| JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA LOCATION : PERTH CITATION : DOUGLAS -v- SCANLAN [No 2] [2011] WADC 108 CORAM : STAUDE DCJ HEARD : 24 MARCH 2011 DELIVERED : 13 JULY 2011 FILE NO/S : CIV 2064 of 2007 BETWEEN : OLIVER GEORGE DOUGLAS STEPHANIE DOUGLAS as Trustees for the Great Southern Land Discretionary Trust
Plaintiffs
AND
LAWRENCE JOHN SCANLAN
Defendant
Catchwords: Contribution by co-guarantor - Validity of assignment of right to contribution - Effect of grant of leave to enforce judgment on one judgment debtor on coordinate liability of another - Equitable setoff - Whether equitable setoff timebarred - Limitation Act 1935 s 46 - Whether contribution extends to costs Legislation: Civil Judgments Enforcement Act 2004, s 13
Limitation Act 1935, s 46
Limitation Act 2005, s 81
(Page 2)
Result: Plaintiffs' claim for contribution dismissed Representation: Counsel:
Plaintiffs : Mr M Levitan
Defendant : Mr D K Barker
Solicitors:
Plaintiffs : Melvyn Levitan
Defendant : Chalmers Legal Studio
Case(s) referred to in judgment(s):
Accident Towing & Advisory Committee v Combined Motor Industries Pty Ltd [1987] VR 529
Australian Mutual Provident Society v Specialist Funding Consultants (1991) 24 NSWLR 326
Bond v Larobi Pty Ltd (1992) 6 WAR 489
Burke v LFOT Pty Ltd [2002] HCA 17; (2002) 209 CLR 282
Cianiup Pty Ltd v O'Rourke [2007] WADC 19
Douglas as Trustees for the Great Southern Land Discretionary Trust v Scanlan [2010] WADC 126
Friend v Brooker [2009] HCA 21
Hazcor Pty Ltd v Kirwanon Pty Ltd (1995) 12 WAR 62
Henriksens Rederi A/S v THZ Rolimpex - The Brede [1974] QB 233
Loxton v Moir (1914) 18 CLR 360
Mahoney v McManus (1981) 180 CLR 370
McLean v Discount & Finance Ltd (1939) 64 CLR 312
Morgan Equipment Co v Rodgers (No 2) (1993) 32 NSWLR 467
Norman v Federal Commissioner of Taxation [1963] 109 CLR 9
Ogden Industries Pty Ltd v Lucas [1970] AC 113
Orr v Ford (1989) 167 CLR 316
Re; Pain [1919] 1 Ch 38
Scanlan v Douglas [No 3] [2011] WADC 46
Walker v Bowry (1924) 35 CLR 48
Wolmershausen v Gullick [1893] 2 Ch 514
Young v National Australia Bank Ltd [2004] WASCA 298; (2004) 29 WAR 505
(Page 3)
Introduction 1 On 7 October 1997 Cianiup Pty Ltd (Cianiup) obtained a judgment in this court (CIV 2900 of 1997) for $79,747.17 against three co-guarantors of a loan by Cianiup to Redtail Investments Pty Ltd (Redtail). The co-guarantors were the first named plaintiff, Oliver George Douglas, in his personal capacity, Lawrence John Scanlan, the defendant, and one Barry Daniel O'Rourke (the three). The three could not afford to pay the judgment. The defendant's wife, Ms Shirley Scanlan, purchased the judgment debt from Cianiup for $80,000. 2 On 9 March 2007 Mrs Scanlan obtained leave pursuant to s 13 of the Civil Judgments Enforcement Act 2004 to enforce the judgment against Mr Douglas. Mr O'Rourke was bankrupt by this time and, for obvious reasons, Mrs Scanlan did not propose to enforce the judgment against her husband. Following the issue of a property (seizure and sale) order against Mr Douglas, he paid the judgment sum, interest thereon and costs. The judgment was paid from funds borrowed by him and Mrs Stephanie Douglas in their capacities as trustees for the Great Southern Land Discretionary Trust (GSLDT) from Perizia Pty Ltd. The funds were paid to the Westpac account of Equity Alliance Finance, a firm of which Mr Douglas was then the principal, on 10 September 2007, and disbursed to pay the sheriff. 3 By a deed of assignment dated 15 May 2007, Mr Douglas in his personal capacity had purported to assign to himself and Mrs Douglas as trustees for GSLDT his right to a contribution from Mr Scanlan as a co-guarantor. 4 This action therefore involves a claim by Mr and Mrs Douglas against Mr Scanlan for 50% of the judgment sum, interest and costs, costs ordered to be paid by Mr Douglas to Mrs Scanlan and Mr Douglas' costs relating to the enforcement of the judgment. 5 The defendant denies liability on the grounds that no valid assignment of Mr Douglas' claim for contribution was made to the plaintiffs, alternatively, that no right of contribution exists, and that the defendant is entitled to set off his right to contribution from Mr Douglas in respect of three amounts totalling $96,000 which he paid as a co-guarantor with Mr Douglas and to which Mr Douglas did not contribute. The plaintiffs plead that the set-off is statute-barred or should be denied on the grounds of laches. The defendant says the plaintiffs are (Page 4)
estopped from relying on limitations or laches because Mr Douglas implicitly admitted his liability in a letter to Mrs Scanlan dated 20 February 2002.
The issues 6 The principal issues on the pleadings are as follows: 1. Was there a valid assignment by Mr Douglas to him and Mrs Douglas as trustees for GSLDT of his right to contribution from Mr Scanlan, such that the plaintiffs are entitled to sue? 2. Were Mr Douglas and Mr Scanlan under coordinate liabilities to pay the judgment debt to Mrs Scanlan when it was paid to her by Mr Douglas, so as to give him a right to contribution from Mr Scanlan? 3. If the plaintiffs are entitled to contribution from the defendant, is the defendant's set-off with respect to payments that he has made as a co-guarantor with Mr Douglas to which Mr Douglas has not contributed statute-barred or liable to be defeated by laches? If so, are the plaintiffs estopped from relying on limitations and laches? 4. If the plaintiffs are entitled to contribution from the defendant, is the defendant liable to contribute to Mr Douglas' costs relating to Mrs Scanlan's applications for leave to enforce the judgment and the costs ordered to be paid to Mrs Scanlan in respect of the enforcement proceedings?
