Bowesco Pty Ltd v Westpoint Management Ltd
[2015] WASCA 184
•11 SEPTEMBER 2015
BOWESCO PTY LTD -v- WESTPOINT MANAGEMENT LTD [2015] WASCA 184
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2015] WASCA 184 | |
| THE COURT OF APPEAL (WA) | |||
| Case No: | CACV:78/2014 | 3 AUGUST 2015 | |
| Coram: | McLURE P BUSS JA NEWNES JA | 11/09/15 | |
| 21 | Judgment Part: | 1 of 1 | |
| Result: | Leave to add grounds 7 and 8 refused Appeal dismissed | ||
| B | |||
| PDF Version |
| Parties: | BOWESCO PTY LTD WESTPOINT MANAGEMENT LTD (in liq) (Receivers and Managers Appointed) |
Catchwords: | Contract Construction of finance facility agreement and guarantee Scope and application of the doctrine of subrogation |
Legislation: | Corporations Act 2001 (Cth) |
Case References: | Barnes v Addy (1874) LR 9 Ch App 244 Bofinger v Kingsway Group Ltd [2009] HCA 44; (2009) 239 CLR 269 Evandale Estates Pty Ltd v Keck [1963] VR 647 Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101 Re Dalma No 1 Pty Ltd (in liq) (2013) 279 FLR 80 Sunbird Plaza Pty Ltd v Maloney[1988] HCA 11; (1988) 166 CLR 245 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA TITLE OF COURT : THE COURT OF APPEAL (WA) CITATION : BOWESCO PTY LTD -v- WESTPOINT MANAGEMENT LTD [2015] WASCA 184 CORAM : McLURE P
- BUSS JA
NEWNES JA
- Appellant
AND
WESTPOINT MANAGEMENT LTD (in liq) (Receivers and Managers Appointed)
Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram : CHANEY J
Citation : BOWESCO PTY LTD -v- WESTPOINT MANAGEMENT LTD [No 2] [2014] WASC 207
File No : CIV 2092 of 2012
Catchwords:
Contract - Construction of finance facility agreement and guarantee - Scope and application of the doctrine of subrogation
Legislation:
Corporations Act 2001 (Cth)
Result:
Leave to add grounds 7 and 8 refused
Appeal dismissed
Category: B
Representation:
Counsel:
Appellant : Mr A Metaxas
Respondent : Mr J C Vaughan SC
Solicitors:
Appellant : Metaxas & Hager
Respondent : Clayton Utz
Case(s) referred to in judgment(s):
Barnes v Addy (1874) LR 9 Ch App 244
Bofinger v Kingsway Group Ltd [2009] HCA 44; (2009) 239 CLR 269
Evandale Estates Pty Ltd v Keck [1963] VR 647
Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101
Re Dalma No 1 Pty Ltd (in liq) (2013) 279 FLR 80
Sunbird Plaza Pty Ltd v Maloney[1988] HCA 11; (1988) 166 CLR 245
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165
1 McLURE P: This appeal concerns whether the appellant (Bowesco) is entitled to be paid the sum of $550,000 and interest from the proceeds of sale of the assets of Lanepoint Enterprises Pty Ltd (Lanepoint) received by the respondent (Westpoint) under its second ranking security over Lanepoint's assets.
2 The first ranking security was held by Suncorp-Metway Ltd (Suncorp). Bowesco claims against Westpoint on the basis that it was entitled to be subrogated to Suncorp's first ranking security over Lanepoint's assets.
3 Bowesco, Lanepoint and Westpoint were all companies associated with Mr Norman Carey.
The agreed and uncontroversial facts
4 The parties filed a statement of agreed facts, which include the following.
5 At all material times Suncorp carried on business as a bank. By letter dated 15 April 2005 Suncorp offered to lend Lanepoint up to $5,875,900 to purchase the land and buildings situate at 61 Great Eastern Highway, Rivervale and 2, 4 and 6 Armadale Road, Rivervale (Lanepoint Property) and develop 40 residential apartments thereon (the Suncorp letter).
6 Conditions of the advance included:
(a) Suncorp being granted a first registered mortgage over the Lanepoint Property;
(b) Suncorp being granted a fixed and floating charge over the assets and undertaking of Lanepoint; and
(c) Bowesco guaranteeing the obligations of Lanepoint in respect of the moneys to be advanced.
7 Lanepoint and Suncorp executed a credit facility deed dated 2005 (Facility Deed) which set out the terms of the advance of up to $5,875,900 for the purchase and development of the Lanepoint Property (Development). The Suncorp letter forms part of its agreement with Lanepoint.
8 On 2 May 2005 Lanepoint executed a fixed and floating charge over its assets and undertaking in favour of Suncorp to secure moneys advanced pursuant to the Facility Deed (Suncorp Charge).
