causes of action....”: see Cockburn (supra) per Mason P at 632.
I note again Clause 2.5.1.9 of the lease between Carpetex (the plaintiff) and the Nut Co (the original lessee) that contemplated an assignment of the lease. Obviously, it was not known at that time whether there would be any assignment, let alone to whom (if consent was given), but the guarantors of that lease (the third defendants) must have realised their obligations extended to a potential assignee for the duration of the lease or any extended term.
Secondly, it was submitted on behalf of the third defendants that no liability for equitable contribution can arise for an amount yet to be specified or quantified. I consider that states the position too narrowly. It would be sufficient if the person claiming contribution has actually paid, or is about to be required to pay, an obligation from his own money: see Belan & Anor v Casey (2003) 57 NSWLR 670 at 688-689 and cases there referred to, especially McHugh J in Burke v Lfot (supra) at 299. Where contribution is sought in circumstances such as this case, it is very much in the nature of the proceedings that the amount sought is not quantified until trial. After all, the first and second defendants deny any liability to the plaintiff but, if they are held liable to pay for the premises to be made good, they claim an equitable contribution at that stage for an amount then determined.
I return to the aspect of “co-ordinate liability” or whether the liability was “of the same nature and to the same extent” on the actual facts of the case. The first and second defendants on the one hand, and the third defendants on the other, have separate liabilities in respect of their obligations to make good for the same premises. To that extent the liability is of the same nature. However, the liability is not to the same extent by virtue of clause 8.3 of the assignment referred to above. The liability of the first defendant and its guarantor, the second defendant, to indemnify the assignor (Nut Co) and the lessor (Carpetex/plaintiff) in respect of the obligation to make good, only dated as and from the date of the assignment. On that contractual basis there are successive obligations to make good, the third defendants up to the date of the assignment and the first and second defendants from that date. There is no basis upon which the plaintiff, Carpetex, could succeed against the first and second defendants for the period prior to the date of the assignment.
In my view, it was proper that the learned Master ordered that the Amended Contribution Notice be struck out. Had it not been for clause 8.3, the Amended Contribution Notice should not have been struck out. In my view, justice and fairness, in the absence of clause 8.3, would have dictated that the first and second defendants should have been able to claim against the third defendants if the first and second defendants could have been liable to make good damage incurred over the full period of the lease. Although this is a developing area of the law, the principles developed to this point do not allow for a claim on this basis.
One final matter. I do not know the nature and terms of the settlement between the plaintiff and the third defendants. In that regard I refer counsel to the decision of King J (as he then was) in Burton v Litton Business Systems Pty Ltd and Data Print (Aust) Pty Ltd (1977) 16 SASR 163 at 170.