Pillay v Lloyd

[2000] SASC 208

PILLAY & PILLAY V LLOYD & ORS; JERVIS & JERVIS V LLOYD & ORS; LLOYD & PILLAY & PILLAY; LLOYD & JERVIS & JERVIS

Full Court: Doyle CJ, Duggan & Lander JJ

DOYLE CJ. I agree with the orders proposed by Lander J, and with the reasons that he gives for the making of those orders. There is nothing that I wish to add.
DUGGAN J. I agree with the orders proposed by Lander J. I also agree with the reasons he has given for his decision.
LANDER J. These appeals involve two separate actions and four different appeals.
Because of an inattention to the appropriate procedures, the matters have become unnecessarily complicated.
Two separate actions have been commenced in which there are common defendants.
In the first action Swamy Pillay and Kanta Pillay are plaintiffs and in the second action Andrew Jervis and Cathy Jervis are plaintiffs. Both Mr and Mrs Pillay and Mr and Mrs Jervis entered into contracts with Blunts Homes Pty Ltd for that company to construct for each of the two families, a home on properties owned by each of them. The defendants were at all relevant times the directors of Blunts Homes Pty Ltd.
Blunts Homes Pty Ltd went into liquidation on 30 August 1994. At that time it was a holder of a licence under the Builders Licensing Act 1986 (the Act).
The plaintiffs in each action filed Particulars of Claim in substantially the same form and for the purpose of these appeals they can be treated as if in the same form.
The plaintiffs claimed that clause 31(d) of the contract into which they entered with Blunts Homes Pty Ltd required the plaintiffs to make progress payments. There was an initial payment of $400 to pay for the preparation of the plan. Thereafter 30 per cent of the contract value became due on commencement by Blunts Homes Pty Ltd of on site work to commence the home. 40 per cent of the contract value became due when the roof was commenced. 25 per cent of the contract value became due on the completion of the second fix carpentry and 5 per cent of the contract value became due on completion and hand over of the home.
In both cases Blunts Homes Pty Ltd performed additional work by way of agreed variations. Those variations are unimportant.
The Act which was repealed by the Building Work Contractors Act 1995 provided in s 25(1)(a) of the Act:
“25(1)...... No person shall demand or require that any payment be made under a domestic building work contract or preliminary work contract by the person for whom work is to be performed under the contract unless the payment -
(a).... constitutes a genuine progress payment in respect of work already performed;”
The Act provides for a penalty of $2,000 for any breach of that section.
The plaintiffs claimed in their original Particulars of Claim that Blunts Homes Pty Ltd breached that section by making demands for payments for work which had not been performed. The plaintiffs gave particulars of payments made, apparently in response to those demands.
The plaintiffs then claimed that the defendants owed, as directors of Blunts Homes Pty Ltd, a statutory duty to ensure that Blunts Homes Pty Ltd complied with s 25(1)(a) of the Act. They gave particulars of that statutory duty and claimed that the defendants were in breach of their statutory duty in that they failed to ensure that Blunts Homes Pty Ltd complied with s 25(1)(a) of the Act.
In the alternative they claimed that their loss was occasioned by reason of negligence on the part of the defendants as directors of Blunts Homes Pty Ltd. They particularised that negligence.
The plaintiffs claimed that they suffered loss and damage as a result of Blunts Homes Pty Ltd demands for payments to which Blunts Homes Pty Ltd was not entitled because of the provisions of s25(1)(a) of the Act.
The defendants filed defences denying liability. After the filing of those defences the first defendant, Mr Michael Lloyd and the fifth defendant Mr William Ewing made application to the Court for an order that the proceedings be struck out pursuant to r 8 of the Magistrate Court (Civil) Rules 1992 on the basis that “plaintiffs have no claim on the merits on any possible view of the facts at (sic) law.”
Rule 8 of the Magistrate Court (Civil) Rules provides for a form of summary judgment where a party wishes to obtain summary judgment disposing of the whole or part of any action or immediate relief in the action.