9 In about April 2005 Bowesco executed a Deed of Guarantee and Indemnity in favour of Suncorp whereby Bowesco guaranteed the obligations of Lanepoint pursuant to the Facility Deed (Guarantee).
10 After April 2005 Suncorp made advances to Lanepoint pursuant to the Facility Deed.
11 Westpoint was the responsible entity for the Westpoint Income Fund (WIF). On about 10 May 2005 a written loan agreement was made between Westpoint as responsible entity of the WIF as lender, Lanepoint as borrower and Perpetual Nominees Ltd (Perpetual) as custodian pursuant to which Westpoint agreed to provide financial accommodation to Lanepoint up to a maximum of $4,000,000 for the Development (Westpoint Loan Agreement).
12 Westpoint made advances to Lanepoint pursuant to the Westpoint Loan Agreement which were secured by a second ranking charge granted by Lanepoint to Perpetual as custodian (Perpetual Charge).
13 On 3 March 2006 Suncorp appointed receivers and managers of Lanepoint pursuant to the Suncorp Charge (Suncorp Receivers).
14 On 9 March 2006 Perpetual appointed receivers and managers of Lanepoint pursuant to the Perpetual Charge (Perpetual Receivers).
15 On 15 March 2006 Suncorp issued a written notice of demand to Bowesco pursuant to the Guarantee. The demand required payment of Suncorp's advances to Lanepoint pursuant to the Facility Deed.
16 The Suncorp Receivers took possession of the Development and all of Lanepoint's other assets. The date on which this occurred is not agreed.
17 The moneys owed by Lanepoint to Suncorp under the Facility Deed were repaid to Suncorp on 27 March 2007.
18 On or about 27 March 2007 the Suncorp Receivers retired from all the real property assets of Lanepoint save for the proceeds from the sale of completed strata units in the Development.
19 After 4 April 2007:
(a) the Suncorp Receivers paid the balance of the net proceeds from the realisation of Lanepoint's assets as remained in their hands to the Perpetual Receivers (the surplus). I infer the surplus is confined to the net proceeds from the sale of completed units in the Development referred to in the previous paragraph; and
(b) Suncorp's securities that secured repayment of the moneys owed by Lanepoint to Suncorp under the Facility Deed were discharged. Although there is no evidence as to who discharged Suncorp's securities, I infer it must have been done by, or on behalf of, Suncorp.
20 Between 18 January 2008 and 9 December 2008 Westpoint was paid the following amounts by Lanepoint (by the Perpetual Receivers) pursuant to Westpoint's rights under the Perpetual Charge and in satisfaction and discharge of amounts owed by Lanepoint to Westpoint under the Westpoint Loan Agreement:
- 18.01.2008 $159,056
- 31.03.2008 $ 400,000
- 11.06.2008 $220,538
- 22.10.2008 $1,828,730
- 09.12.2008 $1,500,000
$4,108,324
21 Lanepoint was ordered to be wound up on 14 May 2009. Westpoint was ordered to be wound up on 11 April 2006.
22 Some of the gaps in the agreed facts were filled in by the evidence adduced at trial. However, as we shall see, significant gaps remain.
23 The following is uncontroversial. Both Suncorp and Westpoint advanced funds to Lanepoint in accordance with their respective loan agreements for the purpose of the Development.
24 However, by letter dated 25 October 2005, the Australian Securities and Investment Commission (ASIC) advised Westpoint, in its capacity as the responsible entity for WIF, that it had made an interim stop order under s 1020E of the Corporations Act 2001 (Cth), the effect of which was that no offers, issues, sales or transfers of interests in WIF could be made for the following 21 days. On 23 November 2005 ASIC made a final stop order.
25 As a result of the stop orders, Westpoint was unable to make any further advances to Lanepoint pursuant to the Westpoint Loan Agreement. Westpoint had advanced to Lanepoint approximately $2,100,000 prior to the stop orders. Westpoint made no further advances thereafter.
26 In evidence at trial was a letter dated 15 January 2006 from Bowesco to Lanepoint and Westpoint (Bowesco's January 2006 letter) recording an agreement that Bowesco, as guarantor, would provide the funding required by Lanepoint to complete the Development 'so that the Suncorp Loan Facility is reduced by the amount of Bowesco's funding of these project costs'. The letter specified that the funding was to be used for the sole purpose of paying the project costs required to complete the Development. The letter continued:
WIF agrees that provided these funds are used for the sole purpose of paying the project costs required to complete the project, then Bowesco will take over Suncorp's security position once Suncorp has been fully repaid. Suncorp's securities are to be assigned to Bowesco and Bowesco will rank ahead of WIF for these funds including interest, costs and WIF agrees to indemnify Bowesco for any loss it incurs by reason of WIF's default on the same terms and conditions as the Suncorp Loan Facility.
