Clancy & Anor v Salienta

[2001] HCATrans 366

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S261 of 2000

B e t w e e n -

STEPHEN WILLIAM CLANCY

First Applicant

ROSEFARMS PTY LIMITED

Second Applicant

and

SALIENTA PTY LIMITED

First Respondent

IAN RICHARD PHILLIPS (as an executor of the late Neil Harry Mark Forsyth)

Second Respondent

JANETTE MARGARET BROWN (as an executor of the late Neil Harry Mark Forsyth)

Third Respondent

JOHN WILLEM DE WIJN (as an executor of the late Neil Harry Mark Forsyth)

Fourth Respondent

Application for special leave to appeal

McHUGH J
CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 12 OCTOBER 2001, AT 9.32 AM

Copyright in the High Court of Australia

__________________

MR M.L.D. EINFELD, QC:   May it please the Court, I appear with my learned friend, MR T.G.R. PARKER, for the applicant.  (instructed by Ken Cush & Associates)

MR I.G. HARRISON, SC:   May it please the Court, I appear with my learned friend, MR A.J. McINERNEY, for the respondent.  (instructed by Hunt & Hunt)

McHUGH J:   Yes, Mr Einfeld.

MR EINFELD:   May it please your Honours.  The applicant has the benefit of findings not challenged on appeal, firstly, that between 1992 and 1998 it spent millions of dollars effecting improvements to the respondent’s property; secondly, that those funds were expended with the express and extensive encouragement of the respondent; and, thirdly, that the improvements transformed the respondent’s property and greatly enhanced its value.  Your Honours will know that it was also held that there was between the parties a binding contract for sale which the respondent, as vendor, was held entitled to terminate.  Your Honours, those circumstances give rise to the following question, which, in our submission, warrants consideration by this Court.

McHUGH J:   Well, you have left out a couple of important facts, have you not, namely that your client repudiated the contract and that it might justly be characterised as a commercial arrangement?

MR EINFELD:   Yes, I am coming to those, your Honour.

CALLINAN J:   And that your client probably earned quite a lot of money as a result of effecting the improvements.

MR EINFELD:   No doubt about that, your Honours, yes.  The question we submit that arises is whether a vendor who actively encourages the improvement of his property by a purchaser may retain the benefit of those improvements upon termination of the contract, even where that termination is for breach or upon repudiation.

McHUGH J:   Well, that is a large proposition, but it does seem to have, at least, textual support in the dictum of Justice McPherson in Lexane and in the dissenting judgment of Justice Brennan in Stern v McArthur.

MR EINFELD:   Yes, your Honours.

McHUGH J:   We have looked at the matter very carefully.  I do not think you have any prospect of inviting us to look at the concurrent findings of fact including breach of contract.

MR EINFELD:   We accept that, your Honour.

McHUGH J:   And I am not happy with the grounds of appeal formulated, particularly ground 2, which I think is a rather narrow ground.  It, for instance, uses the expression “Rosefarms failed to complete the purchase”.  It might have been more accurate to say “repudiated the contract”, and there are other circumstances.  What I have done – and this is subject to what Mr Harrison will say about these things – it does seem to me that there is an important question that has to be resolved having regard to this dicta that is floating around, as well as the decision in this case, and you have a dissent as well.

What we have done is formulated a substitute ground of appeal which counsel might have a look at.  I do not want this Court, given the tremendous pressure it is under in terms of its workload, to be getting involved in findings of fact of any sort.  On the other hand, we would want to be fairly flexible and we would not want to tie ourselves down, but would you be content with a ground of appeal in those circumstances?  That is, you have to accept the findings of fact.

MR EINFELD:   We accept entirely what your Honour suggests in terms of eliminating to the extent possible the questions of fact.  We would not envisage being allowed to reargue the contract question and so on.

McHUGH J:   Yes.

MR EINFELD:   The only reservation we have about the way in which the ground is expressed, your Honour, is that it seems to be confined to equitable compensation, and on one view, the view of Justice Dixon in McDonald v Dennys Lascelles Ltd, for example, the restitutionary claim may be ‑ ‑ ‑

McHUGH J:   Well, that is the way it was formulated in Stern v McArthur.

MR EINFELD:   We would be content with that, subject to that, your Honour.

McHUGH J:   Yes.

MR EINFELD:   It just may be that the restitutionary remedy is truly a common law remedy rather than an equitable one, but save for that.

McHUGH J:   I understand that and the choice of equitable was quite deliberate.  I really want to pin down this question which is in the authorities at the moment.  I know that Mason v Carter may express it in a wider view.

MR EINFELD:   Yes.  The problem is really the Victorian decision of the appeal division as it then was in the Supreme Court of Victoria.

McHUGH J:   Yes, that is the ‑ ‑ ‑

MR EINFELD:   The T.M. Burke one, which does express the relief in – or pose the question in equitable terms.  Justice Brennan’s dictum would seem to go slightly beyond the equitable realm into the general law.  But if one were to insert “restitution or” before “equitable compensation”, that would leave open the question of the correct juridical foundation for the principle, if it exists.

