ACN 099 735 476 Limited (in liq) & Anor v Didasko Learning Institute Pty Ltd & Ors
[2009] VSC 252
•14 July 2009
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
List B
No. 2054 of 2007
| ACN 099 735 476 LIMITED (in liquidation) (formerly known as DIDASKO LEARNING RESOURCES PTY LTD) (ACN 099 735 476) & ANOR (ACCORDING TO THE SCHEDULE) | Plaintiffs |
| and | |
| DIDASKO LEARNING INSTITUTE PTY LTD (ACN 115 141 921) & ORS (ACCORDING TO THE SCHEDULE) | Defendants |
| And | |
| RICHARD ALBARRAN & ORS (ACCORDING TO THE SCHEDULE) | Third Parties |
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JUDGE: | DAVIES J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 22 June 2009 | |
DATE OF JUDGMENT: | 14 July 2009 | |
CASE MAY BE CITED AS: | Didasko Learning Resources Pty Ltd & Anor v Didasko Learning Institute Pty Ltd & Ors | |
MEDIUM NEUTRAL CITATION: | [2009] VSC 252 | |
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CONTRACT – Construction – Meaning of “trading liabilities” – Whether tax debts fall within contractual definition – Whether purchasers under the contract have joint and several liability for all tax debts – Claim of contractual right of subrogation – Whether common intention – ss 437A, 443A, 443BA, 443C, 443D and 443F Corporations Act2001.
STATUTE – Claim of statutory right of subrogation under s 52 Supreme Court Act1986 – Whether “persons” under s 52(1).
STATUTE – Obligation to remit for PAYG withholding purposes – Whether PAYG due before date of contract – ss 220AAJ, 220AAM and 220AAR Income Tax Assessment Act 1936.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr M J Galvin | Slater & Gordon |
| For the Second to Fourth Defendants | Mr J L Evans | Russell Kennedy |
| For the Third Parties | Mr M J Galvin | Slater & Gordon |
HER HONOUR:
Introduction
The dispute in this proceeding is over the proper construction of an agreement (“the sale agreement”) under which the plaintiffs (collectively “the sellers”) sold their respective businesses to the first and second defendants (collectively “the buyers”). The dispute revolves around the effect of clauses 3.3(c) and 9.3(b) in the sale agreement and, specifically, whether the buyers are contractually obliged to assume responsibility for certain liabilities that the third parties (“the administrators”) incurred whilst in control of the businesses as administrators appointed under Part 5.3A of the Corporations Act 2001 (Cth) (“the Act”).
I have concluded that the buyers are contractually obliged to assume responsibility for those liabilities. I have also concluded, contrary to the second to fourth defendants’ submissions,[1] that they have no right to be subrogated to the administrators’ statutory and equitable rights of indemnity and lien.
[1]The first defendant did not appear. It is currently subject to a deed of company arrangement.
Factual background
The sellers carried on separate businesses. The first plaintiff was in the business of creating, developing and supplying education and training products. The second plaintiff was in the business of providing work-based training and assessment services. The third defendant (Horton) was a director of each company.