27 Between 10 February 2006 and 3 March 2006 Mr Carey authorised the transfer of funds totalling $550,000 from Bowesco's bank account to an account in the name of Lanepoint, which had been set up some time between 24 January 2006 and 1 February 2006.
28 A number of cheques were drawn on the Lanepoint bank account between 14 February 2006 and 3 March 2006 when Suncorp appointed the Suncorp Receivers. Upon their appointment, the Suncorp Receivers stopped cheques which were then unpresented which totalled an amount of $203,469.74. The cheques which had been presented totalled $320,040.52. Both the presented and unpresented cheques related to costs of the Development. Suncorp's securities were never assigned to Bowesco.
Bowesco's pleaded claim
29 The material facts pleaded in the statement of claim, as it stood at trial, are as follows:
(i) by the Suncorp Letter, Lanepoint agreed to commence and complete the Development (par 8);
(ii) the Suncorp Letter was an 'Agreement' for the purposes of, and formed part of, the Facility Deed (par 10);
(iii) Bowesco guaranteed the obligations of Lanepoint under the Facility Deed, including the obligation to complete the Development (par 12);
(iv) it would be an event of default under the Facility Deed if Lanepoint failed to comply with the obligation to complete the Development (par 10);
(v) on 15 January 2006 Bowesco, Lanepoint and Westpoint agreed in writing that Bowesco would advance moneys to Lanepoint so that Lanepoint could complete the Development (par 17A);
(vi) on 10 February 2006 Bowesco, through Mr Carey, and Suncorp's state manager of property for Western Australia agreed orally that Bowesco, as guarantor of the Facility Deed, would pay for the Development to be completed and Suncorp would be relieved of its obligation to make further advances for completion of the Development (par 18);
(vii) from 10 February 2006 Bowesco made payments totalling $550,000 to or for the benefit of Lanepoint on the basis that those moneys would be used to complete the Development and 'thereby reduce the indebtedness of Lanepoint to Suncorp in relation to further advances required to be made by Suncorp so that the Development would be completed' (par 19);
(viii) the moneys paid by Bowesco to Lanepoint were expended by Lanepoint for purposes related to the Development (par 19A);
(ix) the Suncorp loan the subject of the Facility Deed was repaid on 27 March 2007 (par 28);
(x) between 18 January 2008 and 9 December 2009 Westpoint was paid a total of $4,108,324, being the proceeds of sale of the completed strata units in the Development (pars 29 and 30);
(xi) Suncorp, by the Suncorp Receivers, received assets from Lanepoint in excess of the amount required to repay the Suncorp loan and thus held those assets as a fiduciary with an obligation to account to Bowesco (par 32);
(xii) in breach of its fiduciary duty, Suncorp paid Lanepoint's assets to Westpoint without accounting to Bowesco in respect of the amount it advanced to Lanepoint which was used to complete the Development (par 33);
(xiii) Westpoint received the assets of Lanepoint with actual knowledge of Bowesco's entitlement and thereby held those assets on constructive trust for Bowesco (par 36);
(xiv) by reason of the aforegoing, Bowesco was entitled to a declaration that Westpoint (by the Perpetual Receivers) held the funds received by it (ie $4,108,324) on constructive trust for Bowesco (par 38).
30 Bowesco's January 2006 letter was relied on solely to prove the matters pleaded in pars 17A and 36 relating to Westpoint's knowledge of Bowesco's advance to Lanepoint to complete the Development and that Westpoint received Lanepoint's assets with knowledge of Bowesco's entitlement (I infer to an account). On my reading of the statement of claim, 'Lanepoint's assets' means the surplus paid by Suncorp's Receivers to the Perpetual Receivers for Westpoint.
The trial judge's reasons
31 The trial judge dismissed Bowesco's claim on five separate grounds as follows.
32 First, Lanepoint had not covenanted with Suncorp to complete the Development (R[40], [42], [44]). It followed that Bowesco did not guarantee the performance of any such obligation by Lanepoint.
33 Second, even if there was a positive obligation by Lanepoint to complete the Development, Bowesco's obligation under the guarantee did not include an obligation to perform that contractual term; it was no more than an obligation to pay damages in the event of default by Lanepoint (R[43], [44]). Thus, in advancing funds to Lanepoint to enable it complete the Development, Bowesco was not performing an obligation under the guarantee.
34 Third, as the $550,000 was an advance by Bowesco to Lanepoint and did not reduce Lanepoint's indebtedness to Suncorp, there was no basis on which Bowesco could be subrogated to Suncorp's rights and remedies under its security in relation to Lanepoint's debt (R[48]). Subrogation did not extend to funds which the guarantor advanced to the debtor which never formed part of the debtor's liability to the secured creditor (R[49]).
