Friend v Brooker

[2009] HCATrans 39

[2009] HCATrans 039

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S475 of 2008

B e t w e e n -

NICHOLAS MACARTHUR FRIEND

Appellant

and

FREDERICK CLARKSON BROOKER

First Respondent

FRIEND & BROOKER PTY LTD

Second Respondent

FRENCH CJ
GUMMOW J
HAYNE J
HEYDON J
BELL J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON FRIDAY, 6 MARCH 2009, AT 10.01 AM

(Continued from 5/3/09)

Copyright in the High Court of Australia

FRENCH CJ:   Yes, Mr Walker.

MR WALKER:   May it please your Honours.  I was just taking your Honours to Jackson v Dickinson [1903] 1 Ch 947. In the statement of the facts at page 948, could I draw to attention just after halfway down that page the reference to:

certain correspondence and other evidence to shew that at the time the unauthorized investment was made it was agreed –

I draw that to attention –

that the trustees should contribute equally to any liability arising –

then the alternative put:

even if the evidence failed to substantiate any such agreement, he was still entitled to contribution.

So the relation of alternative between contract and the contribution right of the kind that we contend for is clear in this case as well.  At the foot of that page:

It was assumed throughout the case that the liability on the shares was merely a joint liability, so that the defendants were not directly liable for the call.

That, in our submission, was something that the trial judge was harping on in the comments to which one then comes during argument and in his reasons.

The argument of Mr Eve, KC, at the top of page 949 commences with an outright reliance on Ashhurst v Mason which he characterises as:

The fact that the liability has arisen out of the joint act of the plaintiff and his co‑trustee entitles the plaintiff to contribution -

that being his argument assuming there was no special agreement.  The argument against by Mr Macnaghten, KC, starts with the proposition upon which my learned friend relies, namely:

The right to contribution only arises where two persons are liable to be sued for the same debt or liability . . . and as the defendants, not being shareholders, were not liable to the bank, no case of contribution arises.

So at that point as between argument on behalf of the parties it does appear that the point raised by my learned friend and said to be precluded to the Court of Appeal in this case was up for decision.

On page 950, argument by Mr Macnaghten, attempting what has also been attempted in this Court, namely to show that Ashhurst v Mason should be understood as a co‑ordinate liability case, is contradicted by the trial judge in a reported interjection:

They might possibly have been sued for misfeasance, but certainly not for the call.

That is the first of the comments by the judge in argument.

There is a reference in the next of the recorded interventions by the trial judge, the second sentence:

In neither case would the absent directors have been bound.

In reply the argument was plainly put, which bears close analogy with the position in this case:

It is contended that the plaintiff is not entitled to contribution, because the defendants were not liable for the call.

That is counsel for the plaintiff apprehending, correctly, the gravamen of the answering argument for the defendant, and his reply is:

But the right of a trustee or surety to contribution is an equitable right arising out of the mutual trusteeship or suretyship, and is not limited by the right of the creditor -

It is the last phrase, of course, which presents – if any analogy be presented it be analogy with this case - “is not limited by the right of the creditor”.  In the reasons – and your Honours are familiar with the case - I want to go just to the point that is the point of distinction between my friend and me in using this authority.  At page 952 his Lordship goes to the defendant’s contention in the first full paragraph:

It was contended that the liability to contribution only arose where both parties were liable to be sued for the same debt or liability.

That is, with respect, squarely a capturing of the contention before your Honours 105 years later here.

But in Ashhurst v Mason two lots of shares of a company were (pursuant to an ultra vires resolution of the board) transferred into the names of Ashhurst, a director, and Leyland, the manager, in trust for the company.  Ashhurst had subsequently to pay calls on both lots of shares, Leyland being unable to pay.  Ashhurst thereupon sued his co‑directors for contribution.  Now the co‑directors were not liable at law as contributories as they did not hold the shares.

We say that that does present, notwithstanding of course that they are quite different in case‑specific peculiarities of the facts which produced it - it produced exactly the same abstraction as presents in this case, that of course, on the findings that we are now bound by, SMK can look only to my client for repayment.  Resuming in Mr Justice Swinfen Eady’s reasons on page 952:

If the company had been unable to recover the call from Ashhurst, the co‑directors might possibly have been liable for their misfeasance in placing the shares in the name of a man unable to pay.

Now, that is, of course, a quite different level of liability:

But they were not liable for the call, which was the liability in respect of which contribution was claimed.

Then there is an explanation of the result in Ashhurst, the quote of the passage to which I think both of us have gone in argument before your Honours in this case.  It is quite plain from the way in which that concludes – that quotation – at the top of page 953 with the one sentence added:

That statement of the law is quite apart from the allegation as to the existence of a special contract -

that his Lordship regarded that as an adequate, complete and self‑explanatory resolution of the case before him that there had been all of the, what I am calling “common design”, which had produced the subjection to liability at law alone, relevantly, of the person claiming contribution and that the situation therefore produced the right of contribution quite apart from the existence of any special contract.  There did not need to be a contract and that goes right back to the roots of the doctrine in Dering v Winchelsea where it was emphasised that this was not a matter of contract, it stood apart from contract.  Obviously it can be expelled by contract, of course.

In our submission, your Honours, that reading of those three or four cases is one which, undertaken by Justice Cooper in Cummings v Lewis does, with great respect, justify the way his Honour saw those cases and saw those cases as producing an answer to the proposition that universally a right to contribution must have, as one of the probanda, the subjection to a common demand – the common debt, the common liability, the co‑ordinate liability.  I do not wish to repeat what I said yesterday –

GUMMOW J:    Do you seek to get anything out of Lord Justice Vaughan Williams?

Mr WALKER:    No, not particularly.

GUMMOW J:   The notion of community of interest.

Mr WALKER:   Your Honour, community of interest is, I am sorry, what I meant by “common interest” yesterday.  The expression “community of interest” adds nothing, we think, to the expression “common interest” which was Lord Chief Baron Eyre’s translation of the maxim.  “Community of interest” is, I think, to use only a noun rather than an adjective.  Certainly there is, in our submission, in Bonner, as we have quoted in paragraph 25 of our written submissions, the matching of common interest and common burden.  The common interest is what needs to be established.  The community of burden comes from the dictates of conscience or equity, including those which are observed at law in order for the right to contribution to be enforced. 

In that passage that we have cited in paragraph 25 of our written submissions there is also a reference, and we think this adds nothing to the cases before and ‑ ‑ ‑

GUMMOW J:   I am really asking you whether you press paragraph 25 of your written submissions.

MR WALKER:   Very much so.  I hope your Honours have not detected anything in what I have said yesterday or today as an abandonment of any of the argument.

GUMMOW J:   That sets out the passage from Lord Justice Vaughan Williams.  That is why I asked.

MR WALKER:   Yes.  Very much do we rely upon it.  That is why it is there.  But my point is this, that that principle that was not being pronounced by his Lordship as a novelty at all and that is what we seek to get out of the authorities, that there is no novelty in what the Court of Appeal did.  They were not making law.  They were applying it.  For those reasons, whatever position this Court takes in relation to the principle that we submit is to be taken from those authorities it ought not to be done on the basis that this is a novelty to be shunned.  Rather, in our submission, the choice for this Court is whether that view of an available right to contribution stemming from what we submit are the general principles underlying it is one which can survive what might be called the very frequent usual position where the right comes about because of the dictates of constants generated by subjection to a common debt.

GUMMOW J:   Now, looking through yesterday’s transcript, there seems to be some movement in your formulation of the principle.  Have you reached any final statement of it?

MR WALKER:   Yes, your Honours.  In order to meet, I think, a request of Justice Gummow’s we have produced a printed form which endeavours to bring together the components of what I put from the Bar table yesterday, including by reference to the passages in Cummings v Lewis, first at page 598 that Justice Gummow asked me to comment on, and second at page 599 to which I drew attention, the passage including the language of implied promise.

I draw to attention within this printed formulation we have made reference in (c) to the “parties’ relationship” and we have added a last – we have put in in the last line the non‑existence of a contract to the contrary.  Obviously, there is a degree of redundancy there, but it is an overlap rather than complete redundancy.  It may be that there is absolutely no need to refer to the non‑existence of a contrary contract, but in our submission it needs to be stated that express agreement of the parties will, of course, drive out any possibility of a right to contribution.  It also recognises the paramountcy of contract in this area.

FRENCH CJ:   The “could not fairly be expected” test, when I asked you about that yesterday I think you more or less translated that back into the terms of some agreement, arrangement or understanding between the parties, but this really is the court that makes the determination as to whether it could fairly be expected, that is a normative judgment.

