Stanley v Vito [2010] WSCA 2 (7 May 2010)

IN THE COURT OF APPEAL OF SAMOA
HELD AT MULINUU

CA04/09

BETWEEN:

HINI TOFILAU STANLEY
of Saleimoa, Minister of Religion and ALOFISA STANLEY his wife.
Appellants

AND:

FUIMAONO LAFAELE VITO
of Togafuafua, Businessman.
First Respondent

AND:

LAFAELE VITO & SONS LIMITED
a duly incorporated company having its office in Apia.
Second Respondent

Coram: Justice Baragwanath
Justice Slicer
Justice Fisher

Counsel: F Vaai Hoglund for the Appellants
T R S Toailoa for the Respondents

Hearing: 5 May 2010
Judgment: 7 May 2010

JUDGMENT OF THE COURT

Introduction

1. The appellants appeal against a Supreme Court decision of 6 February 2009 awarding the respondents $541,681.83 and costs for unjust enrichment. The respondents’ cross-appeal in pursuit of an increase in quantum.
   

Factual background

2. The facts can be gleaned from the judgment under appeal supplemented by the exhibits and Judge’s notes. At some points a conflict in the evidence was resolved by the Judge at first instance as a matter of credibility. An appellate court will not interfere with credibility findings at first instance unless there are special reasons for doing so. No such special reasons have been advanced in the present case. The account that follows adopts the Judge’s findings on all matters of credibility.
   
3. The appellants were a married couple (Hini and Alofisa Stanley) who at the material times owned two properties, one at Togafuafua and another at Maluafou.
   
4. The first respondent (Lafaele Vito) was Hini’s brother-in-law. The second respondent company was the vehicle for Lafaele’s business. Lafaele’s wife (Nimo) was Hini’s sister.
   

The Togafuafua property

5. In 1970 Hini and Alofisa entered a theological college. At that time Hini had a half interest in the Togafuafua property. It was occupied by Hini’s brother and his family. Hini acceded to a request from Nimo that he allow the Vito family, Nimo, Lafaele and their children, to live on the Togafuafua property. Hini asked his own brother to leave to make that possible. In legal terms the Vito family initially took up occupation there pursuant to a rent-free licence from Hini.
   
6. Lafaele was a businessman. In the early 1990s he wanted to raise funds for his business. To enable him to raise the funds by way of mortgage, Hini agreed to convey the Togafuafua property into Nimo’s name. That would enable the Vitos to give a mortgage to the bank. The Vitos could then run a business from the Togafuafua property.
   
7. We do not have all the documents relating to the conveyance of the Togafuafua property to Nimo. Although Hini had started with only a half interest in the property he later bought out his co-owner. The only document available to us is a written agreement of 1991 which must have been executed at the stage that Hini still had only the half interest. The document indicates on its face that Nimo would pay $18,000 for that half interest. It is not disputed that at some point Hini bought the other half share in the Togafuafua property and conveyed it to Nimo as well. She finished up the sole legal owner and was able to mortgage it in its entirety to the bank. That released funds for Lafaele’s business.
   
8. It has not been disputed that Nimo never paid Hini anything for the Togafuafua property. The substance of the Judge’s finding was that the disposition was a gift subject to an understanding over the fate of the property when Nimo died. The understanding was that Nimo would make a will leaving the property to be shared between the children of the two families.
   

The Maluafou property

9. Lafaele wanted to expand his business. In 1994 he asked Hini if he could use the Stanleys’ Malafua property as well. Part of this property was low-lying. Lafaele’s proposal was that he install a retaining wall, dump fill on the property and construct commercial buildings. He also wanted to raise money on the security of the property. This would require the Stanleys to mortgage the property as security for the loan.
   
10. Hini pointed out that in 2003 he and Alofisa would be retiring to live on the Maluafou property themselves. Lafaele’s response was that he would build a house on the property for the Stanleys at his expense.
    