35 Fourth, Bowesco failed to establish that Suncorp received and misapplied surplus funds (R[51], [52]). The Suncorp Receivers received the surplus funds as agent for Lanepoint, not Suncorp. Accordingly, Suncorp did not owe Bowesco a fiduciary duty to account and thus there was no breach.
36 Finally, as Suncorp did not owe, or breach, any fiduciary duty to account to Bowesco, Westpoint did not receive the surplus funds with knowledge of any breach (R[54] - [56]).
37 The trial judge did not make (and Bowesco does not seek in this appeal) findings (1) that there was an agreement between Bowesco and Suncorp in the terms pleaded in par 18 of the statement of claim, or at all; (2) that all the moneys advanced by Bowesco to Lanepoint were used for the purpose of completing the Development; (3) that the amount of $4,108,324 received by Westpoint from the Perpetual Receivers was from the sale of the units in the Development; (4) as to the amount of the surplus from Suncorp's Receivers; (5) whether any part of the money referred to in (3), and if so how much, was the surplus received from the Suncorp Receivers; and (6) as to when the Suncorp securities were discharged.
38 However, Westpoint pleaded in its defence that, as at 25 June 2012, the surplus paid by the Suncorp Receivers to the Perpetual Receivers was approximately $2 million; it was paid in satisfaction and discharge of the secured amounts owing under the Westpoint Loan Agreement; and it received the payments without notice of any claim by Bowesco of the type pleaded in its action (par 25).
39 Further, the unchallenged finding of the trial judge was that the funds advanced by Bowesco to Lanepoint did not reduce Lanepoint's indebtedness to Suncorp.
Grounds of appeal and contention
40 At the commencement of the hearing of the appeal, counsel for the appellant expressly abandoned two grounds of appeal (7 and 8) relating to the trial judge's refusal to grant leave to amend the appellant's statement of claim to rely on a further and different agreement based on Bowesco's January 2006 letter.
41 The remaining grounds of appeal claim in substance that the trial judge erred in finding that:
• Lanepoint did not covenant with Suncorp to commence and complete the Development, when he should have found that (a) there was a covenant to that effect; (b) commencing and completing the Development was Lanepoint's business for the purposes of the Facility Deed; and (c) it was an event of default under cl 12.4 of the Facility Deed if Lanepoint ceased to carry on its business (grounds 1 and 2);
• Suncorp had no right under its securities to itself complete the Development, contrary to cl 12.4 and cl 13 of the Facility Deed and cl 17.2 and cl 18.4 of the Suncorp Charge (ground 3);
• Suncorp could not have completed the Development itself because it did not own the land and had no contractual relationship with the contractors undertaking the Development (ground 4);
• (a) the appellant had not guaranteed that Lanepoint would complete the Development; (b) the appellant's obligation was no more than to pay damages for breach; and (c) in advancing funds to Lanepoint to complete the Development, the appellant was not performing an obligation that the appellant had guaranteed (ground 5); and
• there was no basis upon which the appellant could be subrogated to the rights and remedies of Suncorp under its securities in relation to Lanepoint's debt to Suncorp, insofar as:
(i) the appellant had expended $550,000 to complete the Development;
(ii) completion of the Development was performance by the appellant of a guaranteed obligation; and
(iii) the appellant was required to perform its guaranteed obligation for the protection of the appellant's interests (ground 6).
7. The learned trial judge erred in law in finding that Suncorp did not fail to account to the appellant in breach of a fiduciary duty to account and that Suncorp received and misapplied surplus funds and such matters were, in effect, fatal to the appellant's case insofar as the matters found were not material to the appellant's rights by subrogation.
8. The learned trial judge erred in finding that the respondent did not receive the surplus funds with knowledge of Suncorp's failure to account insofar as the agreement dated 15 January 2006 was notice to the respondent of the appellant's claim.
43 The respondent opposed the application to amend. In its notice of contention, the respondent claims the trial judge's decision to dismiss the action should be upheld on the further grounds that:
1. the appellant did not establish its pleaded case that the respondent received the relevant Lanepoint assets 'with knowledge of the [appellant's] entitlement';
2. in receiving the Lanepoint assets, the respondent was a bona fide purchaser for value without notice as pleaded in par 25(2) of the re-amended defence.
Grounds 1 and 2 - construction of Suncorp letter
44 The relevant terms of the Suncorp letter, which refers to the advance as the 'finance facility' (facility), are as follows.
45 The purpose of the facility is identified as being to assist with the acquisition of the Lanepoint Property and the development of 40 residential apartments thereon.
