DiMella v Rudaks - [2008] SASC 345

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court: Civil)
DIMELLA v RUDAKS
[2008] SASC 345
Judgment of The Full Court
(The Honourable Justice Anderson, The Honourable Justice White and The Honourable Justice Kelly)
11 December 2008
EQUITY - GENERAL PRINCIPLES - EQUITABLE DOCTRINES AND PRESUMPTIONS - SUBROGATION
Appeal against decision of District Court dismissing appellant's claim that respondent should be debarred from exercising the equity of redemption in a property at Port Moorowie - Bank loaned money to a company, secured by three guarantees - two guarantees supported by mortgages, one being an equitable mortgage over the Port Moorowie property - one guarantor declared bankrupt and the respondent appointed his trustee in bankruptcy - widow of one guarantor discharged the liability of the company to the Bank - Bank executed deed assigning some of its securities to the widow and discharged one of the mortgages.
Widow assigned to the appellant her rights of action against the bankrupt guarantor and the securities held by her in respect of payments made for or on behalf of the company, including the equitable mortgage over the Port Moorowie property - appellant seeks to foreclose on that equitable mortgage.
At trial, appellant relied on a right of contribution alleged to arise from the widow's payment to the Bank and assigned to appellant by the Bank - appellant argued that that right was secured by the equitable mortgage - on appeal, appellant relied on subrogation rather than contribution.
Whether widow acquired right of subrogation by reason of her payment to Bank - consideration of principle that when a third party pays off a mortgage, the third party is presumed, unless the contrary appears, to intend that the mortgage be kept alive for the third party's benefit - requirement for conscience of mortgagor to be affected - where widow intended payment to extinguish mortgage over the property at which she resided - consideration of the effect of widow's conduct on possible exercise of rights arising between the guarantors.
Held: appeal dismissed - lack of evidence about matters relevant to the existence of equity of subrogation makes it impossible for Court to determine, on appeal, where equity lies - decision of trial Judge not shown to be wrong.

APPEAL AND NEW TRIAL - APPEAL - GENERAL PRINCIPLES - POINTS AND OBJECTIONS NOT TAKEN BELOW - WHEN ALLOWED TO BE RAISED ON APPEAL - OTHER MATTERS - OTHER CASES
Whether appellant raising for the first time a point not advanced at trial - where additional evidence relevant to subrogation could have been led - where appellant's submissions at trial were consistent with, but did not expressly invoke, a claim of subrogation - where respondent's counsel and the trial Judge were alert to the possibility that subrogation may be relevant - where trial Judge held that no right of subrogation arose.
Held: although appellant did not invoke any principle of subrogation at trial, because the trial Judge had addressed the issue, appellant should be allowed to invoke the principle on appeal.
Cheques Act 1986 (Cth) s70, s71, s76, referred to.
Ghana Commercial Bank v Chandiram [1960] AC 732; Cochrane v Cochrane (1985) 3 NSWLR 403; Boscawen v Bajwa [1996] 1 WLR 328, discussed.
Albion Insurance Company Ltd v Government Insurance Office of New South Wales (1969) 121 CLR 342; Burke v LFOT Pty Ltd (2002) 209 CLR 282; Mahoney v McManus (1981) 180 CLR 370; Bond v Larobi Pty Ltd (1992) 6 WAR 489; Orakpo v Manson Investments Ltd [1978] AC 95; Re Trivan Pty Ltd (1996) 14 ACLC 1,654; Australasian Conference Association Ltd v Mainline Constructions Pty Ltd (in liq) (1978) 141 CLR 335; Morris v Ford Motor Co Ltd [1973] QB 792; Rogers v Resi-Statewide Corporation Ltd (No 2) (1991) 32 FCR 344; Water Board v Moustakas (1988) 180 CLR 491; University of Wollongong v Metwally (No 2) (1985) 59 ALJR 481; Banque Commerciale SA en Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279; Re National Permanent Building Society; Ex parte Williamson [1869] 5 Ch App 309; Falcke v Scottish Imperial Insurance Company [1886] 34 Ch D 334; Re Cleadon Trust Ltd [1939] Ch 286; Registrar General v Gill [1994] NSWCA 261; Butler v Rice [1910] 2 Ch 277; Re H & S Credits Ltd (in liq), Tucker v Roberts [1969] Qd R 280; New South Wales Medical Defence Union Ltd v Crawford (No 3) [1994] NSWCA 231; Paul v Speirway Ltd [1976] 1 Ch 220; Williams v Frayne (1937) 58 CLR 710, considered.

WORDS AND PHRASES CONSIDERED/DEFINED
"subrogation"

DIMELLA v RUDAKS
[2008] SASC 345
Full Court: Anderson, White and Kelly JJ

ANDERSON J. I agree that the appeal should be dismissed and I agree with the reasons of White J.
WHITE J: On this appeal, the appellant (the plaintiff in the proceedings in the District Court) seeks to invoke a principle of subrogation, namely, that when a third party pays off a mortgage, the third party is presumed, unless the contrary appears, to intend that the mortgage shall be kept alive for his or her own benefit.[1]
[1] Ghana Commercial Bank v Chandiram [1960] AC 732 at 745; Cochrane v Cochrane (1985) 3 NSWLR 403 at 405.
