Waterwood Hotel Management Pty Ltd v KOP International Pty Ltd

[2020] NSWSC 709

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:	Waterwood Hotel Management Pty Ltd v KOP International Pty Ltd [2020] NSWSC 709
Hearing dates:	On the papers
Date of orders:	10 June 2020
Decision date:	10 June 2020
Jurisdiction:	Equity
Before:	Ward CJ in Eq
Decision:	1. Order pursuant to r 20.24(1) that the report of Mr Richard Hugh Macready be adopted in whole. 2. Order the second defendant to pay the plaintiff the sum of $4,197.12 plus interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW) calculated in accordance with the Court rules from the date of the payments comprising that amount to the date of judgment. 3.   Order the plaintiff to pay the defendants’ costs of the proceedings, including the costs of the reference hearing but excluding the cross-claim as to which order that there be no order as to costs. 4.   Order that these proceedings be otherwise dismissed.
Catchwords:	CIVIL PROCEDURE — Alternative dispute resolution — Court referral to referee — Court’s use of report —adoption and variation of referee’s report
Legislation Cited:	Civil Procedure Act 2005 (NSW), s 100 Competition and Consumer Act 2010 (Cth), Sch 2, ss 236, 237 or 243 Supreme Court Rules 1970 (NSW), Pt 72 r 13 Uniform Civil Procedure Rules 2005 (NSW), rr 20, 42.34, Pt 20, r 14
Cases Cited:	A&M Green Investments Pty Ltd v Progressive Pod Properties Pty Ltd [2011] NSWSC 502 ABB Engineering Construction Pty Ltd v Abigroup Contractors Pty Ltd [2003] NSWSC 665 Actrol Parts Pty Ltd v Coppi (No 3) [2015] VSC 758 Anglo Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd [1951] 1 All ER 873 Arian v Nguyen [2001] NSWCA 5 BestCare Foods v Origin Energy [2012] NSWSC 574 Blair v Curran (1939) 62 CLR 464 Brenner v First Artists’ Management Pty Ltd [1993] 2 VR 221 Cassegrain v Gerard Cassegrain & Co Pty Limited (2015) 254 CLR 425; [2015] HCA 2 Chocolate Factory Apartments Ltd v Westpoint Finance Pty Ltd [2005] NSWSC 784 Eko Investments Pty Ltd v Austruc Constructions Ltd [2009] NSWSC 208 Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd [1988] FCA 202; (1988) 81 ALR 397 Hansen t/as Derrawee Pastoral Company v Monterey (Coolah) Pty Limited [2012] NSWSC 1383 Harrington v Harrington Services Pty Ltd (in liq) (2002) 55 NSWLR 618; [2002] NSWSC 859 Harris v Morabito Holdings [2018] NSWSC 912 Hexiva Pty Ltd v Lederer (No 2) [2007] NSWSC 49 Hooker v Gilling (No 2) [2007] NSWSCA 214 Hungerfords v Walker (1989) 171 CLR 125; [1989] HCA 8 Illawarra Hotel Company Pty Ltd v Walton Construction Pty Ltd (2013) 84 NSWLR 410; [2013] NSWCA 6 Independent Grocers Co-operative Ltd v Noble Lowndes Superannuation Consultants Ltd (1993) 60 SASR 525 Kennedy v De Trafford [1897] AC 180 Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635; [2008] HCA 27 Mann v Paterson Constructions Pty Ltd [2019] HCA 32 Origin Energy LPG Ltd (formerly Boral Gas (NSW) Pty Ltd) v BestCare Foods Ltd [2013] NSWCA 90 Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221; [1987] HCA 5 Progressive Pod Properties Pty Ltd v A & M Green Investments Pty Ltd [2012] NSWCA 225 Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 Rozenblit v Vainer (No 2) [2019] VSC 366 South West Helicopters Pty Ltd v Stephenson (No 2) (2018) 98 NSWLR 96; [2018] NSWCA 99 South Yarra Project Pty Ltd v Gentsis [1985] VR 29 State of New South Wales v Quirk [2012] NSWCA 216 Super Pty Ltd v SJP Formwork (Australia) Pty Limited (1992) 29 NSWLR 549 Taxa Australia Pty Ltd v Wang [2018] NSWSC 1668 Valra Pty Ltd v Mag Men Holdings Pty Ltd (No 2) [2020] FCA 314 Waterwood Hotel Management Pty Ltd v KOP International Pty Ltd [2015] NSWSC 852 Waterwood Hotel Management Pty Ltd v KOP International Pty Ltd [2018] NSWSC 102
Texts Cited:	Birks, Peter, “Equity in the Modern Law: An Exercise in Taxonomy” (1996) 26(July) University of Western Australia Law Review 1 Dietrich, Joachim, “What is ‘Lawyering’? The Challenge of Taxonomy” (2006) 65(3) Cambridge Law Journal 549 Gray, John Chipman, “Some Definitions and Questions in Jurisprudence" (1892) 6 Harvard Law Review 21
Category:	Procedural and other rulings
Parties:	Waterwood Hotel Management Pty Ltd (Plaintiff) KOP International Pty Limited (First Defendant) MOOT Hotel Management Pty Ltd (Second Defendant) Xiufeng Xu (Third Defendant)
Representation:	Counsel: S Burchett (Plaintiff) GA Sirtes SC (Defendants)   Solicitors: Summit Legal (Plaintiff) Juris Cor Legal (Defendants)
File Number(s):	2015/175980
Publication restriction:	Nil

Judgment

1. HER HONOUR: In Mann v Paterson Constructions Pty Ltd [2019] HCA 32 (Mann), Nettle, Gordon and Edelman JJ quoted (at [150]) the statement of Professor John Gray that “a loose vocabulary is a fruitful mother of evils” (Gray, “Some Definitions and Questions in Jurisprudence" (1892) 6 Harvard Law Review 21 at 21). Similarly, Professor Birks once cautioned that, “[t]here is no department of human knowledge which can manage without taxonomy … A whale is otherwise easily taken for a fish” (Peter Birks, “Equity in the Modern Law: An Exercise in Taxonomy” (1996) 26(July) University of Western Australia Law Review 1 at 6). Although taxonomical distinctions are often vexed and may distort (see, for example, Joachim Dietrich, “What is ‘Lawyering’? The Challenge of Taxonomy” (2006) 65(3) Cambridge Law Journal 549), this matter well exemplifies the force of those observations.

2. In this matter, on 14 February 2018, Pembroke J published reasons for judgment (Waterwood Hotel Management Pty Ltd v KOP International Pty Ltd [2018] NSWSC 102, to which I will refer as the Primary Judgment), dismissing the plaintiff’s claims as contained in an amended statement of claim, other than a claim in restitution.

3. His Honour, in accordance with the Primary Judgment and pursuant to Pt 20 r 14 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), referred that claim to a referee (Mr Richard Hugh Macready, a former Associate Justice of this Court) for “enquiry and report upon the question of accounting between the parties and assessment of the amount of restitution (if any), to which the plaintiff is entitled in accordance with the findings of the Court in the [primary] judgment …”. His Honour reserved the costs, and further consideration of the proceedings, and gave the parties liberty to apply to the Referee and/or the Court on three days’ notice.

4. The Referee provided his report on 15 May 2019 (and to which I will refer as the Referee’s Report - see further below). It is not clear to me from the Court file what was the reason for the delay thereafter but nothing here turns on this. The matter came before me in the Applications List on 31 March 2020 this year, by which time Pembroke J was on leave and shortly due to retire from the Court. A timetable was put in place for the filing of submissions by the parties as to the adoption or otherwise of the Referee’s Report, and as to costs, with a view to those outstanding matters in the proceedings being dealt with on the papers.

5. Written submissions were filed for the plaintiff, Waterwood Hotel Management Pty Ltd (to whom I will refer as Waterwood), and cross-defendant, Mr Lit Moon Lye, on 3 May 2020. Later, written submissions were filed for the defendants, KOP International Pty Ltd (to whom I will refer as KOP), MOOT Hotel Management Pty Ltd (to whom I will refer as MOOT) and Mrs Xiufeng Xu, on 22 May 2020.

6. I have considered those submissions and the material referred to in those submissions. For the reasons here set out, I am of the view that the Referee’s Report should be adopted and that the orders contended for by the defendants as a consequence of adoption of the Referee’s Report should be made.

7. In relation to an award of interest, I am of the view that Waterwood should have interest on the amount awarded to it pursuant to s 100 of the Civil Procedure Act 2005 (NSW) (the Civil Procedure Act).

8. In relation to the award of costs, I am of the view that Waterwood should pay the costs of the hearing before Pembroke J and of the reference, other than that there should be no order as to the costs of the cross-claim to the extent that each party should bear its own costs of the cross-claim.

Background

9. The underlying dispute between the parties and the background to the circumstances in which the Referee’s Report was given are set out in the Primary Judgment and in the Referee’s Report. It is not necessary here to revisit that background in any detail, other than to explain that Waterwood is a company that was incorporated by Mr Lye (also referred to as Cory) for the purposes of the dealings the subject of the dispute before Pembroke J; that each of KOP and MOOT is a company owned and controlled by Mrs Xu; and that, at the relevant time, KOP was the owner of the Newport Mirage Hotel from which MOOT conducted a hotel business.

10. The dealings between the parties, and the dispute that arose between them, concerned arrangements entered into in 2015 for Mr Lye (through Waterwood) to “take over for a period the management of the hotel business” (as Pembroke J described those arrangements at [6] of the Primary Judgment – as to which see further below).

11. In June 2015, litigation between the parties ensued when the defendants expelled Waterwood from the hotel premises and an ex parte application was brought before the then duty judge (Kunc J) for orders in effect to restrain the defendants from excluding Waterwood from the hotel business. On 12 June 2015, Kunc J made interlocutory ex parte orders requiring the defendants to permit Waterwood to re-enter the hotel premises and to operate the hotel business; and restraining the defendants from interfering with the possession of the premises and operation of the business.

12. Those injunctions were short-lived. On 18 June 2015, Kunc J heard a motion by the defendants for the discharge of the ex parte orders and, on 30 June 2015, his Honour discharged those orders (see Waterwood Hotel Management Pty Ltd v KOP International Pty Ltd [2015] NSWSC 852, to which I will refer as the Discharge Judgment). At the same time, his Honour struck out Waterwood’s statement of claim (albeit with leave to file and serve an amended statement of claim).