MR WALKER:   It is a normative judgment.  It is frankly normative when one looks at Dering v Winchelsea.  It is said to be some universal social or human response, ethical response.  In relation to a common debt it is said that every nation must have such a law.  Now, that is hyperbole of language, but it is hyperbole to make, with respect, a sensible point which responds to a sense of fairness or justice.  You benefit from my payment of the debt you owe; you should share the burden of my payment of the debt we owe.

Now, that, in our submission, does answer something which it must be tempting to regard as a universal human instinct of justice.  Leaving aside the hyperbole of the universal instinct that one sees in Dering v Winchelsea, in our submission, that is an entirely satisfying normative response so long as there is an understanding of the setting in which it is appropriate to give that response.  The setting is where when people are not joined by common assent or common design, the setting is where there is sufficient commonality of the debt, nowadays same level of liability, that is appropriate to people who do not even know about each other, nonetheless share in the discharge of their common burden by one of them, and that is the common liability case.

Similarly, we have the general average case and then, finally, we say we have the common design case where we have, if you like, a step closer to the normative expectations that arise from a contract.  The normative expectations arising from contract is that if you have all agreed that you will contribute then so you should.  Where there is a common design where you have all agreed that someone shall for the common benefit take on a sole liability then, unless there be something in the circumstances such as what would have happened in Muschinski v Dodds if there had been performance of the work of improvement, then it is not to be expected that it will be borne alone.

That comes from the commonality of intended benefit and the intention that one, rather than all, undertake the liability for the common benefit.  If there is an agreement that that will be that person’s sole and unshiftable burden, perhaps reflecting that somebody else will bring something else to the enterprise then that is precisely what is captured by our reference to the parties’ relationship, the nature of their common design could not fairly be expected.

FRENCH CJ:   The co‑ordinate liability cases are not a special case of this principle because they may involve people who have nothing in common, for example, different co‑sureties ‑ ‑ ‑

MR WALKER:   No.  That is why I have tried to persuade your Honours that you can divide the right to contribution into three classes, people who need not know about each other do not have to be involved by common assent, people who are so involved and then people who are in the adventure which suffers common perils – the general average.

GUMMOW J:   What is the source of the equity in this formulation?

MR WALKER:   The source of the equity is the commonality of benefit and the design that the burden be undertaken for that common benefit without there being terms of the design that leaves that burden unshiftably with the person undertaking it.  The equity is you benefit, you should share the burden.  That is the equity.  That is what is stressed in our submission in an unbroken line from Lord Chief Baron Eyre, through Lord Justice Vaughan Williams, through to Mr Justice Swinfen Eady.

FRENCH CJ:   So the equity fixes upon the conscience of the person who obtains the benefit.

MR WALKER:   Of the person who claims then to keep the full benefit without sharing the burden, so then October 1994 and then by the repeated refusals in about January 1995 Mr Friend, who had had the benefit of the company continuing to trade, who had the particular benefit of the satisfaction of his borrowings for on‑lending from the proceeds of the SMK loan was now claiming, “But I do not need to go further.  That is it.”

FRENCH CJ:   It makes it a different animal from the co‑ordinate liability case where the equity fixes on the creditor – in theory.

MR WALKER:   Yes.  To answer further both the Chief Justice and Justice Gummow, the equity arises precisely because there is not, if you like, a common liability.  In other words, you cannot say “But you owe this too”.  The point is I undertook this solely because of our common design.  I should do so for the common benefit, without there being the expectation that I would continue to bear that alone.  The expectation was that this would be shared.

GUMMOW J:   Is there any support for your theory in relationship between joint tenants and tenants in common in occupation of land?

MR WALKER:   I am bound to say only very broadly, but broadly it is consistent with the - it is extremely broad only, but where one has excluded the other then rights arise.  It is really working it reciprocally, that is where a joint right has been, as it were, enjoyed only solely by one to the exclusion of the other ‑ ‑ ‑

GUMMOW J:   Suppose one spends that party’s money on an improvement with the assent of the other, or knowledge of the other, what then happens?

MR WALKER:   Without more, that does not automatically give rise to a right of contribution.

GUMMOW J:   Why not?

MR WALKER:   In that case it is because each is entitled individually -that is severally – to the enjoyment of the property.  The common benefit in this case is one in which they are wrapped up by common design.  It is by definition common ‑ ‑ ‑

GUMMOW J:   Suppose the expenditure greatly exceeds the benefit of the property because there is a fall in value.

MR WALKER:   Without more, and I keep saying without more, that mere circumstance would be at the risk of the joint tenant who does that.  If there were more then there would be, in our submission, either a contract, which would often be the case of course, or there may be a right of contribution enforceable if it had been supposed, for example, that one joint tenant would undertake a building contract – sole liability at law on that joint tenant – in the expectation ‑ ‑ ‑

GUMMOW J:   No, I am talking about spending his own money.

MR WALKER:   When I say spending own money, I mean he is the one who ‑ ‑ ‑

GUMMOW J:   There is no third party.

MR WALKER:   When your Honour says spending money – I am not suggesting third party – when one says spending money, I mean paying the builders.  So from his own pocket he pays the builders, he improves the land.  If the facts were that that was by common design, as we have put it, with the knowledge and assent of the other co‑tenant but by a common design because it would improve the land and they would both be entitled to the proceeds of the sale of the improved land, then it may well be in such a case that upon disappointment of that expectation – and disappointment of expectation brings in the kind of thinking that one sees in Muschinski v Dodds, Chief Justice Gibbs – then it may well be there is contribution then, but if there is nothing more than – as Justice Gummow has put to me – one joint tenant unilaterally, not by common design, perhaps not with the knowledge of another spending money on the property – then we do not suggest that that gives rise to a right to contribution.

FRENCH CJ:   That might be a case where a community of interest does not reflect a common design.

MR WALKER:   That is right.  One cannot have, as it were, the promise of profit thrust upon one in order to force one to contribute, if that is not your design.  If your preference is frankly not to risk any money, not to take a punt on the market, then there is nothing in the situation in that there would be no common design for a start, this right to contribution would not arise and, in any event, the relationship of the parties would be such that it could fairly be expected that the person who decided unilaterally to risk their money should bear that risk, come what may.

GUMMOW J:   What is there in this notion of common design which is different to contract?

MR WALKER:   There is, for a start, the degree of informality of dealing, which is typical of people who are already bound in relations of mutual trust and confidence, where they are unlikely to formalise relationship.

GUMMOW J:   Lots of contracts form without offer and acceptance in a law school sense.

MR WALKER:   Your Honour, the difference, of course, is that here there is no binding contract, that there is an insufficiency of explicit animadversion to the topic.

GUMMOW J:   What I am putting to you is, I suppose, we talk about animus contrahendi, what is the animus in the common design?

MR WALKER:   Your Honour, it is that which one sees considered in the cases where the gentlemen sit round the board table and nominate someone to do something and they all agree in it, using the word “agree” in the ordinary English sense.  That is the animus.  It happens not to be sufficient to be contrahendi, but it certainly is of common design.  The cases plainly recognise something which they are at pains to say is not contract because contract would be the elegant legal solution, that is, solution at law, to all of these problems.  And the question does arise that the threshold of any debate about this right to contribution, need there be any, given the capacity of people to contract.  The answer to that was given many years ago and it was given in Dering v Winchelsea.  This stands apart from contract because the answer will ‑ ‑ ‑

GUMMOW J:   It stands apart from contract because of the equity that arises by reason of a third party.  You want to pick that up, chuck it out and then use it for another purpose?

MR WALKER:   No, not at all.  The very same passage in which that is said is the very same passage where they refer to general average.  That would also lend itself, obviously, to a contract.  Part of your contract is if you ship this cargo on this ship then ‑ ‑ ‑

GUMMOW J:   General average is not about equity.

MR WALKER:   I am not suggesting it is about equity, your Honour.  It is about right to contribution.  That is the point.

GUMMOW J:   This is about equitable right to contribution.

MR WALKER:   It may not matter that it is equitable.

GUMMOW J:   You have to face up to that.

MR WALKER:   I hope I did yesterday.  The difference was, the point about the equity in this case is the time at which it can be enforced.  The right, however, in our submission, is indifferently common law or equity, that is, it is based upon ‑ ‑ ‑

GUMMOW J:   If it is not equitable, you do not need an equity.  Now, what then is the legal rationale for it?

