Bjerring v Kline
[2015] QDC 283
•13 November 2015
DISTRICT COURT OF QUEENSLAND
CITATION: | Bjerring & Anor v Kline & Anor [2015] QDC 283 |
PARTIES: | GERT CHRISTIAN BJERRING (first plaintiff) and BIRTHE HORUP BJERRING (second plaintiff) v GRAYDON RUSSELL KLINE (first defendant) and JOSEPHINE DENISE KLINE (second defendant) |
FILE NO/S: | BD 1021/2013 |
DIVISION: | Civil |
PROCEEDING: | Trial |
ORIGINATING COURT: | District Court at Brisbane |
DELIVERED ON: | 13 November 2015 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 19, 20, 21 and 23 October 2015 |
JUDGE: | Samios DCJ |
ORDER: | 1. Judgment for the first plaintiff and the second plaintiff against the first defendant and the second defendant for the sum of $294,403.52. 2. The first defendant’s and the second defendant’s counterclaim is dismissed. |
CATCHWORDS: | EQUITY – contribution from co-guarantors – whether the co-guarantors who paid the whole debt are disqualified by misrepresentation or breach of fiduciary duty or negligent omission or other grounds from recovering contribution Legislation Corporations Law (Commonwealth) ss 181, 182 and 183 Cases A E Goodwin Ltd v A G Healing Ltd (1979) 7 ACLR 481 AGC (Advances) Ltd v West (1984) 5 NSWLR 590, 604-605 Breen v Williams (1995-1996) 186 CLR 71, 92-93 Lavin v Toppi [2015] HCA 4, paragraphs 32 and 41 Morgan Equipment Co v Rodgers (No. 2) (1993) 32 NSWLR 467 Staples v Baker [1999] 1 Qd R 317, 327 |
COUNSEL: | Mr Blair Hall for the plaintiffs Mr Peter Trout for the defendants |
SOLICITORS: | Robinson Locke Litigation Lawyers for the plaintiffs Doyles Construction Lawyers for the defendants |
The plaintiffs (Mr Bjerring and Mrs Bjerring) claim against the defendants (Mr Kline and Mrs Kline) the sum of $228,396.85 being an equal one half contribution as between co-guarantors of monies paid by Mr and Mrs Bjerring to the National Australia Bank Limited (NAB) and interest.
There is no dispute that on about 27 June 2008 Emerald Island Point Pty Ltd (the company) entered into a written agreement for a market rate facility and bank guarantee facility with the NAB by which the NAB agreed to loan the amounts of $700,000 and $200,000 respectively to the company (the loan agreement).
The monies loaned by the NAB pursuant to the loan agreement were to be provided to the company subject to a guarantee from Mr and Mrs Bjerring and Mr and Mrs Kline in favour of the NAB.
On about 27 June 2008 Mr and Mrs Bjerring and Mr and Mrs Kline executed a written guarantee guaranteeing the liability of the company to the NAB for the amount of $900,000.
Pursuant to the guarantee, Mr and Mrs Bjerring and Mr and Mrs Kline agreed jointly and severally to guarantee all sums which became due from the company to the NAB under the loan agreement.
Pursuant to the loan agreement the NAB advanced funds to the company, namely $188,955 from the bank guarantee facility and $60,000 from the market rate facility.
As at 12 December 2012 there was due and owing to the NAB by the company the sum of $456,793.69.
Mr and Mrs Bjerring paid the sum of $456,793.69 to the NAB.
Mr and Mrs Bjerring therefore claim from Mr and Mrs Kline the sum of $228,396.85 by way of equal contribution to the co-guaranteed liability of the company.
It is not in dispute Mr and Mrs Bjerring’s claim against Mr and Mrs Kline is based in equity. However, Mr and Mrs Kline say Mr and Mrs Bjerring should not be granted the equitable remedy against Mr and Mrs Kline because Mr and Mrs Kline claim:
(a)Mr and Mrs Kline sought to make a contribution to the debt, however due to the fault of Mr and Mrs Bjerring were unsuccessful;
(b)Mr Bjerring breached his fiduciary duty to Mr and Mrs Kline and breached Mr Bjerring’s fiduciary duty he owed pursuant to ss 181, 182 and 183 of the Corporations Law (Commonwealth) to Mr and Mrs Kline;
(c)Mr Bjerring made an unauthorised withdrawal from the company’s account.
(d)The equitable contribution owed by Mr and Mrs Kline as at 31 August 2015 was $142,604.53.
In addition, Mr and Mrs Kline set off any sum that might be due by Mr and Mrs Kline to Mr and Mrs Bjerring their counterclaim against Mr and Mrs Bjerring and counterclaim for:
(a)$490,000 damages for misrepresentation;
(b)further or in the alternative to (a), damages for negligent omission in the amount of $76,657; and
(c)further, or in the alternative to (a) and (b), damages for breach of agency in the amount of $542,000.
Mr Bjerring was a property developer. Mr Kline was a licensed builder.
In 2006 Mr Kline found land at Emerald Lakes, Carrara about which he started to do an assessment with the view to building 28 units on the land. Mr Kline had met a Mr Cherry who told Mr Kline his finance company might be able to fund the development. As things proceeded with talks with the owner of the land it became apparent there were another two blocks available for development. However, Mr Kline only wanted to do the 28 units on what was called the North Island. Mr Cherry and his partner intended to do both developments.
