Barber v De Prima

[2018] NSWSC 601

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Barber v De Prima [2018] NSWSC 601

Hearing dates:

20 - 21 March 2018

Decision date:

07 May 2018

Jurisdiction:

Equity

Before:

Robb J

Decision:

See 245 and 272-273

Catchwords:

EQUITY — Contribution — Co-ordinate liability — Between co-sureties — whether the plaintiff is entitled to contribution from the first defendant

 

EQUITY — Subrogation — Rights of subrogated party — co-guarantor paid more than their share of liability — plaintiff entitled to contribution from first defendant

 

EQUITY — Assignment — Of causes of action — whether the cause of action was capable of assignment — whether there was a valid assignment to the plaintiff of rights of contribution and subrogation as between co-guarantors — whether the plaintiff as assignee had standing — whether the assignment was limited to the rights attached to the deed of assignment

 

EQUITY — Subrogation and Contribution — Limitation of Actions — whether rights of contribution and subrogation were statute-barred by direct application of statutory limitation provisions or in equity by analogy

 

EQUITY — Subrogation — Requirements — equitable doctrine of subrogation — statutory subrogation — right of co-sureties to subrogation in equity — right of co-sureties to statutory subrogation

  EQUITY — Defences — Laches and acquiescence — Discretionary factors — whether laches available — laches not available

Legislation Cited:

Limitation Act 1969 (NSW)
Law Reform (Miscellaneous Provisions) Act 1965 (NSW)
Usury, Bills of Lading and Written Memorandum Act 1902 (NSW)
Law Reform (Miscellaneous Provisions) Act 1946 (NSW)
Corporations Act 2001 (Cth)

Cases Cited:

Lang v Le Boursicot (1993) 5 BPR 97,406
Parker v Alessi [2011] NSWSC 947
Burke v LFOT Pty Ltd (2002) 209 CLR 282; [2002] HCA 17
Lavin v Toppi (2015) 254 CLR 459; [2015] HCA 4
Barker v The Duke Group Limited (in liq) (2005) 91 SASR 167
Albion Insurance Co Ltd v Government Insurance Office (NSW) (1969) 121 CLR 342; [1969] HCA 55
Dering v Earl of Winchelsea (1787) 1 Cox Eq 318; 29 ER 1184
Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221; [1987] HCA 5
Davies v Evan Humphreys (1840) 6 M & W 153; 151 ER 361
Craythorne v Swinburne (1870) 14 Ves 160; 33 ER 482
Gerace v Auzhair Supplies Pty Ltd (2014) 87 NSWLR 435; [2014] NSWCA 181
Barker v The Duke Group Limited (in liq) (2005) 91 SASR 167; [2005] SASC 81
The Duke Group Ltd (in liq) v Alamain Investments Ltd [2004] SASC 415
Copis v Middleton (1823) Turn & R 224; 37 ER 1083
Wolmershausen v Gullick [1893] 2 Ch 514
Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44
Embling v McEwan (1872) 3 VR (L) 52
Hardy v Johnston (1880) 6 VLR (L) 190
Cochrane v Cochrane (1985) 3 NSWLR 403
Ghana Commercial Bank v Chandiram [1960] AC 732
Batchellor v Lawrence (1861) 9 CB (NS) 543; 142 ER 214
Rossfreight Holdings Pty Ltd v Unipep Australia Pty Ltd [2002] NSWSC 1074
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22
Duncan Fox and Co v North and South Wales Bank (1880) 6 App Cas 1
Scholefield Goodman and Sons Ltd v Zyngier [1986] AC 562
New South Wales Medical Defence Union Ltd v Crawford (No 3) [1994] NSWCA 231
McNeil v Short [1926] 4 DLR 951
Buckeridge v Mercantile Credits Ltd (1981) 147 CLR 654; [1981] HCA 62
Austin v Royal (1999) 47 NSWLR 27; [1999] NSWCA 222
Official Trustee in Bankruptcy v Citibank Savings Ltd (1995) 38 NSWLR 116
Chin Hoat Pty Ltd v National Australia Bank Limited [1996] ANZ ConvR 188; BC9504360
In re McMyn; Lightbown v McMyn (1886) 33 Ch D 575
D & J Fowler (Australia) Ltd v Bank of New South Wales [1982] 2 NSWLR 879
Manzo v 555/255 Pitt Street Pty Ltd (1990) 21 NSWLR 1
Birdon Contracting Pty Ltd v Hawkesbury City Council (2009) 167 LGERA 178; [2009] NSWLEC 91
Central Electricity Board v Halifax Corporation [1963] AC 785
Gutsell v Reeve [1936] 1 KB 272
Belan v Casey (2003) 57 NSWLR 670; [2003] NSWSC 159
Morgan Equipment Co v Rodgers (No 2) (1993) 32 NSWLR 467
James Hardie & Co Pty Ltd v Wyong Shire Council (2000) 48 NSWLR 679; [2000] NSWCA 107
Amaca Pty Ltd v CSR Ltd [2001] NSWSC 324
CSR Ltd v Amaca Pty Ltd [2007] NSWCA 107
Krakowski v Trenorth Ltd (Formerly known as Eurolynx Properties Ltd), Victorian Supreme Court Commercial List, 26-29 March 1996, 7 May 1996, unreported, BC9601760
Seear v Lawson (1880) 15 Ch D 426
Owners of Strata Plan 5290 v CGS & Co Pty Ltd (2011) 81 NSWLR 285; [2011] NSWCA 168
HIH Claims Support Ltd v Insurance Australia Ltd (2011) 244 CLR 72; [2011] HCA 31
Re Trivan Pty Ltd (1996) 134 FLR 368

Texts Cited:

O'Donovan and Phillips, The Modern Contract of Guarantee (3rd English Ed, 2016, Sweet & Maxwell)
Heydon JD, Leeming MJ and Turner PG, Meagher, Gummow and Lehane’s Equity Doctrines and Remedies (5th ed, 2015, Butterworths)
Geraldine Andrews and Richard Millett, Law of Guarantees (7th ed, 2015, Sweet & Maxwell)
David Marks Q.C and Gabriel Moss Q.C, Rowlatt on Principal and Surety, (6th ed, 2011, Sweet & Maxwell)
Charles Mitchell and Stephen Watterson, Subrogation Law and Practice (1st ed, 2007, Oxford University Press)
Peter Handford, Limitation of Actions: the Laws of Australia (4th ed, 2017, Lawbook Co)
Dr Ian Spry, The Principles of Equitable Remedies (6th ed, 2001, Thomson Reuters)

Category:

Principal judgment

Parties:

Djimi Barber (Plaintiff)
Phillip De Prima (First Defendant)
Isobelle Gidley (Second Defendant)

Representation:

Counsel:
R Glasson (Plaintiff)
E Finnane (First Defendant)

  Solicitors:
Barber Lawyers (plaintiff)
Unsworth Legal (First Defendant)

File Number(s):

2015/37892

Judgment

1. This case raises issues as to whether there has been a valid assignment to the plaintiff of rights of contribution and subrogation as between co-guarantors, and if so, whether those rights are now statute-barred. If the plaintiff succeeds on those issues, a question arises as to the amount of the contribution to which the plaintiff is entitled.

2. The plaintiff’s husband and the two defendants were originally co-guarantors, but the second defendant has been made bankrupt, and the action has not proceeded against her. The plaintiff’s husband’s trustee in bankruptcy granted an assignment of the husband’s rights against the first defendant to the plaintiff. The first defendant challenges the validity of that assignment.

Agreed Facts

3. This case has been fought on the basis of an agreed statement of facts, as well as evidence given by the plaintiff’s husband and the first defendant. The agreed facts are as set out below (the wording being paraphrased to fit these reasons for judgment):

1. On 4 February 2003, Vanuatu Indigenous Development Alliance Pty Ltd (the Company) was incorporated and the first defendant, Philip De Prima, the second defendant, Isobelle Gidley, and Richard Shears were appointed its directors. Each of the directors held one share in the Company.

2. Prior to 2004, the plaintiff’s husband, Tony Barber, became the registered proprietor of lot 9/DP28729, known as 29 Bernera Road, Prestons, NSW (the Property).