46 The facility is described as a 'cash advance' and provides:
Subject to [Lanepoint] first contributing the full amount of its equity stated in the Funding Table below, by an initial draw down of $2,900,000, then by progressive draw downs to assist with the completion of the Development.
[Suncorp] will at all times retain its estimate of the cost to complete the Development within the undrawn balance of the Total Facility Limit [(ie $5,875,900)].
47 The funding table shows a breakdown, by category of expenditure (purchase of land, construction etc), of Suncorp's total facility limit and Lanepoint's equity contribution totalling $2,374,405. The total of the Suncorp facility and Lanepoint's equity contribution is $8,250,305. Of Suncorp's facility, a total of $546,900 is allocated to the payment of interest, bond fees and GST.
48 Provision is made for the capitalisation of interest, which was not to commence until Suncorp was satisfied that construction had commenced and Suncorp had made the first progressive drawing of construction funding.
49 The term of the facility is stated to be 12 months from the date of first draw down and the principal and all other outstanding moneys are payable on expiry of the term.
50 However, provision is made for Suncorp to partially discharge its security for individual lots, blocks, apartments, units or villas upon completion of the contract for its sale, subject to Suncorp receiving 100% of the net settlement amount or such other amount to be determined in Suncorp's absolute discretion.
51 Further, the facility is conditional on Lanepoint requesting a draw down or initial draw down of loan funds on or before 15 August 2005. The Suncorp letter states that Suncorp will need to re-approve the facility if that condition is not complied with.
52 Condition 2 is headed 'Conditions precedent to construction funding' and relevantly provides:
[Suncorp] will continue the Facility if it is satisfied of the following:
(a) the form and substance of the proposed building contract:
(i) must be referred to [Suncorp] prior to execution;
(ii) must be for a fixed lump sum, firm price;
(iii) the works are carried out by a licensed builder, satisfactory to [Suncorp];
(iv) the timing of the contract is in accordance with [Suncorp's] agreed cashflow and to the satisfaction of [Suncorp's] panel assessors;
(b) …
(c) the Development is proceeding in accordance with agreed cashflow and project feasibility statements;
(d) the form and substance of progress claims which must be in writing and must:
(i) specify … the percentage of work completed, the amount claimed and cost to complete;
(ii) be supported by a certificate from a quantity surveyor appointed by [Suncorp] verifying the value of works completed … and the cost to complete;
(iii) …
…
(g) Construction work is to commence by 30 June 2005 and is to be completed by 31 October 2005;
…
(j) Presales for [$4,000,000] in aggregate are to be achieved at prices consistent with [Suncorp's] adopted values for the individual lots on completion … the Contracts of Sale are to be reviewed by [Suncorp's] panel solicitor and found to be acceptable to [Suncorp].
53 Condition 3 is headed 'Condition subsequent' and relevantly provides:
(a) Quarterly sales activity report for each development including a current sales price list, estimate of net settlement proceeds and the settlement date of each contract of lots to be provided to [Suncorp] within 21 days of each 30 September, 31 December, 31 March and 30 June commencing with the first report due as at 30 June 2005.
54 It is an event of default under the Facility Deed if Lanepoint ceased or threatened to cease to carry on its business or a major part of it (cl 12.4). Bowesco claims in the appeal that the Development was Lanepoint's business or a part of it. There is no agreed fact or finding by the trial judge to that effect.
55 The trial judge accepted that the Suncorp letter assumed the Development would proceed and based many of its terms and conditions on that assumption, but rejected the claim that Lanepoint was contractually obliged to complete the Development. He said:
Suncorp's obligation to advance funds from time to time was conditioned by the Development proceeding as contemplated. Various conditions precedent to construction funding which dealt with requirements as to a building contract, building approval and the Development proceeding in accordance with agreed cash flow and project feasibility statements were directed to that end. One condition precedent was said to be 'construction is to commence by 30 June 2005 and is to be completed by 31 October 2005'. Contrary to Bowesco's submissions, that condition precedent cannot properly be construed as a covenant by Bowesco to complete the Development. Rather, it is a condition affecting Suncorp's liability to commence or continue funding [40].
56 The trial judge did not accept Bowesco's claim that if Lanepoint failed to complete the Development, Suncorp could obtain damages to complete it. He said:
However, even if there were such a covenant, there is at least considerable doubt that Suncorp's damages for breach of that covenant would be measured by the cost of Suncorp completing the Development as Suncorp had no right under its securities to complete the Development itself, and it is difficult to see how it could have done so given that Suncorp did not own the land and had no contractual relationship with the contractors undertaking the Development (R[42]).
57 The respondent accepted that the trial judge was in error in this regard. On Lanepoint's default, Suncorp had the right under its securities to complete the Development itself. In particular, Suncorp had broad powers to do anything as if it were the absolute owner of the secured property: Suncorp Charge, cl 17.2. However, the respondent claims that the errors (which are the subject of grounds of appeal 3 and 4) do not alter the outcome.