The appellant faces the difficulty that in the District Court she did not plead nor refer to the remedy of subrogation at all. The appeal therefore gives rise to two principal issues. The first is the consequence of the appellant having pursued her claim in a different way in the District Court trial. The second is whether the principle of subrogation invoked by the appellant is applicable in the circumstances of her case.
Background Circumstances
Between 1998 and 2000, the company Complete Plumbing & Building Supplies Pty Ltd (CPBS) carried on business in Adelaide. Its directors were Paul DiMella and Victor Raymond. CPBS went into liquidation on 20 December 2000.
Commencing in March 1988, Westpac Banking Corporation (Westpac) had lent money to CPBS. As at 20 December 2000, CPBS’ indebtedness to Westpac amounted to approximately $370,000. Westpac had a number of securities supporting its lending. These comprised a registered charge dated 5 April 1998 over the assets of CPBS, separate guarantees from each of Mr DiMella and Mr Raymond, and a guarantee from Villamere Pty Ltd (Villamere), acting in its own right and as trustee for the V & G Enterprises Family Trust. The evidence at trial concerning Villamere was somewhat scant, but it appears to have acted as trustee of a trust associated with Mr Raymond, and it owned the property at 6 Eildon Court, West Lakes at which Mr Raymond and his wife resided. The guarantee by Villamere was supported by a mortgage granted to Westpac over that property.
The trial Judge found that Westpac also had an equitable mortgage over Mr DiMella’s interest as at 3 April 1998 in a block of land at Port Moorowie on Yorke Peninsula and, on appeal, there was no challenge to that finding. The current registered proprietors of that land are Mr DiMella and his first wife, Josephine DiMella, but pursuant to a Family Court Order, Josephine executed a transfer of her interest in the land to Mr DiMella on 1 October 1998. The transfer has never been registered. The equitable mortgage to Westpac arose from Mr DiMella’s agreement to provide it with a mortgage over the Port Moorowie land as security for his guarantee and from his deposit with Westpac, at or about the time that he executed the guarantee, of the duplicate Certificate of Title to the Port Moorowie land.
The evidence before the Judge did not indicate whether Mr Raymond had provided any security to support his personal guarantee.
On 17 January 2001, Westpac demanded that Mr DiMella pay $373,338.12 under the guarantee provided by him. It is not known whether similar demands were made to each of Villamere and Mr Raymond. Mr DiMella’s solicitor responded on his behalf on 25 January, asserting that Westpac had agreed that it would not enforce the guarantee against him until such time as it had enforced the mortgage provided by Mr Raymond. The solicitor was referring to the Villamere mortgage on the home of Mr Raymond.
The Judge was told that Mr Raymond had died but the evidence did not disclose when his death occurred. I note however that the solicitor’s letter of 25 January refers to Mr Raymond’s death.
On 23 April 2001, Mr DiMella was declared bankrupt. The defendant (the present respondent) was in due course appointed his trustee in bankruptcy.
On 10 May 2001, Westpac executed a deed of assignment (the May 2001 Deed) in favour of Mrs Agueda Raymond. It was common ground that Mrs Raymond was the wife of Mr Raymond. The May 2001 Deed provided relevantly:
In consideration of the payment from you to Westpac Banking Corporation ARBN 007 457 141 (‘Bank’) in full and final satisfaction of the debts owed by Complete Plumbing & Building Supplies Pty Ltd ACN 080 606 560 (‘Company’), the Bank hereby assigns and transfers to you by way of subrogation all the securities held by it for the advances made to the Company, as described in the Schedule attached hereto.
The Schedule to the Deed listed five securities as follows:
1.Mortgage Debenture dated 5 April 1998, registered number 639814.
2.Guarantee from Paul Di Mella dated 3 April 1998.
3.Guarantee from Villamere Pty Ltd ACN 008 186 730 dated 3 April 1998.
4.Guarantee from Victor Peter Raymond dated 3 April 1998.
5.Original Certificate of Title Volume 5497 Folio 918, registered proprietors Paul Di Mella and Joseph and Rose Di Mella held by Westpac Banking Corporation as an equitable mortgage.
Mrs Raymond, in her personal capacity, and not as agent for Villamere or her husband and without any liability to do so, paid $300,000 to Westpac on 14 May 2001. Westpac credited those monies to the account of CPBS “in full and final settlement of [its] indebtedness”. Westpac then delivered the May 2001 Deed and the listed securities, including the duplicate Certificate of Title to the Port Moorowie land, to Mrs Raymond and said that it would take steps to discharge the Villamere mortgage on the property at 6 Eildon Court, West Lakes. Although there was no evidence about it, it is reasonable to infer that that discharge has been effected. In any event, the mortgage was not one of the securities which Westpac assigned by the May 2001 Deed to Mrs Raymond.