The material facts 7 The only witnesses called at trial were Mr Douglas and Mr Scanlan. At the commencement of the trial, following an adjournment granted to the parties for this purpose, a number of documents were tendered by consent and I was informed that the quantum of the judgment with interest to the date of payment was agreed at $125,568.17, the costs incurred by Mr Douglas with respect to the enforcement of the judgment at $42,408.17 and the judgment creditor's costs of enforcement at $3,841.84. The amounts of the payments made by Mr Scanlan which are the subject of the set-off claimed by him are agreed as to quantum. 8 In the mid-1990s the three participated in a venture to purchase the Contacio Motor Hotel in Scarborough, demolish it and develop the land for sale. Each had a one-third interest. The Contacio property was (Page 5)
purchased from Cianiup by Redtail of which Mr O'Rourke and Mr Scanlan were directors. 9 Mr Douglas, who was a licensed finance broker, designed a financial scheme by which the project was financed by investors via a unit trust, but for part of the purchase price Cianiup provided vendor finance to Redtail, for which the three were guarantors. 10 The Contacio property was duly subdivided, but the lots created were slow to sell and Redtail was placed in administration. Subsequently, the three decided to purchase the unsold lots for re-sale, setting up another company, Australiana Investments Pty Ltd (Australiana), to do so. Australiana's purchase of the lots was funded by borrowings from investors secured by mortgages. The three also guaranteed Australiana's mortgage obligations. Mr Douglas made the financial arrangements. Again, slow sales resulted in Australiana being unable to meet its financial obligations. Foreclosure followed. 11 When Cianiup obtained judgment against the three in October 1997, each was threatened by bankruptcy. To avoid this consequence, the three reached an agreement whereby Mrs Scanlan would acquire the debt, borrowing the funds to do so. According to Mr Scanlan, the agreement was that O'Rourke and Douglas would pay their contributions with interest and any borrowing costs incurred by Mrs Scanlan within six months. Mr Douglas' evidence was that there was no agreement as to the time for payment other than that best efforts would be made. 12 Mr Douglas has admitted to having a poor memory. On the other hand, Mr Scanlan gave a very clear account of events at this time. I accept his evidence that there was such an agreement. In cross-examination, Mr Scanlan expressly adopted what he had previously stated in an affidavit (exhibit 39) to the effect that the agreement was for payment by Douglas and O'Rourke of their shares of the judgment debt with interest and Mrs Scanlan's borrowing costs within six months (ts 259). 13 A number of investors in Australiana, namely, Mr and Mrs Morse-Evans, Stan Matthews Nominees Pty Ltd and Mr and Mrs Willows, made claims against the three as guarantors which were ultimately settled by Mr Scanlan. 14 Mr and Mrs Morse-Evans obtained a judgment in 1999 for $42,000 in respect of which Mr Scanlan paid $30,000 by instalments in full settlement pursuant to an agreement made on 22 June 2000. Stan Matthews Nominees Pty Ltd obtained a judgment in 1999 for $30,000 (Page 6)
plus interest of $11,316.36 and costs. Mr Scanlan paid $36,000 by instalments in full satisfaction pursuant to an agreement made on 25 September 2000. A debt of $110,000 to Mr and Mrs Willows was compromised by an agreement made on 10 November 1999 and paid by Mr Scanlan in the amount of $30,000. 15 In respect of Mr and Mrs Morse-Evans the plaintiffs have pleaded that Mr Douglas obtained an undertaking from their solicitors that they would not enforce the judgment against him if he assisted them to recover from Mr Scanlan and Mr O'Rourke. The only evidence of this is a letter from Mr Douglas' solicitors Papamihail to Eley & Partners dated 6 July 1999 (exhibit 25). I will deal with this point towards the end of these reasons. 16 Mr Douglas said in evidence that he had no knowledge of Australiana's debts and did not know what arrangements were made by Mr Scanlan to pay the creditors, but I consider his memory has again failed him in this regard. He acknowledged that he had guaranteed the mortgages and that he had been served with writs issued on behalf of the Morse-Evans', Willows' and the Stan Matthews' company and did not dispute the settlement of the claims by Mr Scanlan. 17 Neither Mr Douglas nor Mr O'Rourke made any contribution to Mr Scanlan in respect of the payment of these debts. No claim for contribution by Mr Douglas was made by Mr Scanlan until it was raised by way of set-off in this action. On the evidence, Mr Scanlan made payments to the above named creditors of Australiana in the total amount of $96,000 to which, as between him and Mr Douglas, the latter would ordinarily have been liable to contribute half ($48,000) plus interest, on the basis that O'Rourke could not pay. In this respect, it was argued by counsel for the plaintiffs that Mr Douglas was only ever liable for a third, which is correct as between the three, but not as between him and Mr Scanlan, who was entitled to recover half of what he paid, leaving each with a claim for contribution against O'Rourke. I do not accept that Mr Scanlan's claim for set-off is limited to one-third. 18 Mr O'Rourke subsequently became bankrupt. He has not featured in these proceedings. I note, however, that he did make five monthly payments of $248 in reduction of the Cianiup judgment in 1998, which were taken into account subsequently in determining the judgment sum (see exhibit 13). (Page 7)
19 On 15 February 2002 Mrs Scanlan wrote to Mr Douglas requesting him to pay the Cianiup judgment debt (exhibit 3). She wrote: I am writing to you regarding the debt I purchased from Cianiup Pty Ltd in connection with the development of the Contacio Hotel site (copy enclosed). This debt was paid out by me on the clear understanding that it would be repaid as soon as possible and that along the way interest would be paid by you on a monthly basis. This was to be a short-term loan only and the money would be repaid to me within six months of my agreeing to the arrangement. It is now three years since I took over the debt and during that time I have received no payment from you for the interest, invoices submitted, nor any correspondence from you regarding your intention to repay the debt. Over the past three years, Laurie and I have paid nearly $250,000 to the various lenders to the project for debts that both you and Barry O'Rourke were guarantors for in addition to Laurie. However, we appear to be the only ones that are making any contribution. My understanding is that the lenders are not making any demands on you and consequently our payment of nearly 6% of the debts has probably got you off the hook. Obviously without our payments the lenders would have pursued all three of the guarantors into bankruptcy. You will also recall that it was Laurie who was always promoting that these debts should be negotiated to a reasonable settlement and split three ways when the combined shortfall was estimated at only $100,000. Both you and Barry were the ones who wanted to use solicitors to delay the matter, resulting in the debt blowing out with interest and legal expenses. Both Laurie and I feel that our generosity in buying the debt from Cianiup Pty Ltd and paying out the mortgages has been abused. This constant payout of money by us on the debts incurred by the directors and guarantors to the project has placed a constant strain on our finances and our day to day life to the stage where we are now in a precarious position which threatens both our personal and professional standing. Therefore, you are hereby advised that unless payment of the amount of $88,384 (see calculation attached) is made within 45 days of the date of this letter I will proceed to enforce payment through any legal means available to me. … 20 Mr Douglas responded by letter dated 20 February 2002 (exhibit 4) in which he stated that he too had been pursued by lenders to the Contacio project. He was aware that Mr O'Rourke had not made any contribution to any of the debts. He indicated that he did not have funds to pay the debt. Moreover, he suggested that the losses suffered as a result of the (Page 8)
project were contributed to by Mr O'Rourke's failure to sell the lots and development costs estimates prepared by Mr Scanlan's firm being exceeded. He said: I did what I was asked to do at the outset over and over and over, but I can't say the same for Laurie and Barry. All I ended up doing was to continually patch up the financial fallout of the failure of both of them to perform as agreed. I lay the blame for the fallout of this project squarely at their feet and if they want to debate the issue with me I will be happy to oblige. Shirley, I am sorry to hear that you and Laurie have fallen on hard financial times, but Stephanie and I are battling away as well so we know how you feel. Issuing proceedings on me will only add to your current financial burden and ultimately get you nowhere. If you feel the compunction to issue proceedings then all I can and will do is defend to the bitter end including prospective bankruptcy proceedings in the Federal Court. My stance on that subject is no different to that when Di Nola tried to bankrupt all of us. The reality is that there is nothing there for you to get even if your legal action is successful. I have done my bit for the Contacio project; that is a matter of record for which I have plenty in my possession. Without sounding flippant, may I suggest that you prepare a list of the monetary and professional contributions to the project made by Barry. I know you will end up with a blank sheet of paper. 21 There was a further exchange of correspondence in similar terms in October 2002. 22 The correspondence to which I have referred is relied on by the defendant to show that in 2002 Mrs Scanlan had, in effect, proposed that Mr Scanlan would not claim a contribution for what he had paid other creditors if Mr Douglas paid the judgment debt to Mrs Scanlan. In evidence-in-chief, Mr Scanlan said that he was willing to forego the money owed to him (by way of contribution) if Mr Douglas paid the judgment debt (ts 245). 23 Mr Scanlan was cross-examined as to the amount of $250,000 mentioned in Mrs Scanlan's letter of 15 February 2002. He said it included the $80,000 paid by Mrs Scanlan for the Cianiup judgment, the $96,000 paid by him to the Willows, Morse-Evans' and Stan Matthews Nominees Pty Ltd, an amount of $8,000 paid to Fiocco Hopkins Nash, $4,000 owed to LJ Scanlan & Associates for drafting expenses, and $55,000 which represented money borrowed by Mr Scanlan on behalf of Redtail from a Mr Brian Greatorex which he personally repaid. (Page 9)
Mr Scanlan agreed that the letter incorrectly represented that the figure of $250,000 was made up of amounts which Mr Douglas had guaranteed. I do not consider that the misstatement bears adversely upon Mr Scanlan's credibility. 24 On 15 September 2004 Mrs Scanlan applied ex parte for leave to execute the judgment pursuant to s 141 of the Supreme Court Act 1935. Leave was granted on 24 September 2004. On 5 December 2005 Mr Douglas applied to set aside the order. At that stage it became apparent that the order for leave previously granted was defective. A further application was made by Mrs Scanlan on 7 February 2006 by which time the Civil Judgments Enforcement Act 2004 applied. That application was dismissed because Mr Douglas' application to set aside the initial order was still pending. Mr Douglas' application was determined on 27 February 2006. 25 A third application was made on 31 March 2006 and dismissed by a deputy registrar on 25 August 2006. The application was for leave to enforce pursuant to s 13(1)(a) and s 13(1)(d) of the Civil Judgments Enforcement Act 2004, leave being required because the judgment was more than six years old and Mrs Scanlan was not the original judgment creditor. 26 An appeal was made to Commissioner Archer who held that a deputy registrar did not have jurisdiction to deal with an application pursuant to s 13(1)(d) and treated the appeal as a fresh application. 27 The learned commissioner decided that there was a valid judgment which had been properly assigned to Mrs Scanlan, Mr Douglas having notice of the assignment by virtue of having signed the original deed of assignment. Her Honour rejected the arguments raised by Mr Douglas against a grant of leave. She did not accept that there was a binding agreement made at the time of the assignment that Mr Douglas would be required to pay only one-third of the judgment debt. Moreover, Mr Douglas failed to prove that it would be inequitable or unjust for execution to issue, there being no evidence that Mr Douglas altered his position in any way in reliance upon the oral agreement. Nothing in the reasons of the learned commissioner indicates that any issue arose as to whether leave to enforce the judgment should be limited to Mr Douglas. Needless to say, Mr Scanlan was not represented. 28 The learned commissioner was satisfied that Mrs Scanlan's delay in taking action to execute the judgment was satisfactorily explained and did (Page 10)
