Bond v Kennedy & Kennedy No. DCCIV-02-888

BOND v KENNEDY & KENNEDY
[2003] SADC 70
Judge Rice
Civil
Introduction

This is an appeal against the dismissal by a Master of the plaintiff’s summary judgment application pursuant to DCR 25.01 dated 14th June, 2001. The order of dismissal was made on 23rd October, 2002. The plaintiff, in appealing against the order of dismissal, argues two grounds of appeal as follows:-
“1.The Learned Master erred in law and in fact in finding that contribution between the plaintiff and the defendants as joint guarantors was affected by the defendants’ allegations of a set-off claim between the principal borrower and the plaintiff.
2.The Learned Master erred in law in having regard to the Affidavit of Annette Kennedy sworn 4th October 2001 and filed in Supreme Court Action No. 1392 of 2001.”
Factual background
Case for the plaintiff
The factual background needs to be recited in some detail to understand the basis of the primary claim and the real question to be tried as put forward by the defendants.
A company named Strictly Digital Communications Pty Ltd (“SDC”) was registered on 7th October, 1997. The defendants were directors of SDC having been appointed on about 7th October, 1997. The plaintiff was also a director of SDC, having been appointed on about 22nd May, 1998, and he ceased to be a director by notice dated 24th July, 2000.
The plaintiff is the registered proprietor of a residential property situated at 42 Caswell Drive, Hallett Cove (“the land”). That property is subject to a mortgage granted to Bank SA (formerly Advance Bank Australia Limited) (“the mortgage”). Bank SA offered SDC two borrowing facilities totalling $70,000 conditional upon the plaintiff and defendants executing a Guarantee and Indemnity in connection with the facilities. SDC accepted the offer on 9th November, 1999. The mortgage referred to earlier secured, inter alia, the repayment of monies owing to Bank SA by SDC.
By 14th December, 2000, over $72,000 was due but unpaid pursuant to the facilities. By a notice of 14th December, 2000, Bank SA formally demanded from SDC the outstanding amount but SDC failed to comply. By notice in writing on 18th December, 2000, Bank SA demanded the plaintiff pay to Bank SA, pursuant to the terms of the Guarantee, the amount of $72,037.37. By further notice dated 22nd December, 2000, Bank SA gave notice that it would exercise its power of sale over the land for breach of the mortgage unless the $72,037.37 was paid within a fixed time. Pursuant to proceedings in the Supreme Court, an order for possession of the land, in favour of Bank SA, was made on 30th March, 2001.
By letter dated 4th April, 2001, the plaintiff gave notice to SDC and the defendants of claims against them by virtue of claims against the plaintiff made by Bank SA. The total amount then being claimed in respect of the facilities was $48,297.86. SDC paid certain amounts to Bank SA in respect of the facilities thereby reducing the amount owing in mid-May to $54,207.92. On 15th May, 2001, the plaintiff paid out all the monies owing to Bank SA pursuant to the Guarantee (including associated legal costs), being the $54,207.92.
In September, 2001, the plaintiff demanded from the defendants, and from SDC by Statutory Demand, amounts he had been obliged to pay to Bank SA as a guarantor of SDC’s debt in respect of the facilities. SDC failed to comply with the Statutory Demand. An application to the Supreme Court to set aside the Statutory Demand failed. Pursuant to an application by the plaintiff, an Order for the Winding-Up of SDC was made in April, 2002. SDC remains indebted to the plaintiff for the full amount of the debt paid to Bank SA by the plaintiff pursuant to the Guarantee, being $54,207.92. On the material and arguments presented upon the hearing of this appeal, SDC is insolvent.
The plaintiff says that he has paid the debt, or more than his proportion of it, to Bank SA under the Guarantee. The defendants have not paid any contribution to the plaintiff in respect of the plaintiff’s payment of the debt under the Guarantee. The plaintiff claims $18,069.30 (being one-third contribution of $54,207.92) from each of the defendants so as to equalise the burden of the debt and so as to apportion the debt rateably.
The effect of the case for the plaintiff is that the plaintiff and defendants were jointly and severally liable under the Guarantee and that, where one guarantor pays out the debt, that guarantor is able to claim so much from the other guarantors that all guarantors bear the debt in equal proportions. The plaintiff says he is legally entitled to be indemnified by the co-guarantors such that the contributions are equal.