3. Between 1 June 2001 and 21 December 2004, the Property was held by Mr Barber subject to a registered mortgage in favour of ING Bank (Australia) Ltd (ING) (ING Mortgage).

4. On 5 October 2004, Mr Barber became a director of the Company, and one of the shares in the Company was transferred to him by Mr Shears.

5. On 17 November 2004, Mr Barber executed a mortgage over the Property in favour of the National Australia Bank (NAB) (NAB Mortgage), which was registered on 21 December 2004.

6. On 15 November 2004, the Company entered into a written facility agreement with NAB pursuant to which it agreed to borrow $1.4 million on the security of the NAB Mortgage.

7. In October/November 2004, each of Mr Barber, the first defendant and the second defendant executed a guarantee in favour of NAB of the NAB Facility.

8. The NAB Mortgage was registered on 21 December 2004, at which time the monies under the NAB Facility were advanced:

1. as to $226,000 in favour of Mr Barber to repay his existing indebtedness to ING Bank and thereby procure a discharge of the ING Mortgage; and

2. as to the balance, in favour of the Company.

9. On 12 March 2007, the NAB gave notices to the Company and the guarantors of the cancellation of the NAB Facility and required immediate payment, and on 13 March 2007 the NAB issued demands for payment of the NAB Facility.

10. On 24 May 2007, the Company borrowed from Challenger the amount of $1.55 million (Challenger Facility). The Challenger Facility had an expiry date of 1 March 2008. The Company’s indebtedness to NAB was discharged in full from the monies borrowed from Challenger.

11. On 24 May 2007, Mr Barber mortgaged the Property to Perpetual Trustee Co Ltd (Perpetual), by mortgage registered number AD217972X to secure the Challenger Facility. (It will be convenient generally to refer solely to Challenger in relation to the facility and the mortgage, although Perpetual was party to many of the transaction documents, apparently as trustee for Challenger).

12. Also on 24 May 2007, each of Mr Barber, the first defendant and the second defendant executed a Deed of Guarantee and Indemnity (the Deed) in respect of the Challenger Facility.

13. On 1 March 2008, the Challenger Facility fell due for repayment and was not repaid.

14. On 14 June 2008, Perpetual and Challenger filed a statement of claim against Mr Barber as mortgagor to obtain possession of the Property.

15. On 13 January 2009, the Challenger Facility was paid out in full in the amount of $1.763 million using funds borrowed by Mr Barber from Australian Secured Lending Pty Ltd (ASL) (ASL Facility), which facility was secured by way of a mortgage against the Property.

16. On 15 January 2009, ASL registered its mortgage on the title to the Property.

17. On 27 June 2011, the Company was deregistered.

18. On 6 February 2015, Mr Barber commenced the present proceedings as the original plaintiff against the two defendants.

19. The second defendant was declared bankrupt on 7 August 2015.

20. Mr Barber was declared bankrupt on 12 April 2016, and Mr Bradley Tonks was appointed as his trustee in bankruptcy.

21. On 14 November 2016, Mr Tonks entered into a deed of assignment with the plaintiff.

22. On 21 December 2016, the plaintiff was substituted in the proceedings as plaintiff for her husband, Mr Barber.

4. Mr Barber commenced these proceedings as plaintiff against his two co-guarantors on 6 February 2015. As appears from Agreed Fact (15), Mr Barber paid out the Challenger Facility on 13 January 2009. That payment was almost one month more than a period of 6 years before the proceedings were commenced. Consequently, any aspect of the plaintiff’s claim to which a 6 year limitation period applies will now be statute-barred.

5. By means of the payment procured by Mr Barber referred to in par (15) of the Agreed Facts, the plaintiff’s husband unilaterally paid out the Challenger Facility which had been guaranteed by the husband and the two defendants. As the Company has been deregistered, none of the guarantors are able to enforce the Company’s obligation to indemnify the guarantors. The essential issue in this case is whether the plaintiff is a valid assignee of her husband’s rights of contribution and subrogation as a co-guarantor with the defendants, and if so, whether the first defendant is liable to contribute equally in respect of the obligation of the Company that was paid out by the plaintiff’s husband.

6. A significant issue to be considered, if the point is reached where it is necessary to calculate the amount of contribution that the first defendant is required to make, is that $226,000 of the NAB Facility was applied by the Company to repay a debt owed solely by Mr Barber, which had been borrowed by him in connection with his acquisition of the Property.

7. The evidence establishes that Mr Barber incurred transaction costs in connection with the granting of the ASL Facility, and he became liable to pay ASL interest. In due course, the Property was sold for the purpose of paying out a subsequent facility to the ASL Facility.

Deed of Guarantee and Indemnity

8. The parties to the Deed were the three guarantors, Perpetual and the Company. By cl 1 of the Deed the three guarantors jointly and severally guaranteed to Perpetual the due performance by the Company of all of its obligations under a deed of loan dated 24 May 2007, whereby an advance of $1,550,000 was made to the Company. The clause also created an indemnity by the guarantors in favour of Perpetual.

9. The case has proceeded on the basis, which is clear from the terms of the Deed, that the obligations of each of the guarantors to Perpetual on behalf of Challenger were co-ordinate liabilities, in the sense that each of the guarantors was equally liable to Challenger in respect of the guarantee of the Company’s indebtedness with the other two guarantors.

10. The Deed contained terms of the type that is now conventional that protected Challenger against all of the protections afforded to guarantors under the principles of equity. No issue has arisen in this case concerning the application of those terms.

Deed of Assignment

11. The Deed of Assignment was entered into on 14 November 2016, between Mr Tonks in his capacity as trustee of the bankrupt estate of Mr Barber and the plaintiff. The operative term of the deed was cl 3, which provides:

With effect on and from the Effective Date and in consideration of the payment of the Assignment Fee to the Assignor in cleared funds within 3 business days from the date of this Deed, the Assignor assigns to the Assignee all of its present and future right, title, and interest in the Chose in Action and the Assignee accepts the assignment.

12. It is sufficient to note that the Effective Date occurred soon after the date of the deed.

13. The “Assignment Fee” was defined in cl 1.1 as meaning the sum of $12,000. I infer that the plaintiff has paid that amount to Mr Tonks.

14. “Chose in Action” was defined in cl 1.1 as meaning:

…the rights against Phillip De Prima and Isobelle Gidley arising from the facts pleaded in the statement of claim filed in the Supreme Court Proceedings, a copy of which is annexure “A” to this Deed.

15. The original statement of claim in this matter, filed on 6 February 2015, is annexed to the deed. The first defendant did not seek to make anything out of the fact that a further amended statement of claim was filed on 29 May 2017, and that pleading was amended further by leave at the hearing.

16. Logically, the first question that arises is whether Mr Tonks has validly assigned to the plaintiff the right to prosecute these proceedings against the first defendant, as if the assignment was ineffective that will be the end of the case. However, it will be more convenient to defer that question until after the substance of the case has been determined (as the parties did in their submissions) because the reasons for the determination of the validity of the assignment will be more meaningful.

17. In the discussion that follows I will usually use the more general expressions “surety” and “co-surety”, except where in the context the expressions “guarantor” and “co-guarantor” are more appropriate.

The further amended statement of claim

18. It is only necessary to record, as the first defendant did in par 8 of his outline of submissions before the commencement of the hearing, that in the further amended statement of claim the plaintiff claims that the first defendant is indebted to her (par 27), the plaintiff is entitled to damages of some sort (pars 28, 29 and 34), subrogation (par 35), contribution (par 36) and recoupment (par 36).

19. The first defendant rightly noted in par 9 of his outline of submissions that the only claims that the plaintiff sought to advance were the claims for contribution and subrogation, and the case was fought on that basis. The claim for subrogation was in respect of Challenger’s rights under the Deed against the first defendant.

20. After the amendment made to the further amended statement of claim at the hearing, par 35 read:

In the premises, the Plaintiff is entitled to a declaration or order that the Plaintiff as guarantor or mortgagor is entitled to be subrogated in equity, alternatively by reason of s 3 of the Law Reform (Miscellaneous Provisions) Act 1965 (NSW) to the finance company’s rights under its securities, including the Deed of Guarantee and Indemnity.

21. The effect of the amendment was to make it clear that the plaintiff makes a claim for subrogation both in equity and under s 3 of the statute, and that subrogation is sought in respect of Challenger’s rights under the Deed. It was not previously expressly clear that the plaintiff relied upon the statute.

