Carey v Balfour

Case [2021] SASC 79

SUPREME COURT OF SOUTH AUSTRALIA

(Magistrates Appeal: Civil)

CAREY v BALFOUR

[2021] SASC 79

Judgment of the Honourable Justice Hughes 

30 June 2021

GUARANTEE AND INDEMNITY - RIGHTS OF SURETY - AGAINST PRINCIPAL DEBTOR

EQUITY - GENERAL PRINCIPLES - UNJUST ENRICHMENT

RESTITUTION - OTHER CAUSES OF ACTION IN RESTITUTION

PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - ENDING PROCEEDINGS EARLY - SUMMARY DISPOSAL - SUMMARY JUDGMENT FOR PLAINTIFF OR APPLICANT

The appellant appealed a decision of the Magistrates Court to grant summary judgment in the sum of $100,000 to the respondent. The respondent was one of the guarantors of a number of loan facilities of which the appellant was one of the principal debtors. When the principal debtors defaulted on their loan repayments, the creditor sent a letter of demand to the respondent. The respondent negotiated a settlement of $150,000 with the creditor to discharge his obligations as guarantor. The respondent then made a claim for $100,000 against the appellant in the Magistrates Court on the basis of a right of indemnity in contract, implied contract and restitution for making the payment to the creditor.

The appellant’s grounds of appeal asserted that the Magistrate made errors in law in relation to the principles of implied contract, restitution and summary judgment, and errors in fact in relation to the factual conclusions drawn on the evidence.

Held, allowing the appeal and remitting the matter to the Magistrates Court:

1.  The Magistrate was in error in effectively presuming that a right arises in the absence of a request by the debtor to the guarantor where the debtor accepts finance that is conditional on a guarantee. Further circumstances must be ascertained before the right can be said to arise in contract.

2.  The Magistrate did not err in his Honour’s statement of the law in relation to the claim in restitution.

3.  The Magistrate erred in finding that the appellant had not pleaded any facts that would militate against a finding that an implied request had been made. The deficiency in the evidence concerning the purpose of the loan and of the guarantee and the arrangements as between the parties should have led to the result that at that point in time it was not possible to conclude that the defence was not reasonably arguable.

4.  The factual conclusions drawn regarding the purpose of the contributions made, the parties’ intentions regarding the respondent’s right to indemnification, and the circumstances of the payments made to the bank upon the bank’s demands, are not sufficiently established to allow the conclusions to be drawn.

Magistrates Court Act 1991 (SA) s 40; Magistrates Court (Civil) Rules 2013 (SA) s 8(1), referred to.

Adelaide Brighton Cement Ltd v Hallett Concrete Pty Ltd [2020] SASC 161; Codelfa Constructions Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221; Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516; Coshott v…

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Carey v Balfour [2021] SASC 79
Case
[2021] SASC 79
Decision Date

CaseChat Overview and Summary

The appellant, Mr Carey, appeals a decision by a Magistrate to grant summary judgment in favour of the respondent, Mr Balfour, in the sum of $100,000. The appeal concerns the enforceability of a guarantee provided by the respondent to a bank for a commercial loan to the partnership and company operating the Raglans Hotel. The appeal raises questions about the rights of a surety against a principal debtor and the principles governing summary judgment.

The legal issues before the court were whether the Magistrate erred in finding that the evidence was clear enough to conclude that the appellant had no reasonably arguable defence to the claim, and whether the Magistrate correctly applied the principles governing summary judgment. The court had to consider whether the Magistrate erred in presuming a right to indemnity without a request from the debtor to the guarantor, whether the Magistrate correctly applied the principles of summary judgment, and whether the evidence supported the conclusion that the defence was not reasonably arguable.

The court found that the Magistrate erred in presuming that a right to indemnity arises in the absence of a request by the debtor to the guarantor. The court held that further circumstances must be ascertained before such a right can be said to arise in contract. The court also found that the Magistrate erred in concluding that the appellant had no reasonably arguable defence based on the evidence available at that time. The court held that the deficiency in the evidence concerning the purpose of the loan, the guarantee, and the arrangements between the parties meant that it was not possible to conclude that the defence was not reasonably arguable.

The court allowed the appeal, set aside the decision to grant summary judgment, dismissed the application, and remitted the matter to the Magistrates Court for further directions.

The court's orders were:
1. The Magistrate was in error in presuming that a right to indemnity arises in the absence of a request by the debtor to the guarantor.
2. The Magistrate did not err in his statement of the law in relation to the claim in restitution.
3. The Magistrate erred in finding that the appellant had not pleaded any facts that would militate against a finding that an implied request had been made.
4. The factual conclusions drawn regarding the purpose of the contributions made, the parties' intentions regarding the respondent's right to indemnification, and the circumstances of the payments made to the bank upon the bank's demands, are not sufficiently established to allow the conclusions to be drawn.