Rule 8 empowers the Court to enter judgment or grant the whole or part of the relief sought or make an order for trial or make any other order.
During the hearing of the application the plaintiffs conceded that their claim in negligence could not be maintained and asked the Court to assume that the particulars of negligence be read as further particulars of the breach of statutory duty.
The plaintiffs further conceded that some of the factual elements required to successfully prosecute a claim for damages were not pleaded.
Thirdly they advised the Court that they intended to apply to amend their claims to seek relief under the Corporations Law, which would involve pleading that, at the time that the overpayments of monies were made, Blunts Homes Pty Ltd was insolvent within the meaning of that term in the Corporations Law and that thereby the defendants, as directors, were in breach of s 588G of the Corporations Law. They further said that they would plead that the plaintiffs had a right of recovery, pursuant to s 588M of the Corporations Law, as creditors, which the plaintiffs became by reason of Blunts Homes Pty Ltd’s unlawful demand to recover compensation from the company’s directors.
Notwithstanding those concessions apparently the plaintiffs resisted the application to strike out their Particulars of Claim and in particular so much of the Particulars of Claim as alleged a breach of statutory duty by the directors.
I have assumed that the plaintiffs indicated these proposed amendments to resist any suggestion that the plaintiffs’ proceedings should be struck out. If such an order had been made the plaintiffs may well have been barred, because of the provisions of the Limitations of Actions Act, from bringing any further proceedings at all against the defendants whether under the pleaded cause of action or the proposed cause of action.
The plaintiffs’ intimations should, in my opinion, have led to an adjournment of the defendants’ application. The defendants were entitled to require the plaintiffs to indicate precisely the causes of action upon which they relied before their applications were heard.
However the argument proceeded and, on 7 October 1999, his Honour made an order striking out the Particulars of Claim in both actions but giving leave (although not expressed in those terms) for the plaintiffs to file and deliver further Particulars of Claim.
In doing so his Honour ruled that the plaintiffs were not entitled to rely upon a statutory cause of action, for a breach of s 25(1)(a) of the Act against these defendants.
His Honour adjourned the application for about four weeks allowing the plaintiffs 21 days in which to file further Particulars of Claim.
During the period within which the plaintiff had to file amended Particulars of Claim the plaintiffs filed Notices of Appeal to this Court in both actions from the Magistrate’s decision given on 7 October 1999.
The appeals purport to be against an order that the cause of action in breach of statutory duty pleaded by the plaintiffs be struck out.
I do not think that that was the order made at all. The order made was that the plaintiffs’ Particulars of Claim be struck out and the plaintiffs have leave to file further Particulars of Claim within 21 days. True it is that because the plaintiffs had abandoned their claims in negligence the only cause of action which remained on the pleading as it then stood was the claim for breach of statutory duty.
In any event in those Notices of Appeal the ground of appeal, which is common to both actions, is that the learned Magistrate erred in a matter of law in determining that no statutory cause of action arose.
The plaintiffs seek in their respective Notices of Appeal that the appeals be allowed and that the respondents’ application for summary dismissal in respect of the statutory duty plea be dismissed.
Again I do not think that the Magistrate made an order for summary dismissal in respect of the statutory duty plea.
The plaintiffs’ appeals were referred to this Court by a Judge of this Court.
The plaintiffs not only appealed to this Court from the orders made by the Magistrate, they also complied with his order in so far as they were obliged to file further Particulars of Claim.
The Magistrate extended time for the plaintiffs to file further Particulars of Claim. On 11 November 1999 in documents annexed to the plaintiffs’ solicitors’ affidavit the plaintiffs provided further Particulars of Claim.