Some aspects of the May 2001 Deed may be noted. In the first place, it is a unilateral deed, executed by Westpac only. Mrs Raymond was not a party to it, and was not bound by its terms to do anything at all. It is possible that there was an underlying agreement between Westpac and Mrs Raymond to which the Deed gave effect, but there was no evidence about that. Secondly, although the sum of $300,000 was less than that which it had claimed, Westpac accepted that the payment by Mrs Raymond satisfied fully the liability of CPBS. It is not known whether this reflected some compromise on the part of Westpac or whether it had received some other payment reducing the liability of CPBS. Thirdly, Westpac did not assign the debt to Mrs Raymond in consideration of her payment to it of the sum of $300,000. It assigned only the specified securities. Fourthly, although the Deed recited that Westpac was assigning to Mrs Raymond “all” the securities, it did not do so because it did not, at the least, assign the Villamere mortgage. It is not known whether it also released any security provided by Mr Raymond personally. Finally, Westpac said that it was assigning and transferring the securities “by way of subrogation”.
Following the delivery of the May 2001 Deed, Mrs Raymond took steps to enforce a claim against Mr DiMella’s bankrupt estate. On 15 May 2001, she lodged with the Trustee a proof of debt, claiming $373,338.12, and on 18 May 2001, lodged a caveat on the title to the Port Moorowie land. At various times during 2002 Mrs Raymond endeavoured to persuade the Trustee to transfer the Port Moorowie land to her, but he refused to do so.
Following his discharge from bankruptcy on 23 April 2004, Mr DiMella asserted an entitlement to have the Port Moorowie land transferred back to him. The Trustee refused to do so.
On 30 June 2005, Mr DiMella issued proceedings against Mrs Raymond claiming, amongst other things, the return of the title to the Port Moorowie land. In January 2006, Mr DiMella and Mrs Raymond compromised those proceedings. The settlement was effected by the execution of a deed of settlement to which Mrs Raymond, Mr DiMella and the appellant (Mr DiMella’s second wife, Luciana) were parties, and by the execution of a deed of assignment (the January 2006 Deed) to which Mrs Raymond and the appellant were parties. The operative clause of the January 2006 Deed was as follows:
… [I]n consideration of the payment to the Assignor by the Assignee of the amount of $54,990.00 the Assignor hereby assigns and transfers to the Assignee all her rights of action against Paul DiMella arising out of and in respect of the payment of debts of Complete Plumbing & Building Supplies Pty Ltd or otherwise and further assigns and transfers to the Assignee all securities held by her in respect of payments made for or on behalf of Complete Plumbing & Building Supplies Pty Ltd whether by way of subrogation from Westpac Banking Corporation or otherwise.
It can be seen that by the January 2006 Deed Mrs Raymond assigned to the appellant her rights of action against Paul DiMella (but not against anyone else) in addition to all the securities held by her in respect of the payments she had made. Mrs Raymond also delivered the duplicate Certificate of Title to the Port Moorowie land to the appellant.
By letter dated 22 March 2006, the appellant (asserting that she was an assignee of the equitable mortgage originally given to Westpac over the Port Moorowie land) gave notice to the Trustee of her intention to issue proceedings to foreclose in respect of the equitable mortgage held by her, and giving him the option to redeem the mortgage. The Trustee has declined to do so. The appellant then commenced the District Court proceedings, seeking to enforce the rights assigned to her by Mrs Raymond under the January 2006 Deed. The appellant accepted that she could enforce only those rights against Mr DiMella which Mrs Raymond had acquired in consequence of her payment of the sum of $300,000 to Westpac.
The Course of Proceedings in the District Court
There were two defendants to the District Court action: the Trustee and Mrs Josephine DiMella. The latter has taken no part at all in the proceedings, whether at first instance or on appeal.
The appellant sought an order that unless the Trustee or Mrs Josephine DiMella redeemed the mortgage within a period of one month, they should:
… stand absolutely debarred and foreclosed of their equity of redemption and the land is to be vested in the plaintiff in fee simple free from the said mortgage.
The pleadings in the District Court indicated that the appellant was pursuing a claim to contribution from Paul DiMella (even though he was not a defendant to the action). It was said that Mrs Raymond’s payment of the sum of $300,000 had given rise to such a right and that it had been assigned to the appellant by the January 2006 Deed. It was said that the right to contribution arose because the payment by Mrs Raymond of $300,000 to Westpac had had the effect of making her “a co-guarantor so as to give rise to an equitable right to contribution.”
The appellant’s reliance on a plea of contribution is seen in paragraphs 12 and 14 of her statement of claim:
12.In consequence of [the May 2001 deed] Ms Raymond took an assignment of the claim of Westpac for $373,338.12 being the amount due as at the date of the assignment and had a right of contribution from Paul DiMella in consequence of the settlement of the joint debt.
...
14.By Deed of Assignment dated 13 January 2006 Ms Raymond assigned to the plaintiff all her right against Paul DiMella to contribution together with inter alia the duplicate Certificate of Title held by way of equitable mortgage. [Emphasis added].
