Apostolidis v Commonwealth Bank of Australia File No. SCGRG 92/603 Judgment No. 3661 Number of Pages 6 Guarantee and Indemnity

[1992] SASC 3661

COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA FULL COURT King C.J.(2), Olsson (1) and Mullighan (3), JJ.

CWDS
Guarantee and indemnity - actions against surety - respondent issued summons against appellant for moneys said to be due under an instrument of guarantee - appellant claimed guarantee was void and unenforceable - appellant purported to counterclaim against respondent in respect of issues between respondent and principal debtor - held appellant has no locus standi to pursue counterclaim - counterclaim correctly struck out - appeal dismissed.
Sharpe v San Paulo Railway Company (1873) 8 Ch App 597, applied.
Gould and anor v Vaggelas and others (1985) 157 CLR 215 and Costa and Duppe Properties Pty Ltd v Duppe and ors (1986) VR 90, distinguished.
General Steel Industries Inc v Commissioner for Railways (NSW) and ors
(1964) 112 CLR 125, discussed.

HRNG ADELAIDE, 11 September 1992 #DATE 16:10:1992
Counsel for appellant:         Mr N. Niarchos
Solicitors:   Niarchos and Co.
Counsel for respondent:         Mr N. Morcombe QC
Solicitors:   Neville Paul Andersen