In those further Particulars of Claim the plaintiffs have pleaded the contract between the plaintiffs and Blunts Homes Pty Ltd and the provision in the contract; viz clause 31(d) for progress payments.
They claim that clause 31(d) of the contract was in breach of s 25(1)(a) of the Act and as a consequence that clause was void by reason of its illegality. They claim that in tendering that contract to the plaintiffs Blunts Homes Pty Ltd were in breach of s 25(1)(a) of the Act.
In the alternative they claim, as they had in the first Particulars of Claim, that Blunts Homes Pty Ltd breached s 25(1)(a) of the Act by making demands for payments for work that had not been performed.
The plaintiffs claim that in response to the demands made, and because they believed they were contractually bound so to do, the plaintiffs paid Blunts Homes Pty Ltd various sums of money. The plaintiffs claim those sums were paid by reason of a mistake of law or fact on the part of the plaintiffs.
The plaintiffs claim, as a consequence of those matters, that the payments made by the plaintiffs became debts payable by Blunts Homes Pty Ltd to the plaintiffs on the dates the payments were received. They plead that Blunts Homes Pty Ltd had no legal entitlement, contractual or otherwise, to receive any payment at those times.
They further claim that on and from 26 October 1993 Blunts Homes Pty Ltd was insolvent and at all material times on and from 26 October 1993 there were reasonable grounds to suspect that Blunts Homes Pty Ltd was insolvent. They give particulars indicating insolvency and the directors’ knowledge.
Next they claim that the defendants contravened s 588G of the Corporations Law. It is claimed that the payments made by the plaintiffs to Blunts Homes Pty Ltd made the plaintiffs’ creditors of that company. Because there were reasonable grounds to suspect Blunts Homes Pty Ltd was insolvent at that time the directors were, it is claimed, in contravention of that section. They plead that on 1 October 1999 the liquidator gave his written consent under s 588R of the Corporations Law for the plaintiffs to prosecute claims against the defendants pursuant to s 588M of the Corporations Law.
Finally they say, because of those allegations to which I have referred the plaintiffs are entitled to recover from each of the defendants, pursuant to s 588M(3) of the Corporations Law, the loss and damage suffered by the plaintiffs in making payments to Blunts Homes Pty Ltd to which Blunts Homes Pty Ltd was not entitled.
The plaintiffs do not assert in the further Particulars of Claim that the directors are liable to the plaintiffs for breach of s 25(1)(a) of the Act. I suppose having regard to his Honour’s reasons it would have been inappropriate for the plaintiffs to file a further Particulars of Claim relying on a statutory breach of s 25(1)(a).
However the fact that the plaintiffs did file the further Particulars of Claim at a time when they were appealing from his Honour’s decision in relation to the initial Statement of Claim shows, in my opinion, the inattention which the parties have given to the appropriate procedures.
The Magistrate considered the further Particulars of Claim on an application by the plaintiffs seeking leave to amend the plaintiffs’ Particulars of Claim. That procedure was also inappropriate.
The Magistrate, when striking out the plaintiffs’ original Particulars of Claim, had given the plaintiffs leave to file Further Particulars of Claim. No further hearing was necessary. It was not necessary for the plaintiffs to apply to amend their Particulars of Claim, because their Particulars of Claim had been struck out. All that was required by the plaintiffs was to file whatever Particulars of Claim they wished to file. If the defendants believed that those Particulars of Claim were deficient for some reason the defendants could make a further application under r 8 to either strike out those Particulars of Claim or the action. It was inappropriate to proceed on the basis that the plaintiffs had to obtain leave to amend their Particulars of Claim.
The procedure adopted by the Magistrate can be gleaned from the first three paragraphs of his reasons on the application to amend the Particulars of Claim:
“The plaintiffs in the two actions referred have now made application to amend their particulars of claim.