McHUGH J:   Well, I am rather reluctant to do that.  The last thing I want to do is to get into the minefield of restitution law.  We could be there for days.

MR EINFELD:   Very well, may it please your Honours, otherwise the ground does ‑ ‑ ‑

CALLINAN J:   I just want to ask you one question.

MR EINFELD:   Yes, your Honour.

CALLINAN J:   I am not completely satisfied that all the facts, particularly the facts in relation to the arithmetic, are there, because the outcome might depend to some extent upon the arithmetic.  Are there findings as to what the net situation would have been likely to be?  Now, I know that the proposal was that the matter be sent off to a master, I think.

MR EINFELD:   That was the order that was formulated by Justice Beazley, yes.

CALLINAN J:   Ordinarily there would be some figures before the Court, which would at least give the Court a feel for what the net set-off position – you know the sense in which I am using that?

MR EINFELD:   Yes, certainly.

CALLINAN J:   The sort of net set-off figure that might eventuate.

MR EINFELD:   We can certainly do it in general terms in the terms of – the evidence at first instance was presented in terms of (a) expenditure and (b) value of the land as it was in its unimproved state and value of the land as it was in its final improved state.

McHUGH J:   But what about the revenue side of it?

MR EINFELD:   Yes, there was evidence of the revenue side as well.

CALLINAN J:   Was there a contest about any of those items?

MR EINFELD:   Yes, there was and at the end of the day his Honour did not proceed to determine those because of the views he took of the legal principle.

CALLINAN J:   Is there at least a range of figures which would show us the net best result for you and the net worst result?

MR EINFELD:   Yes.

CALLINAN J:   And to what extent, if any, was the incidence of income tax, and perhaps even capital gains tax, taken into account in those matters?  Because at the moment I am not entirely satisfied that all the necessary factual foundation is there.

MR EINFELD:   Yes.  Your Honour, I think it is fair to say that the incidents of taxation were certainly not the subject of any findings.

CALLINAN J:   Could it be relevant?

MR EINFELD:   We would say no, because on any view, on the findings of the trial judge, the value of the land was at least doubled, if not trebled.  There is no question that he found as a fact that millions of dollars had been spent.  There was quite a deal of evidence as to the exact expenditure.  The incidents of taxation would not impact, in our submission, on the question of principle or the ultimate result so far as the court’s determination ‑ ‑ ‑

McHUGH J:   But it might.  This is a contract after 1985 and it may be arguable that any increase in the value as a result of the contract attracts capital gains tax and that it is legitimate in determining whether or not there should be any form of equitable relief – and, if so, what – that the vendor will have to pay.  I think it would be difficult to argue that you would be entitled to say the full value of the enhancement, if the vendor has to pay capital gains tax.

CALLINAN J:   But that raises the question also, very much, of the defendant’s income tax position, because that might affect the way in which the defendant elected to pay it, whether on the basis of the indexation, as you know, indexation of the base sum, or 25 per cent of the net nominal gain.  That might very much be affected by the State’s or the vendor’s position.  I infer from what you are saying that no attention at all was paid to the aspect of income tax or capital gains tax at the trial.

MR EINFELD:   Yes.  There certainly was evidence as to the land tax situation and the CGT.  Yes, I am told there was evidence as to CGT matters, your Honour.  Yes, your Honour, there was evidence as to capital gains tax ramifications of the land for the vendor.  Part of it was rendered subject to capital gains tax, part of it not, because of when it was acquired.  There are certainly no findings of that.  But they are all matters, in our submission, that would be suitable for determination by the master.

CALLINAN J:   Yes, but they do not solve my problem, which is whether we would be embarking on an exercise which in the end might not lead to any net financial benefit to your client, because capital gains tax might also, theoretically at least, and I suspect practically, affect your client if your client were to get a gain out of this.  It is a possibility  It certainly might affect your client’s income tax position.

MR EINFELD:   But that would not, with respect, affect the question ‑ ‑ ‑

CALLINAN J:   Well, it might.  It might be equitable to discount any of your entitlement to the extent of any income tax benefit that your client might obtain.

MR EINFELD:   Well, there are two things that can be said about that.  First of all, whilst we presented a vast array of financial data – and it was the subject of experts reports and consideration by the court – no point was taken below by the respondent here that the impact of or a combination of the factors of the amount spent, the enhanced value of the land, would eliminate any benefit, or go anywhere near it, so as to deprive the applicant here of the benefit of any order if, as a matter of legal principle, such an order was to be made.  Secondly, the focus of the matters of unconscionability and restitution, to the extent involved in this debate arising from the dicta of Justice Brennan in Stern v McArthur and the preceding cases, focuses essentially on the position of a vendor, even within the parameters of unconscionability.  I appreciate unconscionability opens something of the door, but if one looks at all of the earlier cases and particularly what the Victorian court said in Burke, the focus upon the advantage to the vendor, whether he consented, whether he encouraged, et cetera ‑ ‑ ‑

CALLINAN J:   I know what you are saying is that this might be part of the ultimate argument, might it not, which we do not really get into now?