11. The Stanleys allowed the Vitos to proceed with those arrangements. Hini signed two mortgages securing advances to Lafaele and his business. Lafaele used the funds to make improvements to the Maluafou property and for his business in general. The principal improvements he carried out were a retaining wall, dumping of fill, construction of a two-storey supermarket building with accommodation above, construction of a petrol station, and construction of a two storey dwelling for Hini and Alofisa. The improvements were effected in 1994 and 1995.
    
12. Lafaele’s business was not a success. By 1999 creditors were pressing for payment. In a letter of 18 February 2000 the mortgagees demanded payment of the arrears. The business was not paying its way. In 2001 and 2002 the Stanleys demanded that the Vitos vacate the property. When the Vitos refused the Stanleys began proceedings for possession.
    
13. In 2002 Lafaele closed the petrol station on the advice of his accountant. The Togofuafua property was lost when the mortgagees exercised their power of sale. When the Maluafou property faced the same fate, Hini managed to persuade the bank to discharge the mortgages over it.
    
14. By July 2003 the Vitos’ business operations on the land had ceased completely. The Stanleys then moved onto the land and occupied the dwelling house. By then the Electric Power Corporation had disconnected the electricity supply to the supermarket, presumably for non-payment of bills.
    
15. Initially Lafaele’s son and the son’s family stayed on in the accommodation above the supermarket. They moved out a month later in August 2003. There was conflicting evidence as to whether or not their departure was voluntary. The Judge expressly found that the Vitos abandoned the property. We are not disposed to revisit that finding. The Vitos have not attempted to return since.
    
16. Cyclone Heta caused severe damage to the various improvements on the property. The Stanleys repaired and renovated the supermarket building, its attached lean-to structure and the dwelling house. The supermarket was empty of stock. The Stanleys restocked and opened it themselves. They discontinued their action for possession.
    

The Supreme Court proceedings

17. In the Stanleys’ proceedings for possession Lafaele and his company had counterclaimed for unjust enrichment. They claimed monetary compensation of $1,624,000 for the improvements they had effected to the Maluafou property. Although the Stanleys had discontinued their part of the proceedings, the counterclaim lived on.
    
18. Following a defended hearing of the counterclaim, Vaai J upheld the claim for unjust enrichment. The Stanleys had finished up with a property worth considerably more as a result of the improvements effected by the respondents. The Judge found that the extent of the enrichment warranted an award of $541,681.83 plus costs in the sum of $2,500.
    

Liability appeal

19. In this Court the appellants’ first ground of appeal was that at one point the Judge had misdescribed the Togofuafua property as the "Tufuiopa" one. It was not suggested that the context left the intention unclear or that the slip had any bearing on either the reasoning or the outcome. This should not have been advanced as a ground of appeal.
    
20. The appellants’ second ground of appeal was that the Judge was wrong in law in his finding of wrongdoing against the appellants. We can see no such finding nor was it necessary to the respondents’ cause of action. Unjust enrichment does not turn on wrongdoing on the recipient’s part. The three ingredients of a cause of action for unjust enrichment are (i) a benefit enjoyed by the recipient (ii) a corresponding deprivation on the part of the claimant and (iii) the absence of any juristic reason for the recipient to retain the benefit. Those three ingredients have been expressed in various ways but the substance of the test is uncontroversial – see, for example, Reid & Ors v Atiifale Fiso (23 November 2001 Court of Appeal of Samoa) at pp 7 and 8. At no point is it necessary to find wrongdoing on the part of the recipient. In most cases it is absent. There is no suggestion of wrongdoing by the Stanleys in the present case.
    
21. The third ground of appeal was that the second element of unjust enrichment (a corresponding deprivation on the part of the claimant) had not been proved. We disagree. It is beyond argument that the money used to effect the improvements to the Malauafou property came from the respondents, albeit mainly borrowed.
    
22. The fourth ground of appeal was that the third element of unjust enrichment (absence of any juristic reason for retaining the benefit) had not been proved. We return to this shortly.
    
23. The fifth ground of appeal was that the Judge was wrong to find that the residence "constructed for the plaintiffs at Maluafou was a benefit to the defendants". This was not pursued in oral argument. If it was intended to suggest that the two storey dwelling constructed on the property was not a benefit to the Stanleys, the argument is clearly unsustainable.
    