MR WALKER:   We need an equity in this case because we have not paid the whole.  We have paid enough ‑ ‑ ‑

GUMMOW J:   Common law theory is implied contract. 

MR WALKER:   It was an implied contract.  In our submission, it would no longer be so expressed any more than a quantum meruit is so expressed.  But the principle is not to any degree attenuated by discarding the language of implied contract in referring to the dealings between the parties and the circumstances being such as to impose an obligation at law to pay reasonable remuneration, et cetera.

GUMMOW J:   Do I read your formulation as contribution will be enforced in equity?  Do I write the words “in equity” in?  Do I take them out?  What do I do?  Because if I do not know, I am not going to deal with it.

MR WALKER:   No, your Honour.  This is enforced at law and in equity.  This is my attempt to formulate the common design principle

GUMMOW J:   It is no good talking about a common design principle.  That is not legal language.

MR WALKER:   Common design is legal language, your Honour.  It has been used ‑ ‑ ‑

GUMMOW J:   Unless you give it some more content. 

MR WALKER:   The enforcement in equity comes upon the liability being ascertained arising from the risk or expense in question.

GUMMOW J:   I think you have to say, if it is going to be a common law claim, that it is a species of unjust enrichment and come out and say it.  You may be right, you may be wrong. 

MR WALKER:   It is only a species of that, your Honour, in the sense that that language is used in Burke v LFOT, and it is, of course.  It is designed to avoid the unjustness of a person not having their resources reduced, that is, having a correlative increase over and above what should be the case by reason of not sharing the burden.  It is a species in that case of rights which look to the injustice of a party being comparatively enriched, comparatively (a) with another or (b) with a situation that should have obtained.  I stress, I am using that language only in the same way that Justices Gaudron, Hayne and McHugh use it in Burke v LFOT. 

In order to return to Justice Gummow’s questions about the enforcement in equity, that is supplied by the submissions I put yesterday concerning the difference between equity and common law as to when the right is available to be enforced, and that is the difference that the authorities very plainly indicate as being the only difference.  What I am trying to insist on is that there is no difference as to the availability of the right simpliciter.  That, in our submission, is what can be traced from Dering v Winchelsea onwards, and that is why perhaps the earlier references to the word “equity” should not be understood as confined to that which is administered by the Courts of Chancery.

GUMMOW J:   There is a discussion of the position of joint tenants in Leigh v Dickeson [1884] 15 QB 60, particularly at page 64 in Lord Esher, I think, yes, and 66 in Lord Justice Cotton. I will have to look at that.

MR WALKER:   Certainly as to that position, without looking at that authority ‑ ‑ ‑

GUMMOW J: Annotation [1955] VR 394.

MR WALKER:   Without having looked at those authorities, it is in principle our submission that there is nothing inconsistent or presenting any anomaly in what we have put forward and the position that would obtain depending upon the circumstances between joint tenants or co‑owners where one and one only has paid for improvements.

Now, your Honours, it is of significance, of course, factually in this case to make good that the SMK loan was devoted to the common benefit.  There has been a number of references to that, including by my learned friend.  I think I gave the references yesterday which set out that all the money, including the so‑called smaller amounts, went to the common benefit.

FRENCH CJ:   By the common benefit you mean into the company or ‑ ‑ ‑

MR WALKER:   Went to pay company liabilities. 

FRENCH CJ:   - - - reimbursement of expenses incurred on behalf of the company?

MR WALKER:   Yes, loans to the company.  I referred yesterday to the fact that on Mr Friend’s part money had been used not only from the SMK loan but also from proceeds of the arbitration, which, of course, ensures the 50/50 sharing of the burden to discharge liabilities which were represented by his on‑lending to the company from his own borrowings.

I think, I am not sure, I think I may have given the impression that those Ashton liabilities, Ashton being the name of his connection, his friend, were confined to cases where the SMK loan funded repayment.  That is not so.  There were many Ashton loans.  If I can give these references without going to the material, they include loans which were discharged by the proceeds of the arbitration payments.  Those, of course, being payments which in turn were enabled to be done by the company being kept going by reason of funding, including the SMK loan.

The Ashton loans are fairly plainly Mr Friend’s connection, as one sees from his notations on a combination of documents, volume 1 of the appeal book, pages 265, 266, I have already taken you to that document; a proposed repayment list prepared by their solicitor from proceeds of the arbitration, volume 1 of the appeal book, page 203; the attribution of the Ashton liability is one borrowed through the director’s loan account, volume 2 of the appeal book, pages 598 to 599;  Mr Friend’s description of the borrowing from Mr Ashton, volume 2 of the appeal book, page 610; and then there is also the evidence contained in the affidavits, volume 1 of the appeal book, pages 156 to 157, paragraphs 100 to 101 and, in particular, 104; as well as the table of liabilities that one sees at volume 1 of appeal book page 263.

What do all those pieces of evidence show in particular?  They show, in the same way that Mr Friend’s own handwritten document describes to the arbitrators, SMK’s loan as one to be taken into account as an economic burden of the company.  They also show the Ashton loan in exactly the same guise. 

HAYNE J:   Was the Ashton loan one via Mr Friend or was it a loan direct to the company?

MR WALKER:   It seems to have been via Mr Friend.  That is the reference that I gave your Honours, volume 2 of the appeal book, pages 598 to 599.

HAYNE J:   I was looking at 157, paragraph 104.

MR WALKER:   Yes, your Honour.

HAYNE J:   Which suggests it is direct into the company.

MR WALKER:   Yes, I think you will find that there is language like that including for SMK as well and that is why I drew to attention all of that material.  Indeed, the Friend document, to which I have been referring, achieves that assimilation of all the burdens on the company being put forward to the arbitrator in order to justify that aspect of the claim, be they SMK or Ashton or all the others.  Some were direct to the company, some were on‑lent to the company from the actual borrowers and, in our submission, they are all exactly the same in substance, as is shown of course by the arrangements for the SMK borrowings and your Honours will be aware there was more than one borrowing in question.  They had been satisfactorily discharged before the 1986 loan.

In relation to this use of the words “joint venture” in the pleadings about which I put submissions particularly in response to questions yesterday, the language of the pleading to which I went yesterday may be regarded in some lights as artless, just as, I think it was Justice Gummow at the special leave application, with great respect, correctly drew to attention the difficulties of using language such as “conducting a business through a company”.  However, I need to draw to attention that it has been recognised in this Court before that as a matter of common parlance, not legal analysis, but common parlance, “joint venture” has been used in just such a way and a way that, in our submission, renders less difficult the language in our pleading and I am referring, as it happens, to the passage quoted by Justice Cooper in Cummings v Lewis 41 FCR 588 from United Dominions Corporation v Brian 157 CLR 1, the passage being at 10, which is quoted by Justice Cooper, where you see they start:

“As a matter of ordinary language, it connotes –

et cetera.  Then halfway down that page after the reference to Scots’ law:

The term is, however, apposite to refer to a joint undertaking or activity carried out through a medium other than a partnership:  such as company, a trust, an agency or joint ownership.

In our submission, it is in the light of such usage, recognised in this Court that one sees the notion of “joint venture” in the pleading, as the pleading itself makes clear – see, for example, paragraph 12 – carries through beyond partnership, beyond the initial corporation and right into the fact that as they got into development rather than just engineering, they had special purpose vehicles, as they are called, yet more corporations.  Yet, in our submission, it is still the mutual trust confidence of these two gentlemen, their natural persons, which informs the way in which the case should have been determined and was, with respect, properly determined by the Court of Appeal.

Your Honours, finally, in relation to Cummings I need to deal with the way in which the case was actually decided, that being an essential way of understanding what, if any, support I can get from it. The two paragraphs at page 599 commencing, respectively, “To succeed on the appeal” and “On the findings of his Honour” are, in our submission, wholly consistent, particularly the passage halfway down the second paragraph:

There is nothing in the facts as found by his Honour which would bring into play the principle to be found in Spottiswoode’s case –

et cetera, is entirely consistent with the approach we have taken in this case.  There was not the common design from which it was to be expected that Mr Cummings would not be left alone to pay the price of the horses for the very reason that the facts of that case point out.  These people were involved in something that may well have converged, in one sense, at an auctioneer’s ring with bloodstock in front of people but they were not there in order, as it were, to buy horses together or anything like that.  Tax scheme promoters on the one hand, racehorse trainer on the other.