Mr Kline said in his evidence, because of the amount of money required to do both developments and it taking them time and as he just wanted to get on with the 28 units, he contacted Mr Bjerring after seeing Mr Bjerring’s home for sale in a real estate lift out showing Mr Bjerring’s big house for sale. Mr Kline remembered Mr Bjerring did property developments. He knew Mr Bjerring as he rented a factory from him in about 2001.
Mr Kline said he met with Mr Bjerring at his house. Mr Bjerring showed him the house and said how beautiful it was and that it was up for sale. Mr Kline left his proposal with Mr Bjerring. Mr Kline said Mr Bjerring said he was doing a number of projects on Sovereign Island. He said Mr Bjerring contacted him and said he liked the proposal. He said he met Mr Bjerring on the land. He said he told Mr Bjerring he needed to get funding, that without funding there was no project, that he had the capability of building but could not get the funding.
Further, Mr Kline said Mr Bjerring said he had a bank manager, Tony Gentle, and he was with the NAB and that he did a lot of projects and he would be able to get funding. Further, they had been friends for 12 or 13 years. Mr Kline said he told Mr Bjerring he was aware of Mr Gentle. He never met him personally but he knew his name. He knew he was the manager down there. He was able to get big loans, 30, 40 million dollars. Mr Kline said, from his own manager, also at the NAB, he thought he could borrow up to about one million dollars. Mr Kline said his equity in property he owned at the time would have been about one and a half million, if that.
Mr Kline also said he met Mr Gentle and Mr Bjerring on the land at the end of 2007. He said Mr Gentle really loved the project. He was very happy. Mr Gentle said to Mr Bjerring, this will be your best project yet. Mr Gentle asked for a hard copy of the feasibility study and the plans to be brought down to his office.
Mr Kline also said he was told by Mr Bjerring that he and Mr Gentle were very close, a 13 year relationship, and they would have personal dinners at each other’s houses and go out quite often. He said Mr Gentle gave examples of finance for a number of developments, a lot of 3 storey walk up developments with underground basements. He had current projects on Sovereign Island and another two houses. Further, Mr Bjerring gave examples of how good his relationship was with Mr Gentle. An example was given when Mr Bjerring at an auction did not have the available funds but had to settle within 30 days and sign the contracts at an auction. He rang Mr Gentle who gave Mr Bjerring the go ahead for Mr Bjerring to sign the contract and for finance to be arranged on the Monday.
Mr Kline also said he was quite impressed with Mr Bjerring and his rapport and his relationship in getting the funding.
Mr Kline also said he decided to join Mr Bjerring even though Mr Cherry and his partner wanted him to persist with them but Mr Kline just wanted to do the 28 units and was comfortable with Mr Bjerring and the finance that Mr Bjerring was able to get through Mr Gentle.
Mr Kline said Mr Bjerring and he discussed their roles which were that Mr Kline would do all the design, the construction and Mr Bjerring was doing all the finance.
The company became registered on 30 April 2007. Mr Kline, Mr Cherry and his partner became directors of the company on 30 April 2007. Mr Cherry and his partner ceased being directors of the company on 29 March 2008. Mr and Mrs Bjerring became directors of the company on 29 March 2008. Mrs Kline did not become a director of the company.
Regarding the roles in the project, when Mr Bjerring gave evidence he said Mr Kline told him from the beginning it was his baby and Mr Bjerring was basically almost like a silent partner, but Mr Bjerring had the right to contribute to the design and to landscaping and that kind of stuff. Mr Bjerring said Mr Kline was basically managing the company. Mr Kline was doing all the bookwork and everything. Mr Kline had the cheque book as well.
Further, Mr Bjerring said that he never said to Mr Kline he had a special relationship with the bank. Further, Mr Bjerring said he never said to Mr Kline “if you’ve got Tony you’ve got funding”. Further, he said he did not tell Mr Kline that he had such a special relationship with Mr Gentle that he could get finance or funding outside ordinary banking practices. Mr Bjerring said he never told Mr Kline he could get funding from the NAB for the acquisition of the land or the construction, or both. Mr Bjerring said that he did tell Mr Kline of an occasion when at an auction for a block of land Mr Gentle told him to go and buy the land and the paperwork would be sorted out later. Mr Bjerring said he did several developments with Mr Gentle acting as their bank manager but it was purely a professional relationship and he said there was nothing special going on there.
There is no dispute Mr and Mrs Bjerring and Mr Kline and associated entities entered into a shareholders’ and unitholders’ agreement in about March 2008. By this agreement the shareholders agreed to regulate their relationship as shareholders of the company in respect of the management and control of the company, its business and affairs including its agreement to act as trustee for Emerald Island Point Trust. The agreement provided that Mr Kline would be paid $490,000 for being the builder and reserved to Mr Kline one penthouse which he could take at his discretion as a portion of his profit.
It is also not in dispute that the company and Nifsan Developments Pty Ltd (Nifsan), the vendor of the land, and the NAB entered into a deed called the Intercreditors’ Deed.
There was no dispute that the Intercreditors’ Deed was entered into because Nifsan wanted to retain control over the development of the land, notwithstanding having sold the land to the company. The deed provides for the NAB to be the first mortgagee over the land and Nifsan to be the second mortgagee over the land.