One might have expected that the appellant’s claim to contribution would have been reflected in the prayer for relief in a claim for payment of a monetary sum. However, as already noted, that is not the relief which the appellant sought. The appellant did not seek any relief at all against Mr DiMella and he was not a party to the proceedings. Instead the appellant sought an order, in effect, that neither the Trustee nor Mrs Josephine DiMella could exercise the equity of redemption and that the Port Moorowie land should be vested in her name free from the equitable mortgage. This was a claim for a proprietary remedy. In her oral submissions at trial, the appellant asserted that she was entitled to the benefit of the securities originally held by Westpac as an aid to her enforcement of the assigned right to contribution which she claimed.
The Judge rejected the claim that Mrs Raymond had, by her payment of the $300,000, acquired a right to contribution, and therefore that there had been an assignment of any such right to the appellant.[2]
[2] DiMella v Rudaks [2008] SADC 98 at [48]-[49].
In the course of the submissions concerning the claim to contribution, the appellant’s counsel also submitted, somewhat faintly, that Mrs Raymond’s payment of $300,000 entitled her (Mrs Raymond) as a matter of law and equity “to step into the shoes” of Westpac. That submission was not developed in any detail before the Judge. It is possible to understand the submission as an attempt to invoke the doctrine of subrogation. However, the appellant did not at any stage during the trial use the word “subrogation”, nor refer expressly to the doctrine of subrogation, nor seek to identify the principles by which such a right could arise, nor refer to any authority concerning subrogation. The Judge did, however, treat the submission as possibly asserting a right of subrogation and rejected that basis for the appellant’s claim.[3] The Judge found, in effect, that Mrs Raymond had not acquired any right by way of subrogation. That meant that Mrs Raymond had not been able to transfer to the appellant any subrogated right to enforce the Westpac securities. Hence, the Judge dismissed the appellant’s claim.
[3] Ibid at [51], [54].
Contribution, Subrogation and Assignment
At least some of the appellant’s submissions assumed that the rights which Mrs Raymond had acquired, and which were in January 2006 assigned to her, had arisen from the May 2001 Deed, rather than by the operation of equitable principles. In fact, the appellant’s claim has involved an intermingling of three different doctrinal bases: contribution, subrogation and assignment. On analysis, it can be seen that two of these did not provide an appropriate basis for the plaintiff’s claim.
Contribution
The general doctrine of contribution forms part of the common law.[4] It holds that persons who are under co-ordinate liabilities to make good the one loss must share the burden pro rata.[5] The question therefore is whether the parties are equally liable for the same obligation.[6] The relationship between co-guarantors is a recognised relationship which may give rise to a liability to make contribution.[7] The right to contribution in such a relationship arises upon the satisfaction of the creditor’s claim by one of the sureties or, perhaps, when the creditor obtains a judgment against one of the sureties.[8]
[4]    Albion Insurance Company Ltd v Government Insurance Office of New South Wales (1969) 121 CLR 342 at 350.
[5] Ibid at 349-350, 351; Burke v LFOT Pty Ltd [2002] HCA 17 at [15]-[16], [42]-[43]; (2002) 209 CLR 282 at 292-293, 301.
[6]    RP Meagher, JD Heydon and MJ Leeming Equity: Doctrines and Remedies (4^th ed 2002) [10-045].
[7]    Mahoney v McManus (1981) 180 CLR 370.
[8]    Bond v Larobi Pty Ltd (1992) 6 WAR 489 at 500-503.

In the circumstances of this case, the payment by Mrs Raymond could not give rise to a claim for contribution against Mr DiMella, or for that matter against the other persons who had provided a guarantee to Westpac of the loan of CPBS. Mrs Raymond was not herself a guarantor of the loan of CPBS. She was not under any liability to make any payment to Westpac at all, let alone a liability arising under a contract of guarantee. Contrary to the appellant’s submission at trial, the payment by Mrs Raymond of the sum of $300,000 did not have the effect of elevating her status to that of co-guarantor.
The appellant submitted that a liability of Mrs Raymond to Westpac could be found in the May 2001 Deed, or in the liability which she would have incurred if her cheque for $300,000 had not been honoured. (It was in fact a bank cheque but this can be ignored for present purposes). However, as noted earlier, the May 2001 Deed itself did not bind Mrs Raymond to do anything. It may be that Mrs Raymond had entered into some form of underlying agreement with Westpac, but there was no evidence about this. In any event, the liability which Mrs Raymond may have had to Westpac if her cheque for $300,000 had not been honoured or if she had breached an underlying agreement with Westpac, would not have been a liability which was co-ordinate with that of the guarantors of the loan of CPBS. In the former case, the liability would have arisen by reason of provisions of the Cheques Act 1986 (Cth)[9] and not under a contract of guarantee. In the latter case, the liability would have arisen by reason of Mrs Raymond’s breach of a separate and distinct contractual obligation, and one which was in any event different from the obligation accepted by the guarantors under their respective contracts of guarantee.[10]
[9] Sections 70, 71 and 76.
[10] Cf Burke v LFOT Pty Ltd [2002] HCA 17; (2002) 209 CLR 282.
The Judge was correct to dismiss the appellant’s claim insofar as it rested on a claim to contribution.