58 Against that background I turn to the construction question. The meaning of the Suncorp letter, in the broader context of the Facility Deed, is to be determined by what a reasonable person would understand the contractual language to mean: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165. Evidence of surrounding circumstances is not relied on in this case as an aid to construction.
59 The Suncorp letter is to be construed as at the date of entry into the agreement. It provides for different types of funding. We are here concerned with that component of the facility for the development of the 40 residential apartments, referred to in the Suncorp letter as the construction funding.
60 Some, but not all, of the matters in condition 2 must (unless waived by Suncorp) be satisfied before the provision by Suncorp of any construction funding. The matters in pars (a) relating to the building contract, (j) relating to presales, and the first part of (g) relating to the commencement date of construction, fall within that category.
61 The remaining matters in condition 2 relate to Suncorp's obligation to fund progress claims throughout the construction period. The Suncorp letter contemplates that Suncorp would progressively fund the construction works the subject of the Development and that progress claims were for construction work that had been performed.
62 The objectively determined intention of the parties to the Suncorp letter is that (at least once Suncorp had commenced funding the construction works forming part of the Development) Lanepoint was obliged to complete the Development. I reach that conclusion based on the purpose, linkages and cumulative effect of the provisions of the Suncorp letter. The linkages are between the purpose of the facility, the timing of key events, and the source and timing of the repayment of the facility.
63 In particular, the achievement of the purpose of the facility is linked with the provisions relating to, and the importance attached to, each of the timing of the initial draw down, the commencement of construction work and the completion of construction work. The importance of timing is also linked with the requirement for the existence of presale contracts totalling $4 million which contracts will, I infer, settle on completion of the apartments the subject of the Development. The timing of the settlement of presale contracts is linked with the amount and timing of the repayment of the facility, which is reflected in Suncorp's agreed cashflow referred to in condition 2(a)(iv), as confirmed by condition 3(a). The inescapable inference is that the parties intended that Lanepoint be obliged to complete the Development.
64 For these reasons I would uphold grounds 1 and 2 of the appeal.
Grounds 3 and 4 - right to complete Development
65 As noted above, these grounds have been conceded by the respondent. It was correct to do so.
Ground 5 - construction of Guarantee
66 This ground challenges the second of the trial judge's reasons for dismissing Bowesco's claim.
67 The trial judge held that even if there was a positive covenant by Lanepoint to complete the Development, Bowesco's obligation under the Guarantee did not give rise to an obligation to perform the contractual term guaranteed. Rather, the obligation of Bowesco was no more than the conventional obligation to pay damages in the event of a breach by Lanepoint (R[43]). The trial judge continued:
The existence of a covenant by Lanepoint to complete the Development, and the proposition that performance of that covenant was guaranteed by Bowesco, is central to Bowesco's claim. The consequence of the conclusions I have reached as to those matters is that Bowesco's claim cannot succeed.
68 The scope and effect of Bowesco's obligation under the Guarantee is a question of construction of cl 3 which provides:
3.1 The Guarantor unconditionally and irrevocably guarantees payment of the Moneys Secured to the Bank when they are due.
3.2 The Guarantor shall pay the Moneys Secured to the Bank on demand if they are not paid by [Lanepoint].
3.3 The Guarantor guarantees the due and punctual performance by [Lanepoint] of the obligations of [Lanepoint] under any Agreement and under any Security.
69 The Suncorp letter is an 'Agreement' for the purposes of cl 3.3 of the Guarantee. The expression 'Moneys Secured' means all money which is due, owing or payable arising from, inter alia, an Agreement.
70 Bowesco contends that Lanepoint's obligation to complete the Development was an obligation guaranteed by Bowesco and that, in advancing funds to Lanepoint to complete the Development, Bowesco was performing an obligation that it had guaranteed under cl 3.3 of the Guarantee.
71 On its proper construction, cl 3.3 guarantees the due and punctual performance of Lanepoint's obligations. It is not a promise that Bowesco will itself perform Lanepoint's contractual obligations.
72 Further, the Guarantee does not impose an obligation on Bowesco 'to see to' it that Lanepoint performed its obligations to Suncorp: Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245, 255 - 256. On its proper construction, Bowesco's obligation under cl 3.3 is to pay any debt or damages arising from Lanepoint defaulting on its obligations. However, I put to one side for the moment whether it is central to Bowesco's claim that Lanepoint was in default when it made the payments in question.
73 The trial judge did not make, and Bowesco does not seek, a finding that Lanepoint was in default under the Facility Deed when Bowesco made the payments in question. I would dismiss ground 5.