Your Honours, can I then come to the question of the separate possibility of relief which is the subject of the notice of contention by way of supplementing our written submissions as follows.  First we say, as your Honours have seen, that the, if I may use this language, intervention or use of corporate structures does not defeat the possibility of a fiduciary duty between natural persons in relation to the enterprises thus carried on.  The authority for that is the one that we have drawn to attention in our written submissions, Mathieson v Booth, a decision of Justice Warren.  I do not want to take your Honours to that.  We have said what we wanted to say about that in our written submissions. 

We have also drawn to attention in our written submissions the evidence by which there can be no doubt that there was the mutual trust and confidence between these two gentlemen.  I need to add, however, and to stress that this was a mutual vulnerability by reason of the veto which the 50/50 and two man co‑director corporate governance imposed upon them; the money could not be got from the company except by an agreement.  That means that each had a veto over disbursements in favour, as it were, of the other.  When I say “in favour of the other” I mean in favour, respectively, of whichever director repayment of whose loan was in question in order to satisfy the so‑called external creditors such as Trade Credits, such as Ashton, such as SMK. 

Each of them could, as the occasion arose for such disbursements to be me made, say, “No, I don’t agree” in which case there would be, of course, where that tended to the financial benefit of the person exercising the veto, as it does to Mr Friend in this case, represent very starkly a breach of the proscriptive content of the fiduciary duty not to allow self‑interest to prevent the co‑operation required by the relationship.

HAYNE J:   The answer made in part against this is that as directors each of these men owed duties to the company.

MR WALKER:   Yes.

HAYNE J:   Why are the circumstances you have just described not sufficiently dealt with by resort to those duties owed to the company, by resort to notions of oppression, by resort to exercise of powers given within the context of the company for improper purposes, et cetera?  What are we doing adding another layer?

MR WALKER:   Can I add, as it were, to my burden in answering that question we also need to answer, involved in what Justice Hayne has asked, is there not a contradiction or inconsistency between the undoubted duties owed by these gentlemen to the company and what we are putting up, so try to answer all of that together.  The first thing is there need be no inconsistency and there cannot be any inconsistency or we should fail on the point because the duty not to exercise the veto arises only when the money would, of course, be available properly in the discharge of the duties with respect to conduct of the company’s business. 

Now, the duties with respect to the company’s business are duties which are statutory, common law and fiduciary and I mean fiduciary as between the directors and the corporation.  That is one demonstration of something that we need to demonstrate.  I think it was raised by Justice Heydon, either yesterday or the day before with my learned friend.  It is not, in our submission, enough to say there are other duties, therefore equity either should not or cannot recognise a fiduciary aspect.  It is, in our submission, a commonplace for persons such as solicitors or company directors that there may be fiduciary aspects to their relationships with the people to whom they owe duties, either under statute or at common law.

In short, this is not a Hospital Products v USSC problem where the fact that the contract provides implied obligations suffices to render unnecessary or redundant or frankly inappropriate the application also of fiduciary analysis.  Yes, there will be cases such as that kind of contract or position where there is absolutely no call to render fiduciary what is an entirely adequate common law duty.

Against that setting to try and answer Justice Hayne’s question further, in our submission, it cannot be said that the company’s disbursements of their nature as between the gentlemen 50/50 are made in appropriately timely fashion to spare the on‑lenders – each of them as on‑lenders – the sole burden of something assumed for the common benefit.  It cannot be said that that easily or at all flows from the duties they each owed at statute, common law and equity to the corporation.

It is for those reasons, in our submission, that there is an occasion, particularly between people whose mutual trust and confidence predates the corporate structure, there is an occasion for their relationship to be regarded as fiduciary.  And just as in Mathieson v Booth it was not perceived that there was any incoherence between what in that case was the rather complex inter‑web of both corporate and contractual regimes to impose the fiduciary obligation between people who in personal and social terms behaved as if they were partners, so in this case.

HAYNE J:   But does this branch of your argument proceed from a premise that there is, to resort again to this expression, common design, some arrangement or design between the two men greater than conducting the business of the company?

MR WALKER:   It must be so.

HAYNE J:   Given that you have confined the identification of common design for the purpose of the other branch of your argument to a common design about the procuring of finance, what is the content of the common design that is the premise for this branch of the argument?

MR WALKER:   Now, with respect, may I not embrace common design as an appropriately comprehensive term for what I need if I can get anywhere with a fiduciary argument?  It is but part of it.  Indeed, it is but an illustration or occasion for the relationship between them which predated the corporation which carries the fiduciary aspect.  The content is the mutual trust, the dark side of which is the mutual vulnerability in relation to the veto they would each have by reason of company law on the disbursement of company funds.

You can actually see that in practise, the 350,000 being altered to 250,000 from the tranche of arbitration proceeds that was devoted by agreement to the SMK repayment.  That was, of course, an exercise in qualified form of the veto.  Mr Friend proposes $350,000.  Mr Friend says, “I will allow a quarter of a million”.  Now, in our submission, that is a relationship, that is a history, those are dealings relevant to the dispute in question in this case, which gives rise to a requirement not to serve your self‑interest because the musical chairs happen to have left you with the benefit of the money.

When I say the benefit of the money, that is because by dint of this 50/50 “threaten to deadlock” situation there came to be this money in the company which my client asked October 1994, January 1995, to be devoted to SMK repayments.  Mr Friend says “No, I repudiate that”, and so they split it down the middle rather than leave it in the company bank account.  Of course, Mr Friend is not complaining about it being split down the middle.  That was from Mr Brooker’s point of view the only way in which it could be disbursed.

I need to throw in again another provocative term that characterised the argument in this case.  It not only got joint venture used in the way that your Honours have seen, it not only got – my use of the term “common design” in the specific and partial way it describes the fiduciary case – but we also had this phrase, which is unavoidable, “quasi partner” or “quasi partnership”.  Of course, Justice McColl, as your Honours have seen, fastens upon that.

This is not an invention of ours.  This is a view of the relationship of these gentlemen throughout the enterprise which was conducted by them as managers or by them as principals, depending upon the period in question, which is accepted, was accepted - one hopes will still be accepted - as being an appropriate use of language to describe the nature of their relationship.  It certainly captures the mutual trust and confidence with the mutual vulnerability to the exercise of a veto between 50/50 controllers.

One sees senior counsel at trial for Mr Friend accepting the appropriateness of that use of colloquial, not technical language – volume 2 of the appeal book, page 793, transcript 24, lines 54 to 57; page 826 of volume 2 of the appeal book, transcript 160, lines 32 to 33.

FRENCH CJ:   You do not seem to suggest at paragraph 54 of your submissions that this label adds anything to the substance of the relationship upon which you rely for the existence of fiduciary duty?

MR WALKER:   No, I cannot.  It really is a label which, with its ordinary semantic content is a matter of colloquial language, reinforces why this is fiduciary, rather than simply an abortive and incomplete contract.  I stress, of course, Justice McColl did not proceed as if there was a legal species called “quasi partnership” to which she was giving legal effect.  She employed it in, with respect, precisely the way we have.  It is language that sprang to mind, including the minds of those representing Mr Friend, as being appropriate to capture the flavour of the relationship and unsurprisingly, in our submission.

Your Honours, I need to show the way in which this was put at trial.  There were written submissions.  If I could take your Honours to volume 2 in your books, page 898.  These are what might be called the first round of written submissions at trial.  There is not a lot to show in that document.  Paragraph 30 on that page which appears to be as it must have been given the way the issues have then been presented, fallback.  It reads:

The defendant’s case –

That is Mr Friend’s case –

is expected to be that Mr Brooker arranged the SMK Investments loans (especially the third loan) –

Ours is the third loan, your Honours –

as a loan to Mr Brooker or the Brookers personally –

Of course it turns out that that is the case.  Then we went on –

the funds then being on‑lent to the company vehicle. 

Now that is the case in hand –

If that be found to be the correct characterisation of the loans, that conduct on the part of Mr Brooker in the circumstances of this business indicates –

We do not need to worry about (a) –

and (b) the inherent likelihood that an understanding and expectation existed between the parties that such liabilities could be undertaken by the partners/venturers and their families and friends in reliance on the other’s support and obligation to bring to account such liabilities by a mechanism over and above the corporate mechanisms.