Subrogation
Subrogation is a distinct equitable doctrine under which, by operation of law, one party may acquire and enforce the lawful claims and rights of another, even in the absence of any assignment from, or assent of, that other.[11] It is a remedy, not a cause of action.[12]
[11] Orakpo v Manson Investments Ltd [1978] AC 95 at 104.
[12] Boscawen v Bajwa [1996] 1 WLR 328 at 335; Re Trivan Pty Ltd (1996) 14 ACLC 1,654 at 1,657.
Rights of subrogation may arise in a variety of circumstances. A guarantor wholly discharging the liability of a debtor to a creditor is one such circumstance. Such a guarantor is entitled to exercise, by rights of subrogation, the rights of the creditor against the debtor.[13]
[13] Australasian Conference Association Ltd v Mainline Constructions Pty Ltd(In Liq) (1978) 141 CLR 335 at 349.
It will be necessary to consider whether the circumstances proved at trial in this case did give rise to any right of subrogation which could be enforced by Mrs Raymond or, in turn, by the appellant.
Assignment
The appellant’s alternative claim in the District Court was that she could enforce the rights which she had acquired by the operation of the two Deeds of Assignment. Thus counsel submitted:
... what effectively happened is she in fact took an assignment, more importantly was handed over the duplicate title to this property that we are now in dispute about, and clearly took that in the same capacity, we say, as Westpac held it, namely as security for the debt.
While both the equitable principle of subrogation and an assignment (whether legal or equitable) permit one person to enforce the rights of another, they are different. Rights of subrogation arise by operation of law, and not as a result of an agreement, whether express or implied. The distinction between rights arising by subrogation and rights arising by assignment has been stated in a number of authorities, including Morris v Ford Motor Co Ltd[14] and in Orakpo v Manson Investments Ltd.[15]
[14] [1973] QB 792 at 800-809.
[15] [1978] AC 95 at 104.
The distinction has a number of practical consequences. A person exercising a right of subrogation does not have an entitlement to enforce a claim for any greater amount than the payment giving rise to the right of subrogation, whereas an assignee is not so limited. In the present case, this means that, despite the appellant’s submission, her claim in the purported exercise of subrogated rights was at best a claim for $300,000 which she had paid and not for the whole of the indebtedness of CPBS to Westpac.[16] Secondly, the right of an assignee arises at the time of the making of the contract of assignment, whereas subrogated rights come into existence only upon the making of the payment which gives rise to the right, for example, upon the discharge by a guarantor of the debtor’s liability. Thirdly, ordinarily a person enforcing a right of subrogation must do so in the name of the person whose rights are being subrogated, whereas an assignee does so in his or her own name.
[16] Rogers v Resi-Statewide Corporation Ltd (No 2) (1991) 32 FCR 344 at 353-4.
On the appeal, the appellant seemed, ultimately, to abandon reliance on the May 2001 Deed as the source of an entitlement which could be enforced against Mr DiMella or the Trustee. The respective deeds of assignment may however be relevant to the appellant’s ability to enforce, in her own name, the securities relating to any rights of subrogation which she had acquired.
Point not Taken at Trial
It is appropriate to address first the Trustee’s submission that the appellant is raising for the first time on appeal a point not advanced at trial.
The Trustee submitted that the appellant had not pleaded reliance on the remedy of subrogation, nor framed her case at trial on that basis. The Trustee referred to authorities such as Water Board v Moustakas;[17] University of Wollongong v Metwally (No 2),[18] and Banque Commerciale SA en Liquidation v Akhil Holdings Ltd,[19] and submitted that the appellant was bound by her conduct of the case at trial, particularly as the course of evidence at trial may have been different had the point been raised by her. The Trustee emphasised in this respect that the statement of facts and documents which constituted the evidence at trial had been agreed by reference to the issues defined by the pleadings. He contended that the revised way in which the appellant now seeks to put her case makes other facts relevant.
[17] (1988) 180 CLR 491 at 497.
[18] (1985) 59 ALJR 481 at 483.
[19] (1990) 169 CLR 279 at 284.
In response, the appellant submitted that she had sufficiently raised the doctrine of subrogation at trial so that it could not now be said that she was relying on a point not taken at first instance. However, I did not understand the appellant to contest the Trustee’s claim that additional evidence could have been led which was relevant to the claim based on subrogated rights.
An examination of the pleadings and of the trial transcript does not really bear out the appellant’s submission that she had raised a subrogated claim at trial. Earlier in these reasons, I quoted the passages from the appellant’s statement of claim which indicated that the she was pursuing a claim of contribution. That statement of claim does not include any plea of a claim to subrogation. Moreover, the proceedings were instituted by the appellant in her own name and did not involve Westpac at all, in the way one would have expected if it was the rights of Westpac which were being pursued.