not amount to abandonment of, or indifference to, her rights under the judgment: Cianiup Pty Ltd v O'Rourke & Ors [2007] WADC 19. The order for substitution of judgment creditor and leave to execute on judgment made by Commissioner Archer on 8 March 2007, as extracted, was in terms that Mrs Scanlan have leave to execute against 'the respondent' even though the heading named three respondents. 29 It is not disputed and a matter of record that Mrs Scanlan issued a property (seizure and sale) order against Mr Douglas on 7 June 2007. According to Mr Douglas' evidence, he paid the judgment debt to the sheriff on 21 September 2007. To fund that payment he had to borrow money from GSLDT. How this was done is a matter of issue between the parties. 30 Mr Douglas gave evidence that on 15 May 2007 he and his wife executed a deed of assignment (not stamped until 17 February 2010) whereby he purported to assign to himself and Mrs Douglas in their capacities as trustees of GSLDT the right to contribution from Mr Scanlan that would arise upon his payment of the judgment debt. The consideration expressed in the deed for the assignment was 'any financial accommodation which is made by the Assignee for the benefit of the Assignor to pay the judgement debt'. 31 Mr Douglas gave evidence that GSLDT borrowed $150,000 from a company called Perizia Pty Ltd (Perizia). This sum was paid by Perizia to the account of Equity Alliance Finance on 10 September 2007. In consideration of the advance Mr and Mrs Douglas as trustees gave a promissory note in the same amount to Perizia (exhibit 27). In cross-examination, Mr Douglas confirmed that Perizia was owned by a friend, Gary Castledine, whom he approached for a loan. Perizia was willing to lend to GSLDT because it held real estate. Mr Douglas was unsure of who the beneficiaries of the trust were, but understood that there was a standard class of beneficiaries. He did not think he was one. 32 The deed of trust of GSLDT was not tendered, nor any documentation of any loan transaction between GSLDT and Perizia apart from the promissory note. Mr Douglas said the loan was not documented. It had not been repaid. Neither the bank statement (exhibit 26) nor the deposit slip stub (exhibit 28) is capable of proving the source of the funds said to have been advanced by Perizia, but, in my opinion, nothing turns on this. (Page 11)
33 Mr Douglas was extensively cross-examined as to why the action had been commenced in his name rather than in the names of the trustees of GSLDT, if he had assigned the right of contribution. He admitted that initially he did not instruct his solicitor about the assignment. He did not think it was necessary or relevant. Nor did he discover the assignment in his affidavit of discovery sworn 27 February 2009. He said that on 17 January 2009 he suffered a life-threatening stroke. Discovery had been prepared by his solicitor using documents which he had disclosed to that point. The deed of assignment had been located by his wife some time later and discovered by him in an affidavit sworn 18 February 2010. In that affidavit he said that he had come across the deed when his wife gave it to him as he was preparing his proof of evidence on 16 February 2010. He gave evidence in cross-examination that his solicitor had asked them to have a final look for 'anything that may have been missed'. 34 He was then taken to evidence of a bankruptcy petition by St George Finance Ltd filed 23 December 2009 in New South Wales. He did not recall when it required him to appear in court, but admitted it could have been January or February 2009. He retained solicitors in NSW to defend him. He was not challenged to the effect that the assignment was brought into existence at or about that time to avoid his creditors. 35 The chronology of events, including the stamping of the document on 17 February 2010, suggests that the deed of assignment was of significance in the context of the creditor's petition, but it was not put to Mr Douglas that the deed was not brought into existence on the date it bears. Nor was it submitted by counsel to have been ante-dated. Had such a challenge been made the second named plaintiff may have been called as a witness. In the circumstances I am not in a position to make any adverse finding as to when the deed of assignment came into existence. I am bound to accept that it was made on 15 May 2007. 36 Mr Douglas gave evidence that a s 188 authority was signed on 9 July 2010 to attempt a pt 10 arrangement with creditors. This failed. The official records tendered in evidence show that he then petitioned his own bankruptcy on 26 August 2010. The contested petition by St George Finance Ltd was finalised the next day (exhibits 15, 16 and 17). 37 The following procedural history is relevant to an issue raised by Mr Scanlan as to whether he had, at the time of the payment of the judgment, as a matter of law, a coordinate liability with Mr Douglas to Mrs Scanlan, if leave to enforce the judgment against him had not been given. (Page 12)
38 In 2010 an application was made on behalf of Mr Douglas to amend the order by replacing the words 'the respondent' in par 4 with the words 'Lawrence John Scanlan and Oliver George Douglas'. The question to be resolved was whether the learned commissioner's order for leave to execute was made in respect of Mr Douglas only as opposed to Mr Douglas and Mr Scanlan. 39 His Honour Chief Judge Martino found on 24 March 2011 that according to the associate's record and certificate par 4 of the order by the commissioner was that Mrs Scanlan have leave to execute against the second named defendant and third named defendant, that is, Mr Douglas and Mr Scanlan. However, the order as sealed was that Mrs Scanlan have leave to execute against the respondent. The chief judge noted that in the course of proceedings, Mrs Scanlan had deposed on affidavit on 7 September 2004 to not having made demand upon and not seeking leave to execute against Mr Scanlan: Scanlan v Douglas[No 3] [2011] WADC 46 [16]. 40 His Honour concluded that it was impossible on the information available to the court at that time to ascertain why the associate's record and certificate indicated an order in different terms from the order as extracted. Ultimately, his Honour found that Mr Douglas' delay in bringing the application was a sufficient reason to dismiss it. 41 There was a trial of a preliminary issue as to when a cause of action for contribution arises. Her Honour Judge Schoombee decided that a cause of action for payment of a contribution between co-guarantors only arises once the guarantor has paid the full debt to the creditor or at least more than his or her share of the debt: Douglas & Anor as Trustees for the Great Southern Land Discretionary Trust v Scanlan [2010] WADC 126. The consequence of that decision was that the plaintiffs' claim was not statute-barred as time did not commence to run for the purpose of limitations until Mr Douglas paid the judgment. Her Honour acknowledged, however, that declaratory relief against a co-guarantor may be sought once the creditor is entitled to payment. This is clear from Mahoney v McManus (1981) 180 CLR 370, 376 (Gibbs CJ). See also Bond v Larobi Pty Ltd (1992) 6 WAR 489, 503. In Bond, Owen J found that by its very nature, a right to contribution is an equitable right to protect a surety against the injustice which he would suffer if he were to pay more than his fair share of the debt. (ts 500) (Page 13)