I conclude from the evidence this deed was entered into in about April 2008.
Further, it is not in dispute that the company purchased the land from Nifsan by written contract dated 13 June 2008 for $3,779,125 (the contract). The contract required a deposit of $188,955 to be paid on the signing of the contract. It is not in dispute that the deposit was not paid on the signing of the contract. However, later a bank guarantee from the NAB was provided by the company to Nifsan to provide for the deposit.
The bank guarantee was activated by Mr Bjerring signing papers for that purpose in September 2008.
It is not in dispute that what the NAB approved by way of a loan was the $700,000 for the market rate facility and the $200,000 for the bank guarantee facility. In these proceedings Mr and Mrs Bjerring and Mr and Mrs Kline accept the NAB did not approve finance for the purchase of the land. It is not in dispute that the contract was not subject to finance, although it was subject to obtaining development approval.
At the end of December 2008 a Warwick Yalg from the NAB emailed Mr Bjerring and stated he could only see an approval for $900,000 made up of the $200,000 bank guarantee and $700,000 for professional fees. Mr Yalg stated in the email there was no approval for the land purchase.
In another email dated 14 January 2009 Mr Yalg stated the NAB did not hold an approval for the land settlement or the construction. He stated in this email if the NAB were to consider an application for the land in isolation the NAB would look at a 50% lend (land purchase $3.8 million x 50% = $1.9 million loan to consider). Mr Yalg stated for an application for a loan to cover total land and construction costs the NAB would need a minimum 80%/maximum 120% coverage of the loan by presales (confirmed unconditional contracts – acceptable to the bank) with 10% deposits to be in place. He said the NAB would need to be able to demonstrate recurring income, servicing for any loan amount not covered by presales.
In about May 2009 the NAB advised Mr Bjerring that the NAB was unable to provide any further funds from the existing facilities for the project and advised the facilities would expire 30 June 2009 and would not be extended past that point.
On 7 August 2009 the company terminated the contract with Nifsan and forfeited the deposit to Nifsan.
It is also not in dispute that the NAB paid to Nifsan the forfeited deposit of $188,955 pursuant to the bank guarantee.
Mr and Mrs Kline’s critical complaint against Mr and Mrs Bjerring is that Mr Bjerring misrepresented to Mr Kline that the NAB had approved finance for the company to purchase the land. Mr Kline claims that had he known finance had not been approved he would never have entered into the contract and the deposit would not have been lost. Mr Kline accepted that there had been some other monies advanced by the NAB to the company relating to “soft costs” such as council fees which he and his wife would be responsible for under the guarantee. However, Mr and Mrs Kline also complain that Mr Bjerring signed the papers for the bank guarantee for the deposit to be provided when he knew finance to purchase the land had not been approved.
Further, Mr and Mrs Kline claim that Mr and Mrs Bjerring at about the time the company entered into the contract borrowed about $3.2 million from the NAB to construct their own dwelling on land at Knightsbridge Parade, Sovereign Islands.
Mr and Mrs Kline claim that Mr and Mrs Bjerring had a conflict of interest because of the Knightsbridge Parade development. They claim Mr and Mrs Bjerring put their interests in the Knightsbridge Parade development ahead of the interests of the company. They claim Mr and Mrs Bjerring had several opportunities to retire the debt of the company but chose to use their funds for the Knightsbridge Parade development.
Further, Mr and Mrs Kline claim their attempts to finalise the debts of the company on several occasions in particular by refinance arranged with the ANZ Bank could not be arranged as Mr and Mrs Bjerring were indebted to the NAB for the Knightsbridge Parade development and Mr and Mrs Bjerring were not released, therefore Mr and Mrs Kline could not achieve a release from the NAB.
Mr and Mrs Kline also claim Mr and Mrs Bjerring delayed selling the house at Knightsbridge Parade as they had unrealistic expectations of receiving in excess of $10 million when formal valuations in 2010 indicated the house was worth $7.5 million and the house was eventually sold in 2012 for $6.3 million.
Further, Mr and Mrs Kline claim Mr and Mrs Bjerring entered into a settlement agreement with the NAB on 24 November 2011. Further they claim Mr and Mrs Bjerring, as directors, unilaterally entered into a change of the security for the company.
Mr and Mrs Kline claim Mr and Mrs Bjerring had considerable funds in 2011 from “network marketing” in the USA but chose not to settle the debt allowing the debt to increase.
Finally, Mr and Mrs Kline claim Mr Bjerring withdrew $11,250 from the company’s account when not authorised to do so for expenditure that was not incurred for the company.
When Mr Bjerring gave evidence regarding the activation of the bank guarantee in September 2008 he said a meeting had been arranged with the NAB to which both Mr Bjerring and Mr Kline were to attend. He said Mr Kline rang him and said he was working and could not attend and for Mr Bjerring to go and sign whatever he needed to sign and Mr Kline would go to the bank later. Mr Bjerring said the reason for signing at the bank was to activate the bank guarantee.
On the subject of there being insufficient funds for the company to buy the land Mr Bjerring said that Mr Kline told him at the time Mr Kline relied on the Intercreditors’ Deed. Mr Bjerring said the Intercreditors’ Deed basically spelt out that the bank was going to provide finance for the land purchase.