The sellers were placed into voluntary administration on 5 May 2005 by a secured creditor. During the administration period, the administrators carried on the businesses and incurred liabilities as a consequence of trading. Proposed deeds of company arrangements were accepted by the creditors of the sellers but before the deeds could be executed, it became apparent that the sellers would not be in a position to comply with the terms. When it became apparent that the deeds would not proceed, the administrators entered into negotiations with Horton for the sale of the businesses to him or entities associated with him. These negotiations resulted in the sale agreement dated and executed on 13 July 2005. Relevantly, under the sale agreement:
(a) the buyer of the first plaintiff’s business was the first defendant (“D1”);[2]
(b) the buyer of the second plaintiff’s business was the second defendant (“D2”);[3]
(c) D1 and D2 are companies associated with Horton;
(d)one purchase price was payable for the businesses in the amount of $800,000,[4] which the buyers were jointly and severally liable to pay and the payment of which was to be secured over the buyers’ assets.[5] The sale agreement apportioned the $800,000 between the two businesses in accordance with schedule 2;[6]
(e)the buyers were licensed to operate the businesses from the execution of the sale agreement, 13 July 2005, until ownership passed on payment in full of the purchase price;[7]
(f)the buyers were entitled to the benefit of all revenue they derived from conducting the businesses as from 13 July 2005[8] but were liable for all costs, expenses, debts or claims they incurred in conducting the businesses as from 13 July 2005;[9] and
(g)additionally, by clause 3.3(c) the buyers agreed and undertook to pay all trading liabilities of the businesses from 5 May 2005 (the date of the administrators’ appointment), including the liabilities incurred by the administrators in trading the businesses from 5 May 2005 (but not including liabilities incurred fraudulently or in breach of their duties), as they fell due for payment from 13 July 2005.[10]
[2]Clause 2.1(b) of the sale agreement.
[3]Ibid.
[4]Clause 2.2(a) of the sale agreement.
[5]Clause 2.3(a) of the sale agreement.
[6]Clause 2.1(a) and the definition of “Purchase Price” in Schedule 1 Part A of the sale agreement.
[7]Clause 3.1 of the sale agreement.
[8]Clause 3.3(a) of the sale agreement.
[9]Clauses 3.3(b) and 9.3(b) of the sale agreement.
[10]Clause 3.3(c) of the sale agreement.
Also on 13 July 2005, D1 and D2 entered into two Deeds of Charge and Horton and the fourth defendant (collectively “the guarantors”) executed a deed of guarantee and indemnity (“the guarantee”) pursuant to which they unconditionally guaranteed the due and punctual observance of the obligations of the buyers under the sale agreement[11] and further indemnified the sellers and the administrators “against all actions, claims, demands, liabilities, losses, damages, costs and expenses of whatever nature … which the Sellers and/or the Administrators may suffer, incur or sustain in connection with or arising in any way whatever out of [the guarantee]”.[12] The guarantee was the subject of a deed of variation executed on 14 September 2005.
[11]Clause 2.1 of the guarantee.
[12]Clause 6.3 of the guarantee.
Three days after the sale agreement was executed, the sellers were wound up and the administrators became the companies’ liquidators.
Liabilities incurred by the administrators
During the administrators’ trading period, the administrators incurred liabilities to trade creditors, of which two are outstanding, and liabilities to the Commissioner of Taxation for PAYG, BAS and the superannuation guarantee charge (“the tax debts”).
The liabilities are as follows:
Second Plaintiff Claims for PAYG & GST Period PAYG GST Total 5 May - 30 June 05 $68,674 $7,697 $76,371 1 July - 13 July 05 $10,168 $1,591 $11,759
$88,130First Plaintiff Claims for PAYG & GST Period PAYG GST Total 5 May – 30 June 05 $36,482 $778 $37,260 1 July – 13 July 05 $ 3,406 $0 $ 3,406
$40,666Second Plaintiff Trade Creditors Creditor Amount CDP Electronics $333.93 Berry Village Boutique Motel $118.60
$452.53Second Plaintiff Superannuation Guarantee Charge Period
(Quarter)Super
Interest Admin Charge Total April – June 05 $26,199.58 $11,075.60 $880.00 $38,155.18 1 July – 13 July 05 $ 5,361.06 $ 2,132.67 $880.00 $ 8,373.73
$46,528.91
First Plaintiff Superannuation Guarantee Charge Period
(Quarter)Super
Interest Admin Charge Total April – June 05 $14,640.02 $6,188.92 $420.00 $21,248.94 1 July – 13 July 05 $ 2,576.44 $1,024.93 $420.00 $ 4,021.37
$25,270.31
The administrators relied on the sale agreement to assert that the buyers are responsible for payment of those debts and made a claim on the buyers. The buyers have refused to pay, claiming that they are not liable for those amounts under the terms of the sale agreement. The administrators also made demands on the guarantors, who have claimed that they are not liable under the terms of the guarantee.
