Tuesday, August 16, 2011

Total failure of consideration - JD No 6 (Dava) Pty Ltd v P Battlay Holdings Pty Ltd [2011] VSC 353

The matter of JD No 6 (Dava) Pty Ltd & Anor v P Battlay Holdings Pty Ltd & Anor [2011] VSC 353 (JD No 6 v P Battlay Holdings) was a trial before Croft J in the Supreme Court of Victoria which concerned an option agreement for a contract of sale of land. The option was exercisable by the payment of $400,000 to the first defendant, which was to be applied to the deposit for the purchase of land under the contract of sale of land. 

Pursuant to the option agreement the first plaintiff paid $400,000 to exercise the option. Subsequent to the exercise of the option, the first defendant failed to perform its obligations, by reason of the impossibility of performance, and the first defendant resisted repaying the amount of $400,000 to the first plaintiff. The Supreme Court of Victoria ordered repayment on the basis that there was total failure of consideration (at [53]).

I have included a case summary and extracts concerning the principles of total failure of consideration below.
Croft J considered the claim of money had and received and total failure of consideration between [45] and [52]. In doing so, Croft J said that the Court found that the first defendant failed to perform its obligations which, as a result of subsequent events, became impossible to perform. Croft J undertook a review of the authorities on the topic between [45] and [49]:

47 The relevant principle of general law was explained by Viscount Simon LC in Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1942] UKHL 4; [1943] AC 32 at 48:

“... in the law relating to the formation of contract, the promise to do a thing may often be the consideration, but when one is considering the law of failure of consideration and of the quasi-contractual right to recover money on that ground, it is, generally speaking, not the promise which is referred to as the consideration, but the performance of the promise. The money was paid to secure performance and, if performance fails the inducement which brought about the payment is not fulfilled.

If this were not so, there could never be any recovery of money, for failure of consideration, by the payer of the money in return for a promise of future performance, yet there are endless examples which show that money can be recovered, as for a complete failure of consideration, in cases where the promise was given but could not be fulfilled: see the notes in Bullen and Leake’s Precedents of Pleading, 9th ed, p 263.”

