Tabua Furniture Investments Ltd v Tabua Furniture Ltd [2014] FJHC 170; HBC178.2011 (21 February 2014)

IN THE HIGH COURT OF FIJI
WESTERN DIVISION AT LAUTOKA
CIVIL JURISDICTION

Civil Action No. 178 of 2011

BETWEEN:

TABUA FURNITURE INVESTMENTS LIMITED
a limited liability company having its registered office at Manoca Industrial Sub-Division, Nausori.
PLAINTIFF

AND :

TABUA FURNITURE LIMITED
a limited liability company having its registered office at Lot 8, Bissessar Road, Nausori.
FIRST DEFENDANT

AND:

AMI CHAND
of Nausori, Fiji, company Director
SECOND DEFENDANT

AND:

SAVITA DEVI
of Nausori, Fiji, Company Director

R U L I N G
INTRODUCTION

[1]. The background to this case is summarised in my ruling in Chand v Prakash [2010] FJHC 364; Civil Action 169.2010 (27 August 2010) which is reported in paclii and in Mr. Justice Callanchini’s ruling on appeal in Chand v Prakash [2011] FJHC 640; HBC169.2010 (7 October 2011) which also reported in paclii

[2]. The plaintiff bought from the defendant a furniture business in December 2007 and by a purely verbal arrangement, the parties agreed that the plaintiff would continue operation of the business at the defendant’s workshop premises which is built on Crown Lease No. 6566 and Crown Lease No. 6090. Essentially, this was a tenancy agreement (or arrangement if you like) that they had entered into. It was agreed that the plaintiff would pay the defendant a monthly rental of $1,500.

[3]. The arrangement was not consented to by the Director of Lands.

[4]. In 2010, the defendant began proceedings under section 169 of the Land Transfer Act (Cap 131) to evict the plaintiff from CL 6566 and 6090. Callanchini , on appeal, said:

....the lessees entered into subleases with either the Defendant Avin Prakash or with TFIL which were null and void. In Indar Prasad and Bidya Wati –v- Pusp Chand [2001] 1 FLR 164 Gates J (as then was) noted at page 170:

"Whatever the nature of the permission granted to [the Defendant] (by the lessees) to occupy the relevant State Land, it was clearly unlawful because it lacked the Director's consent_ _ _"

[5]. Before me now, the plaintiff (the defendant/respondent in the case above) is claiming equitable damages. The gist of its case is that the defendant's conduct was unconscionable in collecting rent from the plaintiff with knowledge that no consent had been given by the Director of Lands. The plaintiff also alleges that the defendant engaged in deceptive conduct in, knowing that the said lease was a protected lease, not informing the plaintiff that they had not obtained the consent of the director of lands to the tenancy and keeping all monies as profits for their use and benefit.

[6]. The plaintiff claims the following relief from the defendant:

• (i) Judgement in the sum of $72,000
• (ii) Interest
• (iii) Equitable damages for unconscionable conduct
• (iv) General damages for deceptive conduct
• (v) Costs on a solicitor/client basis
• (vi) Such further relief as this Court may deem just
  

ANALYSIS

[7]. The plaintiff, clearly, is trying to invoke some principle of equity to recover rent that he had paid to the defendant. I will not comment on the appropriateness of awarding "equitable damages for unconscionable conduct" or "general damages for deceptive conduct". What I will do instead is comment on whether or not, in the circumstances of this case, the rent paid is at all recoverable.

[8]. As a starting point, I say that no legal or equitable interest can pass under an Agreement (let alone an informal arrangement such as the one in this case) which is unlawful and null and void. Cheshire and Fifoot's Law of Contract (9th edn.) state as follows at 323:

'(the contract) is void ab initio. It is a complete nullity under which neither party can acquire rights whether there is an intention to breach the law or not.'

And at page 345:

'The general principle, founded on public policy, is that any transaction that is tainted by illegality in which both parties are equally involved is beyond the pale of the law. No person can claim any right or remedy whatsoever under an illegal transaction in which he has participated. Ex turpi causa non oritur actio.'

[9]. However, Fiji Courts have long recognised that monies paid under a void or illegal contract may still be recovered by the payor based on the general duty imposed by law to make restitution for unjust enrichment. This, in a sense, is an exception to the above rule (see para [7] above), although the basis of recovery has nothing to do with contract law. Rather, it is based on the law of restitution (see para [11] below).