Meaning of “trading liabilities” in clause 3.3(c)
The first issue for determination is whether the tax debts are “trading liabilities” within the meaning of clause 3.3(c) of the sale agreement and if so, whether the tax debts fell due for payment before 13 July 2005. In my view, the tax debts are “trading liabilities” within the meaning of clause 3.3(c) and I am satisfied on the basis of the evidence before me that they all fell due for payment from 13 July 2005.
Clause 3.3(c) provided as follows:
The Buyers agree and undertake to pay all trading liabilities of the Businesses from 5 May 2005, including the trading liabilities incurred by the Administrators in trading the Businesses from 5 May 2005 but excluding liabilities which have been incurred by the Administrators fraudulently or in breach of their duties, as they fall due for payment from the Execution Date.
“Trading liabilities” is not a defined term for the purposes of the sale agreement. It was contended on behalf of the sellers that the liability to pay PAYG, GST and the superannuation charge is a normal incident of trading and thus they are trading liabilities within the ordinary understanding of that phrase. Counsel on behalf of the second to fourth defendants, on the other hand, contended that the phrase has a more limited meaning in the context of clause 3.3(c) and should be confined to liabilities of a “trading” character, that is to say, liabilities incurred to third parties with whom the administrators traded during the period 5 May to 13 July 2005. It was submitted that the phrase did not extend to include the tax debts because the administrators did not trade with the Commissioner of Taxation.
The parties were not in dispute about the proper approach to the construction of the clause. The task is to ascertain what the parties intended the phrase “trading liabilities” to mean. That task is an objective inquiry, in the sense of what a reasonable person would understand the phrase to mean.[13] The objective meaning is to be determined by interpreting the phrase in light of the sale agreement as a whole and the factual matrix in which it was made.[14] As the High Court stated in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd:[15]
[13]Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, 463 [25] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ).
[14]IATA v Ansett Australia Holdings Ltd (2008) 234 CLR 151, 160 (Gleeson CJ with Gummow, Hayne, Heydon, Crennan and Kiefel JJ agreeing).
[15](2004) 219 CLR 165.
This Court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.[16]
[16]Ibid 179 [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ) (references omitted).
The factual matrix assists to provide an understanding of the contract. Gleeson CJ stated in International Air Transport Association v Ansett Australia Holdings Limited that:[17]
In giving a commercial contract a businesslike interpretation, it is necessary to consider the language used by the parties, the circumstances addressed by the contract, and the objects which it is intended to secure. An appreciation of the commercial purpose of a contract calls for an understanding of the genesis of the transaction, the background, and the market.[18]
These construction principles, which determine meaning from context, recognise that text alone may not inform the meaning to be ascribed to the words under consideration because of the susceptibility of language to nuance. Thus, although the sellers’ proposition that tax is a normal incident of trading cannot be doubted, it does not follow necessarily that the phrase “trading liabilities”, as used in clause 3.3(c), was intended to cover the tax debts that the administrators became liable to pay by reason of carrying on the sellers’ businesses.
[17](2008) 234 CLR 151.
[18]Ibid 160 [8] (Gleeson CJ with Gummow, Hayne, Heydon, Crennan and Kiefel JJ agreeing) (references omitted).
It was contended on behalf of the second to fourth defendants that the language of clause 3.3(c) was deliberately narrower than other clauses in the sale agreement that deal with liabilities incurred in relation to the conduct of the businesses and that the expression was not intended to extend to all business liabilities. I was referred to clauses 3.3(b), 6.5 and 9.3(b). However, these clauses do not support that submission. A consideration of the phrase “trading liabilities” in context makes it plain, in my view, that the phrase was intended to include the tax debts.