13. The criticisms made by Kunc J of the pleading (that his Honour then struck out) (see at [72]) and his Honour’s observations of the fundamental legal problems faced by Waterwood in its claims to be entitled to operate the hotel business (see from [44]ff) are of some relevance to the submissions made by Waterwood on the issue of costs now before me. Relevantly, his Honour considered that the then pleading “completely fail[ed] to grapple with the problem of how Waterwood says MOOT has any enforceable legal, equitable or other obligations to Waterwood in respect of the Business when MOOT is not a party to [either of the relevant agreements]” (see at [72]). His Honour expressed the view, albeit obviously only a preliminary view and in obiter, that Waterwood had a “weak case” (see at [69]).

14. Waterwood then re-pleaded its claim (albeit, as it transpired, to no great avail). By that amended pleading, Waterwood brought a claim for damages for breach of contract or compensation for damages resulting from misrepresentation or restitution for moneys had and received (see at [29] of the Primary Judgment). Pembroke J noted that there were some other subsidiary (and, his Honour observed, “less clearly articulated”) contentions in the pleading, referring to agency, resulting or implied trust and estoppel, and that toward the end of the amended statement of claim there was an allegation that KOP and MOOT were estopped from denying their pleaded representations, from alleging that KOP had no right, title or interest in the hotel business or that the various agreements were not binding on them (see at [29] of the Primary Judgment); and his Honour also noted that there was also a contention in Counsel’s addresses that there was an estoppel by deed (see at [30]).

15. By cross-claim filed on 31 May 2016, the cross-claimant (MOOT) brought a claim against Mr Lye for the sum of $114,377.36 (plus interest and costs) for various claims of moneys had and received or for loss and damages allegedly suffered by reason of the matters there pleaded. Mr Lye, as I understand it, is an accountant and, as adverted to above, the controlling mind of Waterwood (see at [1] of the Primary Judgment).

The Primary Judgment

16. The matter was heard by Pembroke J over three days in late January and early February 2018. It is fair to say that his Honour seems to have been singularly unimpressed by the legal and business advisers involved in the transaction in question (neither of whom gave evidence), saying that the evidence suggested that “they were both incompetent in relation to this transaction” (see at [1] of the Primary Judgment) and describing the “outcome of the collective naiveté, inexperience and incompetence” of the advisers as being the production of “several contractual documents that reveal considerable confusion and neglect” (see at [2] of the Primary Judgment). His Honour considered the contractual “arrangement” in one material respect to be deeply flawed (so much so that it would be “inappropriate for a court of equity to enforce it, or to allow a claim for damages on it”) (see at [2] of the Primary Judgment) and, as I have already noted, his Honour proceeded to dismiss all Waterwood’s claims based on contract, representation and estoppel (as well as the allegation of a resulting or implied trust) (see at [32]-[33] of the Primary Judgment).

17. Relevantly for present purposes, however, his Honour accepted that, to the extent that it could prove its entitlement, Waterwood should have the benefit of a claim in restitution (see at [2] and [35] of the Primary Judgment) (the critical words here, in my opinion, being “to the extent”). His Honour was there clearly not finding that such an entitlement had been proved.

18. His Honour dealt in his substantive reasons with the claim in restitution in a single paragraph, at the conclusion of his Honour’s reasons, as follows (at [35]):

35.   The restitution claim is less controversial. The claim is pleaded on a narrow basis, namely that ‘the defendants have been unjustly enriched by the plaintiff’s satisfaction of their liabilities’. I was told in effect, that the parties recognise the need for such an outcome and desire an accounting between themselves. I am satisfied that the plaintiff should have this opportunity. The situation is not unlike that in Pavey & Matthews Pty Ltd v Paul (1986-7) 162 CLR 221. As Deane J said at 256:

The quasi-contractual obligation to pay fair and just compensation for a benefit which has been accepted will only arise in a case where there is no applicable genuine agreement or where such an agreement is frustrated, avoided or unenforceable. In such a case, it is the very fact that there is no genuine agreement or that the genuine agreement is frustrated, avoided or unenforceable that provides the occasion for (and part of the circumstances giving rise to) the imposition by the law of the obligation to make restitution.

19. His Honour then said (at [36]):

For those reasons, the only order I need make is that the plaintiff’s pleaded claim for restitution be referred to a referee for enquiry and report …

20. I have noted above (at [2]) the terms in which that order was ultimately made.

21. Waterwood says that the relevant findings in the Primary Judgment were as follows.

22. First, that in January 2015, it was agreed in principle between Mr Lye (on behalf of the plaintiff) and Mrs Xu that: Mr Lye would “take over for a period the management of the hotel business”; which proposal required Mrs Xu “to entrust the business to him for a specified term in return for the payment of a ‘rental’” (referring to [6] of the Primary Judgment).

23. Second, that, on 13 January 2015, Waterwood paid $15,000 as a part deposit towards the proposed transaction (referring to [7] of the Primary Judgment). (It is contended that, despite the denial in the amended defence (at [7.1]), this payment and Waterwood’s entitlement to restitution in respect of it has now been admitted – here referring to the Defendants’ Response filed in the reference, as to which see below.)

24. Third, that pursuant to documents described as a “lease of the business” (referring to [10] of the Primary Judgment) (drafted by a solicitor acting for both parties) and later a “supplementary agreement … for operating the hotel” (referring to [16] of the Primary Judgment) (drafted by Mrs Xu), in exchange for “rent” (subsequently called a “Contracting Fee”), Mr Lye and Mrs Xu (through their respective companies) “established a relation between the parties intended to subsist for a period” whereby “Mr Lye was to be a custodian, for a term, of the business” and “to conduct” it “on specified terms and subject to significant obligations”, and which “involved some degree of mutual confidence and required a continual co-operation” (referring to [17] of the Primary Judgment).

25. Fourth, that significant terms of the agreements found by his Honour were that: Waterwood was to “run the business ‘with a view to maintaining its value’” (referring to [18] of the Primary Judgment); KOP was “to issue a ‘Letter of Attorney’ to Waterwood to enable it to ‘deal with its business affairs and bank transactions’” (referring to [18] of the Primary Judgment) and to “use the bank account” of MOOT (referring to [19]-[20] of the Primary Judgment), so that Waterwood could utilise the business name and contractual arrangements established in KOP’s and MOOT’s names in its conduct of the business on its own behalf; Waterwood was to “return the hotel” at the end of the lease term (referring to [18] of the Primary Judgment) (Waterwood emphasising that it was intended that it would have possession of the hotel and business until then – see at [19] of the Primary Judgment); and Waterwood was entitled to “use the bank account” of what was seen as KOP’s “subordinate company, [MOOT]”, recognising that the business was to continue “through and with the banking facilities of … [MOOT], and in its name” but under the direction and for the benefit of Waterwood (referring to [19] of the Primary Judgment). Waterwood says that so much was admitted by the defendants (referring to Mrs Xu’s affidavit of 5 January 2017).

26. Fifth, that the intention that MOOT was a “mere vehicle” for the holding of the business’ assets for the benefit, first of Mrs Xu (and KOP) and then upon entry into the “lease” of Mr Lye (through Waterwood) is further supported by the finding of the original collateral agreement and that it was briefly put into effect to transfer the shares and directorship in MOOT to Mr Lye (referring to [9] of the Primary Judgment); and that the reversal of this transaction was only to protect KOP’s mortgage (change of ownership of MOOT apparently amounting to default), addressed in the “Supplemental Agreement”, which otherwise sought to give Waterwood effectively the benefit of MOOT’s assets, bank facilities and contractual arrangements for the running of the hotel (referring to [18] of the Primary Judgment).

27. Sixth, that between 5 March and 5 June 2015, Mr Lye operated the business of the hotel using the bank account of MOOT, the revenue was banked into MOOT’s account and the expenses, including salaries and wages, consultants’ fee and supplier invoices, were paid from MOOT’s bank account (referring to [20] of the Primary Judgment). Consequently, it is said by Waterwood that the revenue banked in MOOT’s name and the satisfaction of the liabilities incurred to make it were products of the business management, labours and assumption of business risks of Mr Lye on the behalf of Waterwood; and that it was paying MOOT’s related company (KOP) “rent” for that “privilege” such that it is said that “clearly” the money was held in MOOT’s name only for Waterwood.

20. Seventh, that shortly prior to Waterwood’s “expulsion” from the hotel by the defendants, Ms Lucy Lu, the defendants’ agent for the purpose of negotiating the adjustment under the “lease” (which it is said had been delayed for two months by the defendants), had admitted that at least $202,873.27 was owed to Waterwood; and, with reductions for “rent” for the past and the coming month along with “other adjustments”; Waterwood accepted a net $114,157.61 was owed to it (referring to [21] of the Primary Judgment).

21. Eighth, that (having in accordance with the “lease” and “supplementary agreement” assumed responsibility for the debts payable and receivable of the business as at 1 March 2015, subject to adjustments to be paid by the defendant within 14 to 28 days), on 5 June 2015, Mr Lye and Waterwood were expelled from the hotel without final agreement on, or payment of, the adjustment sum (referring to [24]-[28] of the Primary Judgment). His Honour found that Waterwood was expelled immediately after it complied with the defendants’ demand to pay MOOT’s outstanding tax liabilities for the pre-lease period without the defendants remedying their default in paying the adjustments (referring to [25] of the Primary Judgment). (It is further said that the defendants had wrongly assumed the money left in the MOOT account on commencement was sufficient, despite advice from Mr Lye before the lease commencement that another $100,000 would be required.)

Referee’s Report

30. On the hearing of the reference, which I understand occupied half a day, there was before the Referee a document headed “Plaintiff’s Schedule of Claims for Restitution” (to which I will refer as the Plaintiff’s Schedule) and a document headed “Defendants’ Response to Claims for Restitution” (to which I will refer as the Defendants’ Response), both of which were put before me on the present application.

31. Both parties adduced evidence. Waterwood relied on affidavits affirmed by Mr Lye (an affidavit affirmed 17 January 2019 that was prepared for the purposes of the reference and two affidavits that had been affirmed on 19 August 2016 and 19 April 2017 which were read at the substantive hearing before Pembroke J), an affidavit of his sister, Ms Bianca Lye, affirmed 19 April 2017 (also from the substantive hearing), and an affidavit of Ms Lye’s husband, Mr Robert Chong, affirmed 19 April 2017 (also from the substantive hearing). Waterwood also tendered before the Referee the following of the defendants’ affidavits from the substantive hearing: an affidavit affirmed 5 January 2017 by Mrs Xu; an affidavit affirmed by Ms Jiangyuan Yan on 5 January 2017; an affidavit affirmed by Ms Min Xu (Mrs Xu’s daughter) on 17 January 2017; an affidavit affirmed by John Yick-Cheung Lee on 18 January 2017; and an affidavit affirmed by Lihua (Lucy) Lu on 23 January 2017. Waterwood also tendered the trial transcript before Pembroke J (admitted as Exhibit F) and the bank statements of MOOT for the period 3 December 2014 to 3 March 2015 (noting that its bank statements thereafter was exhibited to an affidavit of Mrs Xu) (admitted as Exhibit G) and of Bianca Lye (admitted as Exhibit H). Meanwhile, the defendants read the affidavit of Ms Min Xu affirmed 19 March 2019 and tendered the exhibit to that affidavit (admitted as Exhibit 1).