MR EINFELD:   No, we do not now, certainly.

McHUGH J:   Well, anyway, Mr Einfeld, you will have to take the risk that if, as the facts emerge during argument – and assuming that you were granted leave – that you could have a revocation of your grant of special leave, unsatisfactory as that is.

MR EINFELD:   Yes, and we will accept that.

CALLINAN J:   For my own part, I would be very much assisted in any submissions that might be prepared by – in the most uncontentious way possible, the range of possibilities on the evidence and findings that arithmetically was available.

MR EINFELD:   Yes, we will certainly give attention to that.  Yes, as your Honour please.

McHUGH J:   Mr Harrison, what do you say about – there is an important point running around in these cases and it is well encapsulated I think in your written submissions at page 205 at paragraph 35.  I think that is a reasonably accurate statement of the real issue and it underlies this particular case.  But given what was said in Lexane and what was said by Justice Brennan in Stern v McArthur and the divided opinion in the Court of Appeal, it does seem to me there is a special leave case here.  Now, is there anything about the facts of this particular case which would make it an unsuitable vehicle?

MR HARRISON:   Absolutely, your Honour.  Can I come back if it is convenient?

McHUGH J:   Certainly, yes.

MR HARRISON:   I will deal with that now, but can I remind myself to come back to the question that Justice Callinan raised about whether or not the applicant was in a position to prove in detail the value in money or otherwise of their expenditures.  At 34 in the application book the trial judge said that he was not, and I may come back to that.  But, your Honour, this is a case on its facts.  We have always propounded at the trial and in the Court of Appeal that one could not lose sight in a discussion, esoterically, about the equitable principles, or even the restitutionary principles, that might apply of the context in which they arise for discussion.  For example – and this is referred to at 141 – your Honours do not need to go there, I will quote it – in the judgment of Justice Giles:

Mr Clancy agreed in cross-examination that he “never had any expectation that Yarrawah would come to Rosefarms in any other way . . . than by its purchase from Salienta”.

It has to be, as your Honour said, borne in mind that the contract was repudiated.  He did not seek specific performance.  He did not seek relief against forfeiture.  He turned his face to the arrangement that had existed for many years.  His Honour Justice Bryson in the court below, if I could say not a judge known for his hyperbole, in paragraph 79 to about 93, starting at 39 of the application book, takes us in very clear terms through what was the clear and precise, clearly understood, unarguable and unambiguous relationship.  Would your Honours permit me to go through those paragraphs ‑ ‑ ‑

McHUGH J:   Yes, certainly.

MR HARRISON:   ‑ ‑ ‑ because they paint a picture which says, in the first
instance – and I say, finally, with respect – that this is not a vehicle for consideration of controversial matters ‑ ‑ ‑

McHUGH J:   Well, can I just put to you what it seems to me.  I mean, if it were not for the dicta in these cases, it would seem to me that your position was overpowering, almost invincible, but it may be that there is a principle that, in effect, a purchaser is automatically entitled to restitution in respect of permanent improvements made to land while in its possession and that is to be measured by the extent to which the value of the land has been enhanced, even though the purchaser has repudiated the contract.  Now, to a common lawyer, that is a startling proposition, but ‑ ‑ ‑

MR HARRISON:   It is.  It undercuts the whole certainty of contract in this case.

McHUGH J:   Exactly, but it may be that there is such an equitable principle and it seems to have been stated in terms to that effect and Mr Einfeld naturally relies on it.

MR HARRISON:   Indeed.

McHUGH J:   So the question is:  is there such a principle?  Or it is possible that there may be some form of equitable lien that would only be enforceable when the property was sold or something of that nature.  That is why I formulated the question in terms of other equitable relief.

MR HARRISON:   Your Honour, framed in terms of equitable relief, equitable compensation, a lien or some other form of equitable entitlement, in my submission, that shrivels under the light cast by the facts in this case.  I understand what your Honour says in terms of there may be an extending principle that requires resolution, but it would not be, in my submission, appropriate to impose upon, at least the respondents in this case, the obligation for that scrutiny, bearing in mind the material that exists from paragraph 79 and on.

McHUGH J:   But I do not think it really answers the question.  No matter what the merits are in your favour, if there is this automatic entitlement of a purchaser to restitution for permanent improvements made which enhance the value of the land when the contract goes off, then you lose on this point.  It may be regarded as somewhat startling in the facts of this case, but if there is such a principle, that is it, and that is the question to be resolved.  When I said about it being a suitable vehicle, I meant whether there are any facts of the sort that Justice Callinan referred to which would make it an unsuitable vehicle.

MR HARRISON:   Perhaps if I go to those now, your Honour.

CALLINAN J:   Well, you say in paragraph 79, for a fact, that it appears that there are all sorts of items there that you just would not be able to put a figure on today.

