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LCM Operations Pty Ltd v Rabah Enterprises Pty Ltd

LCM Operations Pty Ltd v Rabah Enterprises Pty Ltd

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Case Copied 2 June 2023 74 min read

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Supreme Court

New South Wales

Amendment notes

Medium Neutral Citation: LCM Operations Pty Ltd v Rabah Enterprises Pty Ltd [2023] NSWSC 590
Hearing dates: 7, 8 March 2023, last submissions 6 April 2023
Date of orders: 2 June 2023
Decision date: 02 June 2023
Jurisdiction: Equity - Commercial List
Before: Rees J
Decision:
Judgment for plaintiff.

Catchwords:
CONTRACTS — brothers undertake property development through two companies — defendant company owns land and provides funds — related company is project manager — oral agreement — project manager charges $14.8M fee for construction including cost of build — fee recorded in “financial records” of both companies — defendant claims tax deduction but does not pay fee — project manager does not remit GST on fee — project manager wound up by ATO — brothers’ explanation of arrangement logically uninviting — post-contractual conduct — claim in debt successful.
SET-OFF — whether right to set-off loans made by defendant — contractual right of set-off — principles at [182]-[184] — whether right of set-off inferred from conduct — oral agreement — post-contractual conduct — no contractual right of set-off.
RESTITUTION — Quantum meruit — principles at [208]-[210] — defendant freely accepted benefit of project manager’s services — reasonable person would have realised project manager would expect to be paid — unjust for defendant to retain benefit without making restitution.

Legislation Cited:
A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act) ss 7-1, 9-5, 9-10(2), 29-5(1), 29-10
Corporations Act 2001 (Cth) ss 286, 553C, 1305
Income Tax Assessment Act 1997 (Cth) s 6-5(4)

Cases Cited:
Advanced Holdings Pty Limited as Trustee for The Demian Trust v Commissioner of Taxation [2021] FCAFC 135; (2021) 113 ATR 508
Angelopoulos v Sabatino (1995) 65 SASR 1
Apand Pty Limited v The Kettle Chip Co (1994) 52 FCR 474
Australian Securities and Investments Commission v Rich (2009) 75 ACSR 1; [2009] NSWSC 1229
Australian Securities and Investments Commission v Rich [2005] NSWSC 417; (2005) 191 FLR 385
Banque Commerciale SA (EnLiqn) v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279
British Eagle International Airlines Ltd v Compagnie Nationale Air France (1975) 1 WLR 758
Burke v LFOT Pty Ltd (2002) 209 CLR 282; [2002] HCA 17
Challenger Property Asset Management Pty Ltd v Stonnington City Council (2011) 34 VR 445; [2011] VSC 184
Commercial Factors Ltd v Maxwell Printing Ltd [1994] 1 NZLR 724
Dare v Pulham [1982] HCA 70; (1982) 148 CLR 658
Equuscorp Pty Ltd v Haxton [2012] HCA 7; (2012) 246 CLR 498
Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89
Federal Commissioner of Taxation v Cassiniti [2018] FCAF 212; (2018) 266 FCR 385
Ghazal v Government Insurance Office of New South Wales (1992) 29 NSWLR 336
Gibson Motorsport Merchandise Pty Limited v Forbes [2005] FCA 749
Gould & Birbeck & Bacon v Mount Oxide Mines [1916] HCA 81; (1916) 22…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2023] NSWSC 590
Decision Date: 02 June 2023

CaseChat Overview and Summary

In LCM Operations Pty Ltd v Rabah Enterprises Pty Ltd, the parties involved were two companies associated with brothers engaged in property development. The dispute arose from an oral agreement whereby Rabah Enterprises Pty Ltd (the defendant) owned land and provided funds, and LCM Operations Pty Ltd, a related company, acted as the project manager. The crux of the matter was the defendant's refusal to pay a $14.8 million fee charged by LCM Operations for the construction costs, despite acknowledging the fee in their financial records and claiming a tax deduction. Additionally, LCM Operations did not remit GST on the fee, leading to its winding up by the ATO. The court was tasked with determining the validity of the brothers' explanation of the arrangement, the applicability of any set-off rights, and whether restitution was warranted.

The primary legal issues involved the enforceability of the oral agreement and the fee, the possibility of a contractual right to set-off, and the applicability of a restitutionary claim based on the defendant's acceptance of the benefits provided. The court examined whether the set-off right could be inferred from the conduct of the parties and whether such a right existed in light of the principles applicable to contractual set-off. The court also explored whether the defendant could be compelled to make restitution for the benefit received from LCM Operations' services.

The court ruled that the brothers' explanation of their arrangement was logically uninviting and that there was no contractual right of set-off. The post-contractual conduct did not infer a set-off right, and the principles governing contractual set-off did not support such a claim. However, the court found that the defendant had freely accepted the benefit of LCM Operations' services, and a reasonable person would have expected payment. Consequently, it was unjust for the defendant to retain the benefit without making restitution. The court held that the defendant was liable to make restitution to LCM Operations for the value of the services provided.

The court ordered that LCM Operations recover the $14.8 million fee from Rabah Enterprises, less any set-off for loans made, and that the defendant pay interest on the amount due. This decision underscored the importance of clear contractual agreements and the principles of restitution in commercial disputes.

Orders