Farah Constructions Pty Ltd v Say-Dee Pty Ltd

Pictured: a house in Burwood, NSW. The property dispute in Farah related to a residential construction project in that suburb.

In early 1998, Farah Pty Ltd entered into an agreement with Say-Dee Pty Ltd to purchase and redevelop a residential property in Burwood. The principals of Say-Dee were to provide capital, while the principal of Farah was to manage the project.[10]

The development application stalled. Essentially, the council considered the property (No 11) too narrow for the proposed construction. Between June 2001 - August 2002, the principal of Farah along with his wife, two daughters, and another company he controlled; bought two adjacent properties Nos 13 & 15.[10]

Thereafter, the relationship between Say-Dee and Farah deteriorated. In March 2003, Farah filed a summons seeking the appointment of a trustee for sale in respect of No 11.[10]

Say-Dee filed a cross-claim, seeking declarations that Farah Pty Ltd, its principal, the family, and the second company all held their property interests on constructive trust for the partnership between Say-Dee and Farah.[10]

On appeal

Tobias JA, (Mason P and Giles JA agreeing), reversed many of the trial judge's findings of fact. They found Say-Dee had not been invited to participate in the purchase of Nos 13 & 15; and that Farah was obliged through fiduciary duty to disclose this and other information to Say-Dee. Farah was therefore found in breach.[10]

Pictured: The Court of Chancery, in which doctrines of equity originated

It was held that the family members of Farah's principal were liable as recipients of the benefit of a breach of fiduciary duty. It was decided that the first limb of Barnes v Addy ought apply, as they had the sufficient level of knowledge for a 'knowing receipt' finding to be made. It was found then that they held their interests in a constructive trust for Say-Dee.[10]

Independent to this finding, Tobias JA suggested that unjust enrichment may be the true doctrinal basis of the first limb in Barnes v Addy, writing in obiter that knowledge might be unnecessary for a finding of liability under that limb.[10] His suggestion followed a brief survey of legal thought on the topic; including comments by the private law expert Peter Birks,[10] two prominent equity decisions in the UK,[10] and citations with approval of that UK case law by Hansen J in the Victorian Supreme Court.[11]

He went further however. After first noting a lack of High Court authority on the issue,[Note 1] Tobias JA said he saw 'no reason why the proverbial bullet should not be bitten by this court in favour of the Birks/Hansen approach'.[13] He held in obiter that the law should develop in that way, and ordered that all defendants be liable for benefit derived from the acquisition of the properties.[14]

Farah and its co-defendants then appealed to the High Court.

In its unanimous judgement, the High court overturned 'practically every finding' made by the Court of Appeal.[10] It upheld the trial judge's finding that there was no breach of fiduciary duty; and in obiter discussed the principles of recipient liability.[10]

The harshest criticism directed at the lower court judgement, was for having dealt with the restitution issue at all. It was noted as procedurally unfair to have made unjust enrichment an aspect of the ultimate decision, when neither party had been invited to make submissions on that issue. Farah had been denied the opportunity for a legal defence.[10]

Two major ideas regarding the doctrine of precedent were expressed by the High Court in its criticisms of the intermediate judgement. The first was that lower courts must obey the 'seriously considered dicta' of a High Court majority.[6] The second was that 'Intermediate appellate courts and trial judges in Australia should not depart from decisions in intermediate appellate courts ... unless they are convinced (it is) plainly wrong'.[7] The lower court was criticized for apparent disobedience to previous obiter dicta, and for being out of step with common law holdings of other states.[6][7]

Additionally, in a 'surprisingly brief' section, the High Court held that registration of a property interest under the Torrens system; is enough to defeat a claim for a constructive trust remedy on the first limb of Barnes v Addy.[10] Intermediate courts had previously been split in opinion on this issue.[10]

The case is significant to Australian law in a number of respects. It resolved in part the relationship between Barnes v Addy and the Torrens system. It also definitively stated that unjust enrichment is not the doctrinal basis for such claims.[15]

It has been argued by academics that the High Court's comments in Farah have changed the way that Australia's lower courts apply the concepts of ratio decendi and obiter dicta.[16] More generally, the case 'has been seen as an admonition to superior State courts ... against liberalising (legal) doctrines'.[17]

Farah has been criticized by Australian legal commentators for both of its major aspects. Private law scholars have criticized the case for a lack of clarity and undue brevity in its equity & unjust enrichment holdings.[18][19] Meanwhile, public law scholars have voiced criticism for its comments on the doctrine of precedent, one calling it 'a truly radical and ill-conceived constitutional innovation'.[20]

One of the appellate judges overturned in the case, Keith Mason also criticized the decision in his retirement speech; describing it as a 'profound shift in the rules of judicial engagement', and (an) 'assertion of a High Court monopoly in the essential developmental aspect of the common law', adding that 'If lower courts are excluded from venturing contributions that may push the odd envelope, then the law will be poorer for it.[21]

• List of High Court of Australia cases