MR HARRISON:   Does your Honour mean paragraph 79 of his Honour’s judgment?

CALLINAN J:   At first instance, at page39.

MR HARRISON:   Yes, indeed, and your Honour may have read from where I suggested, at 72

CALLINAN J:   I am sorry, it was 72 I meant.

MR HARRISON:   Yes:

Mr Clancy and Rosefarms were not in a position to prove in detail the value in money or otherwise . . . did not have or was unable to produce detailed records or accounts which would establish what the costs had been.

That was found by the trial judge to be unsatisfactory and he refers to the obligation to maintain records.

CALLINAN J:   Well, they were sharefarmers, too.

MR HARRISON:   I think it is fair to say, your Honour – and your Honours do not have the transcript or the exhibits – the state of the case brought by the applicant to prove either a revenue side – and that was a very large part of the case to which his Honour refers, another significant matter, in our submission – or on the capital expenditure side those matters that should be brought to account in his favour, not to overstate it, was in a fairly poor state.  As your Honour Justice Callinan adverts, it may be that the result, even if this case were to go further, would be that resolution of that issue would be a damp squid.  There would be an unsatisfactory result, in a practical sense.  That, in another sense, in my submission, is a reason why this is not a good vehicle, because the ultimate result will have its own unsatisfactory elements, even if the resolution of a legal principle is clear.

As I have said, your Honour, if we are talking in terms of equitable relief – and I note that your Honours have drafted the proposed ground of appeal by reference to equitable principles – I still, with respect, come back to the proposition that in terms of conscience, the language in the paragraphs at 39 of the application book and following demonstrate that Mr Clancy and his company took, to use the words of his Honour at, for example, 40 line 24, a “radically different” position.

When Mr Forsyth was close to death he turned around and said, “I know what the last five years have done.  I am turning against that now.  I don’t want to have a bar of that.  I want to put in place some other proposition.”  It was always open to him either to seek relief against forfeiture, and he never did, or, in advance of that, and perhaps even in addition or alternatively, to have sought specific performance.  Had he done that he would have been seeking equitable relief and he would have been seeking equitable relief for the purposes of bringing to his account to his advantage the very benefits that this contract, which he had solemnly entered into and abided by for so long, would have provided him.

If this matter were to become the grant of special leave, one would have the position where the applicants would be standing up in Court, having to put behind them seeking equitable relief in the form of the proposed order that your Honours have formulated, all of that inequitable conduct.  Indeed, the case was run upon the basis of good conscience to insist on our legal rights, when in all reality the facts reveal that in terms of conscientiousness the applicants themselves are not painted in a good picture.

CALLINAN J:   Could I just ask you this question what the practice here is.  This was heard in the equity division?

MR HARRISON:   Yes.

CALLINAN J:   Is it the practice to provide – even if there is obviously a possibility that accounts will go off to be taken by a master, is it nonetheless the practice to put in all the relevant financial information at the trial?

MR HARRISON:   In the trial?

CALLINAN J:   Yes.

MR HARRISON:   I do not know that there is.  It is not unusual, if I can put it that way, your Honour.

CALLINAN J:   Because Justice Bryson was obviously very concerned ‑ ‑ ‑

MR HARRISON:   He was.

CALLINAN J:   ‑ ‑ ‑ that not nearly enough information had been put before him, but perhaps more significantly, pointed out that in many instances no better than the unsatisfactory information that was provided would ever be available.

MR HARRISON:   Quite so.

CALLINAN J:   That is at page 34, paragraph 72.  Then he found that there had been an overstatement of the time put in by Mr Einfeld’s clients.  Well, who is going to decide that?  Who is going to make – is the master going to decide that?  Is he going to make a finding that instead of the 100 hours a week claimed, the proper figure is 32 hours a week and attribute a value to that?

MR HARRISON:   Presumably.  I do not embrace that as a satisfactory result, of course.

CALLINAN J:   I do not know whether the master could decide it without perhaps re-hearing and making different findings from those that have been made by Justice Bryson.

MR HARRISON:   I think we are left, with respect to your Honour, in the position that whomsoever it is to which this falls for determination, this Court nor can anybody be satisfied that any reasonably satisfactory determination can be made on the material that is available.  It cannot get better than it was before Mr Justice Bryson and his pejorative comments about the state of the evidence going to that issue are fairly clear.

CALLINAN J:   It rather seems that at the trial the applicants did put their best foot forward financially.  They tried to prove everything they possibly could.

MR HARRISON:   The answer to that, I think, is undoubtedly yes, your Honour.  Could I put it in context?  In the terms that your Honour raised, “Was there a practice?”, the case was not run at trial by the defendants, the present applicants, upon the basis that they would postpone until some later time this financial issue.  In other words, it was there for scrutiny with material from accountants and, to that extent, one cannot expect it to get any better. 