ORDER
Appeal dismissed

JUDGE1 OLSSON J. This is an appeal from a decision of a District Court Judge reversing the decision of District Court Master Berry not to strike out a purported counterclaim sought to be prosecuted by the appellant, on the basis that it disclosed no cause of action. 2. On 21 July 1989 the respondent issued a summons in the District Court against the appellant claiming the sum of $22,451.85, being moneys said to be due to the respondent under and by virtue of an instrument of guarantee, entered into by him and three other guarantors, of the indebtedness of two separate companies named Helmar Holdings Pty Ltd ("Helmar Holdings") and Helmar Trading Pty Ltd ("Helmar Trading"). 3. By a defence and purported counterclaim filed in the proceedings the appellant admitted the execution of the instrument of guarantee. However, he also raised a variety of pleas, including an assertion of non-indebtedness on the part of the principal debtors. 4. It was further pleaded that the guarantee was void and unenforceable upon a variety of separate bases. Without traversing these in fine detail it may be said that the essence of the case sought to be mounted by the appellant, in furtherance of that plea, was based on alleged misrepresentation within the meaning of the Misrepresentation Act 1971 (SA), unconscionable conduct, an asserted breach of section 52 of the Trade Practices Act 1974 (Cth) and estoppel. 5. The purported counterclaim was sought to be prosecuted on the footing of the following outline allegations:-
    - Helmar Holdings was trustee of a unit trust formed to
    acquire and hold the freehold of the Tree Tree Gully Hotel for a
    monetary consideration of the order of $1.1 million.
    - Helmar Trading was trustee of a unit trust formed to purchase
    the business and stock in trade of the hotel business for a
    consideration of about $200,000 plus stock at valuation and
    thereafter to conduct the business operations.
    - The precise structure and detailed provisions of the two
    trusts have not, at this point, been disclosed to the Court.
    However, it was asserted that the appellant owned one half of the
    shares in, and was a director of, each of the two companies.
    - In about August 1985 the appellant and another person made
    application to the manager of the Modbury Branch of the
    respondent (one Twartz) for a loan of approximately $900,000 for
    the purpose of the then contemplated purchase of the assets and
    business of the Tea Tree Gully Hotel.
    - Subsequently Twartz informed the appellant and his colleague
    that the respondent would be prepared to lend the requisite funds
    either in Australian currency, or alternatively by way of an offshore
    loan in Swiss Francs at a rate of 6% per annum it being pointed out
    that the then current Australian rate was 16% per annum. It is
    averred that he recommended the latter approach and represented that,
    because the Australian dollar was then at "an all time low', it
    seemed unnecessary to effect hedging insurance.
    - It is said that, on or about 17 September 1985, the respondent
    made an offer of finance in the lastmentioned terms, which the
    appellant and his co-venturer accepted as the basis of entering
    upon a purchase of the hotel assets and business.
- The appellant sought to plead that, thereafter, he (and
    presumably the co-venturer) acquired Helmar Holdings and Helmar
    Trading and set up the trading trusts earlier referred to. He says
    that he became a beneficiary and holder of 50% of the value of each
    unit trust.
- The companies were then authorised to consummate the purchase of the
    hotel assets and business, in the course of which Helmar Holdings
    entered into a loan agreement with the respondent, pursuant to which it
    exercised an unhedged option to utilise a revolving floating rate
    multi-currency facility and drew the sum of $900,000 Australian in
    Swiss Francs. As portion of that transaction and by way of collateral
    security for it, the appellant and his co-sureties executed the
    instrument of guarantee, the subject of these proceedings.
    - In mid 1987 the assets and business of the hotel were sold upon a
    basis that the net proceeds were insufficient to meet the then total
    liability of Helmar Holdings to the respondent, particularly having
    regard to adverse movements in the exchange rate of Australian dollars
    for Swiss francs. In the purported counterclaim the appellant alleged
    negligence on the part of Twartz in relation to the advice given to
him, and also sought to rely on section 52 of the Trade Practices Act
and an asserted breach of the Misrepresentation Act. In essence his
    claim for damages, based upon these assertions, was that, had it not
    been for the conduct sought to be impugned, Helmar Holdings would not
    have entered into the unhedged multi-currency, floating rate loan and
    no loss would have been sustained when the unit trust eventually sold
    the assets and business of the hotel. Indeed, a surplus would have
    been produced after satisfying the original advance. This, it was
    alleged, would have been distributable as to one half to him as
    beneficiary. He sought to quantify his loss at the sum of $141,088.56
or, alternatively, at the sum of $62,338.56. 6. In approaching the issue raised on this appeal it must firmly be borne in mind that, although the initial loan negotiations were conducted with the respondent by the appellant and his co-venturer personally, nevertheless the whole of the business transactions were then carried into effect by the two corporate entities in their capacities as trustees of the relevant unit trusts, the precise structure and terms of which have not been revealed. Similarly the ultimate loss sustained was also sustained by those trusts and, specifically, that of which Helmar Holdings was trustee. 7. The primary residual liability, the subject of the guarantee, remaining after realisation of all of its net assets, is that of the unit trust of which Helmar Holdings is trustee. It was not pleaded that, by virtue of the terms of the trust, the appellant was entitled to any direct proprietary interest in the assets of that trust. 8. Much was said both before this Court and the learned District Court Judge of the authorities which bear on the question of the circumstances in which the court may be willing to "pierce the corporate veil". (See, for example, Walker and Others v Hungerfords and Others (1987) 49 SASR 93 at 103-4, Esso Petroleum Co v Mardon (1976) QB 801 at 829-30 and Maylon v Plummer (1964) 1 QB