The appropriate legal test for an application for summary judgment pursuant to DCR 25.01 is considered below and, as a result, the plaintiff submits he is entitled to judgment in the absence of an arguable defence.
Case for the defendants
The first defendant filed an affidavit dated 30th July, 2002 on behalf of both defendants. The defendants admitted some paragraphs of the claim, pleaded that they did not know and could not admit others, and denied the paragraphs providing the final basis for the claim.
The first defendant, in his affidavit, made specific reference to para.14 of the Statement of Claim. Para.14 reads as follows:-
“On 14th December, 2000, the sum of $72,037.37 was due, owing and payable, but unpaid, to Bank SA by SDC.”
In respect of that paragraph, the defendants say that “....a large proportion of that debt was incurred by the plaintiff in respect of the acquisition of goods and services which were for the sole use and benefit of the plaintiff and which was not therefore a debt incurred by the company, and in turn was not a debt in respect of which the defendants [are] required to make contribution” (“the non-company debt issue”). No details are given; no documentary material is provided. Such a bare assertion is not sufficient. The defendants are required to descend into particulars. This has not been done. The defendants could, and still can, take up this issue with the liquidator of SDC.
The defendants put forward two other matters of defence that are being pursued.
The first is that the defendants assert that, by separate arrangement with Bank SA, they paid it the sum of $28,948.63 and, in so doing, “....more than discharged their obligations to the plaintiff to make contribution in respect to the amount to which the plaintiff had paid.” However, the affidavit material does not support a substantial payment by the defendants to Bank SA. If the defendants, in their personal capacities, had paid $28,948.63 to Bank SA in reduction of the debt, such a matter would have been easily proved by documentary evidence of their own and from the bank.
What the affidavit material does show is that, on 19th March, 2001, SDC paid $30,000 in reduction of the debt to Bank SA (see affidavit of J.A. Neate signed and filed on 9th September, 2002). The factual background to which I earlier referred takes that payment into account. There is no evidence of an arguable defence under this heading.
The second matter put forward is that the plaintiff had a loan account with the company whereby, as at 1st July, 2000, the plaintiff owed SDC the sum of $40,698.57 (“the loan account issue”). Paragraph 8 of the first defendant’s affidavit goes on to say:-
“By reason of the principle of mutual set offs, the plaintiff has in effect received contribution from SDC in that amount.”
The defendants do not state if the “loan account issue” is different to the “non‑company debt issue”. I will return to the “loan account issue” below. There were other matters pressed before the learned Master but not before me.
The decision appealed against
The learned Master dismissed the plaintiff’s application for summary judgment. The Master’s judgment, although touching on a number of matters, was based on the fact that the substantial loan account between the plaintiff and SDC was, arguably, a defence to the claim for contribution from the defendants. In other words, as was put in argument, there was an arguable case that the plaintiff was separately indebted to SDC and that debt relationship between SDC and the plaintiff could be used as a set‑off in the contribution proceedings between the co-guarantors. I note there was no material before me to substantiate such a debt, let alone any evidence or affidavit of the liquidator of SDC of the existence of such an account or debt.
In this matter, the Master’s decision was not an exercise of discretion, and so the Court’s function is “to review the material before the Master, and by an independent reconsideration of that material, address the question whether the order appealed from should stand”; (see Transeast Pty Ltd v Commonwealth Bank (1990) 157 LSJS 447 per Perry J at 450).
Summary judgment - principles to be applied
Without reproducing all of DCR 25.01, it requires the defendants to file an affidavit that they have a good defence to the action on the merits and specifying the grounds of such defence.
There are a number of authorities that refer to the relevant principles. In Fancourt and Another v Mercantile Credits Limited (1983) 154 CLR 87, the High Court said this (at 99):-
“The power to order summary or final judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried: see Clarke v Union Bank of Australia Ltd (1917) 23 CLR 5; Jones v Stone [1894] AC 122; Jacobs v Booth’s Distillery Co (1901) 85 LT 262. In our view, it is not possible to say without doubt, on the whole of the material, that there is no real question to be tried....”