I am reminded by Mr McInerney, your Honour, that we sought successfully to have excluded from evidence a report provided on behalf of the defendants from an accountant who sought to assess the value of the expenditures by reference to some form of formula which valued what must have been spent by what was there.  That report was rejected and the case went off, I think, to be adjourned until a later time until that evidence could come back in the form which ultimately came into the case, but which was, nonetheless, the subject of criticisms by his Honour.

I do re-commend to your Honour those paragraphs.  Could I just extract some portions of what Mr Justice Bryson said, because I find it difficult to stand back from his language in this context.  For example, at page 40 of the application book, at about line 21, your Honours might note there is a reference there to a document dated 12 August 1995 – that, indeed, should be that letter of 1997 – shortly before Mr Forsyth’s death, when Mr Clancy was challenging the price:

The challenge which was then made to the price was entirely new.  The terms of the letter show that it was not the continuation of some long-running debate about the price.  The position put in the letter was radically different to any position with which Mr Forsyth had ever been associated; in effect it was a proposal that he would accept far less than the $1,625,000 with which arrangements between the parties had opened almost five years earlier.

Then at line 10 your Honour will see a reference to it, it:

departed in a most radical way from any expectation which it could have been reasonable for Mr Clancy to hold –

Then at line 19 or so, after a statement of the dates, speaking of Mr Clancy:

he would have the property including the benefit of the improvements which he was carrying out; he had no reasonable basis for an expectation that he would get the benefit of the improvements in any other way.

Then at paragraph 85:

All of Mr Forsyth’s acts of acquiescence and encouragement occurred in the context –

and this I emphasise, if your Honours please:

of express arrangements, reliance on which is entirely sufficient to explain the conduct of Mr Clancy and Rosefarms in occupying and improving the land.  For the period during which the parties acted in the Option, the rights under it were a sufficient source of remedies and protection against incurring loss by carrying out the improvements.

Now, what is contemplated now is that, even in the context of the draft new order that your Honours have formulated, Mr Clancy and his company should be permitted to launch off outside the face of the contract which they have repudiated and to be the beneficiaries of some remedies and protection when the contract itself was found to have been, not challenged on appeal in this context, “a sufficient source of remedies and protection”.  So he wants two bites at this cherry, and if we are formulating an assessment of what those rights should be in an equitable sense, it would clearly be, in my submission, unconscionable for him to have that second go.

McHUGH J:   But you keep framing it in terms of unconscionability, but as I put to you earlier, it seems to be almost an imputed principle of unconscionability that the purchasers are automatically entitled to compensation.

MR HARRISON:   Well, your Honour, that would undercut, as I think we adverted to ‑ ‑ ‑

McHUGH J:   I know it does.

MR HARRISON:   No man with a right to repudiate in the face of a defaulting purchaser could do so, except in the knowledge that it be hit from behind, as it were, with this second look doctrine, if that is what it is.  My proposition is that viewed in the way that I am suggesting it should be in this case, that is to say, look at the facts and form a view, you do not have that problem because you are placed in the same way in assessing this case as a vendor prospectively considering his rights would be.

CALLINAN J:   Some of the statements are wide enough to apply perhaps to a defaulting lessee also, which is a startling proposition really, if you take the statements about qualification.

MR HARRISON:   Indeed.  In fact, your Honour, two things I will say finally – I note the light is not on, but I will come to it ‑ ‑ ‑

CALLINAN J:   There is no obligation to take the 20 minutes.

MR HARRISON:   No, I understand that, your Honour, and nor have I.  Even in Stern v McArthur, your Honour, much is made of the proposition that Justice Brennan cites Justice McPherson in Lexane v Highfern with approval.  True it is at 509 in the report, it is mentioned, but following a reference to it, Justice Brennan says:

I respectfully agree with McPherson J that the measure of that compensation –

that is, for improvements effected –

is “the extent to which the value of that land has been enhanced”.

I, with respect, do not read the case as elevating Lexane v Highfern to a level of approval beyond the formulation of the measure of the compensation, but the other thing, your Honour, is I think we were handed on my friend’s list, the Victorian case of Burke Estates.  At 621 in that report I would submit it is clear that his Honour, at about line 21, having reviewed all of the facts, says in that case:

From the totality of those matters his Honour might have properly concluded that the appellant’s conduct in failing to allow

the respondent the value of its permanent improvements made to the land was unconscionable.

That is precisely my point, with great respect.  On the totality of matters affecting this case one could come to the view that it was not unconscionable.

McHUGH J:   Yes.  Yes, Mr Einfeld.

MR EINFELD:   There are three matters, your Honours.

McHUGH J:   Well, I tried to short circuit this, in effect, and get it down to a narrow issue, but you develop your argument as you want to and I stopped you, so you put your facts.

MR EINFELD:   If your Honours please.

McHUGH J:   At the moment I am by no means convinced that it is a case for the grant of special leave.

MR EINFELD:   As your Honours please.  Can I just respond, firstly, at three levels and then come back to what we were going to say, if we may. 

McHUGH J:   Yes.

