Behan v Obelon Pty Ltd - [1985] HCA 51

HIGH COURT OF AUSTRALIA

Mason A.C.J., Wilson, Brennan, Deane and Dawson JJ.

BEHAN v. OBELON PROPRIETARY LIMITED

(1985) 157 CLR 326

21 August 1985

Guarantee

Guarantee—Duty of creditor to surety—Co-sureties—Knowledge by creditor that one surety without assets—Whether under duty to tell other surety.

Decision

MASON A.C.J., WILSON, BRENNAN, DEANE, DAWSON JJ.: By a guarantee dated 16 December 1981 signed by the appellant and one Freeburn as co-sureties, they jointly and severally guaranteed to the respondent ("Obelon") the payment of all moneys at any time owing to it by Gulfstar Corporation Pty Ltd ("Gulfstar"), in consideration of Obelon granting credit facilities and forbearing to sue Gulfstar for moneys then owing. Gulfstar wished to buy marine engines from Obelon for the purpose of Gulfstar's business and the guarantee was given to enable it to make these purchases on credit. Within a matter of months the course of trading between the two companies resulted in an increase in the amount owing by Gulfstar to Obelon and a failure on the part of Gulfstar to discharge that liability. Obelon then sued the co-sureties in the Supreme Court of New South Wales on the guarantee. Although Mr Freeburn did not appear at the trial, the appellant defended the action on the ground that Obelon was in breach of its duty as a creditor to disclose to the appellant as a co-surety unusual or unexpected features of the transaction which was the subject of the guarantee, namely that Mr Freeburn was without assets, that his guarantee was therefore worthless and that he would be unable to contribute in any significant way to the liability which the appellant had assumed by her guarantee.

2. The primary judge (Rogers J.) found that there was no breach of duty on the part of Obelon and gave judgment for Obelon in the sum of $31,971.27 with costs and ordered Mr Freeburn to pay to the appelland $15,985.63. An appeal by the appelant to the Court of Appeal was dismissed. The appellant now appeals to this Court.

3. In the Court of Appeal Samuels J.A. (with whom Glass J.A. agreed) held that the creditor's duty of disclosure does not govern disclosure by the creditor to one proposed co-surety of information which the creditor has oncerning the other proposed co-surety's capacity to meet the debt to be guaranteed. Priestley J.A. considered that, although the duty might extend to disclosure of such information, the facts of the present case did not give rise to such a duty.

4. The facts on which the defence was based may be shortly stated. The appellant signed the guarantee t the request of Mr Freeburn, who was a director of Gulfstar and the moving spirit in that company. Mr Freeburn told her that Gulfstar intended to obtain a credit facility with Obelon which would enable Gulfstar to buy marine engines on credit for the purposes of its business. The obtaining of this facility would require a guarantee for $50,000. He proposed that the appellant become a guarantor…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Behan v Obelon Pty Ltd

Details

AGLC: Behan v Obelon Pty Ltd [1985] HCA 51
Case: [1985] HCA 51
Decision Date: 21 August 1985

CaseChat Overview and Summary

The High Court of Australia considered an appeal from a decision of the Supreme Court of Queensland concerning a dispute between Behan and Obelon Pty Ltd. The case involved a claim for damages arising from alleged breaches of contract and negligence in relation to the construction of a commercial building.

The central legal issues before the High Court were whether the Supreme Court had erred in its findings regarding the contractual obligations of the parties, the extent of the damages recoverable, and the application of the principles of contributory negligence. Specifically, the court had to determine whether the defects in construction constituted a breach of the building contract and, if so, the appropriate measure of damages for those breaches. Furthermore, the court was required to assess whether the plaintiff's actions or omissions contributed to the loss suffered, thereby reducing the recoverable damages.

The High Court's reasoning focused on the interpretation of the building contract and the established principles of contract law and tort law. The court analysed the evidence presented to determine whether the builder had fulfilled its contractual obligations and whether the defects were of such a nature as to amount to a breach. In relation to damages, the court applied the principle that damages for breach of contract are intended to place the innocent party in the position they would have been in had the contract been performed. The court also considered the principles of contributory negligence, examining whether the plaintiff had failed to take reasonable care for their own safety or to mitigate their loss.

The High Court allowed the appeal in part, varying the orders of the Supreme Court of Queensland. The court found that certain defects did constitute a breach of contract, but reduced the quantum of damages awarded by the lower court, finding that contributory negligence had been established to a certain degree.

Orders