Validity of assignment of right to contribution 42 As I have pointed out, this action was commenced by Mr Douglas in his own right, notwithstanding that on 15 May 2007 he purported to assign his right to contribution from Mr Scanlan to himself and Mrs Douglas as trustees for GSLDT. The assignment, by deed, was stated to be given in consideration of financial accommodation to be afforded by GSLDT to Mr Douglas to enable him to pay the judgment debt. The plaintiffs plead that the assignment was of a future chose in action. 43 On behalf of the defendant it is contended that the deed was not in fact made until February 2010 (when it was stamped) by which time Mr Douglas' bankruptcy had been petitioned by St George Finance Ltd. I have dealt earlier in these reasons with the suggestion made on behalf of the defendant that the deed was made at that time and ante-dated in order to avoid the right to contribution being sequestered as part of Mr Douglas' estate in the event of bankruptcy. For the reasons I have stated, I am unable to find that this occurred. I propose to deal with the issue on the basis that the deed was made on the date it bears in anticipation of Mr Douglas borrowing money from the trust to pay the judgment debt which Mrs Scanlan had obtained leave to enforce on 7 March 2007. No question of relation back arises with respect to Mr Douglas' bankruptcy. 44 The defendant further contends that the assignment, being of a future chose in action, was invalid for lack of consideration. On the preliminary issue it was found that a cause of action for contribution accrues when a coordinate liability is paid. At the date of the deed of assignment Mr Douglas had not paid the judgment debt and therefore did not have a right of contribution. Accordingly, it was argued, what was purportedly assigned (and pleaded by the plaintiffs to have been assigned) was a future chose in action which would not come into existence unless and until Mr Douglas paid more than his share of the debt. The defendant's argument is premised on Mr Douglas having no assignable right to contribution at the date of the deed and there being no consideration given for the assignment of a right accruing in the future. 45 A chose in action is the opposite of a chose in possession. It is a proprietary right enforceable by action: Loxton v Moir (1914) 18 CLR 360, 379. It may be legal or equitable: Re; Pain [1919] 1 Ch 38, 44. (Page 14)
46 It was held in Norman v Federal Commissioner of Taxation [1963] 109 CLR 9 that an expected future entitlement, in that case to interest payments and dividends not presently due, could not be effectively assigned without consideration. At [26] Windeyer J (Dixon CJ), stated: Assignment means the immediate transfer of an existing proprietary right, vested or contingent, from the assignor to the assignee. Anything that in the eye of the law can be regarded as an existing subject of ownership, whether it be a chose in possession or a chose in action, can today be assigned, unless it be excepted from the general rule on some ground of public policy or by statute. But a mere expectancy or possibility of becoming entitled in the future to a proprietary right is not an existing chose in action. It is not assignable, except in the inexact sense into which, again to use Maitland's words, lawyers slipped when it is said to be assignable in equity for value. 47 Although a cause of action in respect of a right of contribution may be said to arise upon the payment by a co-guarantor pursuant to a coordinate liability, there is no doubt that an equity is created when the liability to pay arises. This is clear from what Gibbs CJ stated in Mahoney v McManus (376): The right to contribution arises when a surety has paid or provided more than his proper share of the principal share, but it may also be enforced by a surety who has not made payment; the circumstances in which a surety who has not made payment may enforce a claim to contribution have not precisely defined, but it appears that he may at least do so as soon as the creditor has acquired a right to immediate payment from him. 48 In Bond v Larobi Pty Ltd, Owen J, after referring to Mahoney v McManus and other authorities, reached the following conclusion (503): It seems to me, as a matter of general principle, that the right to contribution, in the sense of the cause of action, accrues once there is a judgment against a surety regardless of whether the judgment has been satisfied or whether the surety is willing and able to pay it. … [W]hether the plaintiff is willing and able to pay the debt, or at least his just proportion, is a matter which could be relevant to, and may well govern, the relief which a court will grant. 49 In her Honour's reasons for decision on the preliminary issue a distinction was drawn between a cause of action for declaratory relief (which was the subject of the decision in Bond v Larobi Pty Ltd) and a cause of action for payment. Her Honour found on the authority of Walker v Bowry (1924) 35 CLR 48 and McLean v Discount & Finance Ltd (1939) 64 CLR 312 that an action for contribution by one co-guarantor against another could not be brought until payment of the (Page 15)
debt had been made, but held that there may be an entitlement to a declaratory order fixing the contribution of a co-guarantor in respect of an unpaid liability: [46], [47]. 50 In my opinion, Mr Douglas had what I would characterise as an equitable chose in action at the date of the assignment, even though he had not by that time paid all or part of the judgment. That equity was created by the entry against him and his co-guarantors of the Cianiup judgment. It was capable of assignment for consideration. 51 Was there consideration? The defendant's position in this respect is that no consideration passed until GSLDT provided funds to Mr Douglas for the payment of the judgment by means of the advance of $150,000 by Perizia on 10 September 2007. A distinction was drawn for this purpose between what was described as executory and executed consideration. In my view the defendant's categorisation of the consideration expressed in the assignment as executory does not bear on the validity of the assignment. No authority has been cited to the effect that executory consideration is no consideration. In this case the court is not concerned with any question of enforceability of the assignment. The question is whether the plaintiffs can sue on Mr Douglas' right to contribution. On the evidence, money borrowed by the trust was made available to Mr Douglas to pay the judgment whereupon, pursuant to the assignment, the plaintiffs became entitled as assignees of his right to contribution to claim that remedy against Mr Scanlan. 52 Equity looks at substance rather than form and the courts discourage an overly technical approach. In Mahoney v McManus Gibbs CJ observed (378): It should be remembered that the doctrine of contribution is based on the principal of natural justice that if several persons have a common obligation they should as between themselves contribute proportionately in satisfaction of that obligation. The operation of such a principle should not be defeated by too technical an approach to the question whether a surety has paid the creditor, when he has supplied monies to the principal debtor for the purpose of making such payment. 53 This statement was expressly approved by Kirby J in Burke v LFOT Pty Ltd [2002] HCA 17; (2002) 209 CLR 282 [69]. 54 In my view the points made on behalf of the defendant as to the capacity of the plaintiffs to sue do not give rise to any defence. Mr Douglas assigned for value an equitable right to claim contribution from a co-guarantor. The assignment was completed when the judgment (Page 16)
was paid. The plaintiffs thereby acquired an enforceable right to payment of a contribution by Mr Scanlan. I find, therefore, that the circumstances of the assignment do not obstruct the plaintiffs' claim.