Absence of juristic reason for retaining the benefit

24. The real question on which liability turns is whether the respondents have demonstrated the third unjust enrichment element (absence of any juristic reason for retaining the benefit). The question is whether the respondents had excluded any legal basis upon which the Stanleys could retain the benefit of improvements to their property without paying for them. This matter was not addressed in the judgment appealed from. We accept that the answer to it is far from obvious.
    
25. An inquiry into the legal character of the payment for improvements to the Maluafou property begins with what the parties actually said to each other when they arranged for the improvements to be carried out. Unfortunately their intentions were not recorded in any formal document. As is routinely the case with intra-family transactions, the evidence as to their oral discussions is sketchy and contradictory.
    
26. The first possibility is that the payments were intended as a gift on the basis that the Vitos were repaying the Stanleys for their past and intended generosity. However we do not think a gift compatible with the express or implied understanding that after the improvements the Vitos would be able to stay on in the property to enjoy the commercial return on their investment. The Vitos appear to have been given a license to occupy the commercial part of the property. The license was clearly linked to the improvements. That precluded the possibility that the improvements were an outright gift.
    
27. The second possibility is that the payments were made pursuant to an agreement which has since been fully and finally performed by both sides. Although not expressed in these words, the effect of the Stanleys’ argument was that in return for the improvements the Vitos were given the license they asked for; that the premature surrender of the license was solely a matter for the Vitos; that if the Vitos chose to abandon the property that did not imply any failure to perform on the Stanleys’ part; that the Stanleys did everything they were required to do under the agreement; and that the agreement has now been discharged by performance.
    
28. The Judge rejected Hini’s evidence that the Vitos were to vacate the property after seven years. This appears to have left the respondents with a right to remain on the commercial part of the property for an undefined period. However whether this meant that the Vitos could remain for life, until they had received an adequate commercial return on the capital invested, or for some other period, it is unnecessary to decide. Whatever the duration of the license, it is clear that the Vitos chose to surrender it when their business failed. The question is whether this entitled the Stanleys to say that they had performed their side of the bargain and were therefore free to keep the improvements without paying for them
    
29. The answer turns on the express or implied intentions of the parties as to what was to happen if the Vitos’ business failed. The parties said nothing on that subject at the time. It is quite clear that they failed to turn their minds to that possibility.
    
30. The answer must be found by imputing to the parties the intention which an objective bystander would have inferred from their statements, their conduct, and all the circumstances at the time. The question faced by the objective bystander is what the parties would have said was to happen over improvements if the business came to a premature end after nine years.
    
31. It seems reasonable to assume that in the Stanleys’ favour the objective bystander would have taken into account the fact that they had provided, or would provide the Vitos a number of benefits including (i) many years’ rent-free use of the Togafuafua property followed by an effective gift of that property, (ii) nine years’ free use of the commercial part of the Maluafou property and (iii) the opportunity to raise money by way of mortgage over the Maluafou property. The last of those considerations is not to be underestimated given that the mortgages placed the whole security of the Stanleys’ intended home at risk. The Stanleys very nearly lost the Maluafou property as well as the Togofuafua one when the Vitos’ business failed.
    
32. Against those considerations the objective bystander would also have taken into account the very substantial cost of the improvements to the Maluafou property. It seems reasonable to assume that the Vitos would not have outlaid those sums if they had not expected a corresponding commercial return on their investment for many years to come.
    
33. The question is what the parties would have said at the time when asked what was to happen if the business failed after nine years. We have concluded that on balance the more likely reply is that the Vitos were to receive something for their improvements, albeit not a large sum. It would not be a large sum for reasons we will come to shortly in relation to quantum.
    
34. Our conclusion is that the Stanleys can not rely upon the existence of an agreement discharged by performance as an answer to a claim to unjust enrichment. No other juristic basis for resisting the unjust enrichment claim has been suggested.
    
35. The third and final element required for unjust enrichment is therefore satisfied. The appeal against liability fails.
    