22. Although the plaintiff amended to rely upon statutory subrogation, the plaintiff did not address in any detailed way the differences that may exist between equitable and statutory subrogation, particularly in relation to the limitation of actions.

Agreed Statement of Issues

23. The parties agreed that the following are the issues to be determined by the Court in these proceedings:

1. Whether the proceedings are statute barred, whether by direct application of statutory limitation provisions or in equity by analogy.

2. Whether there is an equitable defence of laches.

3. Whether the cause of action is personal to Mr Barber such that the plaintiff as assignee does not have standing to prosecute it.

4. Whether the cause of action was incapable of assignment from Mr Barber’s trustee in bankruptcy.

5. In the event that there was an effective assignment whether that assignment is limited to the rights arising from the facts pleaded in the statement of claim attached to the deed of assignment.

6. In the event that there was a valid assignment, whether the Court would decline to grant relief to the plaintiff, or limit any relief to the sum of $6000 or $12,000, in circumstances where:

1. the plaintiff was not under a co-ordinate liability with the first defendant in respect of the Company’s liability to the lender when it was paid (or at any time);

2. the plaintiff made no contribution towards the discharge of the Company’s liability to Challenger;

3. the plaintiff was under no obligation to enter into the deed of assignment with the trustee of the bankrupt estate of Mr Barber; and

4. the plaintiff paid a nominal sum only under the deed of assignment, being the sum of $12,000.

7. Whether the plaintiff is entitled to be subrogated to Challenger’s securities, and if so, what securities.

8. Whether the plaintiff is entitled to contribution from the first defendant.

9. The quantum of any amount for which the first defendant is liable, if any, in the circumstances of this case and having regard to the above issues as well as:

1. the bankruptcy of the second defendant; and

2. the receipt by Mr Barber of some of the loan amounts.

24. It did not appear to me from the way that the first defendant conducted his case that issue (5) remains a real one.

25. The initial and primary issues for consideration concerned whether the right of contribution (the existence of which the first defendant accepted, assuming it had been validly assigned to the plaintiff) is now statute-barred because of a 6 year limitation period; and whether the plaintiff is limited to that right of contribution, because subrogation is not available. If subrogation is available, is it also now statute-barred because the relevant limitation period is also 6 years.

The decision in Lang v Le Boursicot

26. Assuming that the rights that the plaintiff’s husband had against his co-guarantors have been validly assigned by the husband’s trustee in bankruptcy to the plaintiff, it will be necessary for the Court to determine the nature of the rights that have been assigned, and then to decide whether the application of any provision in the Limitation Act 1969 (NSW) has had the effect of preventing the plaintiff from pursuing the assigned rights against the first defendant.

26. These may have been simple questions for the present Court to decide, because identical issues have already been decided by McLelland J (as his Honour then was) in Lang v Le Boursicot (1993) 5 BPR 97,406. In the usual case, the Court would readily follow the decision of his Honour and that would be the end of it, particularly as the decision was followed by Bergin CJ in Eq in Parker v Alessi [2011] NSWSC 947 at [107]-[109]. His Honour's judgment was also accepted by the learned editors of O'Donovan and Phillips, The Modern Contract of Guarantee (3rd English Ed, 2016, Sweet & Maxwell) (O'Donovan and Phillips) at [12-280].

27. There are two relevant aspects of the reasoning of McLelland J in Lang v Le Boursicot, one of which is favourable to the plaintiff’s case and the other favourable to the case made by the first defendant. In this case, each party invited the Court to decline to follow that part of McLelland J’s reasoning where his Honour reached a conclusion contrary to that party’s case. That is an adventurous approach, given the esteem in which the judgment of McLelland J is held on matters of equitable principle.

28. I will now explain why I am of the opinion that McLelland J was correct on both aspects of his reasoning, and why I will follow Lang v Le Boursicot.

29. In that case, a company that was the lessor of factory and office premises to another company that had gone into liquidation was one of a number of guarantors of that other company’s obligations under two commercial leases for equipment and furniture that was installed in the premises. The lessor company made payments to the lessors under the commercial leases in full discharge of all present and future obligations under the leases. The lessor company made the payments on a number of dates and final substantial payments were made on 22 November 1985. The lessor company made a claim against the other guarantors by the amendment of an existing statement of claim that occurred on 18 November 1992. That was more than 6 years after the last of the payments made under the guarantee.

30. McLelland J described the two grounds upon which the lessor company made its claim against the co-guarantors in the following terms, at 4:

The plaintiffs’ claims in each case are put on two grounds, namely, (1) the principle of proportionality of burden as between co-guarantors, founding a right of contribution by a guarantor who has paid more than its proportionate share of the guaranteed liability, directly against a co-guarantor who has paid less than its proportionate share; (2) the principle of subrogation of a guarantor who has paid a guaranteed liability to the rights and securities of the principal creditor against a co-guarantor, as extended by s 8A of the Usury, Bills of Lading and Written Memoranda Act 1902 (NSW) (now replaced by s 3 of the Law Reform (Miscellaneous Provisions) Act 1965).

32. In his Honour’s characteristically complete but succinct way, he determined each of these grounds as follows, at 4:

In No 6241/91 [the lessor company] was not an original party, being added as a plaintiff by an amendment to the statement of claim made on 18 November 1992. That therefore is the date of commencement of the proceedings so far as concerns [the lessor company] (Supreme Court Rules 1970 (NSW) Pt 8 r 11(3)). Any cause of action which accrued to [the lessor company] for contribution or by way of subrogation necessarily arose before 23 November 1985. A claim for contribution, although based on equitable principles, is in my opinion a cause of action to which the limitation period of six years prescribed by s 14(1)(a) of the Limitation Act 1969 (NSW) applies by analogy. Where such a claim arises between co-guarantors under the same instrument such a claim may properly be brought as a claim at law for a simple contract debt in quasi-contract: see, for example, Davies v Humphreys (1840) 6 M & W 153; 151 ER 361. The decision in Copis v Middleton (1823) Turn & R 224; 37 ER 1083 , which relates to the analogous claim by a guarantor for indemnity from the principal debtor, demonstrates that it is immaterial for limitation purposes that the relevant obligations to the principal creditor arose under deeds. These cases sufficiently illustrate the nature of a claim for contribution between guarantors for limitation purposes, even though in the present case [the lessor company’s] guarantee in relation to the lease of 2 September 1983, and the other guarantees, arose under separate instruments (compare the recent decision of Cohen J in relation to a claim for contribution between co-insurers: Manufacturers Mutual Insurance Ltd v GIO Australia (unreported, NSWSC, Cohen J, 4184/1992, 5 March 1993). It follows that the claim for direct contribution by [the lessor company] in respect of the lease of 2 September 1983 is statute-barred. It is otherwise however in relation to [the lessor company’s] claim by way of subrogation. Since that is a claim in which [the lessor company] seeks to enforce the principal creditor’s remedies against Mr and Mrs Le Boursicot, and those remedies arose under a deed, that claim is, or is analogous to, a “cause of action founded on a deed” within the meaning of ss 14(1)(a) and 16 of the Limitation Act 1969, to which a limitation period of 12 years applies. In the circumstances of the present case the principles governing the availability and quantification of a claim for direct contribution, and a claim for contribution by way of subrogation are otherwise identical and in order to simplify what follows I will refer to each as merely a claim to recover contribution.

Limitation period applicable to claim for contribution

33. In response to the lessor company’s claim for contribution, McLelland J found that, where a claim for contribution arose between guarantors who had become liable under the same instrument, the common law provided a remedy in quasi-contract. The common law treated the amount paid by the guarantor in excess of that guarantor’s share of the debt, where a number of guarantors were equally liable to the creditor, as being an amount paid to the use of the other guarantors. Section 14(1)(a) of the Limitation Act prescribes a limitation period of 6 years for a cause of action founded on quasi-contract. Section 23 requires that for a cause of action for equitable relief, such as contribution in equity, s 14 does not apply, except so far as it may be applied by analogy. His Honour found such an analogy to exist, so the claim for contribution in equity would be barred if brought more than 6 years after the right to contribution arose.