When Mr Kline was cross-examined he said he believed when the Intercreditors’ Deed was being negotiated it was the NAB’s intention to fund the acquisition of the land.
When Mr Bjerring gave evidence about the signing of the contract even though finance had not been approved he said that he and Mr Kline had an “understanding” the bank had approved the loan. He said after a meeting with the bank on the way out Tony Gentle mentioned to “us”, by the way, the loan has been approved. Mr Bjerring went on to say Mr Gentle may have said “in principle” been approved. Mr Bjerring said we did not have a formal loan approval but he thought Mr Gentle could have referred to the Intercreditors’ Deed.
Mr Bjerring also said when he gave evidence it was always “both” of our understanding that it was forthcoming and there should not be any problems with it. Further he said the Intercreditors’ Deed very clearly stated that the bank is providing finance for the land. Mr Bjerring said they discussed it (written approval for the loan) many times. He said none of us was in doubt that it was forthcoming. He said Mr Kline and he both had that assumption. He said when it came to signing the contract Mr Kline said to Mr Bjerring the Intercreditors’ Deed has been approved so there should not be a problem with it so we went ahead and signed this, both of us.
On the other hand when Mr Kline gave evidence he said there was no point in having Mr Bjerring as a director of the company if he was unable to have finance. Mr Kline said he was not shown the approval for the $200,000 bank guarantee facility and the $700,000 for the market rate facility. Further he was not shown or given any explanation by Mr Gentle about the guarantee he signed. He said he was told to come in and just sign here.
Mr Kline said he was told by Mr Bjerring that the loan was approved. He said he signed the contract because he asked Mr Bjerring when the contract was brought out for signing “Here we go. It’s – we’re signing these. I – everything’s in order” and Mr Bjerring replied “it’s a done deal”. When Mr Kline gave evidence that he said “everything’s in order” I took him to say that was a question to Mr Bjerring.
Mr Kline also said at the time he signed the contract he believed finance was approved. He said he formed that belief from Mr Bjerring telling him that it was all approved.
Mr Kline said he found finance had not been approved when Mr Bjerring rang him in about October 2008 and said there was no finance. Mr Kline said he did not give Mr Bjerring authority to release the deposit.
When Mr Bjerring gave evidence he said he would never have signed the bank guarantee if he knew the loan was not forthcoming. He said a letter was sent by their solicitor to Nifsan’s solicitors terminating the contract.
Mr Bjerring said they terminated the contract because they found out they did not have the loan and if they did not terminate and get the DA in the meantime they could have been liable for a lot more money.
When cross-examined Mr Bjerring repeated his evidence that Mr Bjerring signed the documents at the bank for the guarantee for the deposit because Mr Kline asked him to go to the bank and sign it. He denied it was a unilateral decision to release the guarantee.
Besides providing a bank guarantee for the deposit it is not in dispute, the NAB also advanced to the company $60,000 for the “soft” costs such as council fees. However, Mr and Mrs Kline dispute Mr and Mrs Bjerring’s entitlement to be reimbursed by the company the sum of $11,250 which is included in the $60,000 which relates to the cost of a trip Mr and Mrs Bjerring, Mr Kline, an interior decorator and an agent took to China. Mr and Mrs Kline do not dispute the balance of the $60,000 less the $11,250 was advanced to the company by the NAB under the loan agreement.
Mr Gentle gave evidence. He is now a business banking manager with Suncorp. He was with the NAB between 1977 and 2008. From 1997 he was based on the Gold Coast.
He said he knew Mr Bjerring from some projects that were financed by the bank.
Mr Gentle said he did not have some sort of special relationship with Mr Bjerring. He said he had the same relationship as he had with any other customer. He said he did not approve for Mr Bjerring loans that were outside the bank’s normal lending practices. He said development funding would be approved by someone else. He said we would write it and submit and recommend it, and support it, but it would ultimately be approved by someone else. He did not tell Mr Bjerring he could get him things approved by the NAB that were outside banking practice.
Regarding Mr Kline’s approach about this particular development Mr Gentle said normally speaking he would fund the purchase of the land and then as a secondary item fund the construction. He said in this case there was an earlier loan we approved. He referred in his evidence to the $700,000 which was to assist with the professional fees and costs to get the development approved and building approval to the stage where the project could proceed. He said so it was an initial loan against securities provided by Mr Bjerring and Mr Kline. He said so we did not have any security over the land at that time.
Mr Gentle said Nifsan still wanted to have some control over the particular development so it was up to their standards etc. Mr Gentle said we had to do one little bit of extra security and that was what we call the Intercreditors’ Deed.
Mr Gentle said he could have had between 5 and 10 meetings with Mr Bjerring and Mr Kline about finance for the project. He said to his view Mr Kline was the major guy behind the project. He said he did not deal with Mr Bjerring to the exclusion of Mr Kline about finance for the property. He did not make suggestions to Mr Bjerring to the exclusion of Mr Kline about whether or not finance was approved for the property. He said the submission for the first approval for professional fees would say “approval of this facility does not constitute approval for either the land or the construction”. He said that is consistent with what he would have conveyed to Mr Kline and Mr Bjerring.
Regarding saying to a client “that’s approved in principle” he said it is a fine line. He said developments is probably the hardest one. He said people say “is it approved” and we say “we’re recommending it”. He said the approval authority relates with a higher authority than himself. He could not say it would be approved or was approved. He never said to Mr Kline or Mr Bjerring there had been an approval in principle. He said the only thing they would be able to say is that we would support it. He said he did not say to Mr Bjerring or Mr Kline that acquisition funding was approved.