On a previous application I struck out the particulars of claim as they then were upon the basis that they disclosed no reasonably arguable cause of action. I am advised that my determination in that matter is now the subject matter of appeal proceedings in the Supreme Court.
The plaintiffs have now made an application to put their case in a different way and raise an alternative cause of action.”
His Honour then gave reasons and concluded:
“The facts pleaded by the plaintiffs in their proposed amendments give rise to a cause of action which is “reasonably arguable”. In the circumstances I propose to permit the amendment to be made. There may be cost implications against the plaintiff. That remains to be argued and I leave the issue open.
Bearing in mind that an earlier aspect to this matter is already under Appeal and that the point itself is a point of difficulty and importance I intimate that I am prepared to grant leave from this interlocutory decision and I give such leave.”
The precise order made by the learned Magistrate does not appear on the Magistrates Court file.
In any event pursuant to the “leave” given by the Magistrate the first defendant appealed to this Court in both actions.
When these second appeals came before Debelle J he pointed out that the Magistrate was not empowered to grant leave to appeal to this Court. The Magistrate was entitled to give a certificate under r 96B of the Supreme Court Rules, which would have had the effect of allowing the first defendant to appeal without leave, but the Magistrate had no power to give leave.
In any event the Judge treated the “leave” given by the Magistrate as a certificate under r 96B.02. As well he indicated he would have given leave if leave was necessary.
Because the earlier appeals had been referred to this Court these second appeals were also referred to this Court.
The first defendant seeks orders in his Notices of Appeal that the Magistrates’ order giving leave to the plaintiffs to amend their Particulars of Claim be reversed and an order that leave to amend be refused.
It can be seen that the procedures adopted have led to some confusion.
The confusion is exacerbated by the plaintiffs being unable to articulate what orders they seek if their appeals (the first appeals) were allowed. They do not seek an order dismissing the defendants’ application to strike out their Particulars of Claim because they do not want the original Particulars of Claim to stand. Also they do not, of course, want the further Particulars of Claim to stand, because if they were successful in relation to their first appeals they would want to be allowed to file Particulars of Claim which includes both the cause of action under s 25(1)(a) of the Act and the cause of action under s 588M of the Corporations Law.
They have left themselves in a position where they have two Particulars of Claim neither of which incorporate all of the claims they would wish to bring against the defendants.
Of course, if the first appeals were dismissed then the plaintiffs would wish to be allowed to proceed with the further Particulars of Claim which rely simply upon s 588M of the Corporations Law.
The procedure which should have been adopted was that the defendants, if they were so minded should have applied to strike out the original Particulars of Claim. If the Magistrate was satisfied that the plaintiffs wished to introduce further causes of action not already contained in the original Particulars of Claim he should have allowed the plaintiffs a short period within which to bring into Court a proposed Amended Statement of Claim.
The Magistrate should then have heard argument as to whether the plaintiffs should be given leave to amend their Particulars of Claim and thereby addressed the proposed amendment. He should then have heard argument as to whether or not the sole cause of action sought to be maintained or the original Particulars of Claim should be struck out.
In that way he would have addressed, at the one time, both causes of action under the Act and the Corporations Law.
The procedure adopted, which the parties acquiesced in, has meant that the parties have been put to unnecessary expense.
The Court’s procedures are for the purpose of the attainment of justice. They have been designed, so far as is practicable, to minimise the cost to the parties of resolving a dispute through the litigation process. Those advising the parties have a duty, in my opinion, to ensure that those procedures are used appropriately to ensure that the procedures achieve their objects.