34. McLelland J found that the analogy could be drawn in the case before him even though the guarantees given by the guarantors did not arise under the same instrument. The common law would not give a right to contribution amongst the guarantors in that circumstance. In the present case, the plaintiff’s husband and the first defendant gave their guarantees by the same instrument, so it is not necessary for the Court to consider the question decided by McLelland J, as to whether it is proper to hold that a 6 year limitation period arises by analogy in cases where guarantees are given under different instruments, and the common law does not provide any remedy of contribution at all in that case.

35. The plaintiff submitted that the Court should not follow this reasoning of McLelland J, because for a contribution claim equity “covers the field” relying upon Burke v LFOT Pty Ltd (2002) 209 CLR 282; [2002] HCA 17 at [38] and [88], and also Lavin v Toppi (2015) 254 CLR 459; [2015] HCA 4 at [44]-[54]. She submitted that a limitation period could only arise if equity acted by analogy under s 23 of the Limitation Act, but equity will not apply an analogy where it is unjust to do so, relying upon Barker v The Duke Group Limited (2005) 91 SASR 167 at [84]. Finally, the plaintiff submitted that, if an analogy is to be drawn, as the guarantees were all granted in the one deed, the analogy should be with the 12 year limitation period provided for actions on deeds by s 16 of the Limitation Act.

36. If by the plaintiff’s reliance upon any statement in Burke v LFOT Pty Ltd to the effect that equity “covers the field”, she makes a submission that the equitable right of contribution now exists to the exclusion of the equivalent common law right, that submission cannot be sustained. The first passage in the judgment of Gaudron ACJ and Hayne J cited by the plaintiff at [15], starts with the statement: “The doctrine of equitable contribution applies both at common law and in equity”, and, with respect, correctly relies upon the explanation of the history of contribution given by Kitto J in Albion Insurance Co Ltd v Government Insurance Office (NSW) (1969) 121 CLR 342 at 349-350. The true principles can be taken from the second passage relied upon by the plaintiff, being in the judgment of McHugh J at [38] and following, where his Honour said (footnotes omitted):

[38] Both common law and equity give a person the right to obtain contribution to a payment made by that person in discharging "a common obligation" that is owed by that person and others. In determining whether there is "a common obligation", the traditional test is whether the liability of each party "is of the same nature and to the same extent". Early cases suggested that the common law right arose as a result of an implied contract between the parties. But whether that be right or not - and if it is, in many cases, it must be the result of a contract imputed to the parties - the equitable principles now cover the field. Those principles are based on the equitable doctrine of equality. When a person pays more than his or her share of a common monetary obligation, the payment pro tanto discharges the obligation of all who owe the common obligation. In accordance with the maxim that equality is equity, equity requires the common burden to be shared equally so that none of those owing the common obligation will pay more than his or her share of the burden. An order of contribution prevents the injustice that would otherwise flow to the plaintiff by the defendant being enriched at the plaintiff's expense in circumstances where they have a common obligation to meet the liability which the plaintiff has met or will have to meet.

[39] In Albion Insurance Co Ltd v Government Insurance Office (NSW), Barwick CJ, McTiernan and Menzies JJ traced the origins of the doctrine of contribution back to the second half of the 18th century. Although a distinction was originally maintained between the right of contribution at common law and in equity, the courts in both jurisdictions accepted that the doctrine was "bottomed and fixed on general principles of justice". In Dering v Earl of Winchelsea, Lord Chief Baron Eyre described the underlying justification for such orders:

"in equali jure the law requires equality; one shall not bear the burthen in ease of the rest, and the law is grounded in great equity."

[40] His Lordship held in that case that the doctrine of contribution applied in the case of sureties who were severally bound by different instruments to the same principal. Since the sureties had a common interest and a common burden, Lord Chief Baron Eyre held them joined by the common end and purpose of their several obligations to make contribution even though they had executed different instruments at different times. Since that case, it has never been doubted that the right of contribution depends upon matters of substance, not form.

37. McHugh J’s observation that “the equitable principles now cover the field” did not mean that the equitable right to contribution now exists to the exclusion of the former common law right, but that the principle that is the foundation of the equitable right is now also the foundation of the common law right. That follows from McHugh J’s reference to the statement made by Lord Chief Baron Eyre in Dering v Earl of Winchelsea (1787) 1 Cox Eq 318; 29 ER 1184 at 321, where his Lordship said: “If we take a view of the cases both in law and equity, we shall find that contribution is bottomed and fixed on general principles of justice, and does not spring from contract; though contract may qualify it…”

38. In fact, both of the High Court cases relied upon by the plaintiff unquestionably establish that the right of contribution exists both at common law and in equity. That appears from Lavin v Toppi in the joint judgment at [32] in express terms.

39. It is probably now the case, following Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221; [1987] HCA 5 at 227 and 262-263, that the claim at common law for contribution in an action, which would formerly have been an action in indebitatus assumpsit based upon quasi contract, will no longer be considered to be based upon an implied agreement to contribute, arising out of the circumstances in which co-guarantors gave their guarantees by the same instrument. It is more likely to arise out of restitution and unjust enrichment, flowing from the circumstances in which payment by one guarantor of more than that guarantor’s share of the common obligation would proportionally reduce the liability of the other guarantors. However, while the basis of the quasi-contract claim may have changed, the claim for contribution at common law remains a claim in quasi-contract, for the purposes of s 14(1)(a) of the Limitation Act.

40. The case of Davies v Evan Humphreys (1840) 6 M & W 153; 151 ER 361, relied upon by McLelland J in Lang v Le Boursicot as authority that co-guarantors under a single instrument can maintain an action for contribution in quasi-contract at common law, supports the conclusion reached by his Honour. The claim was in indebitatus assumpsit by one of the makers of a joint and several promissory note to recover for money paid, and on an account stated against the co-surety, in respect of the amount that the plaintiff had paid in excess of his share of the liability. The plaintiff had paid all but £30 of the amount more than 6 years before he commenced the suit. Parke B, in giving judgment on behalf of the Court, laid down that at common law the right to contribution arose at the time when one co-surety paid more than that surety’s due proportion of the debt, and accordingly the plaintiff’s claim was statute-barred for all but the amount of £30.

41. Parke B observed, at 168, that in Craythorne v Swinburne (1870) 14 Ves 160; 33 ER 482 at 169, Lord Eldon LC had “not without some reason, intimated some regret that the courts of law have assumed jurisdiction on this subject, on account of the difficulties in doing full justice between the parties”. Notwithstanding this lamentation, the common law jurisdiction to give at least some co-sureties rights of contribution by actions in quasi-contract continues to exist.

42. The basis upon which equity will apply limitation periods by analogy was explained by the Court of Appeal in Gerace v Auzhair Supplies Pty Ltd (2014) 87 NSWLR 435; [2014] NSWCA 181, where Meagher JA said (Beazley P and Emmett JA agreeing):

[70] The authorities referred to above, and in particular R v McNeil, show that in purely equitable proceedings, where there is a corresponding remedy at law in respect of the same matter and that remedy is the subject of a statutory bar, equity will apply the bar by analogy unless there exists a ground which justifies its not doing so because reliance by the defendant on the statute would in the circumstances be unconscionable. They do not support the proposition that equity retains any broader discretion whether to apply the bar. The description of such a ground, or the conduct giving rise to or constituting it, as unconscionable or unconscientious leaves to be identified the principles according to which equity justifies that conclusion: Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] HCA 63; 208 CLR 199 at [45] (Gleeson CJ) and Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd [2003] HCA 18; 214 CLR 51 at [41]–[42] (Gummow and Hayne JJ).

[71] In applying the statute by analogy, equity gives effect to the maxim that it follows the law and acts on the basis that “laches is presumable in cases where it is positively declared at law“: Story’s Commentaries on Equity Jurisprudence, First English Edition (1884) at [64a]. In doing so, it must be taken also to be giving effect to the legislature’s judgment in fixing the relevant limitation period and in allowing for any exceptions to its application. The considerations likely to inform that judgment are referred to by McHugh J in Brisbane South Regional Health Authority v Taylor [1996] HCA 25; 186 CLR 541 at 552–554.