When cross-examined Mr Gentle was shown Mr Bjerring’s diary note dated 28 May 2008 stating “Tony said the loan for land is approved”. Mr Gentle disputed that entirely.
When cross-examined Mr Gentle was asked whether in his experience it would be unusual for a company to enter into a contract to purchase land without finance approval in place or it being subject to that approval. Mr Gentle said sometimes people take those risks, but generally speaking the questioner was correct.
When Mr Bjerring was recalled to give evidence he was asked about his diary note dated 28 May 2008. He said what he wrote was certainly his impression at the time.
When cross-examined Mr Bjerring said he did tell Mr Kline land finance had been approved. Although the transcript is not complete and Mr Bjerring’s answer seems confused, I took Mr Bjerring to add that what Mr Bjerring told Mr Kline was what Mr Kline was telling himself. Mr Bjerring said they discussed it when they left the bank.
Mrs Bjerring and Mrs Kline gave evidence. However having considered their evidence I come to the view that they were silent partners in the advancement of the project and their evidence does not resolve for me the conflicts in the evidence given by Mr Bjerring and Mr Kline and Mr Gentle.
Specifically with respect to Mrs Kline I find she signed the guarantee voluntarily at the request of Mr Kline and if there was any breach of any duty or obligation owed to her that was breached, the breach was by the NAB and not by Mr and Mrs Bjerring.
Relevant to Mr Bjerring’s credit is that he has a default judgment against him in the United States in North Carolina for over a million dollars. That came about from his involvement in a Ponzi Scheme. The complaint by the court appointed receiver states the scheme operated from at least January 2011 until August 2012 in which over 700,000 participants lost over $700 million dollars. It is claimed by the receiver Mr Bjerring through a shelf company was an “affiliate” and “net winner” of $826,801.73. The receiver’s complaint was that the scheme was a fraudulent scheme in which returns to participants are not financed through success of the underlying business venture. Instead, the money to pay returns comes from the payments made by other (usually) later participants in the scheme.
I did not see an express allegation in the receiver’s complaint to the effect Mr Bjerring knew the scheme was a fraudulent scheme. I do not have evidence about what is the law of North Carolina. However, it seems to me the inference to be drawn from the receiver’s complaint is that Mr Bjerring was presumed to be the beneficiary of a fraudulent scheme according to the law of North Carolina. I have no evidence that Mr Bjerring was taken to know he was receiving money without giving reasonably equivalent value. That is, his receipt of money from the scheme would be at the expense of what are called “victims” in the receiver’s complaint. However, I do infer against Mr Bjerring as a participant in the scheme from the extent of the money he received he knew his receipt of money was likely to be at the expense of others entering the scheme.
Regarding the allegations that Mr Bjerring told Mr Kline he had a special relationship with Mr Gentle and could get funding outside the bank’s normal funding practices and having dinners at his house with Mr Gentle, I took Mr Gentle’s evidence to support Mr Bjerring’s evidence Mr Bjerring did not make those representations to Mr Kline.
However, regarding Mr Kline’s credit there were aspects of his evidence that cause me concern about his credit.
When he gave evidence I consider Mr Kline was at pains to make out he did not read the shareholders’ and unitholders’ agreement and the guarantee. I consider Mr Kline just went too far claiming he did not read the documents and only signed when he was told to sign. I accept many people do not sit down and read a document, even a guarantee, line for line and word for word in the presence of a bank manager. However, I still consider Mr Kline, with his involvement in the project, would still have had some regard for the contents of the documents beyond what he was prepared to admit to. I do not accept his involvement in the building side of the project was so specific that he did not have more regard for the contents of the documents.
Further when Mr Kline was cross-examined he agreed when he made a claim with the banking ombudsman he used Mr Bjerring’s statutory declaration which stated that the NAB had represented to both Mr Kline and Mr Bjerring finance had been approved, when it was Mr Kline’s case no representation was made by the NAB to Mr Kline. Although Mr Kline’s evidence on this point may be understood on the basis that the NAB misrepresented the position to Mr Bjerring and in that way made the misrepresentation to both men. However, it was Mr Bjerring who corrected the draft to claim the NAB made the misrepresentation to both men. I consider as that was before these proceedings commenced that supports Mr Bjerring that the representation was made to both men (whatever was the representation).
Further in Mr and Mrs Kline’s first defence filed in these proceedings not only did the defence allege the NAB represented to Mr and Mrs Kline the loan to acquire the land was approved, it went on to allege this representation was oral and was made during a meeting between Mr Bjerring, Mr Kline and Mr Gentle on the land. In Mr Kline’s evidence he denied that Mr Gentle was present at the meeting on the land with Mr Bjerring. In addition Mr Kline also denied in his evidence that the NAB made any representation to he and his wife that the loan had been approved.
In addition this defence alleged the NAB was going to be arranging the finance for the bank guarantee facility, the market rate facility and the balance funds for the acquisition of the land simultaneously. Mr Kline agreed when cross-examined that allegation was not true.