The context of the sale agreement was the placement of the sellers into administration and into the control of the administrators under Part 5.3A of the Act. The powers of the administrators included the power to carry on the sellers’ businesses and to dispose of those businesses, if that was the appropriate course.[19] The evidence was that the administrators were asked by Horton to continue to trade the sellers’ businesses and that they agreed to do so because, in their view, it would allow for any proposals for deeds of company arrangement to be considered by the creditors and would preserve the value of the businesses so as to maximise the potential return to creditors, if a liquidation of those companies occurred. During trading, debts were incurred for which the administrators became personally liable by reason of ss 443A and 443BA of the Act,[20] including the tax debts, the subject of these proceedings.[21]
[19]See Corporations Act 2001 (Cth) ss 437A(1)(b), 437A(1)(c).
[20]Ibid s 443C.
[21]Powell & Duncan (Noelex Yachts Aust) v Fryer & Anor No. SCGRG-98-431 [2001] SASC 59 (Unreported, Olsson, Duggan and Williams JJ, 8 March 2001) [72] (Olsson J with Duggan and Williams JJ agreeing).
The sellers’ businesses were operated by the administrators in that capacity from the date of their appointment to 13 July 2005 when the buyers, under licence, took over. Clause 3 of the sale agreement governed the basis on which the licence to operate the businesses was granted. Clause 3.1 contained the grant of license. Clause 3.2 contained a correlative grant of licence to the buyers to enter the sellers’ premises to conduct the businesses. Clause 3.3 is headed “Revenues Costs and Expenses”. It contained three sub clauses as follows:
(a) Clause 3.3(a) provided:
The Buyers are entitled to the benefit of the revenue of the Businesses earned by the Buyer from its conduct of the Businesses from the Execution Date.
(b) Clause 3.3(b) provided:
The Buyers must and hereby does [sic] assume liability for all costs, expenses, debts or Claims incurred by the Buyers in their conduct of the Businesses and in the ordinary course of the Businesses from the Execution Date including but not limited to the payment of all Employee Entitlement [sic], Employment Income and trade creditors when they fall due for payment.
(c) Clause 3.3(c) contained the agreement and undertaking of the buyers in respect of paying “all trading liabilities of the Businesses from 5 May 2005, including the trading liabilities incurred by the Administrators in trading the Businesses from 5 May 2005 … as they fall due for payment from [13 July 2005]”.
Clause 3.4 contained the buyers’ agreement to comply with applicable occupational health and safety legislation for Victoria and New South Wales. Clause 3.5 contained an indemnity by the buyers. It provided that:
The Buyers indemnify and hold indemnified the Sellers and the Administrators against all Claims and liabilities whatsoever which may be made or asserted against the Sellers and the Administrators by any person, entity or Government Agency now and in the future in respect of or in any way arising from the Buyers’ failure to obtain or comply with the terms of the Lease or anything contained in this clause 3.
The context of clause 3.3(c), thus, is the terms governing the licence to the buyers to conduct the businesses. Clauses 3.3(a) and (b) respectively govern the entitlement of the buyers to the benefit of all revenue earned in carrying on the businesses as from 13 July 2005 and their commensurate obligation to take responsibility for all liabilities arising in the course of the conduct of the businesses as from that date. Clause 3.3(c) provided for an additional responsibility on the buyers. The additional responsibility was to take on the burden of trading liabilities incurred in the course of the operation of the businesses during administration but which did not fall due for payment until after the buyers had taken over the running of the businesses.
In my view, a reasonable person would have understood the phrase “trading liabilities” in clause 3.3(c) to have the meaning that the words convey, namely, liabilities incurred in the course of business, including statutory imposts, and not in the restricted sense for which the second to fourth defendants contended. The genesis of the sale agreement was the administrators’ disposal of the businesses in the course of their functions as administrators. The context of the grant of licence was the commercial practicality of the intended new owners taking over the operation of the businesses from the control of the administrators so that the sellers could be placed into liquidation, as they were three days later, and the affairs of the sellers wound up. In my view, a reasonable person would have understood that the object of clause 3.3(c) was to relieve the sellers’ creditors and the administrators from the burden of administration liabilities, in so far as such debts were payable when the buyers had the conduct of the businesses. This is supported by the terms of clause 3.5 which contained the buyers’ indemnity. The indemnity was expressed to include liabilities made or asserted against the administrators by any “Government Agency”, the contractual definition of which plainly extended to the Commissioner of Taxation.[22] The clause contemplated that tax debts incurred by the administrators would be the responsibility of the buyers.