MR EINFELD:   The first of them is that my learned friend’s reliance, once again, on the terms of the contract and upon the matters to which he draws attention from the judgment of the primary judge to the way in which the parties by contract have determined or resolved or identified their rights does not resolve the problem, it poses it, because the whole undercurrent of the authority leading up to Levane and leading up to the dicta of Justice Brennan in Stern v McArthur all focus upon the rights which arise outside of the contract and the equitable compensatory rights which either, on one view, do, or, on my friend’s submissions would say, do not arise, arise outside of the contract and not – are determined by its terms.

In other words, the very foundation of the dicta of Justice Brennan and the earlier expressions of similar judicial opinion all accept that the parties’ rights are determined by the contract so far as the general law is concerned, but the whole thrust of the argument is, and the question for determination is:  is that the end of the matter or is it not?.  Justice Bryson at first instance took the view that the whole of the rights were defined by contract and nothing else affected those rights.  Justice Brennan is at the opposite end of the spectrum, with respect, suggesting that the contract does not determine the rights; to the contrary, even if the justification for the vendor’s rescission is repudiation of the purchaser and not merely some breach, that will not pre-empt the operation of the compensatory principles.

McHUGH J:   This case is unusual in the sense that there is an option involved in the case and it is a gambling case.

MR EINFELD:   The option preceded though the making of the – it culminated ultimately in the making of the contract.

McHUGH J:   Yes.

MR EINFELD:   And the question is thereafter whether rights are determined merely by the contract, so as to exclude restitutionary or compensatory rights or not.  That problem is not resolved by any of the matters raised by my friends.  What we wanted to say is at one end of the spectrum therefore is the dictum of Justice Brennan, and may we just draw attention to the fact that although at page 509 the expression of the dictum has added to it the comment about the measure of damages, that ought not be taken as a qualifying factor because in Stern v McArthur 165 CLR the dictum is repeated subsequently twice by his Honour, again at 519, without reference to measure of damages, where his Honour says, in about the sixth or seventh line:

When a vendor rescinds in exercise of his general law rights –

we interpolate be that for mere breach of a term or for a breach of a fundamental term or repudiation –

it is not unconscionable for him to take the benefit of the forfeiture which is thereby effected:  there is no penalty, for the vendor is bound to refund what the purchaser has paid (other than a genuine deposit) and he is obliged to compensate the purchaser for the permanent improvements made on the land with the vendor’s consent –

which is an important factor –

to the extent that the value of the land is thereby enhanced.

So there is no such qualification, nor is there at 521 at point 5 where his Honour says:

If the purchasers were guilty of unreasonable delay in the face of the vendors’ demand for completion, it would be unjust to order specific performance . . . The so-called “windfall” of the natural increment in land value properly belongs to the vendors though they are bound to compensate the purchasers for the value of the improvements they have made.

So the suggested qualification at 509, in fact, is illusory.  Secondly, your Honours, can we just say something about the decision of the Victorian Court in Burke because it poses the unconscionability test, but does so in particularly stark terms, which we say placed this case on all fours with Burke but in circumstances which create conflicting outcomes by appellate courts in different states.  If one looks at Burke [1991] 1 VR 610, the passage at 621, part of which was read by my friend, indicates the following things. Justice Kay, with whom the other members of the court agreed, says at about line 9 that:

The learned trial judge stated that if it had been necessary for him to have done so, he would have found that there was unconscionable conduct on the part of the appellant –

that is the vendor –

because of the combination of the following three matters:  first, the potential windfall to the appellant was so large in proportional and relative terms; secondly, that the advantage was attributable to improvements erected by the respondent; and thirdly, that the appellant had not offered to make any allowance at all to the respondent for those improvements.

His Honour then adds:

I would add the facts that the appellant . . . consented to the respondent erecting a building on the site –

and then about five lines down:

In those circumstances the respondent was entitled to equitable relief by payment of the value of those improvements.

CALLINAN J:   Mr Einfeld, the three cases that you rely upon are cases in which the property that was being sold was not an income‑producing property, is that right?  They were residential.

MR EINFELD:   Yes.

CALLINAN J:   I find it difficult to see that the situation in which somebody buys a vacant piece of land and builds a house on it is by any means the same as a situation in which a person has the benefit of land, before and whilst the contract is being completed, which is income producing.  It seems to me that that is an entirely different situation and perhaps those cases should be viewed in the context that the purchaser in each instance will really get the benefit of nothing.  The purchaser is a much bigger loser than your clients in this case.

MR EINFELD:   Your Honour, that, with respect, throws up a critical issue, and that is whether, in the commercial context and in the context of a commercial contractual arrangement, the purchaser who goes into possession, and not just merely carried out improvements, albeit from which to earn income ‑ ‑ ‑

CALLINAN J:   What about the purchaser who buys shares in a company, buys majority interest in a company, and is unable to complete, but makes all sorts of successful deals for the company, so that the shares in the company are very much inflated in value, but the contract goes off.  Has the vendor of those shares after rescission to compensate the purchaser for the enhancement in value of the shares?