In Kadeh v Gill & Ors (2000) 211 LSJS 88, Doyle CJ (Williams and Wicks JJ concurring) explained the test in these words (at paras.27-29):-
“In South Australia a defendant as well as a plaintiff can apply for summary judgment; see R 25.04 of the District Court Rules 1992 (SA). But whether the application for summary judgment is made by a plaintiff or by a defendant, the power to enter summary judgment ‘should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried’: Fancourt & Anor v Mercantile Credits Ltd (1983-1984) 154 CLR 87 at 99. Whether the questions to be decided are questions of law or questions of fact, the applicant must demonstrate that the ‘action should not be permitted to go to trial in the ordinary way because it was apparent that it must fail’: Webster & Anor v Lampard (1992-1993) 177 CLR 598 at 602 Mason CJ, Deane & Dawson JJ.”
Adapting what then followed, it is one thing to determine that a pleading discloses no reasonable cause of action or defence, and another to order that it be struck out. When that is done, the Court assumes in favour of the relevant party that everything asserted in the pleading or affidavit is or will be proved if an arguable case is put forward by the defendants.
Discussion
The plaintiff asserts that the Master made an error of law in finding an arguable case that the claimed separate indebtedness of the plaintiff to SDC could be used as a set-off in the contribution proceedings between the co-guarantors. Clearly, it is not a legal set-off. Can the defendants, on a claim by the co-guarantor, rely on a defence only available to the company SDC?
Yet further, the plaintiff submits that the Master relied upon inadmissible or inadequate material to found the claimed separate indebtedness such that, to use the vernacular, the defendants do not even get to first base. It is true that the Master relied upon inadmissible material (being the affidavit of the defendant, Annette Kennedy, sworn on 4th October, 2001, in Supreme Court Action No. 1392 of 2001) “....for the limited purpose of demonstrating that the plaintiff in this action has received notice of the defendants’ allegations that the plaintiff dipped into the funds of the principal debtor for his own benefit.”
However, as I understand the affidavit of the first defendant filed in these proceedings to which reference has been made, by admissible means it makes the allegation of the “loan account issue” and monies owed by the plaintiff to SDC totalling $40,698.57. No detail is provided by the defendants.
As to the assertion by the first defendant in his affidavit, it is no more than a bald assertion. It is unsupported by any material from the liquidator or a similar witness. More is required by the Rule than such an assertion, otherwise the purpose of the Rule could easily be defeated. As it is, it is not adequately detailed evidence of the ground of defence. From the material before me it is not entirely clear whether the allegation of the plaintiff using the funds of SDC for his own purposes (“the non‑company debt issue”) refers to the same debt to SDC as that reflected in the loan account. I will assume they are different issues. For my purposes, the same considerations apply.
Although I have taken the view that the bald assertion of any separate indebtedness is inadequate (and the same applies to any loan account), I propose to deal with the appeal on the basis that the foundation has been made out and now consider whether that provides a defence as a matter of law.
Legal considerations
I commence by dealing with the law that co-guarantors are liable to contribute to each other so as to bear the debt equally. In the absence of the co-guarantors amongst themselves varying their liability, each solvent guarantor must contribute equally to the common debt: see Ellesmere Brewery Co v Cooper [1896] 1 QB 75.
The High Court has also dealt with these principles in Mahoney v McManus [1981] 55 ALJR 673 per Gibbs CJ with whom Murphy and Aickin JJ agreed (at 675):-
“A surety is entitled to contribution from his co-sureties so that the common burden is borne equally and so that no surety is required, as between himself and his co-sureties, to pay more than his due share. The right arises whether the sureties are bound jointly, jointly and severally, or severally, and whether by the same or different instruments, and whether or not the sureties knew of each other’s existence, provided that they are liable in respect of the same debt. The right to contribution arises when a surety has paid or provided more than his proper share of the principal debt, but it may also be enforced by a surety who has not made payment; ....”
And further (also at 675):-
“The amount of contribution recoverable depends on the number of sureties who are solvent at the time when contribution is sought and on the proportion for which each is liable.”