[72] The distinction, referred to by Isaacs J in R v McNeil, between equity applying its own doctrine of laches and adopting, in analogous cases, the measure of time fixed by statute unless there is a “greater equity“, is one of substance. The circumstances in which such an equity arises include where fraudulent conduct of the defendant has denied the plaintiff the opportunity to sue within the statutory period. That equity is satisfied by preventing the defendant from taking advantage of the plaintiff’s omission to do so.

43. As I have noted, the plaintiff relied upon Barker v The Duke Group Limited (in liq) (2005) 91 SASR 167; [2005] SASC 81, where Perry J said:

[84] However, a court of equity will not apply a statutory period of limitation by analogy, if in the circumstances of the case it would be unjust to do so.

[85] Authorities which support the principles to which I have so far referred are set out in the reasons for judgment of Doyle CJ, and it is unnecessary to repeat references to them here.

44. The plaintiff’s submissions do not clearly explain the basis of the suggested injustice in this case of the Court applying any statutory period of limitation by analogy. Doyle CJ, at first instance in The Duke Group Ltd (in liq) v Alamain Investments Ltd [2004] SASC 415, considered the circumstances in which equity will apply a limitation period by analogy at [111]-[117]. In my view the issue is covered by the judgment of Meagher JA in Gerace v Auzhair Supplies Pty Ltd, where his Honour said at [70] that the authorities “do not support the proposition that equity retains any broader discretion whether to apply the bar” than that which is involved in determining whether an analogy exists. His Honour identified the sort of conduct that may lead to injustice in applying the bar at [72].

45. In my respectful view, McLelland J was right in Lang v Le Boursicot, where he found that the analogy should be drawn between a claim for contribution in equity and the equivalent claim at common law, where the very same facts gave rise to the two actions. This is an interesting field of law, where the common law remedy is essentially based on an equitable principle, but because of the limitations in the circumstances in which the remedy of contribution is available at common law, there will be cases where contribution is available in equity, when it is just not available at common law at all. As noted above, that is not an issue that I am required to enter upon in this case. The judgment of McLelland J would suggest that an analogy may be found where the remedy of contribution is essentially the same, save that it is not available at common law because of the technical limitations of that law.

46. I also reject the plaintiff’s submission that McLelland J was wrong in drawing the analogy with the common law claim for contribution in quasi-contract, rather than some claim under the deed by which the plaintiff’s husband and the first defendant jointly gave their guarantees. In no way can it be said that the plaintiff’s claim for contribution is a claim made under or to enforce any term of the Deed. The plaintiff’s claim for contribution is simply not “an action on a cause of action founded on a deed” within the meaning of s 16 of the Limitation Act.

44. McLelland J correctly relied upon the judgment of Lord Eldon LC in Copis v Middleton (1823) Turn & R 224; 37 ER 1083, where his Lordship held that, when two persons execute a bond (which is an instrument given under seal and thus a specialty), one as principal and the other as surety, and the surety subsequently pays the bond debt, the right of the surety to be indemnified by the party principally liable on the bond is as a simple contract creditor only of the principal debtor.

45. The right of one surety, who is a party to a deed with a principal debtor and other sureties, to be indemnified by the principal debtor, or to receive contribution from the co-sureties upon payment of more than the first surety’s share of the debt, arises out of the fact that the surety has paid the debt (in relation to the indemnity owed by the principal debtor), or that the surety has paid more than the surety’s share of the debt (in the case of co-sureties), and is a creation of equity, and not the terms of the deed. Even where there is a common law remedy, the decision in Pavey & Matthews Pty Ltd v Paul now suggests that the right to contribution arises in order to provide restitution or to avoid unjust enrichment, when the surety pays more than the surety’s share of the debt, and in no way involves the enforcement of the deed.

46. In the present case, as Mr Barber paid the debt owed by the Company to Challenger, the latest time when Mr Barber’s liability as surety was ascertained was the date of payment, and the limitation period commenced to run from that date. I accordingly find that the plaintiff’s claim for contribution against the first defendant is statute-barred.

The existence of the right of subrogation

50. The next issue for consideration is whether the plaintiff is entitled to be subrogated to Challenger’s right to enforce the guarantee given by the first defendant in the Deed, and then if so, whether the consequence is that the plaintiff is entitled to contribution from the first defendant because the relevant limitation period under s 16 of the Limitation Act is 12 years.

51. The first defendant put an argument as to why the Court should not follow the judgment of McLelland J in Lang v Le Boursicot in respect of this aspect of his Honour’s decision, and it will be necessary to deal separately with each aspect of the argument.

52. The first defendant submitted that, in this case, the plaintiff is not entitled to the remedy of subrogation at all, because that remedy is only available where the Court considers the circumstances to be appropriate for its use, and it is not available where a claimant has a remedy at law or another remedy in equity sufficient to avoid an unconscionable result. As the plaintiff was entitled to the remedy of contribution, then there is no need for equity to allow the plaintiff to be subrogated to Challenger’s rights under the Deed against the first defendant.

53. As I understand the first defendant’s submission, he goes so far as to submit that the flexibility of equity extends to denying a party’s right to the remedy of subrogation wherever it is determined that the party’s right to contribution should provide the party an adequate remedy. If this submission were correct, subrogation to the creditor’s securities and other rights would never be available to a surety who had paid more than its share of the principal debt against co-sureties, because (on this argument) the right of contribution will always be available and will be sufficient.

54. The first defendant pursued this argument to the extent of saying that the adequacy of the remedy of contribution would exclude the remedy of subrogation, even in cases where in practical terms a direct claim for contribution against the co-surety was statute barred.

Preliminary consideration of statutory subrogation

55. Before I begin to consider the first defendant’s arguments as to why the plaintiff is not entitled to be subrogated to the rights of Challenger against the first defendant under the Deed, it will be appropriate to digress to explain the significance of s 3 of the Law Reform (Miscellaneous Provisions) Act 1965 (NSW), to which McLelland J referred in the part of his judgment that is extracted above (at par 31) where his Honour stated the two grounds upon which the lessor company had based its case.

56. McLelland J referred to the section as having “extended” the principle of subrogation of the guarantor who has paid a guaranteed liability to the rights and securities of the principal creditor against a co-guarantor. Yet, in deciding in the case before him that the plaintiffs had made out the second ground of their argument, McLelland J did not rely upon or even mention the effect of this section.

57. In the present case, the plaintiff amended her statement of claim at the hearing to make it clear that she claimed subrogation to Challenger’s rights under the Deed both in equity and under s 3 of the Act.

58. This introduces the need for the Court to address the relationship between the section and the general principles of equity concerning subrogation in the context of co-sureties. The reason why I have digressed to deal with the issue now is that the general equitable principle and the statutory ‘extension’ overlap in a way that has sometimes had the result that courts have based their decisions on either the general principle or the statute, or occasionally both. That sometimes obscures the analysis of the authorities on the issue of the principles that they support concerning the availability of subrogation.

59. The precursor to the section was s 5 of the Mercantile Law Amendment Act 1856 (Imp). Section 8A of the Usury, Bills of Lading and Written Memoranda Act 1902 (NSW) enacted s 5 in this State. Section 8A has been replaced by s 3 of the present Act. There are equivalent provisions in the other States. Given the cumbersome names, I will refer to the Acts in their various guises simply as the “Act” or the relevant remedy as “statutory subrogation”.

60. Section 3 of the Act provides:

(1)   A person who, being surety for the debt or duty of another, or being liable with another for a debt or duty, pays that debt, or performs that duty, is entitled:

(a)   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, whether or not that judgment, specialty or other security is taken at law to have been satisfied by the payment of the debt or the performance of the duty, and

(b)   to stand in the place of the creditor and to use all the remedies, and, if necessary, and on a proper indemnity, to use the name of the creditor in any proceedings to obtain from the principal debtor or any co-surety, co-contractor or co-debtor (as the case requires) indemnity for the advances made and loss sustained by the person who paid the debt or performed the duty.

(2)   The payment of the debt or the performance of the duty by a surety is not a defence to any such proceedings referred to in subsection (1).

(3)   A co-surety, co-contractor or co-debtor is not entitled under this section to recover from another co-surety, co-contractor or co-debtor more than the proportion to which, as between those parties themselves, that person is justly liable.