48 In Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 at 524-5 [14] to [16] Gleeson CJ, Gaudron and Hayne JJ said:

[14] The appellants based their case, in part, upon the principles underlying the common indebitatus count for money had and received by the defendant to the use of the plaintiff. The notes to the 1868 edition of Bullen and Leake’s Precedents of Pleadings, giving examples of cases where such a count would lie, said:
‘Money paid by the plaintiff for a consideration that has failed, may be thus recovered ...
The failure of consideration must be complete in order to entitle the plaintiff to recover the money paid for it ...; but where the consideration is severable, complete failure of part may form a ground for recovering a proportionate part of the money paid for it ...; as where a quantity of goods were ordered at a certain rate of payment, and only a portion was delivered. [emphasis in original]’
[15] Mason and Carter, in Restitution Law in Australia, point out that cases decided in relation to the common indebitatus counts, although they involved an implied contract analysis which is now out of date, ‘form the precedents which make up the legal matrix of restitution law’. Lord Mansfield, in Moses vMacferlan, referred to money paid ‘upon a consideration which happens to fail’ as an example of money which, ex aequo et bono, a defendant ought to refund and, therefore, money for the recovery of which the count for money had and received lies.
[16] Failure of consideration is not limited to non-performance of a contractual obligation, although it may include that. The authorities referred to by Deane J, in his discussion of the common law count for money had and received in Muschinski v Dodds, show that the concept embraces payment for a purpose which has failed as, for example, where a condition has not been fulfilled, or a contemplated state of affairs has disappeared. Deane J, referring to ‘the general equitable notions which find expression in the common law count’, gave as an example ‘a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specially provided that that other party should so enjoy it’. In the case of money paid pursuant to a contract, it would involve too narrow a view of those ‘general equitable notions’ to limit failure of consideration to failure of contractual performance. In the present case, the amount of the net total wholesale cost referable to the tax was, from one point of view, part of the money sum each appellant was obliged to pay to obtain delivery of the tobacco products. But there was more to it than that. The tax was a government imposition, in the form of a fee payable under a licensing scheme. The nature of the scheme was such that the licensed wholesaler, or, if not the wholesaler, then the licensed retailer, would pay the amount referable to particular tobacco products. The respondent, anticipating liability for the fee, required the appellants, when purchasing products by wholesale, to pay an amount equal to the fee. The appellants, in turn, had an interest in the respondent paying the fee to the revenue authorities, for they were thereby relieved of a corresponding liability. There was a purpose involved in the making of the requirement that the appellants pay the amounts described as ‘tobacco licence fee’, and in the compliance with that requirement. To describe those amounts as nothing more than an agreed part of the price (or, to use the language of the parties, cost) of the goods, is to ignore an important aspect of the facts.”
49 Further, in this case Gummow J said (at [101] to [102]):
[101] The term ‘failure of consideration’ is used in the law to mean several things. The point was made as follows by Stoljar [in “The Doctrine of Failure of Consideration” (1959) 75 Law Quarterly Review 53 at 53]
‘First, a consideration fails because the defendant’s promise is insufficient or illusory or formally void, the failure thus being an initial invalidity preventing a contract from being formed. Secondly, we say that the consideration fails where a promisor fails to perform; the failure is now simply a breach of contract, though usually a substantial or important breach. But, thirdly, failure of consideration has also a much older and specialised sense, one that describes a specific remedy when, upon the collapse of a bargain, the promisee seeks to recover money had and received by the promisor. Thus failure of consideration specifies not only a claim, but also the particular basis for that claim.’ [footnotes omitted]
[102] It is the third meaning with which this litigation is concerned. But what is meant here by the term ‘consideration’? It is important to appreciate that, although this often is the case, the ‘bargain’ referred to in describing failure of consideration need not be contractual in nature. For example, in Martin v Andrews [1856] EngR 944; the Court of Queen’s Bench upheld a declaration for money had and received to recover conduct money tendered with a subpoena ad test where the case was settled before trial. Lord Campbell CJ said [at 1149]:
‘The consideration has failed. The money is paid for the purpose of defraying the expences [sic] of the witness’s journey: if there is no journey there is no expence [sic], and the consideration fails; and then an action lies for money had and received. There is indeed no express authority: but the general principles upon which that action is maintained are applicable.’
The references to ‘purpose’ and to ‘general principles’ are significant.”

At [50] Croft J held that because the contract of sale of land could not be performed, then the $400,000 which was paid under the option agreement and was intended to be applied towards the deposit due under the contract of sale of land must be repaid as money had and received:
50 On this basis, I accept the submissions of the first plaintiff that the Advance Moneys were available to defray “the deposit due under the Contract of Sale” and that in circumstances where performance of that contract was not possible, and in fact never proffered, it was entitled to repayment of the Advance Moneys as moneys had and received by the first defendant (through its agent). In my view, it is clear that the bargain had collapsed in toto and that this is not a case of a partial failure of consideration. The first plaintiff was seeking to buy an indivisible and undivided property, not parts or components. This circumstance distinguishes the present circumstances from those the subject of Rugg v Minett where the plaintiff bought at auction a number of casks of oil. The contents of each cask were to be made up after the auction by the seller to the prescribed quantity so that the property in a cask did not pass to the plaintiff until this had been done. The plaintiff paid in advance a sum of money on account of his purchases generally, but a fire occurred after some of the casks had been filled up, while the others had not. The plaintiff’s action was to recover the money he had paid as money received by the defendants to the use of the plaintiffs. The Court of King’s Bench ruled that this cause of action succeeded in respect of the casks which at the time of the fire had not been filled up to the prescribed quantity. 
51 Here, as at 15 October 2009, the first defendant had become unable, as a matter of fact, to sell the property under the Contract of Sale provided for under the Option Agreement. This followed because the plan of subdivision, as defined in the Option Agreement, could not be registered. Consequently, for the reasons indicated, the Advance Moneys paid under the Option Agreement are repayable in full to the first plaintiff. 
The discussion in JD No 6 v P Battlay Holdings is a reminder that money had and received, or total failure of consideration, is a wide restitutionary claim and the 'consideration' is not always in the context of a contract. For instance, Martin v Andrews involved an claim for the repayment of conduct money for a subpoena as money had and received when a case settled before trial. Also the 'consideration' is not always the actual consideration under a contract, but it could be some fact, purpose or assumption on which a contract was based when it was executed, such as in Roxborough v Rothmans of Pall Mall Australia Ltd.

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