32. On the hearing of the present application, Waterwood has (notionally, since the hearing is on the papers) tendered the evidence on the reference and the transcript of the reference hearing. With its written submissions, Waterwood also included as an aide memoire a chronological summary of the evidence entitled “Plaintiff’s Chronology on Reference”.

33. As will be apparent, therefore, Waterwood has placed before the Court on the present application (as to the adoption or otherwise of the Referee’s Report) what seems to be the whole of the evidence relied upon at the reference.

34. The total amount claimed by Waterwood (see the Plaintiff’s Schedule) comprised $428,900.99 (being payments made of $1,420,160.32 less money received of $991,259.33), plus interest on the balance owed by way of equitable compensation or pursuant to s 100 of the Civil Procedure Act. The defendants’ position (see the Defendants’ Response) was that certain amounts were admitted but overall the claim for restitution was denied (other than for a small amount) and claimed an amount in the sum of $178,513.29 (plus interest) from Waterwood.

35. The Referee noted (see at [11] of the Referee’s Report) that the defendants admitted that one of the plaintiff’s claims (for $15,000) fell within the reference but otherwise denied the claims made and that the defendants had particularised the cross-claim, to which I have just made mention, against the plaintiff company in the sum of $178,513.29 but had reduced this in written submissions to the sum of $55,324.51. In this regard, the Referee noted that, at the hearing of the reference, he was asked not to deal with this cross-claim on the basis, which the Referee accepted, that the cross-claim had not been referred by Pembroke J (noting that the cross-claim was against Mr Lye, as noted earlier).

36. The Referee dealt in turn with each of Waterwood’s claims (as I will set out in more detail below) and concluded that only claim 2(c)(i) in the Plaintiff’s Schedule was made good. The Referee accepted Mr Lye’s evidence, unchallenged as it was, that these amounts (said to be payments by Waterwood of employees of MOOT for wages for the period after termination of the agreements on 5 June 2015), totalling $4,197.12, had been paid by Mr Lye. The Referee accordingly found that the amount payable on Waterwood’s claim for restitution was $4,197.12.

37. Not surprisingly perhaps, the defendants now seek orders for the adoption in whole of the Report (pursuant to r 20.24(1) of the UCPR) and do not contest the relatively small amount that was awarded by the Referee in Waterwood’s favour. Waterwood argues against this, saying that the Report should be rejected and that there should be substituted an award of restitution in the amount of $427,100.99 plus interest and costs.

Adoption of the Referee’s Report: generally

38. It is convenient first to outline the principles concerning adoption of a referee’s report.

Relevant principles

39. The order referring the matter out to the Referee in the present case was made pursuant to r 20.14 of the UCPR, as noted above. However, the principles applicable to a reference made under the previous iteration of the Court rules (former Pt 72 r 13 of the Supreme Court Rules 1970 (NSW)) are equally applicable to references under the present rules (see Illawarra Hotel Company Pty Ltd v Walton Construction Pty Ltd (2013) 84 NSWLR 410; [2013] NSWCA 6 at [15]-[16] per Barrett JA, with whom Meagher JA and I agreed) (Illawarra Hotel).

40. The principles in relation to applications for the adoption, variation or rejection of a referee’s report were considered by Einstein J in ABB Engineering Construction Pty Ltd v Abigroup Contractors Pty Ltd [2003] NSWSC 665 at [34]-[35], citing inter aliaSuper Pty Ltd v SJP Formwork (Australia) Pty Limited (1992) 29 NSWLR 549; and were conveniently distilled by McDougall J in Chocolate Factory Apartments Ltd v Westpoint Finance Pty Ltd [2005] NSWSC 784 (Chocolate Factory) (at [7]; and see Illawarra Hotel at [15]) as follows:

(1) An application under Pt 72 r 13 is not an appeal either by way of hearing de novo or by way of rehearing.

(2)   The discretion to adopt, vary or reject the report is to be exercised in a manner consistent with both the object and purpose of the rules and the wider setting in which they take their place. Subject to this, and to what is said in the next two sub paragraphs, it is undesirable to attempt closely to confine the manner in which the discretion is to be exercised.

(3) The purpose of Pt 72 is to provide, where the interests of justice so require, a form of partial resolution of disputes alternative to orthodox litigation, that purpose would be frustrated if the reference were to be treated as some kind of warm up for the real contest.

(4)   In so far as the subject matter of dissatisfaction with a report is a question of law, or the application of legal standards to established facts, a proper exercise of discretion requires the judge to consider and determine the matter afresh.

(5)   Where a report shows a thorough, analytical and scientific approach to the assessment of the subject matter of the reference, the Court would have a disposition towards acceptance of the report, for to do otherwise would be to negate both the purpose and the facility of referring complex technical issues to independent experts for enquiry and report.

(6)   If the referee’s report reveals some error of principle, absence or excessive jurisdiction, patent misapprehension of the evidence or perversity or manifest unreasonableness in fact finding, that would ordinarily be a reason for rejection. In this context, patent misapprehension of the evidence refers to a lack of understanding of the evidence as distinct from the according to particular aspects of it different weight; and perversity or manifest unreasonableness mean a conclusion that no reasonable tribunal of fact could have reached. The test denoted by these phrases is more stringent than “unsafe and unsatisfactory”.

(7)   Generally, the referee’s findings of fact should not be re-agitated in the Court. The Court will not reconsider disputed questions of fact where there is factual material sufficient to entitle the referee to reach the conclusions he or she did, particularly where the disputed questions are in a technical area in which the referee enjoys an appropriate expertise. Thus, the Court will not ordinarily interfere with findings of fact by a referee where the referee has based his or her findings upon a choice between conflicting evidence.

(8) The purpose of Pt 72 would be frustrated if the Court were required to reconsider disputed questions of fact in circumstances where it is conceded that there was material on which the conclusions could be based.

(9)   The Court is entitled to consider the futility and cost of re-litigating an issue determined by the referee where the parties have had ample opportunity to place before the referee such evidence and submissions as they desire.

(10) Even if it were shown that the Court might have reached a different conclusion in some respect from that of the referee, it would not be (in the absence of any of the matters referred to in sub para (6) above) a proper exercise of the discretion conferred by Pt 72 r 13 to allow matters agitated before the referee to be re-explored so as to lead to qualification or rejection of the report.

(11)   Referees should give reasons for their opinion so as to enable the parties, the Court and the disinterested observer to know that the conclusion is not arbitrary, or influenced by improper considerations; but that it is the result of a process of logic and the application of a considered mind to the factual circumstances proved. The reasoning process must be sufficiently disclosed so that the Court can be satisfied that the conclusions are based upon such an intellectual exercise.

(12)   The right to be heard does not involve the right to be heard twice.

(13)   A question as to whether there was evidence on which the referee, without manifest unreasonableness, could have come to the decision to which he or she did come is not raised “by a mere suggestion of factual error such that, if it were made by a trial judge, an appeal judge would correct it”. The real question is far more limited: “to the situation where it is seriously and reasonably contended that the referee has reached a decision which no reasonable tribunal of fact could have reached; that is, a decision that any reasonable referee would have known was against the evidence and weight of evidence”.

(14)   Where, although the referee’s reasons on their face appear adequate, the party challenging the report contends that they are not adequate because there was very significant evidence against the referee’s findings with which the referee did not at all deal, examination of the evidence may be undertaken to show that the reasons were in fact inadequate because they omitted any reference to significant evidence.

(15)   Where the court decides that the reasons are flawed, either on their face or because they have been shown not to deal with important matters, the court has a choice. It may decline to adopt the report. Or it may itself look at the detail of the evidence to decide whether or not the expense of further proceedings before the referee (which would be the consequence of non adoption) is justified.

41. It is clear that the Court may reject only some of the findings in such a report (see r 20.24(1)(a) of the UCPR; Eko Investments Pty Ltd v Austruc Constructions Ltd [2009] NSWSC 208 at [102] per Bergin CJ in Eq; BestCare Foods v Origin Energy [2012] NSWSC 574 at [103] and [127] per McDougall J).

42. It is also clear that, when considering whether or not to adopt a referee’s report, the Court is called upon to exercise a discretion “whether to give the court’s imprimatur to a decision made outside the normal curial process by a person charged with the duty of assessing a particular question in the light of the evidence and coming to an informed conclusion, often as to matters lying within a field in which that person has special expertise” (see Illawarra Hotel at [16]).

43. It is convenient to note the above at the outset because, although there was a brief reference in the defendants’ submissions to the principles governing the adoption or rejection of such reports as summarised by McDougall J in Harris v Morabito Holdings [2018] NSWSC 912 (Harris v Morabito) at [5]-[15] (which, unsurprisingly, accord with those summarised by his Honour in Chocolate Factory and approved in other authorities such as Illawarra Hotel and Origin Energy LPG Ltd (formerly Boral Gas (NSW) Pty Ltd) v BestCare Foods Ltd [2013] NSWCA 90), there was no real attention paid to those principles in Waterwood’s submissions. In any event, with those principles in mind, I turn to the respective submissions of the parties.

Waterwood’s submissions as to rejection of the of the Referee’s Report

44. As noted above, Waterwood submits that the Referee’s Report should be rejected and that there should be substituted an award of restitution in the amount of $427,100.99 plus interest and costs (that being almost the entirety of the amount it had claimed by way of restitution before the Referee). Waterwood also seeks its costs of the proceedings. This includes a claim by Mr Lye for his costs on the indemnity basis. I will return to the issue of costs later in these reasons.

45. Waterwood submits (somewhat emotively, though it was not alone in the making of emotive submissions) that the defendants “inveigled their part-time bookkeeper and casual manager of [three to four] months, for whose services they had previously paid significant fees, to assume the burden of running, maintaining and enhancing their hotel business and premises for his own benefit in any profits earned and risk in losses suffered, assuming and satisfying all their and its related liabilities, for [four] months (with an invalid promise of a [five] year term and option of renewal)” and says that the effect of the Referee’s Report is that they obtained Waterwood’s “satisfaction of their pre-‘lease’ liabilities, assumption and satisfaction of substantial further liabilities for the benefit of the business and provision of bookkeeping and management services for those [three] months for just $4,197”.