Availability of set-off 55 Mr Scanlan paid three amounts totalling $96,000 in the period 1999 to 2001. Mr Douglas was a co-guarantor with Mr Scanlan of the debts for which those amounts were paid. Accordingly, Mr Scanlan acquired a right of contribution from Mr Douglas in the total amount of $48,000. Mr Scanlan did not pursue Mr Douglas for his contributions. Mr Scanlan does not make a counterclaim, but raises as a defence an equitable set-off. 56 The doctrine of set-off is explained by the authors of Meagher, Gummow and Lehane's Equity Doctrines and Remedies (4th ed) at 37-005: A set-off is said to exist when a defendant, in answer to a plaintiff's claim, is able to plead successfully that a countervailing claim which he has against the plaintiff absolves him, wholly or partially, from liability to the plaintiff. It is to be distinguished from a counterclaim, in that a counterclaim is never a defence to a plaintiff's claim but an entirely independent action brought by a defendant against a plaintiff although in the same proceedings. A counterclaim must be used offensively; it cannot be used defensively. But a set-off, like an estoppel, and in the same limited sense, is a shield, not a sword. 57 In Hazcor Pty Ltd v Kirwanon Pty Ltd (1995) 12 WAR 62, 67, Kennedy J (Malcolm CJ, Murray J) traced the history of set-off by reference to the Statutes of Set-off, Insolvent Debtor's Relief 1728 (UK) (2 Geo II c 22, s 13) which provided for the setting off of mutual debts between a plaintiff and a defendant, and the further Statute of Set-off 1734 - 5 (UK) (8 Geo II c 24, s 4) by which the former statute was made perpetual. The Statutes of Set-off have not been repealed in Western Australia. His Honour then dealt with the availability of an equitable set-off where the party seeking it can show a recognised equitable ground for being protected from another's demand. His Honour noted further that O 20 r 17 of the Rules of the Supreme Court 1971 did not displace the established principles of equitable set-off. 58 The only issue taken by the plaintiffs with respect to the claimed set-off is that it is either statute-barred pursuant to the provisions of the Limitation Act 1935 or liable to be defeated by the equitable doctrine of laches on the basis that no claim for contribution by Mr Scanlan against Mr Douglas was made prior to the commencement of the present action. (Page 17)
59 With respect to the limitation point, the plaintiffs plead that s 24 and s 28 of the Limitation Act 1935 apply. Section 24 provides: No person claiming any land or rent in equity shall bring any suit to recover the same but within the period during which, by virtue of the provisions herein before contained, he might have made an entry or distress or brought an action to recover the same respectively as if he had been entitled at law to such a state, interest, or right in or to the same as he claims therein in equity. 60 In this case no claim is made for land or rent. The section is inapposite. 61 Section 28 provides: Nothing in this Act contained shall be deemed to interfere with any rule or jurisdiction of a court of equity in refusing relief on the ground of acquiescence or otherwise to any person whose right to bring a suit may not be barred by virtue of this Act. 62 This provision has no relevant application either. 63 On the other hand, s 46, which is not raised in the plaintiffs' reply, provides: The provisions of this Act shall apply to any counterclaim or set-off alleged by the defendant in all cases, and to the like extent, and for the same purpose in, to, or for which they respectively would apply if the defendant had instituted an action against the plaintiff or plaintiffs in respect of the same matter. 64 In my opinion, this provision does not operate to prevent an equitable set-off being raised as a defence to protect the defendant from the plaintiffs' claim, notwithstanding that the set-off arises from a right to contribution from Mr Douglas which accrued to Mr Scanlan more than six years prior to the commencement of this action. My reasons are as follows. 65 In Derham SR Set-off (2nd ed), the author states at 64: The substantive nature of the defence of equitable set-off may become important when there is a time bar imposed by a statute of limitation in enforcing a right of action. The usual form of statute of limitation preserves the existence of the right that takes away the remedy of enforcing that right by action at law. Since the Statutes of Set-off merely perform a procedural function, a defence of set-off under the Statutes may only be based upon a debt that is still enforceable by action. Therefore, a debt owing by the plaintiff which is unenforceable as a result of the (Page 18)
expiration of a limitation period may not be employed by the defendant in this statutory form of set-off. Equitable set-off on the other hand is a substantive defence which does not require an order of the court for its enforcement. Consequently, the better view is that an equitable set-off may be asserted notwithstanding that the cross demand upon which it is based is no longer enforceable by action because of a time bar. This is so notwithstanding the revisions of s 35(1) and (2) of the Limitation Act 1980 according to which any claim by way of set-off or counterclaim is deemed to be a separate action and to have been commenced on the same date as the original action. Unlike the procedural defence of set-off available under the Statutes of Set-off, a right of equitable set-off does not require an action at law before it may be invoked. Consequently, s 35 would not appear to be relevant to equitable set-off but seems to refer only to the right of set-off available under the Statutes of Set-off. When questions of equitable set-off arise in relation to time bars, the conclusion that the defence is still available notwithstanding the expiration of the limitation period assumes that the statutes of limitation in question really takes away the remedy without affecting the existence of the underlying right. 66 Section 35(1) and s 35(2) of the Limitation Act 1980 (UK) relevantly provide: (1) For the purposes of this Act, any new claim made in the course of any action shall be deemed to be a separate action and to have been commenced - (2) In this section a new claim means any claim by way of set-off or counterclaim, and any claim involving either - 67 The Full Court held in Young v National Australia Bank Ltd [2004] WASCA 298; (2004) 29 WAR 505 that by virtue of s 46, a claim by way of set-off is deemed to commence on the same date as the main action in respect of which it is pleaded as a defence, giving it the same effect as s 35(1) and s 35(2) as the UK Act. In that decision, Barker J (Murray J) held that a guarantor was entitled to rely upon an equitable set-off available to a principal debtor even though the cause of action from which the set-off is based was statute-barred, because the guarantor's right to (Page 19)