But things moved on from that at first instance.  Understandably perhaps, towards the end of the hearing his Honour directed that the parties bring in documents to set out proposed findings of fact and holdings of law and could I take you please, in the same volume, to the document first at 921, the further submissions.  In the findings of law as they are called at the foot of page 921 there is a reference to the capacity of:

a court of equity is able to fashion relief . . . and that in the event that the Court does not find that a partnership existed but accepts that the second defendant breached the particular fiduciary obligation . . . an order for an accounting equivalent -

Things went on further in the findings of fact document requested by his Honour, starting at page 925.  If I could just quickly touch on these ones.  At paragraph 4 at the foot of that page there is in relation to what is called “the business” a term of co‑operation, “nothing to prejudice the rights and interests of the other.”  On page 926, paragraph 5 which I draw to attention this in relation to the agreement, nonetheless, it is referred to “based on considerations of mutual trust and confidence”, et cetera, “‘partners’ in” what is said to be “more than a mere colloquial sense.”  Page 927, paragraph 11, they are arranging to borrow the money, so there is the financing aspect:

Mr Brooker and Mr Friend acted in their joint interest and relied on and trusted one another to act in good faith and for the purposes of the business.

Paragraph 12, they made personal contributions of money, “on‑lent to the business funds which they had borrowed . . . always in unequal amounts.”  I note 13 in relation to that.  Over the page, 928, you have got paragraph 16, “Receipts from the Council . . . disbursed from time to time on joint instructions” – there is the veto in question – “repayment of creditors”, et cetera.  Page 929, paragraph 20, in relation to the use of SMK funds.  Page 932, paragraph 28, the final crystallising of the equity, I stress the equity, that is, the right to enforce inequity because the time that equity would recognise as an appropriate time to enforce had arisen.  Since then, of course, we have made very considerable payments, as your Honours have seen.  Under the heading of “FINDINGS OF LAW” on the same page, 932, after the reference to “joint venture” in 3 there is the reference to the fiduciary nature of that so‑called joint venture in 4 and some content given to the duty:

at least in so far as Mr Brooker and Mr Friend owed a duty to each other to act in good faith . . . in the interests of the business and of each other in arranging for . . . the repayment of those loans and to co‑operate in accounting –

So these were matters, I stress, at trial.  On the next page, 933, paragraph 7, 7(b) raised that question in fiduciary terms.  Paragraphs 11 and 12 on page 934 sought appropriate relief.  It may be for this reason as to how the trial was conducted, what was before the judge, it may be for this reason that there was no reference to the fiduciary matter which would have been found by Justice McColl and Justice Basten in the Court of Appeal as being

outside a fair combat in the Court of Appeal.  In our submission, it is not outside fair combat in this Court either.  May it please your Honours.

FRENCH CJ:   Thank you, Mr Walker.

MR NEWLINDS:   The equity, if it is an equity, described by our learned friend, Mr Walker – that is, when parties embark on a common design, sometimes described as a common adventure, with the hope of sharing in the benefits of that design or venture, have an obligation imposed upon them to contribute to one or the other if one ends up losing from the venture was, as we understood it, run directly before the House of Lords and lost in 1698.  Can I hand up to your Honours a copy of the case from 1 ER.  This is a good one. 

GUMMOW J:   What is the English report citation?

MR NEWLINDS: It is 1 ER 13, and I think the report is page 13 of Shower Reports. It is a ship case. The headnote gives the issue away. The headnote is accurate, in my submission, the question being “WHETHER AVERAGE BE ALLOWABLE IN ALL CASES OF A PARTIAL LOSS AT SEA”. The facts were there was a ship. It had some oil on it, and it had some silk on it. The oil belonged to one person, and the silk belonged to someone else. The ship got attacked by pirates and the master, in trying to escape from those pirates, went to port. When he was at port he had to make a decision as to what goods he would offload because he was worried he did not have much time because the pirates might come back and catch him. So he decided that he would unload the silk because it was more valuable, even though the silk was packed underneath the oil and it was very hard work for the sailors to get it off. He did that.

Mr Kremer tells me they were not pirates – they were the French.  That is, perhaps, worse – the same thing.  In any event, the ship was at peril – not by storm in this case; it was under attack.  So the master makes a decision that he will unload the silk and keep the oil and then he sails off again, and about a week later the ship is lost and the oil is lost.  The owner of the oil says “I want contribution from the owner of the silk because I lost my oil and he did not lose his silk, and it was all as a result of the French marauders”.  It was pointed out in argument “That is not contribution as understood by the law at that time, and it is not an average case, because the decision of the master was not the cause of the loss of the oil”. 

That so much was accepted by counsel who argued the case for the oil owner.  He boldly put the case that that did not matter because these people who had loaded their goods onto the ship were engaged in a common venture where they would both receive rewards as a result of the ship reaching London and then making a profit from the sale of their goods and there was a risk that one or other of them might lose and it was only a fair thing that there should be a balancing up at the end of the day.  You can see that about halfway down the first page, where there is a heading “Argument for Appellants”.  

And it was argued on the Behalf of the Appellants, That this Dismission –

that is the decision below –

was not justifiable by the Rules of Equity; for that it must be agreed, If Goods are thrown overboard in Stress of Weather, or in Danger or just Fear of Enemy, in order to save the Ship and the rest of the Cargo, that which is saved shall contribute to a Reparation of that which is lost; and the Owners shall be Contributors in Proportion; and that there was the same Reason here –

So pausing there, that is a statement of the well‑understood and still well‑understood proposition that because the owners of goods on a ship are both exposed to the same potential loss at the hands of the master, the mythical Mr X for the purpose of this case, that contribution is allowed.  The argument went on:

that by preferring the Salvage of the Silk (being the best of the Cargo) before the Oils, the Owners were deprived of the same Opportunity for the Salvage of the Oils;, that as the Sea‑law in Extremity directs the Master to preserve the best of his Cargo, and the Goods saved ought to contribute to the Loss of the Goods Ejected; so where one is preferred before the other in case of Extremity, there being no Time to land the Whole, Average is just and reasonable.  And as to the six Days Time, there was then no Apprehension of Danger, and consequently the Master could not justify the Landing of any Thing after the Reason of their Fears were removed.

That the Prudence of their Master in saving the Silk before the Oils, ought not to be to the Prejudice of the Owners Interest, the Oils lying next to be preserved; that the pretended Neglect of the Master, in not landing them during the absence of the Enemy, is no Excuse, because then there was no Danger; that the saying that the Loss of the Ship and Oils did not contribute to the Salvage of the Silks, is no Reason, seeing the Salvage of the Silk (which had otherwise been lost) deprived the Owners of the same Opportunity for the Salvage of the other Goods; that in such Adventures, as the Danger is common, so ought the Loss or Damage to be common and equal; that the Master is equally intrusted by and for all; and were it otherwise, it had been the Duty, and will be the Interest of all Owners of Ships -

So there it is, it is – well, the argument at that point accepts that, well, the peril itself is not what drove this loss, and the actual saving of the silk was not the thing that saved the rest of the ship because usually the premise of these cases is you had to throw a bit of the cargo over to save not just the rest of the cargo but also the ship.  Now, the argument for the respondent is about point three on the next page:

On the other side, it was argued with the Decree, That this Pretence was new; that ’twas a Notion unprecedented; that the Rule of Average went only to the Cases, where the Loss of one Man’s Goods contributed to the Safety of another’s, as by Lightning the Vessel, &c. -

Then if your Honours move down to about 10 or a few more than 10 lines from the bottom:

and where all cannot be saved at a Time, the Benefit is accidental to him, whose Goods the Master’s Discretion directs to be saved:  And in this Case here there was no such Commodity, as could contribute to the Loss of a Ship, if it had been kept on Board; for the Silk -

So there is the submission for the respondent saying, the loss had to be at the discretion of the captain of the ship for the purpose of saving the ship and the other cargo, and the conclusion of the case is the last sentence at the bottom of that, the appeal was dismissed, and accordingly the decree of dismissal affirmed.

So there was a long time ago, 300‑odd years, what we think a wider case based on there being no third party involved but just a general notion of, “Well, it is not fair because we both set out exposed to the same risk. I lost my silk. You didn’t lose your oil. Fair is fair. Can we have an evening up, rejected”. In one of these abridgement texts found in 21 ER 921, and the report is 1 EQ CA ABR 115 – can I hand these up – there is a summary of what at least the author thought the law was at around 1744, with a whole lot of examples of when – the heading is “CONTRIBUTION AND AVERAGE”. The subheading is “Contribution and Average, in what Cases”. There is a series of cases and the one No 13 in the second column is the case we have just shown your Honours. There are cases of joint landowners. Surprisingly enough, or perhaps not surprising enough in these days, there is a number of cases that revolve around marriage promises.

GUMMOW J:   On the position of joint landowners, it was considered in this Court, I should have remembered, in Brickwood v Young 2 CLR 387 and there had to be a petition suit. That is when it got sorted out.