The Law

The Court has a discretion at any stage of proceedings to order that the whole or any part of a party’s Statement of Claim be struck out if it discloses no reasonable cause of action; r 46.18. There is no suggestion in this matter that the cause of action pleaded under the Act should be struck out for any other reason other than it does not disclose a reasonable cause of action.
In considering whether the plaintiffs should be able to plead a cause of action under s 588M of the Corporations Law it would be appropriate, in my opinion, to proceed by applying the same test.
That is because this matter should not have been approached by the Magistrate on the basis that it was an application to amend, but should have been approached as if the cause of action was contained in the pleading to be examined. In any event it probably does not matter much. An amendment would not be allowed if it would be struck out under r 46.18 if it had been originally pleaded; Abrook v Paterson (SA, Full Court Judgment No. S 4990, 3 March 1995, Unreported).
In Egan v Commonwealth Minister for Transport (1976) 14 SASR 445 this Court was called upon to consider an application under the 1947 Rules to strike out a Statement of Claim as disclosing no reasonable cause of action.
After pointing out the difference between such an application and an application to have an action stayed, dismissed or judgment entered because a pleading is frivolous or vexatious Bray CJ said at 448:
“A reasonable cause of action means one with some chance of success, however small, when only the allegations and the pleadings are considered: Drummond-Jackson v British Medical Association [1971] WLR 688, per Lord Pearson at 698. If it has none, and if there is no chance that it can be endowed with one by amendment, then it can be struck out.”
The test then to be applied is whether either or both of these two Particulars of Claim discloses a reasonable cause of action in the sense that it is not so obviously untenable that it cannot possibly succeed no matter what amendments are made.
I think it was common ground that the causes of action pleaded could not be improved by any further amendments. They are either reasonable causes of action or they are not.