46. Waterwood accepts that neither the hearing of the reference nor the present application is the occasion for criticism of the findings of Pembroke J in the Primary Judgment. In particular, it is accepted that both parties and the Referee were required on the reference (and the parties are again required on this hearing) to accept those findings which were legally indispensable to the conclusion that only the claim to restitution succeeded (citing Blair v Curran (1939) 62 CLR 464 at 532 per Dixon J). Waterwood also accepts that the parties (and the Referee) needed to accept, construe and give those findings practical application. However, Waterwood says that, beyond those findings, the Referee was (and this Court is now) required to make its own findings.

47. Waterwood identifies a number of errors in the Referee’s Report as follows.

Error as to the scope of the reference

48. As adverted to above, Waterwood maintains that the scope of the reference was broader than an assessment of the amount of restitution required. Waterwood says that what his Honour found was that Waterwood was entitled to an “accounting between” the parties in circumstances where it may thereby obtain “fair and just compensation for a benefit which has been accepted …where there is no applicable genuine agreement…” (this being a reference to his Honour’s reasons at [35], in which his Honour quoted from Pavey & MatthewsPty Ltd v Paul (1986-7) 162 CLR 221; [1987] HCA 5 (Pavey & Matthews) as extracted above).

49. Waterwood notes that, while the pleading of the restitution claim was said to be “narrow” and related to unjust enrichment “by the plaintiff’s satisfaction of their liabilities”, his Honour noted that the parties “desire an accounting between themselves” (referring to [35] of the Primary Judgment). Thus, it is submitted that, ultimately, the order of referral was not so “narrow”; and that it required an enquiry and report on “the question of accounting between the parties” and “assessment of the amount of restitution (if any), to which the plaintiff is entitled…”.

50. The complaint here made by Waterwood is that (referring to [16] of the Referee’s Report), the Referee construed the reference as limited to “the Plaintiff’s satisfaction of liabilities”, which Waterwood says followed on from “a somewhat obscure rejection of Mason and Carter’s consideration of the scope of unjust enrichment claims” (see at [15] of the Referee’s Report). In this regard, Waterwood notes that the decision of Windeyer AJ in A&M Green Investments Pty Ltd v Progressive Pod Properties Pty Ltd [2011] NSWSC 502, to which the Referee there referred, was overturned on appeal (see Progressive Pod Properties Pty Ltd v A & M Green Investments Pty Ltd [2012] NSWCA 225) and it is said that the relevance of Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635; [2008] HCA 27 (Lumbers v W Cook Builders) to a claim by Waterwood was undisclosed.

51. It is further noted that it does not appear that the Referee found any of Waterwood’s claims to be outside the terms of reference but it is suggested that this “perceived limitation” on the terms of reference led the Referee to fail fully to consider Waterwood’s entitlement to restitution for benefits evidently received and requested by the defendants (it is said “based upon his own undisclosed, legal and factual construction of some of its claims”).

Error as to relevance of the parties’ intentions

52. Waterwood submits that the Referee misdirected himself that the parties’ intentions as to the effect of their dealings and actions were irrelevant (at [12] and [14]). In this regard, it is submitted that Pembroke J’s finding that the lease of the hotel business was unenforceable (for want of title of the “lessor” – see at [11] of the Primary Judgment) did not mean that the lease was prima facie or at all to be ignored in determining whether a benefit was accepted (by KOP, MOOT or their mutual sole director, Mrs Xu) (cf the Referee’s Report at [14]). It is noted that (at [35] of the Primary Judgment) his Honour said the situation was not unlike that in Pavey & Matthews in which the obligation was described as one “to pay … compensation for a benefit which has been accepted [under an unenforceable agreement]” (quoting Deane J in Pavey & Matthews at 256).

52. Waterwood points out that Deane J in Pavey & Matthews noted (at 257) that the unenforceability of the contract did not render it “irrelevant” and that it remained evidence “on the question whether what was done was done gratuitously” and in “many cases, such as where the claim is for money … paid, the obligation to make restitution will plainly involve the obligation to pay the precise amount … paid. In those cases where a claim for a reasonable remuneration or price is involved, the unenforceable agreement may … be referred to as evidence, but again as evidence only, on the question of the appropriate amount of compensation”.

53. Waterwood contends that, in the assessment of the restitution here to be made, the intentions of the parties as evidenced by their unenforceable agreement are therefore clearly relevant. It is submitted that an agreed contract price is evidence of the market rate and, in the absence of evidence of the market rate, the Court must fix a reasonable sum as best it can (citing an unspecified edition of Mason and Carter’s text, The Law of Unjust Enrichment at [1421]-[1430]; and see Independent Grocers Co-operative Ltd v Noble Lowndes Superannuation Consultants Ltd (1993) 60 SASR 525 at 559 per Matheson J). It is said that the Court presumes a reasonable sum to be what would have been payable under “a normal commercial arrangement” for managerial services rendered; it may have regard to earnings, which would have been earned, if the contract was not void with a “predisposition to fulfil the expectation of the parties” at the time of the request for the services (citing Brenner v First Artists’ Management Pty Ltd [1993] 2 VR 221 at 263-264 per Byrne J).

54. It is said that it was not until the purported termination of the parties’ relationship by the defendants and the hearing of their application to discharge Waterwood’s interlocutory relief before Kunc J on 18 June 2015 that the defendants disputed the effectiveness of the hotel lease. It is said that, until then, the defendants’ conduct must be construed in the context of intended performance of the lease or at least acceptance of an obligation to perform that lease, as understood by them.

55. Waterwood says that, while the company found to have owned the hotel business, MOOT, was not a party to the lease of that business, its sole director and shareholder caused the owner of the hotel land, KOP (of which she was also sole director and shareholder), to enter into that “lease” and give possession to Waterwood. It is said that the intentions of each company, manifested by their common director and shareholder, must have been the same; that Mrs Xu caused MOOT to hand over conduct of the business and its bank account to Waterwood and to demand and receive the consideration promised in the lease by way of “rent” and satisfaction of its liabilities and improvement of the hotel’s management.

56. It is said that, under the “lease”, the defendants procured the benefit of having Waterwood perform all the work and take all the risks of the conduct of the hotel for in excess of three months, as well as paying a significant amount to satisfy the defendants’ liabilities out of both MOOT’s and Waterwood’s (or related) accounts. In addition, it is said that Waterwood intended to pay the substantial “rent” or “contract fee” of $550,000 per annum to KOP. It is also said that “[o]n no available interpretation of the evidence” could it be reasonably concluded that the defendants thought Waterwood was paying KOP to satisfy the defendants’ liabilities and incur the time, effort, risks and costs of conducting the business for them without reward.

Error as to ownership of money in MOOT’s bank account

58. It is noted that the Referee found (referring to [17] of the Referee’s Report), that “the parties relationships include inter alia the fact that in law the defendants, not the plaintiff, owned the funds transferred from the defendants’ bank accounts”; and it is said that, consequently, the Referee gave Waterwood no credit for the satisfaction of liabilities of the defendants incurred before or during the term of Waterwood’s conduct of the business, irrespective of the source of that money in the working cash left in the MOOT account by the defendants, for which they demanded credit from Waterwood on adjustment, or afterwards in the labour of the Waterwood’s employees or direct contractors or the staff inherited from the defendants and as managed by Waterwood.

59. It is said that while Pembroke J opined (referring to [20] of the Primary Judgment) that, by reason of payments having been made from the bank account in MOOT’s name, Waterwood had not “expended any of its own funds”, his Honour expressly made no finding to that effect. It is submitted that, in context, his Honour was there talking only of the legal, not beneficial, title to the account from which moneys were paid.

60. It is noted that Pembroke J found (at [19] of the Primary Judgment) that Waterwood intended to conduct the business for the term “through and with the banking facilities of … [MOOT] and in its name”. It is submitted that all the evidence as to the intentions of the parties as to ownership of money left in the account at lease commencement (being 1 March 2015), including deposits for events yet to be provided and of money subsequently added to the account from accounts payable or Waterwood’s labours on its own account, pointed to it being beneficially held for Waterwood. It is said that, from lease commencement, Waterwood was regarded by the parties as responsible for the conduct of the business and all its liabilities but also entitled to all its proceeds and to an adjustment reflective of the ultimate division of responsibility between the parties for liabilities and provision of services as of 1 March 2015.

61. Waterwood points to the fact that, in cross-examination on the reference, Mrs Xu’s daughter acknowledged that payments for the business from the bank account prior to 1 March 2015 were listed by Waterwood and submitted to her for authorisation with approval of her mother and afterwards there was no “need to authorise because [Mr Lye] is operating the account” (see the transcript of the reference hearing at 9-10).

62. It is noted that (at [19] of the Referee’s Report) the Referee rejected Waterwood’s argument that it had been given the benefit of the money in the bank account on assumption of control of the business and conduct of that account. It is said that the Referee did so only because of Pembroke J’s finding (at [21] of the Primary Judgment) that no final agreement had been reached on the adjustments to be made. Waterwood says that that finding said nothing about the “foundational step” of the process of negotiating the adjustments; that at the start of the “lease” term the benefit of the money in the bank account of MOOT, and receivable by MOOT, had been given to Waterwood (along with ownership and control of MOOT itself for a short time) to be used by Waterwood in its conduct of the business for its own benefit and the defendants; and consistently thereafter claimed credit for it in those adjustments. Moreover, it is said that it had been given pursuant to the clear terms of the “lease” and that Waterwood assumed all the indicia of the business, including stock, working capital and liabilities, subject to such an adjustment.

63. It is said that, prior to the “lease”, MOOT was treated by the defendants as merely an agent of KOP (and Mrs Xu) for the conduct of the business in its hotel with the “Supplementary Agreement” written by Mrs Xu describing MOOT as KOP’s “subordinate company”. It is noted that the previous owner’s lease of the hotel to the business proprietor had expired without renewal or replacement and the business name registration had not even been renewed. It is said that MOOT could only have been intended to continue such an agency role on the behalf of Waterwood under the lease; and that it was intended to and did become a trustee for Waterwood of the money in the account and paid into the account, as well as of the “bundle of rights and interests” constituting the business in MOOT’s name, to facilitate performance of the “lease”, whether the company was owned and directed by Mr Lye (as originally also intended and for a short time put into effect) or by Mrs Xu (as it was before the “lease” and from soon after the “lease” commencement).

64. It is said that the Referee (at [20] of the Referee’s Report) rejected this argument by reference to the findings (at [32] of the Primary Judgment) but that that paragraph rejected only the argument that KOP had contracted as agent for MOOT and impliedly held its land on trust for the purposes of the lease of the business (citing South Yarra Project Pty Ltd v Gentsis [1985] VR 29; see also Harrington v Harrington Services Pty Ltd (in liq) (2002) 55 NSWLR 618; [2002] NSWSC 859 at [8]-[10] per Palmer J). Moreover, it is said that if the money paid into the account as proceeds of Waterwood’s conduct of the business did then become the property of MOOT and it obtained that benefit as a result of its request for the work to be performed and accepted it in circumstances generating a liability to Waterwood’s workers and contractors and thus to Waterwood in that amount.