MR NEWLINDS:   If your Honour pleases.  I will not take your Honours through this but we hand it up just to show the proposition that nowhere in the 16 instances that the author identifies as the answer to the question he has posed, “Contribution and Average, in what Cases” do we find reference to a common design or do we find an ‑ ‑ ‑

GUMMOW J:   What is the date of the Equity Cases?

MR NEWLINDS:   1667‑1744, so the best we can say is around 1744.  The point is, this author was not aware of the type of contribution our learned friend is urging upon this Court.  Can I then turn to the piece of paper where our learned friend articulated the proposition of law this morning.

GUMMOW J:   Before you do that, I have been looking at Lord Goff and Professor Jones’ book on restitution, paragraph 14‑040.  It deals with Spottiswoode’s Case but simply as a case of responsibility of directors.  There is no reference to general schemes or anything.

MR NEWLINDS:   We embrace that.

GUMMOW J:   That seems how it has passed into the understanding.

MR NEWLINDS:   Can I make these observations about our learned friend’s formulation of what, if I must say so, when you read it, looks quite a lot like an estoppel, especially a common assumption type estoppel.  It looks quite a lot like something that a contract could produce and looks an awful lot like a pleading in an oppression case, because, of course, the concept of reasonable expectations of one shareholder or group of shareholders as to how they would be treated in the affairs of the company is well understood and entirely and reasonably dealt with in the winding‑up cases; not just winding‑up, in the relief that can be given under the corporations statutes for oppressive conduct.  So it looks a lot like that because paragraph (c) talks about where it could not be expected.  I ask rhetorically, is this an objective or a subjective test? 

We have a finding, of course, by the trial judge that would seem to destroy such an expectation.  That is at paragraph 46 of the trial judge’s judgment, at volume 3, page 955, where his Honour makes a very clear finding of fact that from the point that the company was incorporated, these men intended their affairs to be governed by their relationship with that corporation, including that if they raise funds and lent them to the corporation, well, then they be owed money by the company.  We have that finding, which tends to destroy any finding that could be found in our learned friend’s favour.

HEYDON J:   What was the reference again?

MR NEWLINDS:   It is paragraph 46 of the judgment, volume, 955.

HEYDON J:   I am not sure that is right.  That deals with some directors’ meeting on 8 December 1993.

MR NEWLINDS:   I am sorry, your Honour.

HEYDON J:   It does not matter, just go on, and Mr Kremer will find it.

MR NEWLINDS:   It might be 77.  I am just trying to decode my – yes.  Now, we rely on that finding.

GUMMOW J:   Whereabouts?

MR NEWLINDS:   Paragraph 77, and Mr Kremer will now tell me what page ‑ ‑ ‑

BELL J:   Page 966.

MR NEWLINDS:   Page 966, volume 3.  Thank you, your Honour.

HEYDON J:   We are talking about fairly.  Is it objective or subjective?

MR NEWLINDS:   I was just posing that question.  Our learned friend did not address your Honour on that. 

HEYDON J:   How does paragraph 77 bear on that?

MR NEWLINDS:   Because his Honour makes a finding as to what the parties’ subjective intention was, as to how their affairs would be governed from thereon.

HEYDON J:   By the company.

MR NEWLINDS:   Yes.

HEYDON J:   As directors.

MR NEWLINDS:   Correct.  Even if it be an objective test, and I suppose over the years, if our learned friend succeeds, this piece of law will develop, it would give way to the actual objective understanding between the parties.  You could not objectively make a finding that it could fairly be expected that these people would act in a way against the finding of the trial judge.  Your Honour understands we have joined issue as to whether the law is as our learned friend contends.  We firmly put the position, as we put in our submissions in‑chief, you do need the third person.  It does need to be a co‑ordinate liability.  The common design case is something unknown to law and should not be allowed to creep into the law because it is so susceptible to vagaries and subjective notions and normative values. 

GUMMOW J:   How do you explain the admiralty cases, then?

MR NEWLINDS:   The cargo cases?

GUMMOW J:  Yes.

MR NEWLINDS:   It is because you do not need a judgment.  The third person does not need to have an ability to sue someone to create a loss, or to sue a group of people to create a loss.

GUMMOW J:   In the shipping cases there is no third person – there is Neptune, as your opponent says.

MR NEWLINDS:   No, it is the master.  I suggest it is the master, because is at the master’s decision that a loss can fall unevenly.  He just makes a decision in the heat of the storm as to which piece of cargo he throws over.  They therefore are a group of people who are exposed to a ‑ ‑ ‑

GUMMOW J:   His power to do that arises from with the nature of shipping law and the powers of masters.

MR NEWLINDS:   Correct, and so it is a common liability.  It does not matter that it is not a liability that can be sued on and turned into a money judgment and so there is no distinction in principle between those cases.  The same with the other shipping cases or the taxation cases about the Crown seizing the 100 bottles of wine before the mast and 100 bottles of wine behind the mast.  It is the exposure of the people who put their wine on that boat to that risk which really is at the discretion of the Crown which wine they take that demonstrates the common burden or the common liability.

FRENCH CJ:   You are using liability in a more generic sense.  They are exposed, it is their exposure ‑ ‑ ‑

MR NEWLINDS:   To loss.

FRENCH CJ:   Taken to be consensual, I suppose, to arbitrary loss or ‑ ‑ ‑

MR NEWLINDS:   At the whim of the third party, and there is always ‑ ‑ ‑

FRENCH CJ:   Well, the third party is perhaps not even necessary for that, it is just the nature of the ‑ ‑ ‑

MR NEWLINDS:   Except the very old case that we just looked at, that is the argument that was run, we are all exposed to perils of the sea ‑ ‑ ‑

FRENCH CJ:   This is a generalisation of the concept of common liability which arises out of the co‑ordinate liability cases.

MR NEWLINDS:   It is, but the co‑ordinate liability cases are not limited to co‑ordinate liability to pay money.  It is a co‑ordinate liability to suffer a loss and so I say there is no relevant distinction between ‑ ‑ ‑

GUMMOW J:   The shipping cases are an illustration why equity would not, as it were, restrain the X in the example we started off with.  The master has to have to power to do this.  The question is, as between X and Y, how does the burden of his doing so work out?

MR NEWLINDS:   I cannot explain the shipping cases by looking at the conscience of the master because he does not have a choice and the conscience of the creditor ‑ ‑ ‑

GUMMOW J:   But he does have a choice.

MR NEWLINDS:   The master?

GUMMOW J:   Yes.

MR NEWLINDS:   Well, I think these cases proceed on the basis that he is in the middle of the storm and he just picks whatever is easiest.

GUMMOW J:   That is right.

MR NEWLINDS:   Unlike the co‑debtor case where the earlier cases at least say in conscience he really should recover pro rata from each person who owes him the one debt.  If he does not do that, equity comes in and operates inter se.

HAYNE J:   It might not against him if the creditor chooses the easiest.

MR NEWLINDS:   Correct.  The exception to the shipping cases is you lost your equity or your right if you packed your cargo inappropriately.  So if you were silly enough to put your cargo on deck where it should not be and it got chucked off, that was a defence available to the other people.  Whilst I cannot point to any conscience, I do say that the case is a sui generis.  There is still the common exposure to a risk at the whim or election of some other person.

GUMMOW J:   The exercise of power by ‑ ‑ ‑

MR NEWLINDS:   Correct.  Which person has complete entitlement to make that decision.

HAYNE J:   Bound up in this notion of common design as at least applied in this case, it seems, is the notion of a view to profit.

MR NEWLINDS:   Correct.

HAYNE J:   I have in mind particularly Mr Walker’s answers at lines 4617 to 4623 of the transcript of yesterday, the last sentence which is:

The common design is to ensure the ongoing operations of the company from which they or their families derive distributions of what I will call loosely profit; at least one hopes it was profit.

Perhaps one sees that reflected in (c) by the reference to “the nature of their common design” being such as it “could not be fairly be expected”, the burdens.  The proposition advanced seems a rather enlarged proposition of a kind you see reflected as between partners.

MR NEWLINDS:   That is right, and may I say this.  There is nothing particularly unusual in small privately owned companies for there to be some people who get together with a view to making profit.  That is the whole point of having companies.  The other point of having companies is it is thought to be a good thing to encourage their entrepreneurial activities to give them some protection from liability.  So what we have got here is a company where the two people in control of it know and like each other and trust each other and they want to make some profit.