Ground 6 - subrogation
74 Subrogation is an equitable doctrine. There is no all-embracing theory or statement of when subrogation will be permitted. The equity arises from the conduct of the parties on well-settled principles and in defined circumstances which make it unconscionable for the defendant to deny the plaintiff's right: Re Dalma No 1 Pty Ltd (in liq) (2013) 279 FLR 80 [24].
75 Subrogation, which in broad terms allows one party to stand in the shoes of another, inevitably involves a tripartite situation. There are recognised categories in which subrogation is permitted. They include insurance, guarantees and vendor's lien. Subrogation involves the adjustment of the interests of X (insurer, guarantor, lender) in the legal relations between Y (insured, creditor, vendor) and Z (tortfeasor, principal debtor, purchaser).
76 Bowesco's pleaded claim is based on Bofinger v Kingsway Group Ltd (2009) 239 CLR 269, a case concerning guarantees. In Bofinger, Company B borrowed money consecutively from three lenders (the first mortgagee, the second mortgagee and third mortgagee respectively) on the security of mortgages over the same real property of Company B. The appellants gave guarantees to each of the first, second and third mortgagees which were supported by mortgages over the real property of the appellants. The appellants sold those properties and applied the proceeds in reduction of the indebtedness of Company B to the first mortgagee. Thereafter the first mortgagee exercised its power of sale over certain of the properties mortgaged by Company B. After satisfying the balance of the indebtedness of Company B, the first mortgagee accounted to the second mortgagee by payment of the surplus sale proceeds and delivery of the certificates of title and discharges of the first mortgages over two unsold properties. The first mortgagee did not account to the appellants for the amount they had paid to it in reduction of Company B's indebtedness. The court (Gummow, Hayne, Heydon, Kiefel & Bell JJ) quoted with approval the following description of the right of subrogation in favour of a surety [4]:
The right operates so as to confer on the surety who has paid the debt in full the rights against the debtor formerly enjoyed by the creditor or by imposing on the creditor the obligation to account to the surety for any recovery in excess of the full amount of his debt.
77 After noting that the indebtedness to the first mortgagee had been paid in full and the securities held by the first mortgagee discharged, the court said that the remedies equity provides must 'found upon the obligation of the first mortgagee to account' [4].
78 When a guarantor has discharged the liability of the principal debtor to the creditor, the principal debtor is obliged to indemnify the guarantor. This liability to indemnify provides the foundation for the application of the doctrine of subrogation which entitles the guarantor to the benefit of any securities held by the creditor [8]. Further, a second and subsequent mortgagee (and I infer unsecured creditor) cannot complain where the guarantor utilises by subrogation the security held by the first mortgagee [9]. I infer that is because they suffer no prejudice as the actual amount secured by the first mortgage is constant.
79 The appellants made the payments to the first mortgagee by two instalments, one prior to any default by Company B on the first or any mortgage, and the other after default. There had been no call by the first mortgagee upon the guarantors. The first mortgagee knew of the sales of the two properties by the appellants and of the payment of the proceeds thereof in reduction of the indebtedness of Company B.
80 Company B's indebtedness to the first mortgagee was fully satisfied by 8 February 2006. At that time Company B remained indebted to the second and third mortgagees. The High Court identified its task as being to identify the scope of equitable relief which, in the circumstances of the case, adequately protected the position of the appellants as at 8 February 2006 (ie when the first mortgagee was repaid in full) when the indebtedness of Company B to the first mortgagee had been satisfied [45]. It identified the role of the constructive trust as a remedial response to a claim to equitable intervention, referring to Giumelli v Giumelli (1999) 196 CLR 101. That is, the use of a constructive trust not with respect to the creation or recognition of a proprietary interest but the imposition of a personal liability to account upon a defaulting fiduciary [47]. On 8 February 2006 (ie when the debt secured by the first mortgagee was repaid in full) the first mortgagee was obliged in good conscience both to account to the appellants for the surplus moneys and securities it held, which obligations were fiduciary in character [49]. The court said it was unnecessary to determine whether the first mortgagee was a trustee in a fuller sense which afforded the appellants a beneficial interest in the assets in question [50].
81 Further, the breach by the first mortgagee of its fiduciary obligation to the appellants to account would suffice to engage the principles associated with the second limb in Barnes v Addy (1874) LR 9 Ch App 244. Accordingly, the appellants would have a remedy against the second mortgagee.
82 The facts in this case, with Bowesco's advance being used to directly fund some or all of the costs of completing the Development, are clearly distinguishable from the facts in Bofinger in particular, and the guarantee category of subrogation in general.
83 Crucially, the payments by Bowesco did not, in substance or effect, reduce Lanepoint's actual indebtedness to Suncorp at any time. That is a necessary (even if not sufficient) condition of the application of the subrogation doctrine in the guarantee category.