The First Appeals

There is no doubt that Blunts Homes Pty Ltd was not entitled to demand or require that any payment be made for the buildings the subject of this contract unless the payment constituted a genuine progress payment in respect of all work already performed.
It must be assumed, for the purpose of this argument, that Blunts Homes Pty Ltd, in contravention of that section, made such a demand.
If such a demand is made in contravention of the section then the person who made the demand is liable to a penalty. No civil right, however, is given to the person who has been subject to the demand to obtain a repayment of any amount paid in response to that demand.
Section 25(2) provides for the raising of evidentiary presumptions in proceedings for offences under the section, but does not raise those evidentiary presumptions in respect of any civil proceedings that might be brought by a person who has paid monies in response to a wrongful demand.
On the face of it the Act does not appear to give any party who has made payments in response to a wrongful demand any civil action against the builder.
Section 49 of the Builders Licensing Act provides:
“Where a body corporate is guilty of an offence against this Act, each director of the body corporate shall be guilty of an offence and liable to the same penalty as is prescribed for the principal offence unless it is proved that the director could not by the exercise of reasonable diligence have prevented the commission of that offence.”
Whilst the section makes a director liable to an offence and liable to the same penalty as the corporation, of which he or she is the director, the section does not make the director liable to the same offence as the corporation. The director dose not commit an offence under s 25 of the Act, but an offence under s 49 itself.
More importantly the Act does not purport to make directors concurrently liable for any civil liability for which the corporation, of which he or she is a director, is liable.
If there is a cause of action against the directors for a breach by the Corporation of s 25(1)(a), it is because the Corporation is liable to repay any payment made in response to a wrongful demand under s 25(1)(a), and because the directors have the same civil liability as the corporation.
The plaintiffs relied on two other sections of the Act which they argued indicated an intention on the part of Parliament to make the directors liable in civil proceedings for a breach by the corporation of s 25(1)(a). The Act provided for the licensing of builders. In respect of applicants for licences which are corporations the Act provided that the tribunal granting the licence be satisfied that every director of the body corporate was a fit and proper person to be a director of a body corporate holding the licence; s 10(8)(b)(ii). In my opinion that section does not assist in determining whether directors could be liable in civil proceedings for a criminal offence by the company. The section which is relied upon is a common form requirement in licensing statutes where corporations are eligible to hold licenses. That section does not aid in considering the true construction of s 25(1)(a).
Next the plaintiffs pointed to the disciplinary powers given to the tribunal in relation to corporations licensed under the Act. They pointed to s 19(11)(c) which provided that there would be proper cause for disciplinary action against a corporate respondent if a director had ceased to be a fit and proper person to be a director of the body corporate or a director of the body corporate had become insolvent, or the body corporate had directors who did not have sufficient business knowledge and experience for the purpose of properly directing the business. Again, in my opinion, that section does not assist in determining whether or not a civil liability is imposed upon the corporation under s 25(1)(a) and if so whether that civil liability extends to the directors.
In my opinion whether there is a statutory right of action against the directors for a breach of s 25(1)(a) by a corporation of which they are directors depends upon the true construction of s 25(1)(a).
In Byrne v Australian Airlines Limited (1995) 185 CLR 410 Brennan CJ, Dawson and Toohey JJ said at 424:
“A cause of action for damages for breach of statutory duty arises where a statute which imposes an obligation for the protection or benefit of a particular class of persons is, upon its proper construction, intended to provide a ground of civil liability when the breach of the obligation causes injury or damage of a kind against which the statute was designed to offer protection (see Sovar v Henry Lane Pty Ltd (1967) 116 CLR 397 at 404, 405). The question is one of the construction of the statute, although as Dixon J pointed out in O’Connor v S P Bray Ltd (1937) 56 CLR 464 at 477 - 478, an examination of the statute “will rarely yield a necessary implication possibly giving a civil remedy”.
There can be no doubt and it was properly conceded by the defendants that the plaintiffs are of a particular class of persons for whom s 25(1)(a) is designed to protect.
I am not satisfied that s 25(1)(a) does give the plaintiffs, even though they are members of a class of persons protected by s 25, a right to claim damages against a corporation for breach of statutory duty by a corporation which has made an unlawful demand.
There is nothing about the scheme of the legislation which, in my opinion, suggests that a right to claim damages for breach of statutory duty arises under s 25.
Of course the directors could not be liable for a claim for damages for a breach of statutory duty if their breaches derived from the Corporation’s own breach unless the Corporation itself was liable for damages for breach of statutory duty.
In those circumstances it could not be said that the directors could ever be liable for damages for breach of statutory duty when the Corporation of which they are directors was not itself liable.
If, however, I am wrong about that and s 25(1)(a) does erect a statutory duty, the breach of which by the corporation gives rise to a statutory claim for damages against a corporation in breach of that duty, in my opinion, that statutory duty could not extend to persons who did not make the unlawful demand.
If a statutory duty was imposed upon anyone it is only the person who made the demand or the request. If such a statutory duty arose the common law would give a remedy but only against the person who was subject to the duty: Darling Island Stevedoring and Lighterage Company Ltd v Long (1956) 97 CLR 36 at 52: Downs v Williams (1971) 126 CLR 61 at 75.
There is simply no warrant to read s 25(1)(a) as imposing a duty upon the directors of a corporation which made a demand or request of a kind mentioned in the section.
In my opinion the Magistrate was right to find that the pleaded statutory cause of action under the Act in the original Particulars of Claim disclosed no reasonable cause of action. Because the pleading could not be amended to plead a reasonable cause of action under that Act it was appropriate to strike out that cause of action.