65. It is submitted that there is an incontrovertible benefit to a trustee in receiving the payment of money previously held by it on trust for another or the product of assets held by it on such a trust, even if only to satisfy liabilities owed in its name to third parties. It is asserted that it cannot be disputed on the evidence or findings that there were requests, and “indeed demands”, for such payment and acceptance of the benefit.

66. Waterwood says that if MOOT did retain and receive the money in the account and all other product of Waterwood’s labours in its own name then it “plainly nevertheless” became liable for that benefit to Waterwood or its employees and contractors who had undertaken the work that generated that income and entitlement to retain it (both in satisfying commitments subject of payments in advance prior to the lease and in obtaining and performing new business). It is said that, prima facie, the value of Waterwood’s labours is the money earned from which liabilities of the defendants could be satisfied and profits could be paid. Significantly, it is said that the deposits to the account were not only generated by the “bundle of rights and interests” in the name of MOOT at the date of commencement and managed by Waterwood thereafter, but also by new rights and interests in the form of contracts and arrangements made in Waterwood’s name for the conduct of the hotel and under which it incurred and satisfied liabilities for the benefit of MOOT (if and where it retained beneficial title to the business and bank account). Following from this, complaint is made that no such liability was recognised by the Referee.

Defendants’ submissions as to the adoption of the Referee’s Report

67. Before turning to the respective parties’ submissions as to the particular claims, it is useful to summarise the general position of the defendants in relation to the Referee’s Report.

68. As adverted to above, the defendants seek orders that: the Referee’s Report be adopted in whole under r 20.24(1) of the UCPR; the second defendant, MOOT, pay Waterwood the sum of $4,197.12; Waterwood pay the defendants’ costs of the proceedings, including the costs of the reference hearing but excluding those of the cross-claim (as to which it is contended that there should be no order as to costs); and the proceedings be otherwise dismissed. In summary, the defendants say that Waterwood fails because it “did not even vaguely establish any entitlement to restitution”.

69. In relation to Waterwood’s claim for $427,100.99, the defendants emphasise the following matters: that between 5 March to 5 June 2015, Waterwood, through the controlling mind of Mr Lye, operated the business using the bank account of MOOT (referring to the Primary Judgment at [20]); trading revenue was banked into MOOT’s account; the business expenses, salaries and wages were paid from the MOOT bank account (referring to the Primary Judgment at [20]); and it was not apparent that Waterwood expended any of its own funds (although no finding was made as to this) (again, referring to the Primary Judgment at at [20]).

70. In short, the defendants say that the parties had a three month business relationship during which time there was no evidence that Waterwood spent any of its own money in running the business (other than $4,197.12). Indeed, they say that the evidence established the very opposite, namely that expenses were paid from MOOT’s bank accounts.

71. The defendants argue that it is against these facts that Waterwood’s claim should be approached, namely: a claim for repayment to it of $427,100.99 which was never its money and which it never expended. It is submitted that Waterwood does not seek restitution for unjust enrichment; rather, it seeks “unjustified enrichment”.

72. It is noted that the genesis of the claim for restitution is contained in [30] of the amended statement of claim filed on 16 July 2015 (which I extract in due course below). The defendants say that they accepted before Pembroke J (as they did before the Referee) that restitution is available if Waterwood paid MOOT’s liabilities. However, they say that the first element of such a claim is that Party A (i.e., Waterwood) expended its money. Following on from this, they say that this is where the entirety of Waterwood’s claim failed and so fails (other than as to $4,197.12); namely, that the hotel’s expenses during that brief three month period were not paid by Waterwood using Waterwood’s money.

73. The defendants emphasise that Waterwood (or more accurately, Mr Lye, who had effective control of MOOT) paid MOOT’s expenses using MOOT’s money; and hence that Waterwood did not establish the first necessary element of its restitution claim. It is said (like Waterwood, emotively) that for Waterwood to receive about $427,000.00 that was never its money (because it came into this venture without any capital) “would turn unjust enrichment on its head”.

74. The defendants also point out that the reference did not substantively involve KOP; rather, KOP was involved in the injunction proceedings before Kunc J and the hearing before Pembroke J. It is noted that Waterwood’s prayer for restitution concerned the hotel’s liabilities and the hotel was run by MOOT (again, not KOP).

75. The defendants say that Waterwood has not disclosed any of the kinds of errors identified in Harris v Morabito (to which I have referred above) as justifying any interference with the Referee’s conclusions.

76. Further, the defendants identify two central findings made by the Referee: first, that Waterwood did not pay MOOT’s liabilities, rather MOOT’s money was used for that purpose; and second, that Waterwood has failed to prove an entitlement to restitution.

77. It is further said that this is not a matter where the Referee has been required to engage in complex fact finding; that the Referee’s Report does not disclose any need for the Referee to elect between competing versions of evidence; and that, even if it did, the Court would not ordinarily interfere with findings of fact where a Referee has made a choice between conflicting evidence. Rather, the defendants say that Waterwood is asking this Court to reconsider the entire matter without establishing any proper reason for doing so. It is submitted that “[m]aking bold, and bare, assertions and invocating notions of ‘fairness’ is no substitute to identifying error, such that this Court’s discretion to interfere with the Referee’s Report is justified”.

Determination

78. As to the scope of the reference, and hence the scope of the Referee’s Report, what the Referee was directed to enquire and report upon was “the question of accounting between the parties and assessment of the amount of restitution (if any), to which the plaintiff is entitled in accordance with the findings of the Court in the [Primary Judgment]…” (emphasis added). That is, in its terms, the order required that the enquiry and assessment to be made was one predicated on findings having been made (presumably, but not necessarily limited thereto, in relation to the restitution claim) in the Primary Judgment.

79. On one view, what is reflected at [35] of the Primary Judgment is simply an acceptance by his Honour that Waterwood should have the opportunity to establish whether (and to what extent, if at all) the defendants had been “unjustly enriched by the plaintiff’s satisfaction of their liabilities”, this being the “narrow” basis on which the restitution claim had been pleaded and the parties having “recognised[d] the need for such an outcome” and “desir[ing] an accounting between themselves”.

80. On that basis, his Honour’s stated satisfaction that the parties should have that “opportunity” suggests that what his Honour there contemplated was that the Referee should determine the extent to which (if at all) Waterwood had discharged, using its own funds, any liabilities of the defendants (his Honour seemingly accepting that, in the circumstances of the case, the defendants would be unjustly enriched to the extent that Waterwood had in fact discharged their liabilities). That is, in other words, that it was to be a more limited factual enquiry into which the Referee was to enquire and on which the Referee was to report (contra a more general enquiry as to whether the “unjust” factor required of an enrichment claim had been established). That this is so seems indicated by the extract quoted by Pembroke J (at [35] of the Primary Judgment) of the judgment of Deane J in Pavey & Matthews (at 256) (namely, the reference in that passage to the quasi-contractual obligation to pay fair and just compensation for a benefit which has been accepted). That seems to me what must have been intended by his Honour’s reference to an enquiry and assessment of the restitutionary claim “in accordance with” the findings in the Primary Judgment (and, indeed, this seems to be how the Referee understood his task on the reference).

81. As outlined above, however, Waterwood maintains that the enquiry to be carried out by the Referee should be understood as having broader operation - in effect, as tantamount to a formal accounting process and/or as the determination of a claim falling generally within the category of unjust enrichment. For example, that class of claim sometimes referred to as a quantum meruit, (as to which see Mann at [150] per Nettle, Gordon and Edelman JJ), though this is not how the restitution claim was pleaded in the statement of claim.

82. In my opinion, the proper construction of his Honour’s order for the referral out, pursuant to r 20 of the UCPR, is that what his Honour was referring for enquiry and report was the assessment and determination of whether, and to what extent, Waterwood had satisfied, using its own funds, liabilities of the defendants; not a general taking of accounts (or process of accounting as between the parties) as is not uncommon, say, when there is a dispute between partners or winding up of a partnership; nor the determination of a quantum meruit claim as such.

83. In this regard, it is relevant to note that his Honour was expressly dealing (at [35] of the Primary Judgment) with the restitution claim which was pleaded in a single paragraph of the amended statement of claim as follows:

30.    Further in the alternative the Defendants have been unjustly enriched by the Plaintiff’s satisfaction of their liabilities, whereby they had and received monies to the use of the Plaintiff.

84. That claim was not particularised in the amended statement of claim; although there were earlier in the amended statement of claim allegations as to payments made in alleged satisfaction of expenses and liabilities of the first and second defendants (see at [20]) in the context of the alleged performance of the agreements there relied upon and in alleged reliance on the representations there pleaded. The relief sought (prayer 3) was for “[r]estitution for monies had and received by the Defendants to the use of the Plaintiff” (and, by prayer 4, interest thereon).

84. There was no claim for the taking of accounts or for any accounting in the sense; for example, when there is a dispute between partners or winding up of a partnership. Nor was there any allegation (amidst the myriad of ways in which Waterwood’s claims were put) as to a partnership between any one or more of the various parties. The fact that his Honour referred to a “desire” on the part of the parties for “an accounting between themselves” does not in my view convert a referral for “assessment of the amount of restitution (if any), to which the plaintiff is entitled in accordance with the findings of the Court …” into a partnership accounting or like process.

85. True it is that the orders as framed by his Honour referred to enquiry and report “upon the question of accounting between the parties” but that seems to me to be consistent with the evident purpose of that “accounting between the parties” being that the defendants were to account (i.e., be liable for) the amount (if any) by which their liabilities had been satisfied by Waterwood; and following, that “accounting between the parties” to be effected by an order for restitution of the amount by which those liabilities had been satisfied.

86. Nor was the claim put in the pleading, or dealt with by his Honour, as a quantum meruit claim (as now seems to be the thrust of some of the submissions for Waterwood, for example by reference to the benefit of Mr Lye’s labours).

87. The Referee seems clearly to have understood the reference as a process of determining whether and to what extent Waterwood had satisfied liabilities of the defendants, using Waterwood’s own moneys; and it appears to be the way in which the parties approached the matter (by reference to the Plaintiff’s Schedule and Defendants’ Response). The reference was not conducted as some kind of informal vouching and falsification/surcharge accounting process; nor was it conducted as a case for a quantum meruit.