It is very difficult to escape the conclusion that if this contention of our learned friend be right, then this proposition will apply to all corporations, at least where the shareholders and directors know each other, and that, therefore, on the winding‑up of all failed companies there will be a balancing up outside the winding‑up process of the directors’ loan accounts.

That is a novel proposition.  In my respectful submission, it is a startling proposition because when people go into a corporation to conduct their business – and that is how people talk in normal parlance – they understand that the corporation is a separate entity and they like that.  It suits them because it means if their venture fails they are protected from the hands of creditors.  But it also means that if during the course of that company conducting its affairs they, the directors and shareholders, lend it money, as almost inevitably they do, they understand that if the company fails they are going to stand in line with those selfsame creditors and share whatever is left pro rata.  As between themselves if one has lent more than the other, then that loss will lie where it falls unless they have an express agreement to the contrary.

So, in our respectful submission, this novel proposition of law should not be adopted by this Court, because it cuts across so many well‑understood structures that exist in the law and work perfectly well.  If people like Mr Friend and Mr Brooker want to have an agreement that they will equally bear the financial losses, then they have an agreement to that effect.  If they do not, then the company law operates.

The next point is this.  The third occasion Mr Walker articulated what he said the common design was in this case, I recall it and your Honours may have the transcript, it was as follows – to procure finance for the company from time to time to ensure the ongoing survival of the company.  Now, I am not sure if implicit in that ‑ ‑ ‑

HAYNE J:   That is a conflation, I think, of the proposition advanced at the passage I indicated earlier - 4617 to 4623, I think.

MR NEWLINDS:   Thank you.  I should, of course, have a better note, but I also should not be having this problem because I should be able to look to the pleadings to find where this common design was pleaded before the trial judge.  And my learned friend should be able to take your Honours to the finding of the trial judge where he found this common design.  Of course, we cannot do that.  W we have to make a note of what was said on the second day of the High Court to understand how the case is finally put.

In my respectful submission, if there was an understanding between these men, as suggested by our learned friend, it was not limited to, “From time to time we will go out and borrow money from one or other of our family or friends, get that money into ourselves and on‑lend it into the company.”  It was self‑evidently, “Until this company gets up and running and makes a profit, if from time to time it needs money we will shell in some money and they will be recorded as debts in the loan account.”

If the case was run at trial and if the common design limited to on‑lending moneys from third parties was put against, then the answer to that case would have been there was no common design at all and if there was a common design, it was not limited to on‑lending transactions, it must apply to all financial loss.  If that be right, if that be the common design, then our learned friends simply have not made out the case because the relief ought to be a full accounting of all financial contributions and receipts of the two gentlemen for the entire life of the company so that there be a balancing up of their financial loss.

That is not the relief my learned friend seeks to uphold.  That is not the relief the Court of Appeal awarded.  That becomes, from the problem in the finding, the vexed finding in paragraph 12 where the Court of Appeal does draw this entirely logical distinction between moneys advanced to the company from the two men’s own money, if I can call it that, as opposed to moneys advanced by the two gentlemen, albeit it was their own money, its source was an external borrowing, which leaves us in the totally ridiculous position where if at the time Mr Brooker borrowed the money from SMK he also had $350,000 sitting in his own bank account.  If he had injected $350,000 into the company from his bank account, he would have no case but because he borrowed the same amount of money from SMK and on‑lent it, he has a case.

GUMMOW J:   I have been look at Lumbers 232 CLR 635, page 662, paragraph 78, where four of us said:

The application of a framework for analysis expressed only at the level of abstraction adopted in this case . . . creates a serious risk of producing a result that is discordant with accepted principle, thus creating a lack of coherence with other branches of the law.

MR NEWLINDS:   That is my submission.  One has to be very careful as to what the ripple effect of an introduction of something like this, which, let us be frank about it, you can go through all of the textbooks and you will not find a heading “cause of action based on common design”, not cause of action, I am told, equity based on common design and so in the next edition there will be a new chapter and we will go from there.  That can happen, of course, I am not suggesting it cannot, but I have pointed out how it really will cut across and in many ways be inconsistent with the well‑understood arrangements with which failed companies are dealt with at the moment, which are mostly the product of a statute.

Of course, that same statute could deal with this topic, but quite clearly understands that unsecured creditors are treated as creditors.  In some occasions the directors are put down the line for the purpose of proof, but otherwise they are just dealt with as if they are creditors and they get dealt with like all the other creditors.  My learned junior has pointed to paragraph 79, page 967 of the trial judge’s judgment.  It may even be that we have a finding to the contrary of a common design, because as Justice Nicolas said:

In my judgment Mr Brooker has utterly failed to prove any agreement pursuant to which the existence of a fiduciary relationship with Mr Friend was established . . . I reject the submission made on his behalf that the relationship between the parties in the conduct of the business was that of a common law partnership, or a joint venture, or some other relationship which gave rise to an entitlement to an accounting from each other of all contributions by and payments to them to ascertain ‑

His Honour can be forgiven for couching that in terms of all contributions because that was the case that was put to him for consideration, but we would suggest that in the absence of an appeal to the Court of Appeal, which there was not in relation to that finding, and an appeal to this Court in relation to some error of the Court of Appeal in not overturning that finding, then there you have a finding by the trial judge that rejects – albeit he does not use the word “common design” because it had not been thought of at that stage – the notion that there was some other relationship.

So his Honour the trial judge was very firmly of the view that these men after taking advice, understanding what a company is and how it works as a creature of the law, ordered their affairs based on that relationship and that there was no other relationship, and he rejected the notion that there was an overarching agreement or an overarching understanding.  So what that submission means is that even if your Honours are against me on the proposition of law, then as a matter of fact our learned friends just do not have the facts to get themselves within the legal proposition for which they contend.

GUMMOW J:   I am still rather worried about paragraph 24.  It is all things to all people in a way.

MR NEWLINDS:   It is not meant to be wholly facetious, but if paragraph 24 means what our learned friends now say it means, then any legal practitioner acting reasonably, having regard to his duty to the client, albeit turning a blind eye to his duty to the court, would plead it at the end of every pleading, because read on its own it is meaningless, but it is one of those paragraphs that you can come back and look at and read whatever you like into it.  In my respectful submission, if pleadings are meant to telegraph to the opposition and the court the case they are there to meet, it fails that test abysmally.

GUMMOW J:   Just bear with me for a minute.  You would dispute the proposition that as a result of the disparity between the amount of these loan accounts, which is what it seemed to come to, but by reason of that disparity Mr Walker’s client has been unjustly enriched at your client’s expense?

MR NEWLINDS:   We dispute that as a matter of fact, but the reason the trial judge did not have to deal with that was because he was being asked to refer all such questions, the very questions that would work out who was ahead of the game and who was behind the game, to the accounts.  So the trial judge did not have to make findings that the SMK loan went to the benefit of the company or the business.  He did not have to make findings as to when it was paid back and by whom it was paid back.  He did not have to make the necessary findings – and this is where it gets very difficult – because, of course, the assumption is that Trade Credit and the other people who are paid out from the SMK money had themselves advanced money which went to the benefit of the company.  Now, that is a necessary ingredient of the proposition that this money went to the benefit of the company because, in fact, most of it did not go into the company, it went to pay off other creditors who Mr Brooker asserted had themselves advanced money for the benefit of the business.

It was deliberate by the plaintiff at the first instance to say to the judge, “You do not have to decide any of that.  We want you to decide whether there is an obligation for there to be an account and then we will go and work out all those difficult questions”.  So when Justice Gummow puts to me we dispute the assertion that there has been unevenness in contributions, as asserted in paragraph 24, we would, but we were told at trial you do not have to worry about that, that is all going to be sorted out on the account, which really takes paragraph 24 out of the equation because our learned friends did not ask the trial judge to make that finding of fact.

As I said yesterday, the way they run the case really precludes any finding of breach of fiduciary duty because that really is premised on a finding of uneven contributions.  In relation to a case about the SMK loan may we say this.  It was not pleaded and I am not at the moment speaking about a common design case, I am talking about a case limited to SMK.  It was not pleaded as a case limited to the SMK loan.  It was not run before the trial judge as a case limited to the SMK loan.  The trial judge’s failure to deal with it as a case just about the SMK loan was not the subject of a ground of appeal to the Court of Appeal. 

It was not, contrary to what my learned friend says, run before the Court of Appeal and it turns on the Court of Appeal’s wrong finding in paragraph 12 that there was only one external debt of the company or, to put it another way, it turns on the equivocal finding which fails to distinguish whether we are talking about external debts of the company, that is, debts other than the directors’ loans, or external debts of directors being people they borrowed money from to on‑lend.