Yet further (at 676):-
“It should be remembered that the doctrine of contribution is based on the principle of natural justice that if several persons have a common obligation they should as between themselves contribute proportionately in satisfaction of that obligation.” (See also Wilson J at 679.)
Having regard to the factual assertions being made in this case, if it transpires that one of the guarantors is separately indebted to the principal debtor (here SDC), can that debt to the company be taken into account in any indemnity proceedings as between the plaintiff and the defendants? Put another way, the question is whether the co-guarantors in these proceedings are entitled to the benefit of any potential set-off as between the plaintiff and SDC.
The plaintiff submits that there is no authority to support the suggested legal defence. Although the defendants are not able to refer to any authority directly on point, they place heavy reliance upon an authority that, by way of analogy, is said to provide the basis for a possible defence.
The authority relied upon is Wreckair Pty Ltd v Emerson & Anor (1991) 5 ACSR 576. The facts of the case are a little complicated. Until about mid-1989, Joe Emerson Pty Ltd (“the company”) carried on business as an excavation contractor. At about that time, it was ordered to be wound up as insolvent. In early 1989, the company was indebted to Wreckair Pty Ltd (“Wreckair”) which, by July, was almost $30,000. In August of the previous year, Mr and Mrs Emerson, as directors of the company, executed a guarantee of the amount owing in favour of Wreckair. On 3rd April, 1989, Wreckair agreed with the company that the company would supply to Wreckair two pumps owned by the company. The pumps were to be hired out by Wreckair and the proceeds of hire divided between the company and Wreckair in the proportion 60/40. The company’s share of receipts from this source would then be applied by Wreckair in reduction of the indebtedness owing to it by the company. Wreckair would retain the balance of 40 per cent for its own benefit (at 579).
After liquidation of the company, Wreckair took action against the defendants to recover the whole of the amount of the company’s indebtedness due on the guarantee. The question arose as to whether in such an action the defendants were entitled to the benefit of the set-off of monies due to the company from Wreckair’s hiring of the pumps. The Supreme Court of Queensland held that the defendants were entitled to the benefit of the set-off and reduced the original judgment by an amount equal to the monies due to the company by Wreckair. However, as I understand the basis of the reasoning in that case, that was because the company and Wreckair had undertaken mutual obligations relating to bailment of the pumps and application of the hiring charges for those pumps.
The Wreckair case (supra) is factually distinguishable from the appeal presently under consideration. In Wreckair, the creditor was pursuing the guarantor pursuant to the guarantee as compared to a co‑guarantor pursuing another co-guarantor pursuant to rights of indemnity. The case turned on whether the insolvent company had an existing enforceable right of set-off which could be relied upon by the guarantor to show the debt had been reduced by the amount of the hiring payments. The Court found that it did, therefore the debt owed was less than the claim made by the creditor.
I make these additional points. In the first place, the outstanding debt of the principal debtor (SDC) has been paid in full. Secondly, this is an action for contribution by one guarantor against two other guarantors. Thirdly, the liquidator of SDC has not taken any action against the plaintiff to enforce a suggested debt. Fourthly, the obligations of the defendant guarantors to contribute to the plaintiff are independent of any suggested debt by the plaintiff to SDC. Fifthly, the plaintiff is not obliged to endeavour to recover the debt from the principal debtor in advance of seeking contribution from the co-guarantors. If the “loan account issue” or the “non‑company debt issue” amounts are paid by the plaintiff to SDC, then the liquidator will distribute the income in accordance with the Corporations Act.
It is also submitted on behalf of the defendants that to allow the application for summary judgment and deny the set-off would be to allow the plaintiff to be unjustly enriched at the expense of the defendants. That submission is predicated on the potential for unjust enrichment because of an enforceable debt between the plaintiff and SDC. However, on the material before me, there is no sufficient foundation for such a debt. In any event, in my view, there is no authority to support the claim for the set-off by the co-guarantors of a debt owed by the plaintiff to the company even if it was potentially available as a defence, on the affidavit material before me.
In my view the appeal should be allowed. There will be judgment against each of the defendants in the amount of $18,069.30. Each of the defendants will be required to pay interest on the contributions from 15th May, 2001.

[2003] SADC 70

13 May 2003