At the trial counsel for the appellant opened the case by telling the Judge that there was “a fairly isolated point for determination”. Plainly, counsel was then referring to the claim to contribution. In the course of developing that claim counsel said:
The consequence of [Mrs Raymond’s] payment out is we say in equity by – indeed it is arguable as a principle of law as well – but we are happy to take the equitable approach, that as someone who has paid out in those circumstances the debt of another in that sense as a surety in effect, she is entitled to the benefit of the securities which the bank previously held. [Emphasis added]
Counsel submitted that this passage raised the remedy of subrogation. Read in isolation, I agree it is possible to regard this statement as indicating reliance on subrogated rights. However, when the passage is read in context, it is apparent that the submission was put as part of the appellant’s claim for enforcement of the alleged right of contribution, which it was said had arisen because Mrs Raymond had made the payment as “a surety in effect”.
Next, the appellant referred to a passage in which her counsel had said in relation to the May 2001 Deed:
She certainly paid the money, there is no dispute about that, and took an assignment. In fact she probably did not need to, we say, as a matter of law and equity she would have had the right to step into the shoes of Westpac anyway. But what effectively happened is she in fact took an assignment, more importantly was handed over the duplicate Title to this property that we are now in dispute about, and clearly took that in the same capacity, we say, as Westpac held it, namely as security for the debt.
On appeal, counsel emphasised the reference to “the right to step into the shoes of Westpac” and submitted that that was a reference to the doctrine of subrogation. Again I agree that it is possible to construe those words in that way but the absence of any express mention of subrogation or of reference to relevant authorities tends to detract from the submission that the doctrine was being invoked. The metaphor of a person exercising subrogated rights stepping into the shoes of a creditor is commonly used in discussions about the exercise of subrogated rights.[20] However that is not its only usage. The use of the metaphor in the present context was consistent with, and more naturally understood as part of, the appellant’s assertion that by reason of the two deeds of assignment she was entitled to enforce Westpac’s securities to support the claim of contribution upon which she was then relying.
[20] Re National Permanent Building Society; Ex parte Williamson [1869] 5 Ch App 309 at 313.
The appellant is on stronger ground when she points to the fact that each of the Trustee’s counsel and the trial Judge was alert to the possibility that Mrs Raymond may have acquired a right of subrogation. The Trustee’s then counsel, having addressed submissions to the claim of contribution, then said:
The other question is whether she might have a right in the nature of subrogation perhaps. I think that is what [the appellant’s counsel] was meaning. A couple of cases have drawn on that. If your Honour needs anymore, obviously Meagher, Gummow and Lehane’s text book on equity, in the fourth edition on property, there is a chapter on subrogation which starts on page 3511. The gist of what they say is subrogation is an equitable right. We just say there is no equity here which would allow it to arise.
Counsel then referred the Judge to Falcke v Scottish Imperial Insurance Company[21] and to Re Cleadon Trust Ltd.[22] It seems that counsel was contending that Mrs Raymond made the payment to Westpac as a mere volunteer so that no entitlement to subrogation arose. It is perhaps a point in favour of the appellant that counsel for the Trustee did not object that a claim to the exercise of a subrogated right was outside the scope of her pleading.
[21] [1886] 34 Ch D 234.
[22] [1939] Ch 286.
The Judge did address, albeit briefly, the issue of subrogation. It is not altogether clear why the Judge did so. The issue was not included in the list of issues which the Judge identified as arising for determination, namely:
1.     Did Westpac have an equitable mortgage over the Port Moorowie property?
2.     Did Mrs Raymond have a right to contribution from Mr DiMella?
3.What did Westpac assign to Mrs Raymond in the Deed of Assignment dated 10 May 2001?
4.What did Mrs Raymond assign to the plaintiff in the Deed of Assignment dated 13 January 2006?
5.     What is the effect of the proof of debt lodged by Mrs Raymond on 15 May 2001?[23]
The Judge may have addressed the issue because of the submission of the Trustee. Alternatively, it may have been because the May 2001 Deed referred to an assignment of Westpac’s securities “by way of subrogation”. Alternatively again, the Judge may have taken a generous view of the appellant’s submissions in the light of the reference by counsel for the Trustee to the chapter on subrogation in Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies.
[23] DiMella v Rudaks [2008] SADC 98 at [22].
In my opinion, a fair reading of the pleadings and of the transcript at trial bears out the Trustee’s submission that the appellant did not invoke any principle of subrogation at all, let alone the principle now relied upon. The appellant’s pleading referred only to a claim for contribution. I regard it as particularly significant that the appellant’s counsel did not at trial use the word subrogation or its cognates at all (apart from when reciting the operative words of the May 2001 Deed), nor refer to the doctrine of subrogation, nor refer the Court to any of the relevant authorities nor, even after the possibility of a remedy of subrogation had been alluded to by the Trustee’s counsel, then articulate for the Judge a claim on that basis.
Were it not for the fact that the Judge did regard subrogation as having been raised sufficiently so that it should be addressed in her reasons, I would have upheld this submission of the Trustee. However, there would be an incongruity in this Court not permitting the appellant to address on appeal an issue which was addressed and determined by the Judge at first instance. I do not regard the position as satisfactory, but do not consider that the appeal should be dismissed on this basis.
The fact that available material evidence was not led because of the way in which the appellant had framed her case will be relevant to the consideration of the substantive merits.
Did Mrs Raymond Acquire a Right of Subrogation?