61. On its face, s 3(1) gives an entitlement to any person who is a surety or liable with another person for a debt, and who pays that debt. The entitlement, put simply, is to have assigned to the person “every judgment, specialty or other security held by the creditor in respect of that debt”. The entitlement exists even if the effect of the payment of the debt is to satisfy the judgment, specialty or other security. The person can stand in the place of the creditor in any proceedings to obtain from the “principal debtor or any co-surety, co-contractor or co-debtor” indemnity for the payment, but the effect of sub-s (3) is to prevent the person from recovering “more than the proportion to which, as between those parties themselves, that person is justly liable”. Sub-section (2) reinforces the effect of that part of sub-s (1) that provides that the entitlement is available notwithstanding that the payment by the person would otherwise discharge the particular rights the subject of the entitlement.

62. It may be noted that, on its face, s 3 gives the entitlement to statutory subrogation to one of a number of co-debtors who pays the whole of the debt to the creditor.

63. As the plaintiff claims a right to subrogation under s 3 of the Act, it is necessary to consider how she seeks to rely upon that provision. The plaintiff has not obtained an assignment from Challenger, and does not sue on the Deed as an assignee. Plainly, the plaintiff is not suing Challenger for breach of s 3(1)(a) by failing to assign its rights to her under the Deed following a request that it do so. In the context of her pleading generally, the plaintiff can only be relying upon s 3(1)(b), in so far as it provides that a surety who pays the debt is entitled to stand in the place of the creditor and to use all the remedies of the creditor in any proceedings to obtain from any co-surety the amount that the co-surety is justly liable to pay to the surety. The plaintiff’s claim treats sub-s (1)(b) as being more than an aid to the enforcement of judgments, specialties and other securities assigned to a person under sub-s (1)(b), and being a separate statutory right to enforce such securities “in any proceedings”.

64. The first defendant relied upon the observations made unanimously by the High Court in Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44 at [37], to support his argument that a co-surety does not have a right of subrogation to the creditor’s rights against another co-surety, because of the adequacy of the remedy of contribution. The High Court said:

[37] The appellants sought to support their case by reliance upon the provisions now made by s 3 of the Law Reform (Miscellaneous Provisions) Act 1965 (NSW) respecting the entitlement of sureties to assignment of securities. Section 3 is the descendant in New South Wales of s 5 of the Mercantile Law Amendment Act 1856 (UK). The provisions confer upon sureties statutory rights and remedies which furnish a summary mode of carrying into effect those otherwise available in courts of equity (55.) The second mortgagee correctly submitted that if, as it contended, the appellants lacked an equity supporting subrogation, s 3 would not supply that deficiency.

65. The first defendant’s submission was that if, as it otherwise submitted, equity did not in general principle give the plaintiff a right of subrogation in this context, s 3 of the Act did not remedy that deficiency.

66. I have referred to this passage from Bofinger v Kingsway Group Ltd for a different reason however, that being that the High Court described the effect of the section as being to “furnish a summary mode of carrying into effect [rights and remedies] otherwise available in courts of equity”.

67. One of the authorities referred to by the High Court in footnote 55 was Embling v McEwan (1872) 3 VR (L) 52, in which Stawell CJ said at 53:

The “Mercantile Law Amendment Act 1856” was passed to remedy, amongst others, an inconvenience to traders arising from a difference between the law of England and that of Scotland. In England, a surety paying the debt was not entitled at law to the benefit of securities which the creditors held, whereas in Scotland he was. His remedy in England was in a court of Equity, and relief was given to him there on principles borrowed from the civil law, and administered with regard to the respective rights and immunities of all subject to contribution. By the 5th section… a surety, on satisfying the debt, is entitled to an assignment of all securities held by the creditor…

68. These observations as to the provenance of the English provision in 1856 are borne out by the recital to the relevant Act, which states the purpose to be to remedy inconvenience felt by persons engaged in trade by reason of the laws of England and Ireland being different in some particulars from those of Scotland.

69. In the other case cited by the High Court in footnote 55, Hardy v Johnston (1880) 6 VLR (L) 190, Stephen J said at 193:

We are assisted in arriving at the meaning of the enactment, by recollecting that it is intended to furnish a summary mode of carrying out the principles of equity in a contribution suit, which differed from law in principle and in the modus operandi, as explained in Dering v Winchelsea…

70. The first defendant’s argument as to why subrogation is not available to the plaintiff because she has a right of contribution is based upon a number of steps whereby he combines propositions from a number of authorities to support that conclusion. He then says, relying upon Bofinger v Kingsway Group Ltd (above), that s 3 of the Act does not supply any deficiency flowing from the fact that equity would not grant a remedy of subrogation to the plaintiff. This argument does not, however, grapple with the express wording of s 3 that does appear to grant a statutory right of subrogation to a surety in the position of the plaintiff’s husband, at least if sub-s (1)(b) has the independent operation that its wording appears to give it. I will return to this issue below, after I have considered the question whether, contrary to the first defendant’s submissions, equity gives the plaintiff a right of subrogation to the Deed in this case.

Argument as to why subrogation is not available

71. I will now move to consider the first defendant’s argument that, contrary to the second conclusion reached by McLelland J in Lang v Le Boursicot, a surety who has a right of contribution from a co-surety has no right of subrogation to the creditor’s rights against that co-surety.

Reliance on Re Trivan Pty Ltd

72. The first defendant supported his submission that subrogation would not be awarded to a surety who could recover from co-sureties by a claim for contribution by reliance upon the decision of Young J (as his Honour then was) in Re Trivan Pty Ltd (1996) 134 FLR 368. The case was an appeal from a liquidator’s rejection of a proof of debt. The appellant was the proprietor of land upon which a hotel was being built by the company in liquidation. After the commencement of the winding up of the builder, the proprietor terminated the building contract. The proprietor completed the building itself, and for that purpose entered into contracts with existing sub-contractors, under which the proprietor was obliged to pay debts owed by the builder to the sub-contractors. The proprietor claimed that it was entitled to be subrogated to the rights of the sub-contractors against the builder because of the payments which it had made (see 370).

73. The issue that Young J was required to decide was whether a right of subrogation arose in this novel situation.

74. After making a number of observations about the provenance of subrogation and its theoretical basis, his Honour said at 371: “However, as an equitable doctrine it does not seem to me that it is one that is restricted to closed categories”. Young J considered the American jurisprudence, and then said at 372-373:

The next matter that should be noted about subrogation is that it is really not a right, but a remedy, that is, it is a remedy which a court of equity will grant in order to prevent there being an unconscionable situation. Even the English cases seem to have approved of that point: see, for instance, In Re T H Knitwear (Wholesale) Ltd [1988] Ch 275 at 283.

Furthermore, it is an equitable remedy. That means that it will not be granted merely as a right, but will only be granted in circumstances where it is appropriate to do so. Parkinson, Principles of Equity (1996) at 551 sets out a series of situations where equity will not grant the remedy.

…

Traditionally in equity when one was asking for equitable relief one was asking for a boon. In the form of pleadings that existed in equity in England before the Judicature Act (UK) the person seeking an equitable remedy had to agree to give up all common law rights that would inhibit him from himself acting in good conscience. Thus any claim under the Money-lenders Act (UK) or legislation of that nature, which might be available at law, had to be forsworn by a person who wished to have his security documents returned to him because he had to do equity and pay what was justly and truly owed as a condition of having those documents returned to him.

In the instant case, Mr Wigney, for the applicant/appellant, says that his client is under no legal obligation to pay any part of the $3 million claimed by the builder because the appropriate process has not been undergone. That is a technical legal answer to a claim which equity does not allow to be said by a person seeking equitable relief.

Although the evidence on this matter is fairly skimpy, there is some evidence in Mr Cardwell's initial affidavit in this claim, and it would seem to me that there would need to be some evidence on the other side that the builder has no claim at all or, alternatively, if it has a claim that the appellant is willing to set off that claim against the amount that could be proved against the builder. However, not only is this not done, but, indeed, the proprietor makes the point that there could be no set-off because there is no debt owing by the proprietor to the builder.