88. I do not consider that the Referee erred in conducting the reference on this basis. In particular, I do not consider that the Referee failed in some way to exercise the jurisdiction conferred on him by limiting his enquiry and report to the question as to the pleaded claim for restitution (see at [10] of the Referee’s Report). I am fortified in this conclusion by the fact that the Referee was asked not to, and expressly did not, deal with the cross-claim that had been filed in the proceedings.

89. As to the alleged error on the part of the Referee as to the relevance (or otherwise) of the parties’ intentions, the Referee (at [12] of the Referee’s Report) noted that in Waterwood’s written submissions there was much emphasis on what were said to be “the party’s [sic] intentions in respect of the transactions which they carried out pursuant to the failed written agreement between them” (the Referee there extracting Waterwood’s written submissions at [6]). Those submissions addressed a contention by the defendants “based on the receipt by KOP or creditors of the Defendants of monies paid by the Plaintiff out of the bank account holding and from the proceeds of the hotel business conducted in the name of [MOOT]”. In response to that contention, Waterwood submitted that it was clearly intended by the parties that, on the assumption of the conduct of the hotel business by Waterwood, the MOOT bank account and moneys were to be made available by MOOT to Waterwood for its benefit (and that in some way beneficial title to that money had been given to Waterwood).

90. The Referee (at [14]) said that he found it difficult to accept that the party’s intentions were relevant to the question of whether or not there is a claim for restitution. Insofar as the error perceived by Waterwood in this respect is concerned, it seems to me that Waterwood is addressing a different issue (i.e., how the benefit is to be measured, the quantum of the amount recoverable by way of restitution, or even the existence of otherwise of an “unjust factor”) as opposed to whether or not there is a claim for restitution in the sense identified by Pembroke J and the basis on which the reference was made.

91. I accept that the parties’ intentions at a particular time may well be relevant in determining whether the “unjust factor” required to ground a claim in restitution is made good. So, for example, this may shed light on whether in a particular case a claim for restitution predicated on the existence of a mistake is made out. Or again, simply by way of an example, it may be probative evidence of a common assumption between the parties that is said to have wholly failed. However, in the present case, the Referee was correctly proceeding on the basis that there had been a finding that there was an unenforceable agreement (or agreements) between the parties and the question was to determine whether a benefit had been accepted in circumstances where the agreement(s) between them was, or were, held to be unenforceable. I do not read these paragraphs of the Report as “ignoring” the lease or treating the unenforceability of the contract as irrelevant, as Waterwood here contends. Rather, I read the last sentence of [14] to be directing enquiry to whether (in the context of the legal relationships between the parties and accepting that there is an unenforceable agreement) a benefit was conferred upon and accepted by the defendants (in circumstances where the primary judge seems to have accepted that, if there was, then in this case there would be an entitlement to restitution in that amount).

92. The complaint made as to the citation by the Referee of the authorities (at [15] of the Referee’s Report) seems to me to be unjustified. The Referee was there referring to a submission made to the effect that there was no limitation to a claim for unjust enrichment and pointed to the approval of what was said in Lumbers v W Cook Builders (at [85]) as to “unjust enrichment” being identified as a unifying legal concept; not being identified as a principle which can be taken as a sufficient premise for direct application in particular cases. In other words, it is not sufficient to point to a notion of “unjust enrichment” to ground a claim for relief (i.e., it is not a free standing cause of action). Similarly, the quoted passage went on to disavow a judicial discretion to do whatever idiosyncratic notions of what is fair and just might dictate. That remains the law. It is apt to reflect on this given the emphasis in Waterwood’s submissions on broad notions of fairness.

93. As to the perceived error as to the ownership of money in MOOT’s bank account, what the Referee said (at [17] of the Referee’s Report) was that the parties’ relationships here included “the fact that in law the defendants, not the plaintiff, owned the funds transferred from the defendants’ bank accounts”. To my mind, herein lies the real complaint by Waterwood with the Referee’s decision – namely, the question as to whether the arrangement between the parties operated to vest beneficial ownership on the part of Waterwood in the funds held in MOOT’s bank account as from the time Waterwood assumed management of the operation of the hotel business. If it did, then payment of moneys out of that account would logically represent payment by Waterwood (and, relevantly, not MOOT); while, if it did not, then payment of moneys out of that account to discharge liabilities of MOOT (or the other defendants), although that payment was effected administratively by Waterwood, would not in any true sense be payment by Waterwood (using its own moneys) so as to render it prima facie unconscionable for MOOT to retain the benefit of the discharge of those liabilities. Put differently, for example, if a person authorises someone else to disburse moneys out of the first person’s own bank account to discharge the first person’s expenses, although the disbursement is effected by that other person, that payment is still in effect a payment by the first person.

94. The dispute as to the ownership (or beneficial title) to the moneys in the MOOT bank account is a theme running through many, if not most, of the individual items in the Plaintiff’s Schedule.

95. In this regard, the Referee noted that (at [21] of the Primary Judgment) his Honour had found that, as at 5 June 2015, final agreement had not been reached on the adjustments due to Waterwood on and from the transfer of control to Waterwood. This refers back to [20] of the Primary Judgment where his Honour said:

Between 5 March and 5 June 2015, Mr Lye operated the business of the hotel using the bank account of [MOOT]. The revenue was banked into [MOOT]’s account and the expenses, including salaries and wages, consultants’ fees and supplier invoices were paid from [MOOT]’s bank account. It is not apparent that Waterwood expended any of its own funds. I would not expect that it did, although it is unnecessary at this stage to make a finding.

97. What is tolerably clear from the above paragraphs of the Primary Judgment is that his Honour found that there had not been a final adjustment reached as between the parties as to the entitlement to the moneys in the MOOT bank account as at the time that Waterwood was expelled from the hotel premises. In those circumstances, it is difficult to see any perversity or manifest unreasonableness in fact finding (to use the words of McDougall J in Chocolate Factory – as extracted earlier). It was open to, if not correct for, the Referee to proceed on the basis that his Honour did not find that, prior to the final adjustment of the accounts, the money in MOOT’s bank account was beneficially owned by Waterwood.

98. I consider below the particular complaints made by Waterwood as to individual items. However, as a general matter I do not consider that a basis has been established to re-agitate the finding of fact made by the primary judge (and applied by the Referee) that there had been no final adjustment of the accounts as at 5 June 2015. Further, for the reasons indicated, I consider that the Referee properly understood, and so proceeded on the basis of, the ambit of the primary judge’s reference (in the sense of what was meant by the “restitution” claim).

Issues raised on the specific claims in the Plaintiff’s Schedule

99. I turn now to the particular amounts claimed in the Plaintiff’s Schedule and the complaints made by Waterwood (and responses by the defendants) as to the conclusions reached by the Referee in relation to these amounts.

Claim 1(a): $15,000 deposit

100. This claim relates to the sum of $15,000 that was advanced by Mr Lye to Waterwood and paid to KOP originally as a “holding deposit” for the “lease” and then subsumed in the “bond” for the “lease”. It was paid in three instalments in January 2015.

101. The defendants opposed (and the Referee at [19]-[20] of the Referee’s Report rejected) this claim on the basis that Mr Lye had been repaid this amount out of a MOOT bank account a month after lease commencement.

Waterwood’s position

102. Waterwood says that that payment could only satisfy the loan from Mr Lye to Waterwood; and that the moneys used were the proceeds of the conduct of the business by Waterwood, to which it was entitled as against the defendants. It is said that MOOT’s bank statement for the period from 3 March 2015 shows that by the time the payment was made to Mr Lye, Waterwood had deposited over $360,000 into the account from the proceeds of its conduct of the business and $58,000 from Waterwood itself (from a balance of $118,596 on the hand-over date, 5 March 2015).

103. It is said that, in any event, the $15,000 was “plainly repayable” by KOP, not MOOT, and that it cannot be suggested that Waterwood, in causing the payment to be made from the MOOT account to Mr Lye, did so with the intention of satisfying KOP’s liability. It is said that nor can it be claimed back by MOOT from Waterwood because Waterwood was clearly authorised to make payments from the account in MOOT’s name for Waterwood’s own purposes and benefit. It is thus said that KOP’s liability remains unsatisfied and it is unconscionable for the defendants to claim the benefit of Waterwood’s “own labour” as satisfying that liability.

Defendants’ position

104. The defendants, as noted above, accept that Waterwood did pay the $15,000 the subject of this claim (as a holding deposit). They say that, as such, this was not the payment of MOOT’s liabilities - it was the payment of Waterwood’s obligation under the ‘“lease” (referred to by the defendants in their submissions as the “business lease”).

105. The defendants note that, during the reference, they read the affidavit of Ms Ming Xu, the daughter of Mrs Xu, a bank officer who deposed (at [9] of her affidavit) that in March 2015 there was a transfer of $15,000.00 from the “Mirage Cash” account to Mr Lye. The defendants in their submissions to the Referee noted that MOOT had a bank account (number ending 5408), which was commonly referred to as the “Mirage Cash” account, and they submitted that:

However, there has already been restitution of this amount. On 30 March 2015, being a time when Mr Lye had control of the Defendants’ bank accounts, there was a transfer of $15,000 from the Mirage Cash account to Mr Lye. The record of that transfer appears at page 22 of Exhibit MX-1.

[Emphasis omitted]

106. The defendants say that the $15,000, paid from two sources (Mr Lye’s accountancy practice AGC Advisory Pty Ltd (AGC Advisory) and Mr Lye), was repaid and that this is precisely what the Referee has found (referring to [20] of the Referee’s Report):

20.   In submissions on the day of the hearing of the reference it was suggested that this repayment was from monies held in trust by [MOOT] for the plaintiff. I was not referred to any evidence in support of this claim and give [h]is Honour’s findings, including at paragraph 32, I do not accept that the money was held in trust. The money was the money of the second defendant.

Accordingly I do not accept this claim.

107. The defendants say that Waterwood is here repeating the argument made at the reference in arguing that the money in the MOOT account was really its money because a trust of some kind had arisen over that money. They note that the Referee said (at [20] of the Referee’s Report), as to this argument, that “I was not referred to any evidence in support of this claim”. The defendants say that Waterwood, in its submissions, does not suggest there is any such evidence yet it still makes the same unsupported allegation. It is submitted by the defendants that, while there are a number of different ways in which trusts are created, a “trust by mere assertion” is not one of them.

108. It is also said that Waterwood now pursues a number of “different angles” in its submissions before me; that none of these arguments was run before the Referee; and that they are all equally hopeless. It is said that they are “lawyers’ constructs”, not supported by evidence and should not have been pursued. So, for example, the defendants point to the assertion that the $15,000 was a “loan” from Mr Lye to Waterwood. The defendants say that this is contrary to Waterwood’s own evidence (namely that $5,000 of that $15,000 did not even emanate from Mr Lye).