Orders

Orders of the court

Held, allowing the appeal and remitting the matter to the Magistrates Court:

1. The Magistrate was in error in effectively presuming that a right arises in the absence of a request by the debtor to the guarantor where the debtor accepts finance that is conditional on a guarantee. Further circumstances must be ascertained before the right can be said to arise in contract.

2. The Magistrate did not err in his Honour’s statement of the law in relation to the claim in restitution.

3. The Magistrate erred in finding that the appellant had not pleaded any facts that would militate against a finding that an implied request had been made. The deficiency in the evidence concerning the purpose of the loan and of the guarantee and the arrangements as between the parties should have led to the result that at that point in time it was not possible to conclude that the defence was not reasonably arguable.

4. The factual conclusions drawn regarding the purpose of the contributions made, the parties’ intentions regarding the respondent’s right to indemnification, and the circumstances of the payments made to the bank upon the bank’s demands, are not sufficiently established to allow the conclusions to be drawn.

Background

Background to the litigation

Pursuant to s 40 of the Magistrates Court Act 1991 (SA), the appellant, Mr Carey, seeks to appeal a decision of a Magistrate to grant summary judgment in the sum of $100,000 in favour of the respondent, Mr Balfour. For the reasons that follow, I would allow the appeal, set aside the decision to grant summary judgment, dismiss the application and remit the matter to the Magistrates Court for further directions.Brief factual background In or around 2004, the appellant, the respondent and Mr Robert Kent entered into an oral agreement and commenced jointly operating an entertainment venue known as the Raglans Hotel located at 109 Waymouth Street, Adelaide. The appellant maintains that he entered into this oral agreement in his capacity as a director of WFC Nominees Pty Ltd which is a company he controlled.[1] The appellant says that the arrangement was a partnership between the respondent (in his own right and in his capacity as trustee of the Balfour Family Trust), Mr Kent and his wife Mrs Karyn Kent (in their own right and in their capacity as trustees of the Kent Family Trust) and WFC Nominees Pty Ltd (in its own right and in its capacity as trustee of the WFC Family Trust).[2][1] Defence (Revision 1) filed 2 June 2020 at [3.1].[2] Ibid at [3.2]. To facilitate the operation of the business, a company called Raglans Hotel Pty Ltd was established with the appellant having a 40% shareholding, the respondent a 20% shareholding and Mr Kent a 40% shareholding. The respondent maintains that he financed his 20% contribution with his own funds and paid all amounts due and attributable to him in full.[3] [3] Second Claim filed 1 May 2020 at [5]. In 2007, the appellant and Mr Kent obtained a commercial loan facility and a commercial bill facility (together “the facilities”) from the Bank of South Australia (‘Bank SA’). The purpose of the commercial bill facility as described in an unsigned copy of a letter of offer from Bank SA dated 20 February 2007 was “[t]o finance ANZ Bank and reimburse directors for funds spent on renovations of Raglans Hotel Pty Ltd.”[4] The letter of offer indicated that the facility was for the sum of $1,010,000.[5] There was a signed guarantee in respect of the facility dated 23 February 2007.[6] A later unsigned letter of offer from Bank SA dated 26 November 2007 offered the appellant and Mr Kent a further commercial bill facility in the sum of $1,108,000 and its purpose was “[t]o assist in the establishment of a Beer Garden at the Marble Bar Hotel.”[7] The Marble Bar was the name by which the Raglans Hotel was to be known.[8][4] Affidavit of Stephen Balfour dated 14 November 2019 at exhibit SB1.[5] Affidavit of Matthew Selley filed 20 September 2019 at exhibit MS2.[6] Affidavit of Wayne Carey filed 17 February 2020 at exhibit WC1.[7] Ibid at exhibit WC2.[8] Ibid at [5.1]. The appellant, through his filed Defence (Revision 1),[9] maintains that although he is unaware of the final terms of the facilities[10] they were, at least in part, associated with substantial renovations to the premises of the Raglans Hotel business that were undertaken, or were to be undertaken, for the benefit of the partnership and Raglans Hotel Pty Ltd.[11] [9] Filed on 2 June 2020.[10] Defence (Revision 1) filed 2 June 2020 at [7A.2].[11] Ibid at [6.6].