We do not need to get into the area of statutory set off in bankruptcy under s 86 of the Bankruptcy Act 1966 (Cth), which would have been imported into the company liquidation by s 438 of the Companies (New South Wales) Code: equivalent provisions are now in s 553C of the Corporations Law. The equitable doctrine of set-off, which is not completely displaced by s 86 or its equivalent, would be applicable in the present situation, provided that there were debts at law or in equity; see McIntyre v Perkes (1990) 22 FCR 260 at 271, affirmed by the High Court, sub nom Gye v McIntyre (1991) 171 CLR 609.

Another thing that should be said is that if subrogation is a remedy not a right and is only available when there is a decree of a court of equity, it is most questionable whether the matter can be asserted in a proof of debt. The proof of debt would have to be in the normal event a claim at law. As subrogation is a right in equity obtainable under certain conditions, it is questionable whether a claim for subrogation would amount to a provable debt. However, I merely wish to state this, I do not wish to take it any further because it is commercially sensible that this sort of claim should, at least in the first instance, be looked at by liquidators and admitted perhaps after judicial advice, if it is thought to be a good commercial claim, rather than money wasted by approaching the court.

It follows that the prerequisite for establishing the claim of subrogation has not been made out and, accordingly, the appeal must be dismissed with costs.

75. It may be thought, with respect, that the process of reasoning that led his Honour to conclude that there was no right of subrogation in the case before him is not entirely clear. However, in my view, the comment that Young J made that the equitable remedy of subrogation will only be granted in circumstances where it is appropriate to do so was directed to the issue of whether a proprietor who had paid the debts to sub-contractors of a building corporation should be subrogated to the rights of the sub-contractors against the builder for the purpose of proving in the builder’s winding up. His Honour concluded for various reasons that the right to subrogation was not available.

76. In my view, Young J did not suggest that equity was so flexible that in all cases where the relationship between the parties had historically been accepted as giving rise to rights of both contribution and subrogation in one party against the other, then the Court could deny one of those rights, being subrogation, to the party, if the theoretical outcome of a claim for contribution would lead to the party recovering everything to which the party was entitled.

In the first of his decisions Powell J observed that the position of a surety or co-surety was analogous to that of a trustee, whereby the trustee rate was appropriate. I have some difficulty with this. While at the present day the rights of sureties inter se are substantially equitable rather than contractual, that does not seem to me to warrant identifying them with trustees or other fiduciaries. There was and no doubt still is an action at law for contribution, and interest should not differ according to which aspect of the court's jurisdiction is invoked. Moreover, the rationale for a trustee rate was that it reflected the return which a trustee could have got from trustee investments, in theory more confined and thus less rewarding than those open to a non- trustee. Such a return is quite distinct from the cost to an out of pocket claimant for contribution of having to replace money for commercial operations, and distinct from the return which such a claimant, not fettered by the duties of a trustee, could have obtained had he the money in question. Most occasions for guarantees and consequential claims for contribution are commercial transactions, and the present was such a case. The justification for adopting a rather artificial trustee rate, either generally or in the present case, is not easy to see.

In any event, the application of a trustee rate is a matter of practice, and it can be departed from if the circumstances so require. A court exercising equitable jurisdiction is concerned to ensure proper compensation for a legal wrong in just the same way as a court exercising jurisdiction at law: see Nixon v Furphy (1926) 26 SR (NSW) 409 at 413 and Re Dawson; Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd (1966) 84 WN (Pt 1) (NSW) 399 at 408-410; [1966] 2 NSWR 211 at 218-219. While in times gone by there may not have been a great difference between the return available to a trustee or the cost to a trustee of lost money and the return or cost in the case of someone other than a trustee, now (and I think for some time past) there has been a great difference save where the trustee is given the most ample powers of investment.

I consider that in the present circumstances I am not obliged to and should not be restricted to whatever may be recognised as the current trustee rate. I am comforted in so concluding by the course taken by Kearney J in Hagan v Waterhouse (Kearney J, 28 February 1992, unreported) [to be reported]. That was an action for breach of trust, but his Honour applied a “mercantile rate” rather than a trustee rate, and took for that rate from 1974 the rates from time to time specified in the Practice Notes. His Honour said that recent high and fluctuating interest rates meant that it was no longer appropriate to apply policy fixing a settled mean rate of interest, but rather that the mercantile rate should reflect the reality of the market place as it exists under a regime not contemplated at the time of the earlier judicial pronouncements. I respectfully agree.

There was no evidence directed to any particular commercial interest rate, and in those circumstances I consider I should apply the interest rates referred to in Practice Note No 73.

243. This approach was approved by McDonald J in Krakowski v Trenorth Ltd (Formerly known as Eurolynx Properties Ltd), Victorian Supreme Court Commercial List, 7 May 1996, unreported, BC9601760.

244. I am satisfied that the plaintiff is entitled to a commercial rate of interest. That rate should be the interest rate actually paid by Mr Barber under any facility that he obtained to pay out the Challenger Facility, or any replacement facility for that purpose. It is not clear on the evidence what interest rates were charged against Mr Barber, and for how long those interest rates applied. Eventually, according to Mr Barber’s evidence, the Property was “lost” by reason of the activities of the subsequent mortgagee, Westpac. It is possible that a time came when the appropriate rate of interest would be the Court rate rather than any actual commercial rate that was paid by Mr Barber.

245. I will leave it to the parties in the first instance to try to agree appropriate interest rates, and if that does not occur, it will be necessary for the Court to resolve the issue.

Validity of assignment of right of contribution

246. The plaintiff became a party to these proceedings as a substitute plaintiff to her husband following the husband’s bankruptcy and the purported assignment of the right of action formulated in the statement of claim vested in the trustee by means of the deed of assignment.

247. The first defendant submits that the deed of assignment was ineffective in assigning any right that would permit the plaintiff to maintain the claim in these proceedings against him.

248. The first defendant accepts that a trustee in bankruptcy has the power to assign the property vested in the trustee, in circumstances where the rules of maintenance and champerty would formerly have prevented the assignment: Seear v Lawson (1880) 15 Ch D 426.

249. The argument made by the first defendant is that it does not follow that a trustee in bankruptcy has the power to assign rights of the bankrupt that are inherently unassignable.

250. The first defendant relied upon the decision of the Court of Appeal in Owners of Strata Plan 5290 v CGS & Co Pty Ltd (2011) 81 NSWLR 285; [2011] NSWCA 168 in support of the principle that the power of a bankruptcy trustee or liquidator to assign property does not overcome the inherent unassignability of some property. I will accept that proposition as a general rule, even though the case before the Court of Appeal concerned the right created by a contract that provided that the rights of the parties could not be assigned.

251. The argument put by the first defendant depended upon the validity of equating a claim for statutory contribution under s 3 of the Act to a cause of action under s 1317H of the Corporations Act 2001 (Cth).

252. The first defendant pointed to the decision of Gleeson JA in Re DH International Pty Ltd [2017] NSWSC 871, where at [19]-[21] his Honour canvassed the various authorities that had concluded either that an action under s 1317H was or was not assignable, without expressing a conclusion on the issue. He contended that the Court should prefer the authorities that concluded that the action was not assignable.

253. This submission depended upon the assumption that in reality the action brought by the plaintiff in the present proceedings was an action under s 3 of the Act, notwithstanding that the claim has not been pleaded on that basis. For the reasons that I have given above, that assumption is not made out, and the plaintiff’s claim is one for subrogation to the rights of Challenger under the Deed and does not rely upon the Act.

254. The first defendant has not put any submission as to why a claim for subrogation of this nature is not capable of being assigned by Mr Barber’s trustee in bankruptcy. I find that the right is capable of being assigned, and has been validly assigned.

255. Although it is not necessary for the Court to do so, I would observe that s 1317H in its terms creates a remedy of the following nature: “A Court may order a person to compensate a corporation or registered scheme for damage suffered by the corporation or scheme if…” It is not hard to see why, if the Court is given a statutory power to order a person to compensate X, that is the only form that the order can take, so that the right is not assignable. It is not necessary for me to venture further into this issue, but it is to be noted that s 3 of the Act creates a statutory entitlement to an assignment of certain rights of the creditor. It does not appear from the wording of the section that there is any reason why the Court is only empowered to enforce that entitlement at the suit of the person who has paid the debt to the creditor.