In addition Mr Kline said he was quite disturbed to find out Mr Bjerring had paid the deposit without Mr Kline’s knowledge and knowing what Mr Kline now knows he could not understand why Mr Bjerring would have paid the deposit on the land after signing an unconditional contract that did not have a finance clause in it. Mr Kline said he was very upset with Mr Bjerring. In addition Mr Kline said he became aware of this four or seven days after he had done it but it was not until much later after probably even two years later once everything came out, what had really gone on.
Putting aside what I consider to be propaganda on the part of Mr Kline when he said “what had really gone on”, the correspondence between Mr Kline and Mr Bjerring shows Mr Kline never put his complaint against Mr Bjerring in writing and made promises to repay Mr and Mrs Kline’s share of the money guaranteed and paid by Mr and Mrs Bjerring together with 10 per cent. That is, I would have thought if Mr Kline had felt so strongly about what happened about the activation of the bank guarantee, I would have thought that would have been put that in writing to Mr Bjerring. I find it difficult to accept his explanation that he accepted Mr Bjerring’s advice to pursue the NAB. Even if I am wrong in that conclusion later correspondence shows Mr Kline accepting Mr and Mrs Bjerring cleared the debt owed by the company and has no hint of upset by Mr Kline. That correspondence is after the claim against the NAB to the banking ombudsman failed.
Finally in the letter to the ombudsman it reads “on approximately 8 September 2008 Graydon Kline and I authorised the NAB to provide Nifsan with an irrevocable bank guarantee for $189,000.” Although Mr Kline agreed that was incorrect he went on to say making this misrepresentation to the ombudsman was justified as the claim was being made against the bank.
It is for these reasons in the end I prefer the evidence of Mr Bjerring where it is in conflict with the evidence of Mr Kline.
Regarding Mr Gentle’s evidence it is clear to my mind that the use by him of expressions such as “I would have” and “I’m assuming” and “we could have” shows he had little real collection of his dealings with Mr Bjerring and Mr Kline. Nevertheless I am satisfied Mr Gentle did not say to Mr Bjerring or Mr Kline that finance for the acquisition of the land was approved. That is because when Mr Bjerring gave evidence he said Mr Gentle mentioned on the way out, by the way the loan has been approved but then Mr Bjerring qualified his answer by saying Mr Gentle may have said “in principle” approved and said we do not have any formal loan approval. Mr Bjerring then went on to say he “could” have referred to the Intercreditors’ Deed.
In Staples v Baker [1999] 1 Qd R 317 at 327 the court said:
Even so, a claim to contribution from a co-guarantor is equitable in nature, related as it is to coordinate liabilities: see, for example, Mahoney v. McManus (1981) 180 C.L.R. 370; Bond v. Larobi Pty Ltd (1992) 6 W.A.R. 489;Street v. Retravision (NSW) Pty Ltd (1995) 56 F.C.R. 588; Brookes v. Marshall(N.S.W. C.A. 40051/94, unreported, 1 February 1996). As the latter case illustrates, a right to contribution will be lost or reduced where it would be inequitable to enforce it; such a proposition exemplifies the general equitable doctrine that a party “‘seeking the assistance of a court of equity … must do equity’ (Cheese v. Thomas [1994] 1 W.L.R. 129 at 136). The Court must look at what is practically just for both parties”: Vadasz v. Pioneer Concrete (SA) Pty Ltd (1995) 184 C.L.R. 102, 115.
Further in Lavin v Toppi [2015] HCA 4 the High Court at paragraph [32] said:
The rationale of the right to contribution, both at law and in equity, was described by Kitto J in Albion Insurance Co Ltd v Government Insurance Office (NSW) “as one of natural justice” which ensures “that persons who are under co-ordinate liabilities to make good the one loss (eg sureties liable to make good a failure to pay the one debt) must share the burden pro rata.” In cases of suretyship, the concern is to ensure that the common burden of suretyship is borne equally as between co-sureties, so that the exercise by a creditor of its contractual right under its guarantee to recover the guaranteed debt in full from one of several co-sureties does not leave that surety to bear a disproportionate share of the burden of suretyship.
Further the High Court said in Lavin v Toppi at paragraph [41]:
When a common liability is discharged by a surety, the discharge of the liability inevitably benefits a co-surety in that, without a right of contribution in the surety, the co-surety who pays less than his or her fair share is unjustly enriched. As was said by McHugh J in Burke v LFOT Pty Ltd:
“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.”
Regarding a fiduciary duty in Breen v Williams (1995-1996) 186 CLR 71 at p 92 Dawson J and Toohey J said:
There are accepted fiduciary relationships, such as trustee and beneficiary, agent and principal, solicitor and client, employee and employer, director and company, and partners, which may be characterised as relations of trust and confidence. In Hospital Products Ltd v United States Surgical Corporation Mason J said:
“The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position. The expressions ‘for’, ‘on behalf of’, and ‘in the interests of’ signify that the fiduciary acts in a ‘representative’ character in the exercise of his responsibility”.
Mason J did not intend to suggest that this description of a fiduciary relationship isolated those features from other relationships of trust and confidence which do not impose fiduciary obligations. It is not the case that whenever there is “a job to be performed”, and entrusting the job to someone involves reposing substantial trust and confidence in that person, a fiduciary relationship arises. But it is of significance that a fiduciary acts in a representative character in the exercise of his responsibility.