[22]See definition of government agency in Schedule 1 Part A of the agreement, defined to mean, amongst other things, “A person (whether autonomous or not) who is charged with the administration of a law”.
A consideration of clause 6.5 does not require any different construction to be given to clause 3.3(c). Clause 6.5 also contained a grant of indemnity by the buyers in favour of the sellers and administrators “from and against any Claim and liabilities (without limitation) in respect of Employee Entitlements that may be made against the Sellers or the Administrators after the Execution Date by any Retained Employee”. The relevant liabilities to which the indemnity applied under that clause relate to “Employee Entitlements”. The clause is specific to such liabilities and not liabilities generally.
Clause 9.3(b) also does not compel a different conclusion. Rather, the clause in my view confirms the meaning that the phrase conveys. Clause 9.3 is part of the provisions in the sale agreement governing “Revenues, Costs and Expenses.” Clause 9 created correlative rights to clause 3. Clause 9.1 is in the following terms:
Seller’ rights and obligations
The sellers are:
(a)entitled to the benefit of all revenue earned or to be earned from the conduct of the Businesses prior to the Execution date but excluding any Debtors unpaid as at the Execution Date;
(b)(subject to any relevant provisions of the Corporations Act and clause 3.3(c) and any other provisions of this Agreement) obliged to meet all liabilities of whatsoever nature and howsoever incurred in connection with the conduct of the Businesses prior to the Execution date.
Clause 9.2 provided:
Sellers to pay Post Execution Revenue to Buyers
The Sellers must immediately upon receipt by it of the same pay to the Buyers all or any revenue received by it after Completion which, was earned by the Buyers in the conduct of the Businesses from the Execution Date.
Clause 9.3 provided:
Buyers’ Rights and Obligations
The Buyers will be:
(a)entitled to the benefit of all revenue earned from its conduct of the Businesses from the Execution Date including any Debtors unpaid as at the Execution Date; and
(b)obliged to and must meet all Claims, liabilities, costs and expenses incurred in connection with the conduct of the Businesses from the Execution Date in addition to their obligations in clause 3.3(c).
Clause 9 contains the bargain between the parties. The proper reading of clause 9, in my view, is that all amounts earned, but not paid, by 13 July 2005 would be kept by the buyers but, commensurately, they would assume responsibility for all debts incurred, but not payable, before 13 July 2005. It makes commercial sense, in that contractual scheme, to construe the phrase “trading liabilities” as used in clause 3.3(c) as liabilities incurred in the course of trading.
In my view, there is no ambiguity about the proper meaning of the phrase when construed in context.[23] Even on a strict construction,[24] the phrase, construed in context, does not convey the meaning contended for by the second to fourth defendants.[25] Accordingly, I find that the buyers are liable to the plaintiffs under clause 3.3(c) of the sale agreement and the guarantors are liable to the plaintiffs under clauses 2.1 and 6.3 of the guarantee, for such of the tax debts as fell due for payment from 13 July 2005.
[23]Cf The Life Insurance Company of Australia Limited v Phillips (1925) 36 CLR 60, 78-79 (Isaacs J).
[24]Cf Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424.
[25]Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1986) 162 CLR 549, 561 (Mason ACJ, Wilson, Brennan and Dawson JJ with Deane J agreeing).