[10]. For example, in the case of Sakashita v Concave Investment Ltd [1999] FJHC 4; [1999] 45 FLR 13 (5 February 1999), Mr. Justice Fatiaki had to consider whether or not a deposit paid by an intended purchaser to an intended vendor was recoverable. The said deposit had been paid under a sale and purchase agreement which was void ab initio for non-compliance with section 6 of the Land Sales Act. After citing the general principle that no party can claim any right or remedy under an illegal contract, Fatiaki J then went on to consider the dilemma that confronted him.

In determining this question I am acutely aware that in the event that the 'deposit' is not returned the defendant company may be said to have been unjustly enriched in so far as it will be permitted to retain both the land and the 'deposit' which is a considerable sum of money.

Conversely, if the 'deposit' is refunded to the plaintiff then on one view, it might be said that the court was lending its assistance to a party to an illegal contract or in the language of equity, one who has not 'come to equity with clean hands' (See: Damodar & Ratanji Ltd. v. Redwood Investments Ltd. (1988) 34 F.L.R. 30 at p.36 and 37).

In similar vein Bingham L.J. said in Saunders v. Edwards (1987) 1 W.L.R. 1116 where the defence of 'ex turpi causa' was rejected, at p.1134:

'Where issues of illegality are raised, the courts have (as it seems to me) to steer a middle course between two unacceptable positions. On the one hand it is unacceptable that any court of law should aid or lend its authority to a party seeking to pursue or enforce an ... agreement which the law prohibits. On the other hand, it is unacceptable that the court should, on the first indication of unlawfulness affecting any aspect of a transaction, draw up its skirts and refuse all assistance to the plaintiff, no matter how serious his loss nor how disproportionate his loss to the unlawfulness of his conduct.'

(See also: the observations of Devlin J. in St. John Shipping Corporation v. Joseph Rank Ltd. 1 Q.B. 267 at pp. 288 & 289)

Neither is my decision made any easier by considering the conduct or relative moral culpability of the parties to 'the Agreement' since both were aware of the need to obtain the Minister's approval and both have acted on the basis that there was a valid and binding contract in existence.

[11]. Finally, Fatiaki J settled on treating the deposit paid as "money had and received" as well as considered the principles of restitution.

In the final analysis I am content to categorise this aspect of the plaintiff's Originating Summons as being a claim for 'money had and received' or for restitution according to the principles discussed in the judgments of the House of Lords in the case of Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. [1942] UKHL 4; (1943) A.C. 32.

In particular I am satisfied that with little modification the words of Lord Roche in the Fibrosa case (ibid.) are directly applicable to the plaintiff's claim, where his lordship said at p.75:

'It is, I think, a well settled rule of English law that, subject always to special provisions in a contract, payments on account of a purchase price are recoverable if the consideration for which that price is being paid wholly fails: See: Ockenden v. Henley EB & E 485, 492. Looking at the terms of the contract in the case now under consideration, I cannot doubt that the sum sued for was of this provisional nature. It was part of a lump sum price, and when it was paid it was no more than a payment on account of the price. Its payment had advantages for the (defendant company) in affording some security that the (plaintiff) would implement their contract and take up (the transfer) and pay the balance of the price, and it may be that it had other advantages ... but if no ... document of title were delivered to (the plaintiff) ... (or, as in this case, the contract is declared illegal ab initio) then, in my opinion, the consideration for the price including the payment on account, wholly failed and the payments so made is recoverable. It was contended that unless there is found some default on the part of the recipient of such payment ... the consideration cannot be said to have wholly failed merely because the frustration of the contract produced a result which, had it been due to some default, would have amounted to a failure of consideration. I find no authority to support this contention, which seems appropriate to an action for damages, but foreign to the action for money had and received.'

[12]. As I understand it, the above is not to say that there is room for equitable intervention in an agreement or a contract, rather, it is saying that the very fact that the agreement is void becomes part of the basis of imposing the obligation to make restitution, where to not allow restitution would result in unjust enrichment to the party who was paid money.

[13]. As Deane J said in Pavey v Mathews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221 at 256, which case involved a claim for reasonable remuneration for work done under an unenforceable contract:

[the] 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.

[14]. The gist of Mr. Singh's submission is that, since the tenancy agreement between the parties was void at law, it should follow that all rental monies paid pursuant to it, is recoverable. The question I ask at this point is whether or not there is an obligation on the part of the defendant in this case to make restitution to the plaintiff? I think not! This case before me is totally distinguishable from the above cases because, here, the plaintiff had paid "rent" for a period of time during which he was in actual possession and occupation of the premises. In other words, the money is spent on the period of actual occupation and possession and, as an economist or accountant would describe it, it is "sunk costs" and therefore not recoverable. The application is akin to putting good money after bad money.

[15]. I dismiss the claim. I make no order as to costs.

........................................
Anare Tuilevuka
JUDGE
21 February 2014