Sections 181, 182 and 183 of the Corporations Law (Commonwealth) provide as follows:
181 Good faith—civil obligations
Good faith—directors and other officers
(1)A director or other officer of a corporation must exercise their powers and discharge their duties:
(a)in good faith in the best interests of the corporation; and
(b)for a proper purpose.
Note 1: This subsection is a civil penalty provision (see section 1317E).
Note 2: Section 187 deals with the situation of directors of wholly-owned subsidiaries.
(2)A person who is involved in a contravention of subsection (1) contravenes this subsection.
Note 1: Section 79 defines involved.
Note 2: This subsection is a civil penalty provision (see section 1317E).
182 Use of position—civil obligations
Use of position—directors, other officers and employees
(1)A director, secretary, other officer or employee of a corporation must not improperly use their position to:
(a)gain an advantage for themselves or someone else; or
(b)cause detriment to the corporation.
Note: This subsection is a civil penalty provision (see section 1317E).
(2)A person who is involved in a contravention of subsection (1) contravenes this subsection.
Note 1: Section 79 defines involved.
Note 2: This subsection is a civil penalty provision (see section 1317E).
183 Use of information—civil obligations
Use of information—directors, other officers and employees
(1)A person who obtains information because they are, or have been, a director or other officer or employee of a corporation must not improperly use the information to:
(a)gain an advantage for themselves or someone else; or
(b)cause detriment to the corporation.
Note 1: This duty continues after the person stops being an officer or employee of the corporation.
Note 2: This subsection is a civil penalty provision (see section 1317E).
(2)A person who is involved in a contravention of subsection (1) contravenes this subsection.
Note 1: Section 79 defines involved.
Note 2: This subsection is a civil penalty provision (see section 1317E).
I do not accept Mr Kline’s evidence that Mr Bjerring said to Mr Kline before the contract was signed “it’s a done deal”.
In these proceedings both Mr Bjerring and Mr Kline accepted the Intercreditors’ Deed had some influence on their thinking. I consider the deed could convey to both men in all the circumstances that the NAB had approved the loan for the land.
I find Mr Bjerring did not misrepresent the state of finance approval to Mr Kline. I find Mr Kline discussed with Mr Bjerring Mr Gentle’s statement that finance was approved “in principle” and Mr Bjerring and Mr Kline discussed the Intercreditors’ Deed and both mistakenly concluded from the “in principle” statement and the implication that can be made from the Intercreditors’ Deed that the NAB had approved finance for the acquisition of the land and Mr Bjerring and Mr Kline expected the approval would come in writing.
Although Mr Bjerring accepted in his evidence he told Mr Kline land finance had been approved I find what Mr Bjerring told Mr Kline in this regard was not one-sided. I find on Mr Bjerring’s evidence Mr Kline also believed finance was approved. That is, I do not accept Mr Kline relied solely on Mr Bjerring.
For these reasons I find Mr Bjerring did not make any misrepresentation nor breach any fiduciary duty nor make any negligent omission nor breach any other duty to Mr and Mrs Kline regarding the approval of finance for the company to purchase the land.
It is correct that in September 2008 Mr Bjerring met with Mrs Gallard at the National Australia Bank when he went to sign the papers to activate the bank guarantee. Although I have not heard evidence from Mrs Gallard I accept Mr Bjerring’s evidence that he had doubts finance was approved as they had not received anything from the NAB but that Mrs Gallard assured him that the loan for the acquisition of the land was approved “in principle” and there was plenty of time to sort out the paperwork.
Despite what Mrs Gallard said to Mr Bjerring, I find Mr Bjerring did not make any misrepresentation to Mr and Mrs Kline nor breach any fiduciary duty nor make any negligent omission nor breach any other duty to Mr and Mrs Kline by activating the bank guarantee. That is because I do not accept Mr and Mrs Kline would have acted any differently had Mr Kline been made aware by Mr Bjerring what he found out from Mrs Gallard because Mrs Gallard used the same expression “in principle” as did Mr Gentle and the Intercreditors’ Deed were still present as influencing factors that finance for the land was approved but the written approval was still to come.
I find once the bank guarantee was activated it was out of the control of Mr Bjerring and Mr Kline. Being out of the control of Mr Bjerring and Mr Kline I find no later events give Mr and Mrs Kline any cause for complaint against Mr and Mrs Bjerring when Nifsan called on the bank guarantee in 2009 and was paid $188,955 at that point. Except for the $11,250 for the China trip Mr and Mrs Kline accept $60,000 was advanced by the NAB to the company.
As far as the $11,250 withdrawn from the company account for the reimbursement of Mr Bjerring for the costs of the China trip paid by Mr Bjerring on his credit card, I find Mr Kline authorised Mr Bjerring’s withdrawal of the $11,250 to reimburse Mr Bjerring. I am satisfied Mr Bjerring gave Mr Kline all the receipts to justify the expenditure. I accept Mr Bjerring’s evidence that what was expended was proper in the circumstances. Mr and Mrs Kline have not identified specifically some item of expenditure that could justify a deduction from Mr and Mrs Bjerring’s claim in these proceedings.