Whether PAYG fell due before 13 July 2005
It was accepted on behalf of the second to fourth defendants that the tax debts, bar two, if otherwise “trading liabilities”, fell due for payment from 13 July 2005. The two amounts are an amount of $9,292 deducted as PAYG tax from wages paid to the employees of the second plaintiff on 18 May 2005 and an amount of $16,716 deducted as PAYG tax from wages paid to employees of the first plaintiff on 18 May 2005. It was contended that both sums were required to be remitted to the Commissioner of Taxation on 21 June 2005. The basis of the contention was that both the first and second plaintiffs were “medium remitters” as defined by s 220AAJ of the Income Tax Assessment Act 1936 (Cth) (“ITAA”) and were required by s 220AAM of the ITAA to pay the amount of any deductions made by the end of the twenty-first day after the end of the month. The basis of the contention that plaintiffs were medium remitters was that the amounts deducted fell within the general rule as to who was a medium remitter as set out in s 220AAJ of the ITAA.
The contention that both plaintiffs were medium remitters is in conflict with the companies’ registration for PAYG withholding purposes in which both companies were registered as quarterly remitters, with effect from 5 May 2005. This registration is capable of explanation by reference to s 220AAJ(3) of the ITAA which provides that the Commissioner may, by notice in writing served on a person who would otherwise be a medium remitter, determine that the person is not a medium remitter in relation to a month or months specified in the notice or all months after, and including, the month specified in the notice. Accordingly, I cannot be satisfied on the evidence on the balance of probabilities that s 220AAM did apply to either plaintiff, rather than s 220AAR which provides for when amounts must be remitted as a small remitter, being a quarterly PAYG payment cycle. Accordingly I find that all of the tax debts were trading liabilities that fell due for payment from 13 July 2005.
Whether D1 and D2 each liable for trading liabilities of both businesses
A second construction issue is whether the buyers are each liable under clause 3.3(c) for all the tax debts or only for the tax debts referable to the respective business which each acquired. In my view, they are each liable for all the tax debts.
The contention on behalf of the second to fourth defendants that the buyers are each liable only for the tax debts of the respective business which each acquired was based on clause 2.1(b) of the sale agreement. Clause 2.1(b) provided:
The parties agree that the Buyer of the [second plaintiff’s] Business shall be [D2] and the Buyer of the [first plaintiff’s] Business shall be [D1].
However, the operation and effect of the sale agreement between the parties did not make that distinction. The terms of the contract governed the rights and obligations of the buyers without separate treatment in respect of the individual businesses. There is no inconsistency with the contract as a whole in construing clause 3.3(c) on its terms.
Right of Subrogation to the Administrators’ Statutory and Equitable Rights of Indemnity and Lien
The second to fourth defendants claimed by way of defence and in third party proceedings that had they paid tax debts they would have been subrogated to the administrators’ statutory and equitable rights of indemnity and liens. They further claimed that the administrators owed an equitable duty to each of them not to distribute the proceeds of sale of the businesses in accordance with s 556 of the Act but, rather, to retain the proceeds so that the proceeds would be available to the buyers by way of subrogation, exercising the administrators’ statutory and equitable lien over those proceeds, on payment of the tax debts as required by clause 3.3(c) of the sale agreement and/or to preserve for the guarantors the proceeds, in the event that they met those liabilities pursuant to the guarantee.
It is uncontroversial that the administrators had both a statutory and equitable right of indemnity and lien on the proceeds.[26] However, in my view the defence and the third party claim based on subrogation must fail.
[26]Corporations Act 2001 (Cth) ss 443D and 443F; Re Universal Distributing Co Ltd (In Liq) (1933) 48 CLR 171; Commonwealth Bank of Australia v Butterell (1994) 35 NSWLR 64.
No common intention[27] can be discerned from the sale agreement or surrounding circumstances that, upon compliance with their obligations under clause 3.3(c), the buyers would be entitled to the benefit of the administrators’ indemnity and lien. All that happened here was that the buyers agreed to purchase the businesses for a price on terms which included the obligation to meet certain liabilities connected with the businesses. The terms of the clause do not justify the implication that the parties intended that the buyers, on payment of the relevant liabilities, could stand in the shoes of the administrators and be entitled to the benefit of the administrators’ statutory and equitable rights in respect of the proceeds of sale.