330 at 342.) 9. However, the appellants' attempt to resort to such authorities was to fail to recognise the true issue which arises in these proceedings. The matters which the appellant sought to ventilate in his purported counterclaim did not in any sense arise in a manner or circumstances which gave rise to an application of the reasoning adverted to in those authorities. The sole role of the corporate entities in the instant case was to act as trustee of the trusts constituted by the unit trusts. We are not here concerned with the ultimate beneficial interests of the appellant in the two companies, as such, but, rather, his beneficial interests in the two trading trusts. That circumstance gives rise to quite different considerations. 10. The commencement point for the present appeal is to be found in a consideration of General Steel Industries Inc v Commissioner for Railways (NSW) and Others (1964) 112 CLR 125. 11. That case stands for the proposition that the striking out of a pleading as disclosing no cause of action is only warranted in a clear case and upon exercising due caution. It must be patent that, on any reasonable view of the proposed pleading, the purported cause of action is, on the fact of it, unarguable and plainly untenable - that to permit it to stand would be futile and vexatious to the other party. 12. In my view the purported counterclaim in these proceedings presents serious problems from two points of view. In the first place it was, in any event, liable to be struck out pursuant to Rule 67(19)(b) of the Local Court Rules, because it simply did not comply with the requirements of subrules
(6)(a)(ii) and (6)(a)(vi) of that Rule. 13. On a fair perusal of it, it must be concluded that it did not contain an adequate statement in summary form of the material facts upon which the appellant relied and it also did not contain adequate particulars of claim. 14. In this regard it was critical to the establishment of the basis of the counterclaim that the appellant expressly plead facts and circumstances entitling him to pursue a direct, personal claim against the respondent. He has simply not done so, despite being afforded an opportunity of amending the pleading and having done so in certain respects. 15. The pleadings do not reveal that this was, for example, a situation of the nature of that adverted to in Gould and Anor v Vaggelas and Others (1985) 157 CLR 215, where the plaintiffs were suing for losses personally and directly incurred by them - which were separate and distinct from any loss sought (in that case) by a company of which they were the sole shareholders and directors. Nor do they set up any basis of fact or pleading in an attempt to disclose a situation where, by virtue of the terms of a relevant trust deed, a direct proprietary interest has been conferred in the trust assets. (Costa and Duppe Properties Pty Ltd v Duppe and Others (1986) VR 90.) 16. Rather the appellant simply seeks to propound an asserted cause of action as a beneficiary entitled to a general 50% interest in a unit trust, the precise terms of which are unspecified, to sue for what is plainly a claim (if one exists at all) of the corporate body in its capacity as trustee for an alleged cause of action vested in the trust against the respondent. In this regard it is to be noted that it was conceded on the appeal that the appellant seeks to do so in circumstances in which another guarantor has already paid moneys to the respondent under the guarantee and is thus a creditor of the appropriate trust. 17. The core basis of the counterclaim is to be found in paragraph 19.15 of the purported pleading. It is to the effect that, but for the alleged negligence or other improper conduct of the respondent, the appellant would have been entitled to receive one half of a positive surplus of the trading trusts upon sale of their respective assets. He has, he says, been denied that benefit because the allegedly actionable conduct of the respondent has converted what should have been trust surpluses into trust deficits. The alternative statutory remedies are also pleaded in a manner which relies on the same damage. 18. It is a well settled principle of law that, in general, a beneficiary under a trust is not entitled to sue for the trust fund merely by virtue of his status of a beneficiary. That principle is expressed by James L.J. in Sharpe v San Paulo Railway Company (1873) VIII Ch App 597 in these terms:-
    "Is it to be permitted that every one of the persons who has
    an interest in a thing assigned to a trustee for the benefit of a
    great number of persons should file a distinct bill in a distinct
    branch of this Court against the debtors to the estate? I had lately
    occasion to consider that question, and I came to the conclusion,
    very clearly, that a person interested in an estate or a trust fund
    could not sue a debtor to that trust fund, or sue for that trust
    fund, merely on the allegation that the trustee would not sue; but
    that if there was any difficulty of that kind, if the trustee would
    not take the proper steps to enforce the claim, the remedy of the
    cestui que trust was to file his bill against the trustee for the
    execution of the trust, or for the realization of the trust fund, and
    then to obtain the proper order for using the trustee's name, or for
    obtaining a receiver to use the trustee's name, who would, on behalf
    of the whole estate, institute the proper action, or the proper suit
    in this Court. That view I still adhere to, and I say it would be
    monstrous to hold that wherever there is a fund payable to trustees
    for the purpose of distribution amongst a great number of persons,
    every one of those persons could file a separate bill in equity,
    merely on the allegation that the trustee would not sue." 19. That summation of the law has never been questioned as to its validity. The only qualification which need be made to it for present purposes is that, in some special circumstances and where the relief sought is in the equitable jurisdiction of the Court, a beneficiary may take proceedings in his own name; the trustee and other beneficiaries being added as defendants. Such a right arises, for example, when a trustee declines to enforce the rights of a trust when properly requested to do so. 20. The reason for the joinder of both trustee and other beneficiaries in such circumstances is to ensure that any moneys got in are administered in terms of the trust and properly applied for the benefit of not one but all of the persons beneficially entitled. 21. Moreover, except in unusual situations in which a trust deed confers separate direct proprietary rights in a beneficiary, any action brought must logically relate to the whole of the indivisible trust right against a third party, and not just some notional share of a beneficiary in it. (See, for example, the type of reasoning in In re Suco Gold Pty Ltd (in liquidation)
(1982) 33 SASR 99, Re Pheon Pty Ltd (1987) 47 SASR 427 and Octavo Investments Pty Ltd v Knight and Anor (1979) 144 CLR 360.) In the present case the problem is further compounded by the appellant's pleading concerning adjustments which were made between the two trading trusts and any adjustments which might ultimately have to be made between those trusts, inter se, in the event of some successful claim being mounted on behalf of either or both of them. 22. It follows that the learned District Court Judge correctly assessed that, by his counterclaim, the appellant was endeavouring to pursue a claim as to which he manifestly had no locus standi to do so. The appellant, having been afforded an opportunity of amending his pleadings so as to establish standing, manifestly failed to do so. In my opinion, the decision of the learned District Court Judge was patently correct. 23. I would dismiss the appeal.

JUDGE2 KING C.J. I concur.

JUDGE3 MULLIGHAN J. I concur.