Evidence

Evidence Before The Court

What remains to be considered is whether the Magistrate fell into error in finding that the evidence was sufficiently clear to enable a conclusion that the appellant raised no reasonably arguable defence to the claim.The appellant’s account of the evidence upon which summary judgment was granted The Magistrate’s factual findings were relevant to the establishment of the respondent’s claim and whether the appellant had raised arguable defences. Those defences were:·that there was no implied request by the appellant to the respondent to provide the guarantee and no contractual right in the respondent to be indemnified by the appellant;[95]·the monies paid to the bank by the respondent were derived from a source other than the respondent, relevant to his claim for indemnification;[96] and·the financial contributions to the company and other financial arrangements between the parties, Mr Kent and the company, were insufficiently apparent or did not support a grant of relief in equity.[97][95] Defence (Revision 1) filed 2 June 2020 at [22.2]-[22.11].[96] Ibid at [13]-[13A].[97] Ibid at [23.2]-[23.3]. The appellant maintains (by way of pleading or affidavit on the application) that the evidence establishes or will be shown to establish:·the facilities were obtained two to three years after the venture commenced;[98]·the renovations to which the facilities were applied benefited the partnership and the company;[99]·there was no request made by the appellant for the respondent to provide the guarantee or to make a payment under the guarantee;[100]·the guarantee was given by the respondent in his capacity as a partner of the partnership and director of the company for the benefit of each;[101]·the appellant reached a settlement with Bank SA regarding his liability but has no documents or recollection as to when this occurred or in what amount;[102] ·the payments made to Bank SA by the respondent were made by another entity, the SB Family Trust;[103]·the circumstances of the borrowing and of the financial activities of the company and of the three partners may become more apparent upon non-party discovery by Bank SA and the liquidator.[104][98] Ibid at [3.1] and [6].[99] Ibid at [22] and [23].[100] Affidavit of Wayne Carey filed on 17 February 2020.[101] Defence (Revision 1) filed 2 June 2020 at [7] and Second Claim filed 1 May 2020 at [7].[102] Affidavit of Wayne Carey filed on 17 February 2020.[103] Defence (Revision 1) filed 2 June 2020 at [13]-[13A].[104] Transcript of appeal hearing on 17 November 2020 at p 44 (lines 8-32). The appellant does not admit that the respondent had financed his 20% contribution to the business and paid all amounts that were due and attributable to him. It was pleaded by the appellant that the respondent’s guarantee may have been given as the “price” for his benefit from the loan facilities as a partner of the business.[105] It was further put in submissions on the appeal that it was open to the Magistrate to find that the evidence was consistent with the purpose of the loan being to enable the appellant and Mr Kent to on-loan the moneys to the company for the renovations which would have the effect of the appellant being a creditor to the company and the respondent obtaining the benefit of the arrangement at the price of his guarantee.[105] See, Defence (Revision 1) filed 2 June 2020 at [6.7]; Transcript of appeal hearing on 17 November 2020 at pp 31 (line 23) – 32 (line 3).

Decision

Reasons for decision

Against that background, it is possible to assess whether the Magistrate erred in granting summary judgment.The legal principles of summary judgment The parties did not take issue with the Magistrate’s articulation of the principles governing summary judgment. Rule 8(1) of the Magistrates Court (Civil) Rules 2013 (SA) provided that the basis for a grant of summary judgment was a finding that there is “no reasonable basis for the … defence.” At the time of the decision, the principles were the subject of consideration in the authorities of the Full Court’s decision in Ceneavenue Pty Ltd v Martin,[114] the Federal Court’s decision in White Industries Australia Ltd v Commissioner of Taxation[115] and the High Court in Spencer v The Commonwealth of Australia[116] and Davies v Minister for Urban Development and Planning & Anor[117] in which Bleby J analysed the conflicting statements of the Full Court in Ceneavenue and the High Court in Spencer. [114] (2008) 106 SASR 1.[115] (2007) 160 FCR 298, 309 [47] (White J).[116] (2010) 241 CLR 118.[117] [2011] SASC 87. The Magistrate summarised his findings on the law and the test to be applied for summary judgment as follows:[118]In his submissions, [counsel for the defendant] was at pains to say that the right of indemnity/recoupment depended upon all the circumstances. That is certainly true but that does not mean I should conclude that because all the facts are not known to me I cannot determine the matter summarily. If that were true r8, and its equivalent in other jurisdictions, would serve no purpose at all. I must determine if there is a ‘reasonable basis for the defence’ by considering if, upon the pleaded case, having regard to the undisputed facts and in the light of the passages in Spencer’s case set out above, there might be circumstances warranting recruitment (sic: recoupment) inequitable. If not, then I should conclude that the defence has no reasonable basis and allow the applicant’s application.[118] Reasons for Decision of Magistrate Milazzo dated 23 July 2020 at [45]-[46]. That approach is consistent with that taken by Doyle J in Adelaide Brighton Cement Ltd v Hallett Concrete Pty Ltd subsequent to the Magistrate’s decision:[119] By way of summary of the approach articulated in Spencer v Commonwealth, it can be said that the power to determine a claim summarily should not be exercised lightly. Exercise of the power requires a practical assessment of whether the applicant has real, as opposed to merely fanciful, prospects of success. While the Court need not be satisfied that the claim is hopeless or bound to fail, nevertheless it must be cautious not to do a party injustice by summarily determining an action, particularly where there are disputed issues of fact or law or mixed fact and law, merely because the Court considers that the claim is unlikely to succeed. However, beyond these very general guidelines, the Court should focus upon the words used in the rules and avoid applying any judicial gloss.Related to the requirement that the Court undertake a “practical” assessment is the notion that the Court should not embark upon a ‘mini trial’ of the claim. Rather, the claim should be assessed in a summary manner, while being cognisant of the incomplete nature of the evidence upon which the Court’s decision must be based. Adversarial argument may assist, and indeed may result in the emergence of a sufficiently clear answer to a complex issue that summary judgment is appropriate. On the other hand, the need for prolonged argument may be indicative of a reasonable basis for the claim.(footnotes omitted)[119] [2020] SASC 161 at [59]-[60].