The Second Appeals

Section 588R of the Corporations Law allows a creditor of a company that is being wound up, with the written consent of the company’s liquidator, to begin proceedings under s 588M in relation to the incurring by the company of a debt that is owed to the creditor.
It is pleaded that the company’s liquidator has given the requisite consent.
The plaintiffs thereby claim that they are entitled to bring an action under s 588M. That section provides:
“(1) This section applies where:
(a)a person (in this section called the “director”) has contravened subsection 588G(2) or (3) in relation to the incurring of a debt by a company; and
(b)the person (in this section called the “creditor”) to whom the debt is owed has suffered loss or damage in relation to the debt because of the company’s insolvency; and
(c)the debt was wholly or partly unsecured when the loss or damage was suffered; and
(d)the company is being wound up;
whether or not:
(e)the director has been convicted of an offence in relation to the contravention;
or
(f)a civil penalty order has been made against the director in relation to the contravention.
(2)... The company’s liquidator may recover from the director, as a debt due to the company, an amount equal to the amount of the loss or damage.
(3)The creditor may, as provided in Subdivision B but not otherwise recover from the director, as a debt due to the creditor, an amount equal to the amount of the loss or damage.
(4)... Proceedings under this section may only be begun within 6 years after the beginning of the winding up.”
The plaintiffs claim that they come within s 588M (3) and claim to be entitled to recover from the defendant directors, an amount equal to the amount of the loss or damage suffered by them by reason of the debt owed to the plaintiffs by the company.
Whether they have that entitlement depends upon whether or not the directors have contravened subsection 588G(2) or (3) and whether the plaintiffs are creditors of the company.
The plaintiffs plead that the defendants contravened s 588G(2) because they were aware at the time that the debt was incurred that there were grounds for suspecting that the company was insolvent.
Whether the plaintiffs could make out that matter is a matter of fact which cannot be decided on an application of this kind.
Whether the payment made by the plaintiffs to the defendants under clause 31(d) of the contract between the plaintiffs and Blunts Homes Pty Ltd is a debt will also depend upon the facts and circumstances surrounding the payments.
It is pleaded in paragraph 12 of the Further Particulars of Claim that the payments were made by reason of a mistake of law or fact on the part of the plaintiffs and, in paragraph 13, that Blunts Homes Pty Ltd had no legal entitlement, contractual or otherwise, to receive payment at those times.
The plaintiffs have pleaded the matters necessary to erect a cause of action against the defendants under s 588M. First they have referred to the authority given by the liquidator. Secondly they have pleaded that the directors contravened s 588G(2) and thirdly they claim to be creditors of Blunts Homes Pty Ltd. Lastly they have pleaded the other elements of s 588M namely that the debt was wholly or partly unsecured when the loss or damage was suffered and that the company is being wound up.
The defendant argued on these appeals that the payment made by the plaintiffs to Blunts Homes Pty Ltd did not make the plaintiffs a creditor of Blunts Homes Pty Ltd.
It was argued that a payment made by a party under a mistake of law or fact does not make that party a creditor of the party to whom the payment was made.
It will be a matter of fact whether these payments were made under a mistake of fact or a mistake of law. However for the present purposes it may be assumed that the payments were made under a mistake of one kind or the other and in view of the decision of the High Court in David Securities Pty Ltd v Commonwealth of Australia (1992) 175 CLR 353 it would not appear to matter whether it was a mistake of fact or law.
It is critical for the plaintiffs’ cause of action that the plaintiffs’ payments made the plaintiffs creditors of Blunts Homes Pty Ltd. There must have been a debt or debts owing by Blunts Homes Pty Ltd to the plaintiffs.
The debt however need not be incurred at the time that the payments were made. If the payments were of a kind that gave rise to a contingent debt in the sense that Blunts Homes Pty Ltd subjected itself to “a conditional, but unavoidable, obligation to pay a sum of money at a future time” that could allow the plaintiffs to claim to be creditors within the meaning of the section: Hawkins v Bank of China (1992) 26 NSWLR 562 per Gleeson CJ at 572 and per Kirby P at 578.
However if the obligation created is an obligation to pay a future unliquidated amount that would not allow the plaintiffs to avail themselves of this section. The obligation must be to pay a liquidated amount even if that amount at some time is uncertain: Shephard v ANZ Banking Corporation (1996) 41 NSWLR 431.