256. I do not accept the alternative aspect of the first defendant’s submission that, even assuming that Mr Barber’s rights against the first defendant have been validly assigned to the plaintiff, all that has been assigned is a right to approach the Court and seek discretionary relief. Albeit that there are equitable defences to a claim for subrogation, I do not accept that there is some general discretion that entitles the Court to grant relief or refuse it on some basis of fairness. That would be inconsistent, I believe, with what the High Court has said in Bofinger v Kingsway Group Ltd (above).

Absence of co-ordinate liability and mutuality

257. The first defendant submitted that the plaintiff is not entitled to contribution from the first defendant because those parties were never under a co-ordinate liability in respect of the same debt, and there was no reciprocity of obligation between them.

258. The basis of this argument, as I understand it, is that if the first defendant had paid the Company’s debt to Challenger, he could not have obtained contribution from the plaintiff, who in fact both at the time the guarantee was given of the Challenger Facility, and at the time that the facility was paid out, was neither a party to nor had anything to do with the transaction.

259. The first defendant relies primarily on the decision of the High Court in HIH Claims Support Ltd v Insurance Australia Ltd (2011) 244 CLR 72; [2011] HCA 31. He also relied upon Heydon JD, Leeming MJ and Turner PG, Meagher, Gummow and Lehane’s Equity Doctrines and Remedies (5th ed, 2015, Butterworths) at [10-065].

260. In that case, the High Court clearly restated the essentiality of co-ordinate liability and mutuality of obligation to the existence of an obligation of contribution, but it did so in what Heydon J recognised was a particularly “novel” case.

261. An insured was covered for the one loss by policies issued by HIH and also the insurer who was the contractual predecessor of the respondent to the appeal. A loss occurred that entitled the insured to claim under both policies. HIH accepted liability but the respondent’s predecessor did not. After HIH had commenced to fund the insured’s defence of the claim it was placed in liquidation. The Commonwealth established a scheme of which the appellant was made trustee. Shortly, if the insured agreed to assign to the appellant all of his rights of recovery under the HIH policy and against other persons in connection with the matters giving rise to its claim, the appellant would pay out 90% of the claim. The insured acceded to this arrangement and received its 90%. The appellant sued for contribution from the respondent as if both were co-insurers with co-ordinate liabilities to the insured. The High Court rejected the appellant’s claim.

262. It was held to be significant that, at the time the loss occurred, the insured could have claimed from both insurers but did not do so. Had a claim been made against one of them, contribution could have been sought against the other. In fact, after the insolvency of HIH, the appellant acquired the insured’s rights in return for its agreement to pay 90% of his claim. If instead of availing itself of the scheme, the insured had pursued a claim against the respondent and the respondent had paid, the respondent would not have had any right to claim for contribution against the appellant. The reason is that the insured would then not have suffered a loss that would have entitled it to participate in the scheme. If the respondent had paid, there was no event in which the appellant would pay any amount to the insured.

263. The plurality (Gummow ACJ, Hayne, Crennan and Kiefel JJ) explained in detail at [50] to [56] why the circumstances did not establish that the appellant and the respondent were under true co-ordinate liabilities. It is not necessary to analyse those reasons in detail, save that the following part of their Honours’ judgment may be noted (footnotes omitted):

[50] The assignment of the insured’s rights, central to the Scheme, and made by Steele in this case, did not place the appellant in the same position as HIH either effectively or “in substance” as contended on behalf of the appellant. Under the Scheme, the appellant did not step into the shoes of HIH and become exposed to all the claims under policies issued by HIH and to contribution claims from co-insurers of HIH. Rather, the appellant stepped into the shoes of Steele, who had assigned his rights to the appellant, thereby entitling the appellant as assignee creditor to lodge a proof of debt in HIH’s liquidation. That aspect of the Scheme, which applied to all eligible insureds, appeared to be fundamental to maximising recovery of public funds utilised for the purposes of the Scheme.

[51] The obligations of the appellant to the insured Steele under the Scheme are not “of the same nature and to the same extent” as the obligation of the respondent in its capacity as co-insurer of HIH in respect of the insured’s liability.

264. Heydon J, in a separate judgment, focused at [66]-[69] on the absence of “mutuality”. Although when the appellant paid the insured it received an assignment of the insured’s rights, had the insured claimed against the respondent it would have had to pay the whole claim without any right of contribution from the appellant.

265. While the general confirmation by the High Court of the requirement of co-ordinate liability, and in the sense considered by Heydon J mutuality is authoritative, the facts of the case are in my opinion so unusual that they do not provide significant guidance in the present case.

266. In the present case it is accepted that the plaintiff’s husband and the first defendant were co-guarantors under a co-ordinate liability in respect of the debt owed by the Company to Challenger. At a time when the debt was due and payable it was paid by the plaintiff’s husband. At that time the plaintiff’s husband became entitled to contribution from the first defendant, and to prosecute a claim to recover the relevant amount. The entitlement to make that claim vested in the plaintiff’s husband’s trustee in bankruptcy, who then assigned it to the plaintiff. When the entitlement to contribution and to prosecute the claim arose, all of the pre-requisites to the entitlement existed, including mutuality between the first defendant and the plaintiff’s husband, in the sense that if the first defendant had been the one to pay the debt, he would have been entitled to contribution from the plaintiff’s husband. The plaintiff’s husband’s right had vested before the time of the assignment, and it was the vested right that was assigned. It is immaterial that there is now no mutuality or co-ordinate liability between the plaintiff and the first defendant.

267. The present case requires the following adjustments to the facts of the case determined by the High Court to make the two cases comparable. If HIH had paid the insured’s claim, it would have had a right of contribution from the respondent. If HIH had then assigned its right of contribution to the appellant, the appellant would have been entitled to enforce that right against the respondent, not because it had a personal right of contribution from it, but because it was the assignee of HIH which did have such a right. There would have been no violation of the requirement for co-ordinate liability or mutuality, because both would have existed as between HIH and the respondent both at the time of the insured’s loss and when HIH paid the insured’s claim.

268. The importance of the timing of relevant events is underscored by footnote 108 to the judgment of the plurality, which states: “Theoretically, had the respondent made a payment to Steele [the insured], after the appellant assumed enforceable obligations to Steele also by making a payment, different considerations and equities might have arisen”. That gives rise to the possibility (only) that had the respondent paid the insurer after the appellant assumed liability to the insured the conditions for the existence of a co-ordinate liability may have existed.

Discretionary refusal of relief

269. The first defendant submitted that, because in this case the plaintiff’s claim is for the equitable remedy of contribution, the Court has a discretion as to whether or not to grant the relief, and it should not do so because the plaintiff has paid no more than $12,000 to her husband’s trustee in bankruptcy. Consequently, so the first defendant submits, the detriment suffered by the plaintiff was small, was voluntary and had no connection with any failure on the part of the first defendant to contribute to the payment of the guaranteed debt.

270. This submission cannot be sustained. It was not supported by any authority. An order for contribution in this case would be an equitable remedy, and would be subject to discretionary rejection by the Court in the application of recognised discretionary defences, such as laches for unclean hands. Authority does not support a principle that there is a general discretion in the Court to reject an equitable claim for relief that would have been good if prosecuted by an assignor, on the basis that the claim has been assigned to an assignee for a price that the Court does not consider to be sufficient.

271. If it be assumed that the plaintiff’s husband had a good claim for contribution against the first defendant, the prosecution of that claim by the husband’s trustee in bankruptcy would not have given rise to any equity in the first defendant that would justify the Court in rejecting the claim. The position is not changed if the trustee, for reasons of his own, decides that it is in the best interests of the insolvent administration to assign the husband’s right of action to a third party. The agreement as to the price is a commercial matter between the trustee and the assignee, and is of no concern to the Court or the first defendant.

Conclusion

272. The plaintiff is entitled to succeed in these proceedings, and is also entitled to an order that the first defendant pay her costs.

273. I invite the parties to consider these reasons for judgment, and to bring in short minutes of order to give effect to them. If agreement cannot be reached, the matter should be relisted by arrangement with my associate.

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Amendments

10 May 2018 - Corrections

Par 59 Memorandum to Memoranda

Par 65 s 5 to s 3

Par 130 Lordships to Lordships'

Par 130, 131 and 132 Aiken J to Aickin J

Par 133 provisions to provision

Par 133 and 134 Lord Hoffman to Lord Hoffmann

Decision last updated: 10 May 2018