The Judge rejected a claim based on the exercise of subrogated rights on two bases. As to the first basis, the Judge said:
The defendant argues that Westpac’s acceptance of the sum of $300,000 in full and final satisfaction of Complete’s debt discharged any security held by it, including any equitable mortgage over the Port Moorowie land, and therefore there was nothing for Westpac to assign to Mrs Raymond.
As I have found that Mrs Raymond was not a surety, neither the common law nor the provisions of the Mercantile Law Act 1936 operate to maintain the security for her benefit. Put simply, the equitable mortgage on the Port Moorowie land no longer secures a debt and is therefore discharged. Accordingly I find that Mrs Raymond could not be subrogated to Westpac’s securities because they were discharged by the payment of the debt.[24]
[24] Ibid at [53] – [54].
Insofar as these passages indicate that the Judge considered that a right of subrogation could not arise because the underlying debt had been discharged, she was, in my respectful opinion, in error. If it was the case that the discharge of an underlying debt precluded a right of subrogation arising in respect of the securities concerning that debt, rights of subrogation would never arise.[25]
[25] Cf Registrar General v Gill [1994] NSWCA 261.
As to the second basis, the Judge said:
It was said that Mrs Raymond paid money to the benefit of the guarantors and that she would be entitled to an action on that basis. It is true to say that this argument was not developed in great detail before me however I do not find it persuasive. The mere fact of Mrs Raymond paying an amount of money that has the effect of benefiting, inter alia, Mr DiMella in my view cannot, without more, suffice to found a claim against him and, by extension, the equitable mortgage.[26]
In this passage, the Judge touches upon the principle upon which the appellant now relies. As seen already, my opinion is that the Judge’s acceptance that a submission to this effect had been made to her was a generous view of the appellant’s submissions.
[26] DiMella v Rudaks [2008] SADC 98 at [56].
The trial in the District Court proceeded on an agreed statement of facts and on an agreed set of documents. Neither party called any oral evidence. Accordingly, this Court is in the same position as was the District Court in understanding the factual background.
On the appeal the appellant invoked the principle that a third party discharging a debt secured by mortgage is presumed, in the absence of evidence to the contrary, to have intended that the mortgage should be kept alive for his or her own benefit. Counsel referred to the decision of the Privy Council in Ghana Commercial Bank v Chandiram[27] in which it was said:
It is not open to doubt that where a third party pays off a mortgage he is presumed, unless the contrary appears, to intend that the mortgage shall be kept alive for his own benefit…[28]
As was pointed out by Kearney J in Cochrane v Cochrane::[29]
This principle is based on equity’s concern to prevent one party obtaining an advantage at the expense of another which in the circumstances of the case is unconscionable. Hence, there is a common thread running through the relevant cases to the effect that the conscience of the mortgagor should be affected so as to cause the mortgage to be kept alive.[30]
Hence, Kearney J held that there was no occasion for equity to intervene by way of subrogation when the third party has some other remedy at law or in equity which is sufficient to avoid an unconscionable result.[31]
[27] [1960] AC 732.
[28] Ibid at 745. See also Butler v Rice [1910] 2 Ch 277; Re H & S Credits Ltd (in liq), Tucker v Roberts [1969] Qd R 280.
[29] (1985) 3 NSWLR 403.
[30] Ibid at 405.
[31] The decision of Kearney J in this respect was approved in New South Wales Medical Defence Union Ltd v Crawford (No 3) [1994] NSWCA 231.
The requirement for the conscience of the mortgagor to have been affected in order for the equity to arise was also emphasised by Millett LJ in Boscawen v Bajwa[32] when he said:
Equity lawyers speak of a right of subrogation, or of an equity of subrogation, but this merely reflects the fact that it is not a remedy which the court has a general discretion to impose whenever it thinks it just to do so. 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 proprietary interest claimed by the plaintiff.[33]
The requirement that there be something in the circumstances affecting the conscience of the mortgagor is the “something more” to which Oliver J referred in Paul v Speirway Ltd.[34]
[32] [1996] 1 WLR 328.
[33] Ibid at 335.
[34] [1976] 1 Ch 220 at 230.
This means that, in a case such as the present, the whole of the circumstances must be considered: first, to ascertain the intention of the payer, and, secondly, to determine whether the conscience of the person who benefited from the payment is affected so as to give rise to the equity.
A relevant circumstance in this case is that Westpac held more than one security. It is a reasonable inference that Mrs Raymond intended her payment to extinguish, at least, one of those securities, i.e., the mortgage over the Eildon Court property at West Lakes which was her home and, further, that she did so in order to benefit herself (and not CPBS, Westpac or even the guarantors). These are reasonable inferences because it is difficult, on the evidence presented at trial, to identify any other benefit which Mrs Raymond derived from the payment of $300,000 to Westpac and, further, because the mortgage over the West Lakes property was not assigned to Mrs Raymond and was in fact discharged by Westpac. I have referred to at least one security being extinguished because it is not known whether any security was provided by Mr Raymond to support his personal guarantee and, if so, whether it was also discharged by the payment of the sum of $300,000. On the other hand, it is also a reasonable inference from the terms of the May 2001 Deed that Mrs Raymond did intend that other securities held by Westpac should be kept alive so as to facilitate her enforcement of any rights which she may have had against CPBS and Mr DiMella.