Claim 1(b): bond

109. This claim was that the total rental “bond” paid was $45,000, of which $15,000 was supplied by the “holding deposit” (which I have just outlined); and the balance of $30,000 was paid to KOP from the MOOT account on 30 March 2015.

Waterwood’s position

110. Waterwood says that this claim was opposed (and rejected) on the basis only that the money was paid from the MOOT account and was the proceeds of MOOT’s business (referring to [21] of the Referee’s Report). It is said that crucial to that determination appear to be findings from the bank statement that: $58,000 had been paid to Waterwood by MOOT (from its account) on 30 March 2015 but it is submitted that the money moved in the opposite direction from Waterwood to MOOT; and that a total of $50,000 had been transferred from the MOOT account to Waterwood on 11 March 2015 and again on 18 March 2015. It is said that that leaves a balance of over $300,000 deposited into the account by Waterwood as proceeds of its conduct of the business “enhanced by its own bundle of rights and interests” prior to the payment out to KOP for the bond.

111. Waterwood submits that it was entitled to restitution of this money paid from the repository of the proceeds of its management of the business, to which it was intended by the parties to be wholly entitled to use for its benefit as it wished.

Defendants’ position

112. As to this item, the defendants maintain their position that this sum of $30,000 was never Waterwood’s money. It is noted that in their submissions at the reference the defendants stated:

25.   The balance of the rental bond (a further $30,000) and some amounts for “rent” are said by the Plaintiff to have been paid as part of the sum of $113,333.33 paid from the Second Defendant to the First Defendant on 30 March 2015. Of this, it must be said that:

(i)   this was a transfer between the Defendants’ bank accounts that did not concern the Plaintiff’s funds; and

(ii)   while $58,000 had been transferred from the plaintiff to the Second Defendant on the same day, as set out above, that transfer occurred in circumstances where Mr Lye had caused $100,000 to be transferred from the Second Defendant to the Plaintiff. The $58,000 transferred back was repayment of the Second Defendant’s own funds, being income of the hotel business, to which the Plaintiff was not otherwise entitled.

26.   The Plaintiff is not entitled to obtain restitution in respect of these funds as the Second Defendant was not “unjustly enriched”. Rather, it was repaid its own money.

[Emphasis omitted]

and that the Referee accepted these submissions (at [21] of the Referee’s Report):

21.   Paragraph 1(b) of the plaintiff’s claims. Claim 1(b)(i) is a repeat of the claim I have just dealt with and do not accept. Claim 1(b)(ii) is a claim for $30,000 on 30/3/2015 paid as a rental bond. This was a part of a payment of $113,333.33 paid from the second defendant to the first defendant on 30 March 2015. There had been payment of $58,000 paid to the plaintiff by the second defendant on the same day. However that was merely the repayment of part of $1000,000 paid by the second defendant to plaintiff and was thus a repayment of the second defendants own funds. In these circumstances there has been no use of the plaintiff’s funds. It was a payment of the funds owned by the second defendant.

[Emphasis omitted]

113. The defendants say that Waterwood has identified no error; and it merely repeats its argument that the defendants’ money was really its money by stating that the defendants’ money was “enhanced by [the Plaintiff’s] own bundle of rights and interests”. The defendants dismiss this statement (not without force, in my opinion) as rhetoric.

Claim 1(c): rent

Rent for March and April 2015 and Waterwood’s position

114. This claim was that on 30 March 2015, of the transfer to KOP from MOOT’s account of $113,333.33 and after payment of the bond, $83,833.33 was paid towards the “rent” for the months of March and April 2015.

115. This claim was opposed (and rejected), it is said solely, on the basis that the money came from MOOT’s account (referring to [22] of the Referee’s Report).

116. Waterwood says that the money came from the proceeds of Waterwood’s labours; that Waterwood was authorised to pay those funds out of the account for its own benefit; and that it was accepted by KOP as payment by Waterwood in satisfaction of the assumed obligation between them under the “lease”. Consequently, it is said that with the invalidation of the lease, it is prima facie repayable by KOP to Waterwood. It is said that the defendants bear the onus to demonstrate (but have not alleged and cannot demonstrate) any counter-vailing benefit to Waterwood for the money because it represents the product of Waterwood’s own labour.

232. It is said that there can be no question of misconduct by Waterwood in relation to the proceedings; that it was “effectively defending the action and exaggerated claims, threats and unethical conduct” of the defendants; and that to date there has been no recognition of any entitlement of Waterwood to any recompense for “undertaking the arduous task of saving the hotel business from impending ruin and making it a viable operation, as it was asked to do”. It is said that clearly the parties needed to have determined whether their relationship was properly governed by the “lease” and supplementary agreement and it was largely the defendants’ “heavy-handed conduct in protection of their own interests, that led to its unenforceability”.

Costs of the cross-claim

248. In relation to the cross-claim, it is noted that a cross-claim was filed by MOOT against Mr Lye (and not against Waterwood). It is submitted that the bringing of the cross-claim against Mr Lye personally, rather than Waterwood (where, it is also said, if the claim had any viability at all it would have been against Waterwood), indicates the “tactical advantage apparently sought of intimidating [Waterwood]’s director with the threat of personal liability”.

249. It is noted that the cross-claim was filed late by leave granted by the Registrar on a contested motion in a reserved judgment delivered 17 May 2016; and that costs were reserved for later argument, although it is said that the Registrar made clear a “firm view” that it was “MOOT’s own conduct and delays that have resulted in the need to bring this application” (referring to [52] of the Registrar’s reasons).

250. Waterwood says that the cross-claim was “patently unarguable”. In support of that contention, Waterwood notes that the cross-claim was founded on the allegations (at [2]) that Mr Lye was “at all material times until in or about June 2015 … engaged in the management of the Hotel Business” and in that capacity was “entitled” to engage in unspecified “conduct in the ordinary course of running the Hotel Business”, without pleading any relevant conditions of such engagement or entitlement or any link between any term or breach of the alleged “engagement” or “entitlement”.

251. As to the particular claims contained in the cross-claim, they are: first, an amount said to have been incurred in a contract for a loan entered into with Hunter Premium Funding Ltd (see at [3]-[10]); second, a complaint as to “diversion” of EFTPOS revenue (see at [11]-[13]); third, a claim for moneys had and received arising from alleged “misdirected cash and cheque sales” (see at [14]-[16]); fourth, a claim as to amounts payable to the ATO (see at [17]-[24]); and fifth, a claim in respect of payments to “related entities” (see at [25]-[30]).

252. As to those claims, Waterwood makes a series of complaints as to the way the claims are pleaded in the cross-claim and/or as to whether the claims are arguable.

253. As to the first claim in relation to the loan to Hunter Premium Funding Ltd, the nub of the complaint seems to be that the pleading does not disclose how it is that the “manager” of the business “somehow undisclosed” caused it “through” someone else to borrow to fund a premium for its policies of insurance; that is, for the defendants’ benefit. In this regard, complaint is made that the basis on which any liability on the part of Mr Lye could arise has not been disclosed. It is said that, for an undisclosed reason, he was said to have lacked authority to cause it to obtain the loan; “despite the open-ended ‘entitlement’, apparent relationship to the ordinary course of the business and the obvious fact it took the loan”.

254. As to the second claim in relation to diversion of revenue, it is noted that (at [12]) the allegation is that Mr Lye changed the bank account linked to MOOT’s EFTPOS terminal without its knowledge, resulting in revenue not being received by MOOT but being “misdirected” to an account Mr Lye controlled or accessed, but that it was not alleged to be a breach of any duty or Mr Lye’s account nor was it alleged that he gained anything from it. It is said that, given the pleading of Mr Lye’s “entitlement” to run the business, any direction of payments made to it could only have been within his authority and binding on his principal.

255. As to the third claim that receipts of cash and cheque sales were “misdirected” such that MOOT did not receive the proceeds of cash and cheque sales into its trading account between 10 and 30 June 2015, the complaint is that the cross-claim pleads “misdirection” of sales revenue but does not plead receipt by Mr Lye of such funds, while nonetheless claiming him to be liable for it as “money had and received”.

256. It is further said that the second and third claims amount to “improper, serious ‘half-allegations’ of fraud” and that none of the required particulars for such allegations was provided.

257. As to the fourth claim as to failure to apply moneys to discharge MOOT’s taxation liabilities and thereby causing it to suffer loss or damage by reference to the interest charged on those liabilities, it is said that at the relevant time Mr Lye was “merely the bookkeeper and sometimes casual manager under AGC Advisory’s contract with the [d]efendants”. Following, complaint is made that the cross-claim failed to plead any obligation on the part of Mr Lye so to apply the funds in question and it is said that, inconsistently, it is pleaded (at [23]) that the tax liabilities were in fact paid, noting that [22] and [24] disclose that the real complaint was the interest charged on those liabilities. It is said that no basis for a personal duty of Mr Lye to use the money to pay the taxes is alleged to have arisen, other than a mere “representation” of intention based solely on the request for $100,000 to pay taxes; and that, in any event, the request was for $200,000 in total - $100,000 as a cash float and $100,000 to pay tax - which was never received. As a result, it is said that, if not for the first $100,000, Ms Min Xu could not dispute on the reference that the hotel would have been left with just $2,000 in bank to meet expenses of many tens of thousands of dollars per week.

258. As to the fifth claim that Mr Lye “caused” MOOT to make a number of payments (in the period when Waterwood was conducting the hotel business using its bank account) which it is asserted were “not expenses properly incurred in the course of the Hotel Business” (at [29]), it is said that the particulars of the cross-claim disclosed that the bank account to which the revenue was alleged to have been “misdirected” was in the name of Waterwood and not Mr Lye. It is said that any claim should have been against Waterwood. It is further noted that no duty, breach “or resultant cause of action” was pleaded. Again, it is said that the claim was inconsistent with the pleading of Mr Lye’s “entitlement” to run the business (which it is said would bind MOOT to his choice of what payments were to be made).

259. Waterwood says that, despite the cross-claim having been effectively abandoned at the conclusion of the trial, its “shadow” appeared again at [8] of the Defendants’ Response on the reference. It is said that, to that extent, it “taints also the defence of the reference”.

260. Waterwood submits that it was “simply perverse” of the defendants to seek to fix Mr Lye with “management responsibilities for Second Defendant’s hotel business”, relying on the efficacy of his actions in its name, without accepting any liability to him or Waterwood in return for his performance of such responsibilities.

261. Further, complaint is made that Mr Lye is alleged “somehow [to] be personally liable to [the defendants] for acting wholly to their knowledge ‘as sole director of the Plaintiff’”. It is said that, whatever Mr Lye did in relation to the business, it was plainly as disclosed and as an authorised agent of, first, his bookkeeping and accounting practice company, AGC Advisory, and then Waterwood (as pleaded at [2] of the cross-claim) and further, as authorised by the defendants (as found in the Primary Judgment at [6] and [17]) on the assumption of receipt of the rewards under the unenforceable “lease” (again complaining that those benefits have been denied him).