MR EINFELD:   Your Honour, the principle, as it has been long since espoused, in respect of improvements to land, may have consequences beyond that area, but there is a very broad range of jurisprudence which focuses expressly on the question of improvements to land.

CALLINAN J:   But you have to say that, do you not?  If the principle is good, why should it be so narrow?

MR EINFELD:   It may be that the question does arise, in the kind of instance your Honour has indicated, that there is some right in the person who expends funds to enhance the value of shares, but the factual connection is very much different.  Can I indicate to your Honour why it is different?

CALLINAN J:   Yes.

MR EINFELD:   In the case of the contract for sale of land the improvements are undertaken by the purchaser in the knowledge that if the contract goes ahead the purchaser will gain the advantage of the improvements under the contract for sale because the improvements become fixtures in the land and pass with the land.  The question therefore arises whether in the case of the contract for the sale of land the parties have not within the terms of the contract directed their attention to which of them derives the benefit of the improvements if the contract goes off, which is this and the other cases, then the question squarely arises as to whether equity should intervene to permit an unjust enrichment, on the one hand, or ‑ ‑ ‑

McHUGH J:   That is a question begging, “unjust enrichment”.

CALLINAN J:   Let me put another problem to you.  It may all depend upon the precise moment at which the rescission occurs because, say we are in a volatile market, say it is the Sydney market, and suddenly the price goes up and the rescission occurs and the value goes up.

MR EINFELD:   But there is no doubt – there is no issue on the cases but that the vendor gets the natural increment in the land.  There is no argument.

CALLINAN J:   But you cannot divorce the market from natural increment because here the valuer, I notice, gave evidence of what he said the value was – the judge did not accept it, the trial judge – but what the value was at the time, I think 1992, when your clients went into possession.

MR EINFELD:   Yes.

CALLINAN J:   Then various figures were advanced, but they were advanced as to market value.  You are not suggesting that there is some value that has to be taken into account other than market value.

MR EINFELD:   No.  The test is ‑ ‑ ‑

CALLINAN J:   It is market value at a moment in time which your client effectively chooses by choosing, in effect, to default at a particular time.

MR EINFELD:   There are two things to be said about that…..response.  Firstly – and I do not want to take time now to deal with factual matters – as appears at length in the judgment of Justice Beazley, there was a long history of attempts to renegotiate price and an inability to – what led to the ultimate repudiation was an inability on the part of the purchaser to acquire the funds sufficient to enable completion and her Honour ‑ ‑ ‑

McHUGH J:   Yes, I know, but you have to face up to the findings.  Involved in the case is an important question of law but you have really to persuade us that upon the facts of this case you have sufficient prospects of success to warrant the grant of special leave to appeal.

MR EINFELD:   Yes, we submit we have.  If Justice Brennan is right as to an automatic entitlement, then that was denied us and we ought have it and that there is an important question of principle of not only wide‑ranging practical application but obviously legal importance in the law of restitution.  It applies on the facts of this case because we satisfy, even on the tests posed by the court in Victoria, the four matters which are identified by that court as being determinant of the right of the purchaser to recover.

McHUGH J:   But that assumes that those four statements cover the universe.

MR EINFELD:   No.  Even if they do not, unconscionability on the part of the vendor was said to be satisfied in circumstances where there was consent to the improvements, et cetera.

McHUGH J:   Yes, I appreciate that but you have to take into account all the other factors of the case, including that this was, in effect, a gamble, that your client went in and earned very considerable revenues while in position and knew that if it did not complete the contract it was going to lose what it had put in.

MR EINFELD:   As to the last point ‑ ‑ ‑

CALLINAN J:   Say the wheat markets failed everywhere in the world except Australia and there was a huge increase in the value of wheat and your client got the benefit of that.  It all just seems to me to be so accidental.  What happens?  Anything could have happened.  The situation is that what your client earned probably fell short of the enhancement in value.  Let us assume that it did.

MR EINFELD:   And what we spent ‑ ‑ ‑

CALLINAN J:   But that is a pure accident.  The wheat market or the rice or the soya market might have been at its highest level for a period and your client, in different circumstances, may have made a huge profit which means that the vendor has to take the chance or the risk, has to carry the risk that your client undertook by going into possession and spending the money.

MR EINFELD:   No, your Honour, not at all.  First of all, the very circumstance in which this problem will commonly arise is not just the domestic house building situation but the commercial environment – the decision of Mr Justice Young to which reference has been made, the Cadorange Case, is a good example, and there have been many others – where the land the subject of the contract is a commercial piece of realty, a factory which is extended which produces some income during the course of the period that the purchaser is in possession, for example.

Now, merely to say, with great respect, that there is an infinite variety of factual circumstances that may arise, whether wheat markets fall or soya markets rise, is only to say that there is a very wide variety of factual circumstances in which this very real problem is going to arise and have a wide variety – just as wide a variety of ramifications for each vendor and each purchaser.  There will never be a case of determination ‑ ‑ ‑

CALLINAN J:   Mr Einfeld, your clients have to bring into account their earnings, do they not?