[27]See Australasian Conference Association Limited v Mainline Constructions Proprietary Limited (in Liquidation) & Ors (1978) 141 CLR 335, 348 (Gibbs ACJ with Jacobs and Murphy JJ agreeing); Insurance Commission of Western Australia v Knightly (2005) 30 WAR 380, 386 [26] (Steytler P with Wheeler and Roberts-Smith JJA agreeing); Re Trivan Pty Ltd [1996] NSWSC (Unreported, Young J, 30 August 1996) 388; Cochrane v Cochrane (1985) 3 NSWLR 403, 405 (Kearney J).
It was contended that s 52 of the Supreme Court Act 1986 conferred a statutory right of subrogation that operated independently of the contractual relationship between the administrators and the defendants. Section 52 provides as follows:
(1) A person who is–
(a) surety for the debt or duty of another; or
(b) liable with another for a debt or duty–
and who pays that debt or performs that duty, is entitled to have assigned to that person or to a trustee for that person every judgment specialty or other security held by the creditor in respect of that debt or duty
…
(3)A person who pays a debt or performs a duty as referred to in subsection (1) is entitled–
(a)to stand in the place of the creditor; and
(b)to use all the remedies of the creditor; and
(c)if necessary and on a proper indemnity, to use the name of the creditor–
in any proceeding to obtain from a principal debtor or any co-surety, co-contractor or co-debtor … indemnity for the advances made and loss sustained by the person who paid the debt or performed the duty.
However, the buyers were not “persons” within the terms of s 52(1). They were not sureties nor “liable with another for a debt or duty”. They had no liability to the Commissioner of Taxation for the tax debts. Their liability was to the administrators under the sale agreement. The guarantors had no better claim for subrogation than the buyers.
Recovery Costs
The sellers/administrators have incurred costs and expenses as a result of the refusal or failure of the defendants to pay the trading liabilities. The nature of costs have been identified as remuneration and expenses of the liquidators (who are the administrators in that capacity since the companies were placed into liquidation) and their staff related to recovery of the tax debts, legal fees incurred in seeking recovery and liability pursuant to court orders. I was informed at the hearing that the quantification of amount would need to be the subject of a separate determination, if the proceeding was determined in favour of the plaintiffs. However, the parties sought determination as to whether the defendants are liable under the sale agreement and guarantee for such recovery costs. In my view, such recovery costs, including the remuneration of the liquidators and their staff, fall within the terms of clause 3.5 of the sale agreement as claims or liabilities asserted against the sellers by reason of the buyers’ failure to comply with the terms of clause 3.3(c) of the sale agreement and, thus, within the terms of clause 6.3 of the guarantee.
I will stand the proceeding over for seven days to hear the parties on the form of the orders to be made on the plaintiffs’ proceeding. The third party claim is dismissed and the second to fourth defendants are to pay the costs of the third parties.
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SCHEDULE OF PARTIES
BETWEEN
| ACN 099 735 476 LIMITED (IN LIQUDATION) (formerly known as Didasko Learning Resources Pty Limited) (ACN 099 735 476) | First Plaintiff |
| ACN 088 015 578 LIMITED (IN LIQUIDATION) (formerly known as Didasko Learning Institute Pty Limited) (ACN 080 015 578) | Second Plaintiff |
| And | |
| DIDASKO LEARNING INSTITUTE PTY LTD (ACN 115 141 921) | First Defendant |
| DIDASKO LEARNING RESOURCES PTY LTD (ACN 115 141 930) | Second Defendant |
| ANDREW JOHN HORTON | Third Defendant |
| CHERYL HORTON | Fourth Defendant |
| And | |
| RICHARD ALBARRAN | First Third Party |
| ROBERT ELLIOT | Second Third Party |
| GEOFFREY MCDONALD | Third Third Party |
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