If the payments made only entitled the plaintiffs to bring an action for damages the plaintiffs would not be creditors within the meaning of the section.
The question is whether the plaintiffs would have been entitled to restitution or merely had a claim for damages or put another way whether their claim was for a liquidated or an unliquidated sum.
It follows that these plaintiffs can only come within the section if the payments made, under a mistake, give rise to a restitutionary claim against Blunts Homes Pty Ltd.
Prima facie a person who has paid money as a result of a mistake is entitled to recover it, provided that the payer’s mistake makes the payee’s enrichment unjust: David Securities Pty Ltd v Commonwealth Bank of Australia (supra) per Mason CJ, Deane, Toohey, Gaudron and McHugh JJ at 376 and 378-379.
It is no part of the plaintiffs’ claim that the contract with Blunts Homes Pty Ltd was entered into by reason of a mistake. They assert that they made payments by reason of a mistake of law or fact on their part in response to the demands made by Blunts Homes Pty Ltd. However they do not state whether the mistake was of law or of fact..
The plaintiff’s assert in paragraphs 17 and 18:
“17.. At the time the demands referred to in paragraph 10 were made Blunts was entitled to reasonable remuneration for the work it had done on a quantum meruit basis. This reasonable remuneration was a sum not exceeding 57% of each of the amounts claimed.
18Accordingly by reason of the matters pleaded in paragraphs 11, 12 and 17, on 16 March 1994 the plaintiffs were owed the sum of $21,239 by Blunts.”
16 March 1994 was the date of the second of the two payments.
The plea implicitly asserts, I think, that Blunts was thereby unjustly enriched.
However it might be said that Blunts was not unjustly enriched except to the extent the payments were paid in advance of the work being done. If Blunts had not gone into liquidation it would have had to complete the work, pursuant to its contract with the plaintiffs, and would on the completion of the work have not been enriched at all.
There are a number of difficulties confronting the plaintiffs in respect of this pleading. First the plaintiffs have not pleaded how it is that they became creditors of Blunts Homes Pty Ltd. They merely assert that they made payments to Blunts Homes Pty Ltd in response to demands which were in breach of s 25(1)(a). Secondly they do not identify the mistake of law or fact which gave rise to the payments. Thirdly the plaintiffs have not pleaded that Blunts Homes Pty Ltd was unjustly enriched, as they must, if they wish to establish they were creditors. Lastly they have not pleaded that they are entitled to restitution.
The plaintiffs have merely assumed, because they made payments in response to unlawful demands, that they became creditors of Blunts Homes Pty Ltd because the payments made by the plaintiffs became debts due by Blunts Homes Pty Ltd to them. That, in my opinion, is an assumption which cannot be made in their claim against the directors.
If the plaintiffs wish to rely upon a cause of action which depends upon their being creditors of Blunts Homes Pty Ltd, they will have to plead with some particularity how it is that they assert that to be so. The present pleadings do not do so. The Particulars of Claim should not have been permitted to stand.
The defendant also argues that the plaintiffs could have pursued other remedies with Blunts Homes Pty Ltd. That may be so but that does not mean that they are not thereby creditors of Blunts Homes Pty Ltd and thereby entitled, if all of the other matters are made out, to recover against the directors under s 558M.
The appeal by Michael Lloyd against the order by the Magistrate giving the plaintiffs leave to amend their pleadings should be allowed.
In lieu thereof an order should be made dismissing the plaintiffs’ application for leave to amend their Statement of Claim.
The proceedings should not be dismissed. The plaintiffs should be allowed a further opportunity, if they wish to avail themselves of it, to properly plead the cause of action under the Corporations Law.
For the reasons I have already given the procedure adopted has not been appropriate. The plaintiffs need only be given leave to file further Particulars of Claim. I would give them leave to do that within 21 days of today.
I would make the following orders:
1.The appeals in Action Nos. 1246 of 1999 and 1247 of 1999 in which the plaintiffs are appellants be dismissed.

2.The appeals in Action Nos. 261 of 2000 and 262 of 2000 in which Michael John Lloyd is appellant be allowed.

3.The orders of the Magistrate made on 6 March 2000 allowing the plaintiffs leave to amend their Particulars of Claim be set aside.

4In lieu thereof the plaintiffs be given leave to file further Particulars of Claim within 21 days of today.

All defendants were successful on the first appeals. The defendant Mr Lloyd was successful on the second appeals. I would hear the parties as to costs.

[2000] SASC 208

6 July 2000