Although Mr and Mrs Bjerring borrowed for themselves from the NAB about $3.2 million to buy land upon which they built a house to sell for profit before they entered into the loan agreement, I am satisfied Mr and Mrs Bjerring did not make any misrepresentation to Mr and Mrs Kline about their ability to meet their indebtedness for the company’s borrowing. Further I am satisfied that Mr and Mrs Bjerring did not breach any fiduciary duty owed to Mr and Mrs Kline. That is I am satisfied Mr and Mrs Bjerring’s borrowings to construct their own home for sale for profit had no impact on the borrowing by the company for the deposit and the other expenditure amounting to $60,000 as Mr and Mrs Bjerring’s borrowing for the construction of their own house was already agreed to with the NAB.
As I understood the evidence, even Mr and Mrs Kline were building their own house at about this time. It may not have been as grand as the house Mr and Mrs Bjerring were building but nevertheless the impact for both parties in building their own houses at the same time as progressing this project was such that both parties had commitments to the bank for the borrowings on their houses. I accept Mr Bjerring’s evidence that because of the borrowings for the construction of the house at Knightsbridge Parade, he could not release the company’s debt to the NAB. However, I find that Mr Kline was in the same position at the same time, although his borrowings were of course much less for the construction of his house. In the circumstances, I do not accept there was any inequity that arose on the part of Mr and Mrs Bjerring. Further I do not accept there was any breach of a fiduciary duty in the circumstances. Further, I do not accept the circumstances created a negligent omission.
However, Mr and Mrs Bjerring did have other sources of income. It was not clear to me whether there were two sources of income. That is one being Network Marketing and the other being the Ponzi Scheme. In any event I accept Mr Bjerring’s evidence that the bottom line with Network Marketing was that their income was big enough to pay for Mr and Mrs Bjerring’s expenses and pay all the arrears they had with the bank. Of course Mr Bjerring did say he had money in the Ponzi Scheme but he said he’d left it invested in there to earn more. I accept Mr Bjerring chose to pay off his own debt because the bank was not going to release him even if he paid half. Instead it would have been the same result and Mr Bjerring would still be liable for the other half.
I do not accept Mr and Mrs Bjerring had a conflict of interest when building their house. I find Mr and Mrs Kline were doing virtually the same thing. I do not accept Mr and Mrs Bjerring did anything to obstruct Mr and Mrs Kline refinancing. I find Mr and Mrs Kline were because of their own circumstances unable to refinance.
I do not accept any of Mr and Mrs Kline’s complaints are a basis for relief against Mr and Mrs Bjerring’s claim.
I find for these reasons Mr and Mrs Bjerring did not breach sections 181, 182 or 183 of the Corporations Law (Commonwealth).
However, I suspect although not made expressly clear in Mr and Mrs Kline’s defence, Mr and Mrs Kline complain they should not be responsible for half of the default interest that saw the $188,955 and the $60,000 grow to $456,793.69 as at 12 December 2012.
I find no one was at fault for the debt being incurred. Mr and Mrs Kline’s complaints do not persuade me Mr and Mrs Bjerring should have paid out the debt earlier than it was paid bearing in mind Mr and Mrs Bjerring paid out the whole debt. I infer from Mr Bjerring’s evidence the debt was paid out when it was reasonable to do so having regard to Mr and Mrs Bjerring’s commitments. I find Mr and Mrs Bjerring did not do anything that inequitably disadvantaged Mr and Mrs Kline. There was no evidence Mr and Mrs Bjerring acted unreasonably in the sale of Knightsbridge Parade.
The evidence shows that settlement of the sale of Knightsbridge Parade took place on 12 December 2012. From the settlement proceeds Mr and Mrs Bjerring paid the NAB $456,793.69 to pay out the liability of the company to the NAB which Mr and Mrs Bjerring and Mr and Mrs Kline guaranteed.
I find there is nothing inequitable enforcing against Mr and Mrs Kline, Mr and Mrs Bjerring’s right to contribution. Otherwise Mr and Mrs Kline would be enriched at Mr and Mrs Bjerring’s expense which would be an injustice.
As there is no evidence of a contrary intention, all solvent co-sureties with equal liability should contribute equally (AGC (Advances) Ltd v West (1984) 5 NSWLR 590, 604-605).
The position of co-sureties who have co-ordinate liabilities should equally contribute should not be lightly departed from and will only occur where there is evidence of a contrary intention by the parties at the time the sureties were provided (Morgan Equipment Co v Rodgers (No.2) (1993) 32 NSWLR 467).
I find there is no evidence of a contrary intention by the parties at the time that the guarantee was entered into. I find in the circumstances that there is no disqualifying reason against Mr and Mrs Bjerring recovering from Mr and Mrs Kline half of the amount paid by Mr and Mrs Bjerring to the NAB to pay out the company’s indebtedness pursuant to the guarantee.
I find the fair contribution required of Mr and Mrs Kline is one half of the $456,793.69 which is the sum of $228,396.85 as at 12 December 2012.
A surety is entitled to interest on the payment made from the date of payment (A E Goodwin Ltd v A G Healing Ltd (1979) 7 ACLR 481).
I give judgment for the first plaintiff and the second plaintiff against the first defendant and the second defendant for the sum of $294,403.52 being the sum of $228,396.85 for contribution to the payment made by the plaintiffs together with interest at 10 percent per annum from 12 December 2012 to today, 13 November 2015, which is a sum of $66,006.67.
I dismiss the first defendant’s and the second defendant’s counterclaim.
I will hear the parties on the question of costs.
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