claim set-off (as opposed to the principal debtor's) did not arise until the commencement of the action. 68 In considering the effect of s 46 Barker J observed [36]: Section 46 does not appear to have a direct counterpart in the limitation statutes of any other Australian State or Territory. On its face, s 46 appears to negate the general equitable principle recognised in Australian Mutual Provident Society v Specialist Funding Consultants Pty Ltd (1991) 24 NSWLR 326, 331 – 332 that the expiration of a limitation period in respect of a cause of action does not prevent a party asserting an equitable set-off where it is available. Section 46 appears to have the substantive effect that the limitation rules specified in the Limitation Act 1935, apply to, amongst other claims, a claim of equitable set-off. 69 His Honour's observation was incidental to the decision. The question for his Honour in relation to s 46 was whether it had the effect of deeming a claim for set-off to commence on the day of the commencement of the principal action. The answer to that question did not depend upon his Honour concluding that s 46 created a time bar in respect of a right to assert an equitable set-off. 70 His Honour referred to the report of the Law Reform Commission of Western Australia on Limitation and Notice of Actions (Project No 36, Pt II, January 1997). On my reading, the commission was not necessarily of the view that s 46 applied to time-bar a defence of equitable set-off. At par 20.9: It is important to distinguish cases of set off and counterclaim from independent defences (for example, in an action for the price of goods sold, a claim by the defendant for loss of or damage to goods) which cannot be defeated by reliance on any limitation period applying to the action. 71 The report noted that s 46 had its origins in s 4 of the Statute of Frauds Amendment Act 1828 (UK), which provided that the Limitation Acts applied to the case of any debt on simple contract alleged by way of set-off on the part of any defendant, either by a plea, notice or otherwise. Clearly, what was meant by a set-off in the context of that legislation was a statutory or legal set-off. Arguably, s 46 should be given the same construction. In my view, the words 'counterclaim or set-off' do not necessarily comprehend equitable set-off. This view is consistent with what Kennedy J held in Hazcor at (67) about O 20 r 17 not displacing the rules of equitable set-off. It is by no means clear that the legislature intended by s 46 to deprive a defendant of an equitable defence, as (Page 20)
opposed to a cross-claim, on the basis that the right asserted was acquired more than six years before the claim was brought. 72 In Australian Mutual Provident Society v Specialist Funding Consultants (1991) 24 NSWLR 326 it was held that an equitable set-off may be asserted notwithstanding that the right upon which it is based is not enforceable by reason of the expiration of a limitation period. Rogers CJ Comm D cited Lord Denning MR in Henriksens Rederi A/S v THZ Rolimpex - The Brede [1974] QB 233, 237: In point of principle, when applying the law of limitation, a distinction must be drawn between a matter which is in the nature of a defence and one which is in the nature of a cross-claim. When a defendant is sued, he can raise any matter which is properly in the nature of a defence without fear of being met by a period of limitation. No defence, properly so called, is subject to a time-bar. But the defendant cannot raise a matter which is properly the subject of a cross-claim except within the period of limitation allowed for such a claim. 73 The observation in Young that s 46 appears to create a time-bar in respect of a defence of equitable set-off is obiter. There is no other local authority on point and, as was noted, s 46 has no equivalent in related jurisdictions. The remark in Young about the apparent effect of s 46 is a statement is persuasive authority, but does not, in my respectful view, bind me, or absolve me from exercising my own judgment: Ogden Industries Pty Ltd v Lucas [1970] AC 113, 127(Lord Upjohn); Accident Towing & Advisory Committee v Combined Motor Industries Pty Ltd [1987] VR 529, 547 (McGarvie J). 74 The Limitation Act 2005 by s 81 now provides merely that a counterclaim is deemed to commence on the day of commencement of the action in which it is made. The word 'set-off' is not used. I do not infer from the change to the legislation that the repealed law, insofar as it may affect this case, was different. 75 In my opinion it cannot have been the intention of Parliament to preclude a defendant from raising an equitable set-off as a defence where the cause of action on which the set-off was based is statute-barred. Section 38 of the Limitation Act 1935 deals with when an action must be commenced. The effect of non-compliance is to bar the remedy, not to extinguish the right. It is the defendant's right in this case to a contribution from the plaintiff which affords him a defence. That he can no longer otherwise enforce his right by reason of the effluxion of time does not prevent it being asserted as a shield to protect the defendant from the plaintiffs' claim. (Page 21)
76 For completion, and in the event I am wrong about s 46, I will deal briefly with the defendant's contention that the plaintiffs are estopped from seeking contribution. The defendant points to the correspondence in 2002 as indicating a tacit agreement by Mr Douglas to an implicit proposal by Mrs Scanlan that if he paid the Cianiup judgment Mr Scanlan would not claim contribution from him in relation to other joint debts he had paid. 77 In my opinion the letter of Mrs Scanlan of 15 February 2002 may not reasonably be construed as an offer on behalf of Mr Scanlan to forego recovery of contribution from Mr Douglas. Nor can Mr Douglas' response (22 February 2002) be interpreted as an acceptance of such a proposal or even an acknowledgement of liability. Certainly, it was suggested by Mrs Scanlan in her letter that it would be fair for Mr Douglas to pay the judgment because of the payment by Mr Scanlan of other debts for which he was jointly liable, but there was no statement expressed to be made on Mr Scanlan's behalf that he would forego his rights. In his letter, Mr Douglas purposefully did not respond to the first paragraph of Mrs Scanlan's letter which asserted his contractual liability to pay. Otherwise, he did not make any admission, but rather indicated a willingness to defend any proceedings that may be brought. No question of an estoppel arises on those facts. 78 The defendant also raises the doctrine of laches which operates to prevent a person from seeking a remedy in equity due to delay. 