Ratio Decidendi

Legal Principle Established

The respondent maintained that Owen v Tate,[51] in which a guarantor was found not to be liable to indemnify the principal debtor, is distinguishable on its facts in that it concerned the rights of a guarantor who, unlike the respondent, was not involved in the arrangements as between the lender and the borrower but entered the arrangements at a later stage.[51] [1976] QB 402.Consideration – the right to indemnity under implied contract The principles governing a guarantor’s right to recover from a debtor after the guarantor satisfies the debt were set out in In re a Debtor,[52] which drew together the principles from a number of earlier United Kingdom cases.[53] The Court considered the circumstances of a debtor who had borrowed money from a bank accompanied by a guarantee offered by a guarantor. When the debtor defaulted on her repayment of the loan, the bank called upon the guarantor to pay under the terms of the guarantee. After discharging the debt in accordance with the terms of the guarantee, the guarantor obtained default judgment against the debtor. In considering the claim for indemnity, Sleeser LJ stated:[54]There is no doubt that a surety paying a debt is entitled to recover against the principal, as for money paid to his use: Morrice v Redwyn; Woffington v Sparks; in the words of Cozens-Hardy, M.R., in In re Richardson, “It is settled at common law that, given a contract of indemnity, no action could be maintained until actual loss had been incurred. The common law view was first pay and then come to the Court under your agreement to indemnify.” This is the basis of an implied promise to pay. … But though no question arises that there is no enforceable debt at law which can be enforced by the surety until the surety, being liable and obliged to pay, does pay the creditor (an event which here happened after the passing of the 1935 Act), it by no means follows that the obligation of the principal does not in appropriate circumstances arise by an implied agreement at the time of the giving of the guarantee that the principal, if and when the guarantor is called upon to pay, will indemnify the guarantor, though the event which gives rise to the enforceability of the promise falls later. Such a request may be implied by law from “the fact of entering in the engagement”: per Lord Campbell in Batard v Hawes.(footnotes omitted)[52] [1937] Ch 156.[53] In re A Debtor [1937] Ch 156; Moule v Garrett (1872) LR 7 Ex 101; Morrice v Redwyn (1731) 2 BKB 26; Ware v Horwood (1807) 14 Ves 28; Alexander v Vane (1836) 1 M & W 511; Kearsley v Cole (1846) 16 M & W 128.[54] In re A Debtor [1937] Ch 156, 160-161. In re a Debtor[55] concerned an express request by the principal debtor to the guarantor to give the guarantee and an implied request to pay on the guarantee where the creditor demands payment, enlivening a right of indemnity from the principal debtor to the guarantor. Greene LJ said:[56]It is, in my opinion, settled beyond possibility of dispute that where “A” at the request of “B” guarantees payment of “B’s” debt to “C”, the law implies an undertaking by “B” to indemnify “A” in respect of any sums which he properly pays to “C” under the guarantee. This is merely a branch of a wider rule which is laid down in numerous authorities. I may quote as examples Brittain v Lloyd, where Pollock C.B. says, “It is clear, that, if one requests another to pay money for him to a stranger, with an express or implied undertaking to repay it, the amount, when paid, is a debt due to the party paying from him at whose request it is paid, and may be recovered on a count for money paid …… The request to pay, and the payment according to it, constitute the debt; and whether the request be direct, as where the party is expressly desired by the defendant to pay, or indirect, where he is placed by him under a liability to pay, and does pay, makes no difference”; and Batard v Hawes, where Lord Campbell said, “To support the action for money paid, it is necessary that there should be a request from the defendant to pay, either express or implied by law. Where one party enters into a legal liability for and at the request of another, a request to pay the money is implied by law from the fact of entering into the engagement; and, if the debt or liability is incurred entirely for a principal, the surety, being liable for him at his request, and being obliged to pay, is held at law to pay on an implied request from the principal that he will do so”: see also notes to Lampleigh v Brathwait.(citations omitted)[55] [1937] Ch 156.[56] Ibid 163.