262. Thus it is submitted that Mr Lye is clearly the “successful party” on the cross-claim and entitled to an order for payment of his costs on it. Further, it is submitted that, in the circumstances, those costs should be assessed on the indemnity basis. It is said those relevant circumstances being that: properly advised, the cross-claimant ought to have known that the cross-claim had no real prospect of success; the apparent ulterior motive of bringing the cross-claim against Mr Lye was to obtain the tactical advantage of threatening Waterwood’s director personally; and/or the cross-claim was based on a wilful disregard of the known facts or the clearly established law.

Defendants’ submissions as to costs

263. The defendants also made submissions in relation to costs of the proceedings and in relation to the cross-claim. As such, again, I outline these submissions in turn.

Costs of the proceedings

264. As to the issue of costs, the defendants summarise the status of the proceedings as follows. They say that, after Kunc J discharged its injunction (initially granted ex parte), Waterwood filed an amended statement of claim on 16 July 2015 seeking: damages at law or in equity; compensation under ss 236, 237 or 243 of the Australian Consumer Law (Competition and Consumer Act 2010 (Cth), Sch 2); restitution for moneys had and received by the defendants for the use of the plaintiff; interest; and costs. The defendants say that Waterwood’s claim failed (noting in this respect that the restitution claim was not one opposed by the defendants).

265. As to that restitution claim, the defendants say that their position before Pembroke J was that if Waterwood could establish that it in fact expended money to pay MOOT’s liabilities then it would be entitled to restitution; and that that it was on that basis that Pembroke J sent that issue to the Referee for determination.

266. The defendants note that Waterwood filed even more evidence for the reference hearing in addition to submissions; and claimed $428,900.99.

267. It is said that, if the present application fails and the Referee’s Report is adopted in whole, Waterwood has obtained an amount of $4,197.12 in restitution, which is less than 25% of the jurisdiction of the Small Claims Tribunal of the Local Court. It is submitted that, in that event, these proceedings have been an “abject failure” on both liability and quantum; and that for Waterwood to suggest, as it does, that it has succeeded in these proceedings is “caprice”.

268. It is noted that this case has occupied: the resources of three judges of this Court (Kunc J, Pembroke J, and now me); the resources of one referee; and six days of hearing (two before Kunc J, three before Pembroke J, and one before the Referee) excluding the time devoted to the present application. Relevantly, it is noted that these judicial and other resources have been consumed for the sum of $4,197.12.

269. Further, the defendants advance the following principles.

270. First, that the “event” depends on the issues contested more than the formal result of the proceedings (citing Hansen t/as Derrawee Pastoral Company v Monterey (Coolah) Pty Limited [2012] NSWSC 1383 at [29] per Schmidt J).

271. Second that, even if Waterwood is treated as the “successful party”, the Court can still award costs against it where it only obtains an award of trivial damages. The defendants quote Lord Devlin in Anglo Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd [1951] 1 All ER 873 (quoted at [23] of Hooker v Gilling (No 2) [2007] NSWSCA 214 per McColl JA with whom Ipp and Basten JJA agreed) where his Lordship said:

… [I]t is necessary to decide whether the plaintiff really has been successful, and I do not think that a plaintiff who recovers nominal damages ought necessarily to be regarded in the ordinary sense of the word as a ‘successful’ plaintiff …

272. It is noted that these principles were recently summarised by Banks-Smith J in Valra Pty Ltd v Mag Men Holdings Pty Ltd (No 2) [2020] FCA 314 (at [30]-[31]) as follows:

30.   Guidance is also found in the decision in Motium Pty Ltd v Arrow Electronics Australia Pty Ltd [2011] WASCA 65 (S) where the Court reviewed the authorities and said:

[10]    While each case must depend upon its own facts, where it is not a primary purpose of proceedings simply to establish or vindicate some legal right but the primary purpose is to recover substantial damages, ordinarily an award of nominal damages will not entitle a party to the costs of the proceedings: see Thiess Contractors Pty Ltd v Placer (Granny Smith) Pty Ltd [2001] WASCA 166 [9]. In such a case, the party has obtained something of no real use to them and something which, if they had known it was all that was available, they would not have brought proceedings to recover. It would be contrary to modern notions of the efficient and cost-effective use of judicial resources to enable a party to recover its costs for a pyrrhic victory, having substantively failed in the action.

31.   Motium Pty Ltd v Arrow Electronics was applied in, for example, Romero v Farstad Shipping (Indian Pacific) Pty Ltd (No 3) [2017] FCAFC 102 at [36] [37], [103] (where claim was primarily for substantial damages and only nominal damages were received, the appellant ‘failed’) and Coal Hub Pty Ltd v NSL Consolidated Ltd [No 5] [2018] WASC 326 at [34], [52] [53] (plaintiff awarded nominal damages for breach of contract, plaintiff ordered to pay defendant’s costs of proceedings).

273. Reference is also made to the decision of Sifris J, particularly as to the notion of “nominal damages”, in Rozenblit v Vainer (No 2) [2019] VSC 366 (at [22]-[23]), including the lengthy extract from Actrol Parts Pty Ltd v Coppi (No 3) [2015] VSC 758 (at [90]ff) there set out.

274. The defendants say, in light of the above authority, that the position is that: Waterwood has lost the proceedings as to liability and quantum; the defendants accepted before Pembroke J that a restitutionary claim was theoretically available if Waterwood could actually establish it paid MOOT’s liabilities (i.e., from its own moneys); Pembroke J referred the matter to the Referee because Waterwood sought to advance a claim for restitution of $428,000.00 (it is said that it is highly unlikely Pembroke J would have done so over a claimed amount of $4,197.12); Waterwood has not succeeded in these proceedings (in that it brought a claim for substantial damages and it cannot be said that obtaining an award of just over $4,000 was the “event” which Waterwood was pursuing); and the sum it has obtained should be treated as nominal damages. It is said that the amount Waterwood has obtained is “nothing like real damages” and it is said that “[n]o legal rights have been affirmed”.

The cross-claim

275. As to the cross-claim, the defendants say that the cross-claim was not pursued at the trial in any sense (other than occupying six paragraphs in the defendants’ Outline of Submissions, those being [56]-[61] out of 61 paragraphs of submissions); that it was not considered by Pembroke J in the Primary Judgment; and that it was not a subject of the referral. It is said that no time was devoted to it. Indeed, the defendants say that Waterwood has spent more time dealing with the cross-claim in its written submissions in this application than the defendants ever have. They say that the cross-defendant can hardly claim victory for claims that were so insignificant they did not even rate a mention in the judgment and were never determined.

276. For this reason, it is submitted that there should be no order for the costs of the cross-claim.

Determination as to costs

277. I have great difficulty in seeing Waterwood as having achieved success in the proceedings as a whole. It succeeded on only a most insubstantial portion of the restitution claim and failed abysmally on the rest. I consider that in those circumstances it should bear the costs of the proceedings.

278. I accept that there was a reasonable basis for the commencement of the proceedings insofar as Waterwood was seeking to preserve the arrangements that had been put in place in relation to the operation of the hotel business. However, I cannot accept that Waterwood’s claim in the proceedings has in any way been “vindicated” by the Discharge Judgment nor that, on any view, could it be said to have been in the outcome of the Primary Judgment. The unfortunate fact is that the arrangements the subject of the claims made by Waterwood were conceptually confused and the pleaded claims were, on the whole, not established on the evidence or simply untenable.

279. As to the cross-claim, for reasons similar to those where claims are not pursued and costs are sought (see, for example, Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6) and cases where satellite litigation over costs has been deplored (see, for example, South West Helicopters Pty Ltd v Stephenson (No 2) (2018) 98 NSWLR 96; [2018] NSWCA 99), the exercise of now determining what would have been the fate of the cross-claim is not appropriate. Nor is it appropriate to speculate as to the motivation of the bringing of the claim against Mr Lye personally (in this regard, I note that it does not seem to be suggested that any abuse of process application was made in relation to the claim).

280. I can accept that the cross-claim may well have been poorly pleaded and doomed to failure. However, even if so, that would not distinguish it from the amended statement of claim (and criticism of this kind is not unprecedented in the course of this litigation – it seems to have been a constant refrain from those judicial officers who have dealt with the matter).

281. Nor is the delay in bringing the cross-claim (of which the Registrar complained) of any moment in the current state of the litigation.

282. Rather, what does distinguish it from the amended statement of claim is that it does not appear to have been pursued at the hearing.

283. In that regard, the suggestion that Mr Lye was the “successful party” on the cross-claim simply fails to take into account that the cross-claim was not dealt with at all by Pembroke J and was not the subject of the referral.

284. However, in the absence of any suggestion that the costs of pleading to the cross-claim added in any significant way to the costs of the hearing as a whole (and, for my part I cannot see that it would have, not least given the overall costs likely to have been incurred over the entire conduct of this proceeding), I would not make any order as to costs of the cross-claim. Again, it is certainly not appropriate here to entertain an analysis of the merits of the claims or whether they were adequately pleaded.

285. In these circumstances, I consider that each party should bear its own costs of the cross-claim.

286. As to the submission that Mr Lye should have an order in his favour for costs assessed on the indemnity basis, I consider that to be an extraordinary proposition given that the cross-claim was never dealt with as such. I have already indicated that it is inappropriate to speculate as to the reason for the bringing of the claim against Mr Lye personally. I am certainly not prepared to conclude that, properly advised, the cross-claimant ought to have known that the cross-claim had no real prospect of success. Nor am I prepared to speculate as to the (perceived ulterior) motive of the cross-claimant bringing the cross-claim against Mr Lye. Further, I am not persuaded that, on its face, it could be concluded that the cross-claim was based on a wilful disregard of the known facts or the clearly established law so as to give rise to an indemnity costs order on the principles articulated by Woodward J in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd [1988] FCA 202; (1988) 81 ALR 397.

Orders

287. For the above reasons I make the following orders:

1. Order pursuant to r 20.24(1) that the report of Mr Richard Hugh Macready be adopted in whole.

2. Order the second defendant to pay the plaintiff the sum of $4,197.12 plus interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW) calculated in accordance with the Court rules from the date of the payments comprising that amount to the date of judgment.

3. Order the plaintiff to pay the defendants’ costs of the proceedings, including the costs of the reference hearing but excluding the cross-claim, as to which order that there be no order as to costs.

4. Order that these proceedings be otherwise dismissed.

**********

Decision last updated: 10 June 2020