Value of the improvements

36. The Judge based the quantum of the award on the cost of the fill and retaining wall when installed in in 1994 ($60,025) and the cost of construction of the buildings in 1994 and 1995 ($481,656.83), a total of $541,681.83.
    
37. The appellants argue that the Judge was wrong to use the cost of the land fill and buildings as the basis for valuing the improvements. The respondents’ cross-appeal for a higher amount on the basis that the Judge should have used current "market cost" or "market value" as the test.
    
38. In our view the Judge was fully entitled to choose original cost in preference to current market value as the basis for valuation. That was a choice for him to make in the light of the particular circumstances before him: Reid & Ors v Atiifale Fiso supra at p 4.
    
39. The respondents challenged other details in the Judge’s assessment including reduction in the amount of fill to be valued and use of costing evidence from another case. We are not persuaded that the way in which the Judge valued the improvements should be interfered with. He arrived at his conclusions after hearing evidence from qualified valuers and conducting his own careful analysis of the figures.
    

Quantum of award

40. However we accept the appellant’s contention that the process of arriving at an appropriate remedy did not end with a valuation of the Maluafou improvements. Valuation of the improvements was merely one component of a larger exercise. In particular the major benefits received by the Vitos also needed to be brought to account.
    
41. Lord Cooke put it this way in Fiso v Reid [2002] WSCA 2; Misc 70 2002 (2 December 2002) at p 8:
    

In the field of unjust enrichment a broad overall assessment may be the best that can be achieved, as both the Supreme Court and the Court of Appeal judgments recognize. It is often, and was in this case, necessary to stand back and look at the global award in the light of equity. An estimate on one head may be influenced by the amount of an estimate on another head; generosity in one part of the case may be tempered by conservatism in another part. Any advantages enjoyed by the claimant, such as the rent-free occupation here, have to be taken into account. In short, equitable compensation is not an exact science.

42. In the present case most of the factors affecting a proper award have already been traversed. The chief ones were:
    

a. The value of the Maluafou improvements in respect of which we adopt the Judge’s figure of $541,681.83.

b. The Vito’s rent-free use of the Togafuafua property from 1970 to 1991.

c. The Vitos’ receipt of the Togafuafua property without payment and its subsequent loss as a casualty of the Vitos’ business failure. There is no satisfactory evidence as to the value of the Togafuafua property. The $18,000 recorded in the agreement for the sale of a half interest suffers from the context of an intra-family transaction. Nor is there any evidence concerning the transfer of the other half or the effects of inflation since 1991.

d. The Vitos’ opportunity to raise money by way of mortgage over the Maluafou property and the Stanleys’ voluntary assumption of the very real risk that they would lose that property as well as Togafuafua.

e. The fact that the Vitos had had nine years’ return on their investment in the Maluafou property before they left. At least in terms of opportunity, if not achievement, this must have gone a very long way towards the duration and kind of commercial venture that the Vitos had in mind when they effected the improvements.

f. The Stanleys would have had the exclusive use of the two-storey dwelling house in any event. At least to that extent, the Vitos lost nothing when they abandoned the property. Of the $541,681.83 total for improvements, the Judge had allocated nearly half, or $264,724.85, to the dwelling.

43. Taking all of those considerations into account we think that an appropriate award was $100,000. We do not pretend that this has been precisely calculated. As Lord Cooke commented, equitable compensation is not an exact science. Most of the considerations we have listed do not lend themselves to calculated assessment.
    

Conclusion

44. The appeal against liability fails but the appeal against quantum succeeds.
    
45. The appeal is allowed to the extent that the sum of $100,000 will be substituted for the sum of $541,681.83 awarded to the respondents in the Supreme Court. The award of costs of $2,500 to the respondents in the Supreme Court will stand.
    
46. The cross-appeal is dismissed.
    
47. There being a measure of success for both parties on the appeal, there will be no order for costs in this Court.
    

HONOURABLE JUSTICE BARAGWANATH
HONOURABLE JUSTICE SLICER
HONOURABLE JUSTICE FISHER