79 In Orr v Ford (1989) 167 CLR 316, 341 Deane J said: The ultimate test effectively remains that enunciated … in Lindsey Petroleum Co v Hurd (1974) LR 5 PC 211, 239 – 240, namely, whether the plaintiff has, by his inaction in standing by, placed the defendant or a third party in a situation in which it would be inequitable and unreasonable "to place him if the remedy were afterwards to be asserted". 80 The plaintiffs argue that the defendant's assertion of his rights to contribution in respect of the Morse-Evans, Stan Matthews Nominees Pty Ltd and Willows' debts amounts to a claim for relief in equity which should be refused on the grounds of delay. In my opinion this objection is misconceived as the defendant by raising his right to contribution is not seeking a remedy in equity, but merely establishing a defence. 81 If that were not so, I would hold that there has been no waiver by Mr Scanlan of his right to contribution and no prejudice has been caused to Mr Douglas by any delay. The history of this matter is of a long (Page 22)
controversy over liabilities resulting from the failure of Redtail and Australiana. Mr Scanlan admits that he had in interest in common with his wife in recovering from Mr Douglas the Cianiup debt. The letter from Mrs Scanlan to Mr Douglas of 15 February 2002 makes it clear that Mr Douglas was expected to repay Mrs Scanlan on the basis that Mr Scanlan had paid more than his fair share of jointly guaranteed debts. 82 This whole dispute boils down to whether it is just for Mr Scanlan to pay Mr Douglas 50% of a debt for which both were liable when Mr Scanlan had paid other debts to a higher sum, co-guaranteed by, but not contributed to, by Mr Douglas. Clearly, Mr Scanlan expected that by payment of Mrs Scanlan's debt, Mr Douglas would effectively 'square the ledger'. There has been no acquiescence amounting to waiver and no prejudicial change of circumstances which would make the claim of set-off inequitable. 83 None of the points taken by either of the parties has the effect of displacing what in my opinion is the only fair result in this case which is that whilst Mr Douglas has a right in law and equity to an equal contribution from Mr Scanlan in respect of the Cianiup debt, it would be inequitable to order such a contribution in circumstances where Mr Scanlan has paid other debts for which Mr Douglas was liable as co-guarantor to which he did not contribute.
Contribution as to costs 84 As I have noted, there are three sums, each agreed as to quantum, comprised in the claim for contribution. The issue raised by the defendant is whether contribution should be ordered with respect to the costs of Mr Douglas in relation to enforcement proceedings by Mrs Scanlan and costs payable to Mrs Scanlan. No evidence was given in relation to these items. 85 The issue as to whether contribution between co-sureties should extend to costs was explored by Giles J in Morgan Equipment Co v Rodgers (No 2) (1993) 32 NSWLR 467, 482. His Honour held that there was some uncertainty as to whether and in what circumstances there should be a contribution ordered with respect to costs. In Wolmershausen v Gullick [1893] 2 Ch 514 the plaintiff was partially successful in defending the creditor's claim, but liable for the balance. It was held that the plaintiff acted reasonably and for the benefit of the co-sureties in defending the claim and was entitled to a contribution to costs. (Page 23)
86 Giles J found that the principle which allowed that outcome was the fundamental principle that if all sureties are benefited by the discharge of the debt they should all contribute to the burden. His Honour reviewed a number of cases which he found did little more than suggest that between co-sureties and in analogous situations costs cannot be automatically passed on, but may be. In circumstances where the defence was reasonable and created a benefit in terms of a settlement which enured to the benefit of the co-surety it was proper that a contribution be ordered. 87 There is nothing in the present case to indicate that any steps taken by Mr Douglas to resist the enforcement of the judgment were either reasonable or beneficial to the co-guarantor. As far as I can tell from the evidence before me of the history of the judgment, Mr Douglas incurred his legal costs in his interests alone. Furthermore, his liability for Mrs Scanlan's costs is a personal one. 88 The only other point made by the plaintiff in relation to the quantum of the contribution is that Mr Scanlan is not entitled to a set-off of a contribution with respect to the Morse-Evans' debt as the judgment creditors undertook not to enforce that judgment against Mr Douglas. That a judgment creditor may choose not to execute against one or more of a number of judgment debtors is not at all uncommon. It does not, however, alter the position as between the debtors. In Friend v Brooker [2009] HCA 21, 38 French CJ, Gummow, Hayne & Bell JJ held: The 'natural justice' in the provision of a remedy for contribution is the concern that the common exposure of the obligors (or "debtors") to the obligee (or "creditor") and the equality of burden should not be disturbed or defeated by the accident or chance that the creditor has selected or may select one or some rather than all for recovery. Were equity not to intervene, then it would remain within the power of the creditor so as to act as to cause one debtor to be relieved of a responsibility shared with another. Equity follows the law in the sense that it does not seek to direct the manner of exercise of the rights of the creditor, but equity does make an adjustment between the debtors. Thus equity does not interfere with the action of the creditor but seeks to ensure the sharing of the burden between those subjected to it.
Conclusion 89 Reduced to its essence this matter affords a simple solution. 90 In 1998 Mrs Scanlan, in order to preserve Mr Scanlan, Mr O'Rourke and Mr Douglas from bankruptcy, took an assignment of a judgment debt of $79,747.17 owed to Cianiup. She did so on the basis that Mr O'Rourke and Mr Douglas would pay their respective proportions of that debt. Over (Page 24)
the next three years Mr Scanlan paid three debts of Australiana totalling $96,000. Like the Cianiup debt, those debts were also co-guaranteed by Mr O'Rourke and Mr Douglas. 91 The Morse-Evans, Stan Matthews Nominees Pty Ltd and Willows' debts amounted to more than the Cianiup debt, but were paid later. No detailed arithmetical calculations are required in order to conclude that the payments made by Mr Scanlan fully offset the debt paid by Mr Douglas in 2007, nett of accrued interest and legal costs. In the circumstances the parties' positions are substantially equal. Equality is equity. I would dismiss the plaintiffs' claim.
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