These two considerations immediately distinguish the circumstances of this case from those in Ghana Commercial Bank and the other like authorities upon which the appellant relied. Contrary to the submission of the appellant, this case cannot be resolved by a simple application of the principle stated in such cases. The equity which gave rise to the remedy of subrogation in those cases does not necessarily apply, or at least apply without qualification, in the present case. In particular, this case raises issues as to whether the equity arises when the payer intends by her payment to obtain a personal benefit and further to extinguish at least one of the creditor’s securities.
It is relevant to the resolution of these issues that Mr DiMella, by his solicitor’s letter of 25 January 2001, encouraged Westpac to enforce the Villamere mortgage over the residence of Mr Raymond. Mr DiMella obtained a benefit when Westpac later acted in the way he had proposed. This may suggest that it would be unconscionable for Mr DiMella, having obtained that benefit, to seek to avoid responsibility under his own guarantee. However, more would need to be known before this conclusion could be made with confidence. The solicitor’s letter of 25 January asserted that there had been an express agreement that Westpac “would not enforce the terms of the guarantee until such time as it had enforced the mortgage security to be provided by Mr Raymond.” There was no evidence before the trial Judge about the existence or otherwise of this alleged agreement or, if it did exist, what may have underpinned it. It is possible, for example, that such an agreement reflected some antecedent agreement between Mr Raymond and Mr DiMella as to their respective liabilities and entitlements in relation to CPBS, or the contributions which each had already made to CPBS.
There are other relevant matters which may bear upon the existence of the equity asserted for Mrs Raymond by the present appellant. The effect of Mrs Raymond’s conduct in relation to each of three guarantors, and not just Mr DiMella, would have to be considered. The effect of Mrs Raymond’s conduct on the possible exercise of rights arising between the three guarantors in the event of payment by one would also have to be considered. If rights of subrogation against Mr DiMella arose, then presumably they also arose against Villamere and Mr Raymond (in effect his estate). If a subrogated claim was recognised and pursued against Mr DiMella and met by him, he would then have rights to contribution from his co-guarantors. Whether those rights were of any value may well have depended upon the action taken by Mrs Raymond in relation to the husband’s estate and in relation to Villamere. In this respect the discharge of the Villamere mortgage which was obtained by Mrs Raymond at the time of her payment is relevant. It is not known whether Villamere continued to own the property at West Lakes. Unless Villamere continued to own that property, or other assets, the very conduct of Mrs Raymond relied upon presently by the appellant as giving rise to the equity of subrogation also had the effect of depriving Mr DiMella of a means of enforcing the claim for contribution which he would have if the subrogated right was enforced against him. That is a matter which would have to be considered in determining whether equity would grant the remedy. The situation would be analogous to the position of a surety when a creditor sacrifices or impairs a security, or by its neglect or default allows it to be lost or diminished.[35]
[35] Williams v Frayne (1937) 58 CLR 710 at 738.
Similarly, Mr Raymond’s death may have made it difficult for Mr DiMella to enforce any claim for contribution against his estate. Those difficulties may have been greater if any security which Mr Raymond had provided Westpac to support his personal guarantee had also been discharged by Mrs Raymond’s payment.
Although the position has to be considered as at the time of the payment in May 2001, it may not be irrelevant to note that by the January 2006 Deed Mrs Raymond assigned to the appellant only her rights of action against Mr DiMella. That is to say Mrs Raymond did not assign to the appellant such rights of subrogation with respect to Villamere and Mr Raymond as may have existed. This is consistent with Mrs Raymond having had an intention in May 2001 that such rights should be extinguished.
There is therefore a real issue as to whether an equity of subrogation can arise when the payer intends that it should not arise, or should not be capable of enforcement, in respect of the creditor’s rights against other guarantors.
There is almost a complete lack of evidence about the matters relevant to the existence of the equity now asserted by the present appellant. The absence of that evidence cannot be attributed to the Trustee. It is appropriate to accept the Trustee’s submission that the facts and documents which the parties agreed for the purposes of the trial were agreed by reference to the pleaded claim for enforcement of a claim for contribution only. The appellant did not submit to the contrary.
In my opinion, the lack of evidence makes it impossible for this Court to determine with any confidence where the equity lies. What is plain is that the principle in Ghana Commercial Bank cannot be applied uncritically. As I have said, its application does not govern the outcome of the case.
I consider that having regard to the evidence presented at trial, it cannot be said that the benefit which Mr DiMella derived from the payment made by Mrs Raymond to secure the discharge of the Villamere mortgage gave rise to a right of subrogation. That is because of the paucity of evidence directed to relevant issues. In other words, I am satisfied that the decision of the trial Judge has not been shown to be wrong.
Conclusion
For the reasons given above, my opinion is that the appeal should be dismissed.
KELLY J. I agree that this appeal should be dismissed for the reasons given by White J.