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Some interesting cases have been heard by the Supreme Courts of Australia and New Zealand over the past few months, a handful of which are summarised below.

Australia

In the case of Australian Financial Services and Leasing Pty Limited v Hills Industries Limited & Anor [2014] HCA 14 (7 May 2014), the Court considered whether a claim for money had and received as a result of a fraud committed by a third party should be refused on account of the recipients’ change of position.

The appellant, a financier, made payments to the supplier of goods (the respondents) who were trade creditors of a customer of the appellant. The appellant was induced into making these payments by the fraud of the customer. At the customer’s request, the respondents applied the payments to the discharge of the customer’s debts. When the appellant discovered the fraud and demanded repayment, the respondents resisted the claim on the basis that they had changed their position on faith of the payments.

The High Court unanimously dismissed the appeal. A majority of the Court held that the relevant enquiry was whether retention of the monies by the respondents would be inequitable in all the circumstances. Importantly, the Court rejected the appellant’s contention that it is necessary to value in economic terms what had been lost to determine whether the recipient was “worse off”; in other words, whether the respondents’ had been “disenriched”. The Court stated that the principle of disenrichment, like that of unjust enrichment, is inconsistent with the law of restitution as it has developed in Australia. The Court stated at [78]:

Disenrichment operates as a mathematical rule whereas the enquiry undertaken in relation to restitutionary relief in Australia is directed to who should properly bear the loss and why. That enquiry is conducted by reference to equitable principles.

As the respondents had relied upon the appellants payments and discontinued legal proceedings to recover the customer’s debts prior to it entering receivership, the Court held that it would be inequitable in all the circumstances to force the respondents’ to repay the money.

In Kakavas v Crown Melbourne Limited [2013] HCA 25 (5 Jun 2014) the court considered whether Crown had acted unconscionably in allowing the appellant to gamble and lose large sums of money at its casino.

Mr Kakavas, the appellant, was a high-stakes gambler and regular patron of Crown’s casino in Melbourne. Over a period of fourteen months, the appellant accrued losses of over $20 million playing baccarat at the casino (turning over almost $1.5 billion in total).

The appellant issued proceedings against Crown and two of its employees in the Supreme Court of Victoria, claiming that the respondent had engaged in unconscionable conduct contrary to s51AA of the Trade Practices Act 1974 (Cth) by luring the appellant, a known problem gambler, to the casino with financial inducements and complimentary services.

The High Court upheld the primary judge’s decision, which held that appellant’s gambling problem did not constitute a “special disadvantage” that rendered him susceptible to exploitation, nor had Crown sought to exploit any disadvantage the appellant might suffer. The Court held that Crown was entitled to accept the defendant as he presented himself: a successful businessman who was entirely capable of making decisions in his own best interests.

The decision reinforces the Australian courts strict approach to claims by problem gamblers. It is questionable whether setting such a high threshold misconceives the nature of addiction and volition. However, this issue was not addressed by the Court, which concluded that the casino had not knowingly victimised the appellant, who adduced no evidence to the contrary.

New Zealand

In the case of Ewan Robert Carr and Brookside Farm Trust Ltd v Gallaway Cook Allan [2014] NZSC 75 (20 June 2014), the Supreme Court considered whether it was permissible to sever from an arbitration agreement an invalid provision which purported to give each party a right to appeal the arbitrator’s award to the High Court.

The appellants claimed that the respondent firm of solicitors were liable for damages for professional negligence in relation to a failed commercial transaction. The parties agreed to arbitrate the dispute. The agreement stated that the arbitrator’s award would be final and binding on the parties, subject to the qualification that the parties had a right to appeal to the High Court on “questions of law and fact”. The phrase “questions of law and fact” was italicised in the agreement, and followed by the words “emphasis added”.

The arbitrator delivered a partial award dismissing the appellants’ claim, and the appellants subsequently sought to set aside the award in the High Court. However, as there was no statutory basis for the provision providing the right to appeal to the High Court on questions of fact, the appellants sought to have the award set aside on the basis that the arbitration agreement was invalid.

In upholding the appeal and setting aside the award, the Court may two key findings. First, the Court decided unanimously that the meaning of “arbitration agreement” is not limited to the submission clause but also includes other procedural matters on which the parties agree, such as the provision for a right to appeal.

Secondly, the Court unanimously decided that whether or not the term is severable was a matter of construction of the contract. Applying this approach, the Court held that the italicisation of the words and the notation of “emphasis added” made clear, objectively, that the scope of the right to appeal went to the heart of the parties’ agreement to arbitrate such that it could not be severed.

Accordingly, the Court held that the appeal clause could not be severed from the arbitration agreement. In the absence of a valid agreement to arbitrate, the Court set aside the award.