84 Moreover, there is no finding (and none is sought by Bowesco) that, but for Bowesco's payments, Suncorp may or must have funded Lanepoint to that extent under the Facility Deed. Indeed, the evidence suggests otherwise. In those circumstances, it is unnecessary to determine whether the subrogation doctrine applies by analogy if the payment made by the guarantor avoided a payment which the creditor was otherwise contractually obliged to make and which would be secured in priority to subsequent security holders.
85 It is also unnecessary to determine whether subrogation is only available if the payment by the guarantor was made after its liability under the guarantee is triggered by a default of the principal debtor. Bofinger would suggest subrogation is not so confined.
86 Further, the facts in this case do not fit within the vendor's lien category and are not closely analogous to it. That category applies in a situation where a party lends money to a purchaser of real property which is used to pay the vendor. The lender will be subrogated to the right the vendor would otherwise have had to exercise a lien over the property for the purchase price if it appears from the whole circumstances that it was the intention of the parties that the lender should have security over the property for his loan. In that event, it would be inequitable to deny him the security for which he stipulated and the appropriate manner in which to give it to the lender is by subrogating him to the position of the vendor: Evandale Estates Pty Ltd v Keck [1963] VR 647, 652.
87 In this case, Bowesco's payments were not made for the purpose, and did not have the effect, of reducing or discharging Lanepoint's liability to Suncorp. Further, the intention of the parties was that any security for Bowesco's payments had to accommodate the fact that Suncorp had a first registered mortgage over the Lanepoint Property, and that Suncorp and Westpoint had a fixed and floating charge over Lanepoint's assets and undertaking. Bowesco and Lanepoint understood that they were not in a position to unilaterally alter the priority positions of the existing secured creditors.
88 At the hearing of the appeal, Bowesco by its counsel conceded that this case did not fit within any of the established categories in which subrogation is available. It can be accepted that the categories are not closed. However the test is not a standalone yardstick of unconscionabilty: Bofinger [90] - [94].
89 The common thread uniting the categories suggests that subrogation will be permitted outside the established categories only when necessary in order to avoid the unconscionable result of double recovery by the creditor or the inequitable discharge of the liability of the debtor: Meagher, Gummow and Lehane's Equity Doctrines and Remedies (5th ed) [9-345].
90 In any event, even if Suncorp did transfer the surplus assets of Lanepoint to Westpoint, that is not shown to be unconscionable. Bowesco's payments did not reduce Lanepoint' indebtedness to Suncorp. There was no finding that, but for the payment, Suncorp would have increased its funding to Lanepoint. Suncorp's agreement to fund under the Suncorp letter and Facility Deed was based upon Lanepoint providing equity funding for the Development. Bowesco advanced the funds only because the source of the equity funding, Westpoint, was prevented from satisfying its obligations under the Westpoint Loan Agreement. Finally, it was no part of Bowesco's pleaded or litigated claim that it was entitled to be subrogated to the Perpetual Charge.
91 I would dismiss ground 6.
Proposed grounds 7 and 8
92 The application to add these grounds was made on the run at the hearing of the appeal. They are intended to relate to the final two grounds on which the trial judge dismissed Bowesco's claim, based on the trial judge's finding that Suncorp did not owe Bowesco a fiduciary duty to account because Suncorp did not at any stage receive the surplus funds or pay them to Westpoint.
93 I would refuse leave to add grounds 7 and 8. They do not identify with any clarity or precision the alleged errors relied on and appear to be inconsistent.
94 As I understand the oral submissions, Bowesco accepted that the Suncorp Receivers paid the surplus funds to Westpoint (in fact to the Perpetual Receivers) and did so in their capacity as agent of Lanepoint. Ground 7 appears to suggest that it is not essential to prove that Suncorp was in breach of its fiduciary duty to account to Bowesco, yet proposed ground 8 is premised on an assumption that Suncorp did breach its fiduciary duty to account. The oral submissions in support of the amendment application did not, in substance, travel beyond mere assertion of these propositions. No attempt was made to articulate the legal propositions or principles underlying the assertions.
95 Although it is possible to postulate at least three potential options, they were not pleaded or litigated and do not overcome the primary impediment to subrogation. Further, it is not this court's role to itself attempt to fill the yawning gaps in Bowesco's advocacy.
Notice of contention
96 As Bowesco has failed to identify any error that is capable of altering the outcome, it is unnecessary to determine the grounds of contention. Further, it is undesirable for this court to do so in the absence of a determination relating to the basis for, and nature of, Bowesco's alleged entitlement to the surplus in priority to Westpoint.
Conclusion
97 For these reasons, the appeal should be dismissed.
98 BUSS JA: I agree with McLure P.
99 NEWNES JA: I agree with McLure P.
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