MR EINFELD:   Yes, they did.

CALLINAN J:   They have to bring them into account.

MR EINFELD:   Yes.

CALLINAN J:   Now, if, per chance, they are much less than the value of the enhancements, on your case your client wins and gets money.  If, however, it had been the other way, that they had earned a great deal more money than the value of the enhancements, do you say that they should get the value of the enhancements?

MR EINFELD:   If  Justice Brennan’s dictum is correct, yes, because the focus is not upon ‑ ‑ ‑

CALLINAN J:   Well, I think that highlights ‑ ‑ ‑

MR EINFELD:   Can I just say this, the answer to that is yes.  If the principle be as absolute as his Honour suggested, the answer is yes because the focus is upon whether it is conscionable for the vendor to have the windfall benefit to him, or her, rather than upon the question of the purchaser’s position which is the focus of attention in proprietary estoppel doctrine, which is a separate issue altogether. 

Now, the answer to your Honour’s proposition to me, with respect, is this.  In the event that this Court is ever to determine this question of whether there is an absolute right or whether it focuses upon unconscionability, either on the vendor or on the purchaser, or both, there will inevitably be a fact circumstance of the kind your Honour posits to us which can be said to stand in the way of a resolution of the problem.  In fact, in this case, the profits from the undertaking during the course of the development of the land were extremely modest, almost overborne by the operating costs, vastly outweighed by millions of dollars.

CALLINAN J:   But that highlights the point.  Your client entered into what probably turned out to be an imprudent commercial transaction and now, on one view, your clients want the vendor to pay for it.

MR EINFELD:   No, your Honour.  Your Honour, with respect, the imprudence of the arrangement or otherwise is especially in this context not an issue.  Nobody doubts that equity, to use the language of the majority in Stern v McArthur, is not the mender of bad bargains and the like.  Nobody doubts that.  But that is not the issue on this question.  Justice Brennan is at one end, the Court of Appeal of Victoria is in the middle, suggesting that unconscionability is an issue.

McHUGH J:   Yes, but every statement from a judge has to be read as saying this is subjective on the material.

MR EINFELD:   Yes, of course it does.  Having regard to time factors, can I just pass by to the other trenchant criticism of the – in reliance upon some of the comments of the trial judge on the question of the state of the records and the state of the evidence and the matter your Honour Justice Callinan raised with me because your Honours may have an incorrect impression about what happened. 

There was a paucity of original record keeping.  There was a very poor record‑keeping system, if you could call it a system, undertaken by these farmers and these people who did this work, so there was always going to be a problem of producing in strict accounting form dollars and cents of profit and loss figures and expenditure and the like.  There were experts reports which reconstructed the accounts on the basis of overall expenditure in this and other businesses and then eliminated the costs and profits from the other businesses, culminating in figures which his Honour concluded, as appears from the passage read, he could not identify with precision.  That is not at all to say that his Honour was not able to find, as he did, that in broad terms there was substantial expenditure. 

His Honour simply did not go on to undertake the task because of the views he came to on, if I can call it so, liability.  He simply did not proceed to descend into the dollar and cents analysis.  He could have done.  The expert evidence which was admitted, there was cross‑examination on it.  It was all there available to be done, as it would be to a master, as it was to his Honour.  His Honour simply did not proceed to undertake the analysis, the minutiae, because of the view he came to, and so…...

Your Honours, can I conclude this way, as his Honour Justice Giles pointed out in his analysis of the earlier cases, they all differed on their facts; they all differed in terms of the relief sought; they all differed in terms of the way the problem arose.  But the resolution of the question posed in terms that your Honours have in the draft document your Honours have handed down remains an important one.  The law is in a state of uncertainty.  This decision below, particularly having regard to the observations of her Honour Justice Beazley upholding the restitution claim, will only entrench that uncertainty.

We accept the imposition of a limitation in terms of our capacity to contest any of the factual findings of the Court of Appeal and the other qualifications or reservations your Honours have expressed, for all those, in our submission, none of the matters that have been raised by our learned friends or by your Honours since, and perhaps just shortly before, pose any impediment to this being the appropriate vehicle for resolution of the important issue that remains to be determined.  In our submission, special leave ought be granted.

The orders proposed by Justice Beazley were considered by her, having regard to all of the evidence, and we would submit are apparent on their face as being an appropriate mechanism for resolving all of the factual issues that may remain outstanding following determination of the important matter of principle.  For those reasons, in our submission, special leave ought be granted.  May it please the Court.

McHUGH J:   Yes, thank you, Mr Einfeld.

Involved in this case may be an important principle of law, but upon the facts of the case we are of the opinion that the case has insufficient prospects of attracting the application of that principle, if it exists, to warrant the grant of special leave to appeal.  The application is refused with costs.

AT 10.29 AM THE MATTER WAS CONCLUDED