I need to deal with the way the case was run, but first can I deal with the pass the parcel, musical chairs concept which seems to be the best analogies my learned friend can come up with to describe the law that we are discussing.  I think the proposition is that as a matter of fact Mr Friend and Mr Brooker – “turn and turn about” was my learned friend’s phrase – would take turns to go out to their friends, borrow money and inject it into the company and in so doing the other guy who had just done the same thing would be paid out and so it is a game of pass the parcel and it does seem very unfair that when the music stops, one of them is left out of pocket and one of them is not.

I have already done to death the proposition that that ignores the money they put in from their own resources, but the proposition is just not right, as we read the facts, as a matter of fact, bearing in mind, of course, that that was not pleaded.  That is why my learned friend cannot take you to findings to support that proposition either because the case has never been run on that basis.  Can I give your Honours some references as to how we see the evidence.

Most of this is Mr Brooker’s untested and sometimes confusing evidence.  This is to rebut the proposition that the SMK loan money really benefited Mr Friend because he being the last person who had put money in had his debts paid off as a result of it.  So, therefore, he was better off and Mr Brooker was worse off and therefore it is unfair.  At appeal book volume 1, page 180 – your Honours do not really need to look at this.  I will tell your Honours what we think they say.  Paragraph 162 of Mr Brooker’s affidavit and he says that the SMK money, to the extent it went to the benefit of the company was used to pay four loans secured over his and his wife’s properties.

GUMMOW J:   Were Mr and Mrs de Bakker friends of any particular party?

MR NEWLINDS:   We do not know.

GUMMOW J:   You do not know.

MR NEWLINDS:   One can infer they are friends of the Brookers because the mortgage they had was from the Brookers.  No one gave evidence as to who they were and whose friend they were.  Trade Credits, of course – we keep talking about family and friends – well, they are a commercial lender.  It may be that Mr Brooker was the one with the commercial relationship with them but there is no evidence about that, that they took their mortgage from Mr Brooker.  My learned friends say, and Mr Friend.  Pages 694 and 695 in volume 2 there is a letter from Mr Foulsham.

GUMMOW J:   We have been taken to this.

MR NEWLINDS:   Yes, but I just need to tell you whose properties are whose.  Firstly, at page 694 your Honours had observed that $37,183 goes to Mr Brooker.  So the assertion that some, but not all of that, found its way in to pay incidental debts of the company turns into ‑ ‑ ‑

HEYDON J:   There is a contradiction between 181, line 20 and 694, line 40.  There is a typing error in one or other of them - 57,000 and 37,000.

MR NEWLINDS:   Yes, but here is a piece of evidence that there is $37,000 which obviously there would need to be an investigation about, but the moneys were used to discharge, on page 695, the Alcon Investments loan.  Now that is secured over the Milner Street property.  As we understand it that is a Mrs Brooker property.  The Trade Credits loan was secured over 4 Selwyn Street, Artarmon.  That is Mr Brooker and his mother’s property and the de Bakker loan was secured over the Milner Street property, which is Mrs Brooker’s property.

Then we go over the page and something happens to that letter.  “Will fix this page break up when I do original.”  So we might not be being told the whole story.  I need to point out there is a contradiction in volume 1, page 170, paragraph 138 of Mr Brooker’s same affidavit.  He tells us the Trade Credits debt was secured over Mr Brooker’s home and Mr Friend’s home.

GUMMOW J:   Yes, I was wondering about that.

MR NEWLINDS:   There is contradiction in the evidence.

GUMMOW J:   Is there a finding about that?

MR NEWLINDS:   No, of course not, because it was not run this way.  The other thing we do know is the Trade Credits loan in any event was not paid out in full by this money.  It was paid out later by some further money, which was I think borrowed by Mr Friend, who borrowed $80,000 from Challenge Bank which was used to pay down the balance of the Trade Credits loan.  This happened in 1989 and that is in volume 1, page 172, paragraph 145 of Mr Brooker’s affidavit.

So Trade Credits, which on one view of the evidence, Mr Brooker’s evidence, is wholly secured over Brooker properties, on another view of his evidence, is secured over Friend and Brooker properties, is not wholly dealt with by Mr Brooker’s SMK money.  While I am there, there is a piece of evidence that demonstrates that the game of pass the parcel thereafter continued.  So our learned friend’s analogy falls a bit flat because your Honours are asked to assume that the music stops after the SMK dealings.  It does not.  They go on for a number of further years.  Further moneys are injected, Mr Friend borrows money from Challenge Bank and injects it into the company. 

I am not sure, now looking at the legal formulation handed up to your Honours, whether encouragement has anything to do with the case other than to try and persuade your Honours subliminally that somehow Mr Brooker has been treated unfairly, but let me say this emphatically.  Our submission is on the evidence that everything these men did in relation to borrowing moneys, putting money into the company, causing the company to pay debts, they did consensually.  There is no suggestion that either of them held a gun to other one’s head, made some threat, that if they did not do something there would be a bad result, or encourage them in the sense of saying, you have to do this, and if you do this everything will work out well.

Indeed, the evidence our learned friend relies upon for encouragement about SMK seems to come down to Mr Brooker coming along and saying, “Listen, we have to pay up these debts because they are putting pressure on us.  I can get some money from SMK”, and Mr Friend goes, “Well, what do you think?”, and Mr Brooker goes, “Well, I think we should do it”, and he goes, “Okay”.  If there is encouragement, Mr Brooker has encouraged Mr Friend, but we would suggest that encouragement has got nothing to do with it ‑ ‑ ‑

FRENCH CJ:   I think it was Friend who said, “We should do it then”, did he not?

MR NEWLINDS:   Ultimately he says, “We should do it”, but after having asked Mr Brooker what he thinks and having received his advice that they should do it.  The trial judge at paragraph 26, 945, makes a finding in terms of the affidavit evidence.  So encouragement has got nothing to do with it.  I will just give your Honours a note to paragraph 112 of Mr Brooker’s affidavit at – I am sorry, this is Mr Friend’s affidavit that, of course, was not read at trial but was tendered before the Court of Appeal on the recall application as to the evidence that would have been called if it had been understood at trial that a specific case based on the SMK loan was being run.

HEYDON J:   Which page?

MR NEWLINDS:   Page 1308 which is in volume 3.  It just deals with the Ashton loan and gives evidence that both Mr Friend and Mr Brooker used that money and that the money was supplied for the purposes of the business, that is all.

Now, of course, your Honours, and nor the Court of Appeal nor the trial judge were asked to make that finding, nor could any of you because it was never tendered as evidence in the case, but it is an example of, we say, of course, in one of our grounds of appeal that the Court of Appeal ought not to have decided the case on the SMK loan ground at all because it was not a case that was run at trial.  We were prejudiced and so on.  In support of that same submission, which we made on recall, we tendered what we said the evidence would have been that we would have called.  There it is.

In my submission, it has as much probative value as the much talked about, untested evidence of Mr Brooker, because that was laid before the trial judge, who was expressly told, “Don’t worry about anything Mr Brooker tells you about moneys going in and out.  That is all a matter for the account”.

HEYDON J:   Did it have any relevance?

MR NEWLINDS:   It had no relevance.

HEYDON J:   Why was it not objected to and rejected?

MR NEWLINDS:   I do not know, your Honour, but the way the case was run, for our learned friends now to say this is uncontradicted and unchallenged evidence simply describes the way the case was run.  Of course it was uncontradicted and unchallenged because it was stood to be contradicted and challenged on the taking of accounts. 

The next point is, once again going back to the “pass the parcel” analogy, Justice Basten in paragraphs 198 and 199, volume 3, 1203, explains that Mr Brooker received between 1995 and 1998 345‑odd thousand dollars, which was enough to – all bar a very small amount of money – discharge his liability to SMK.  He did not use his money – and he got that money from the company and he chose to renovate his house.  At the same time, Mr Friend gets the other half of the money out of the company and no doubt uses it to pay down some of his external borrowings.  So the music stopped because Mr Brooker chose to renovate his house – no doubt for his own good reasons – and to let his own liability to SMK continue on at 20 per cent – presumably having made a judgment that his house would appreciate quicker than that – and then to run, maybe hoping that one day he would run a false case that, in fact, this was a joint loan to him and Mr Brooker.  So for my learned friend to try – as in my respectful submission, he has been trying to do – to somehow get the merits in this case entirely falls flat.  This is all of Mr Brooker’s own doing.

We note our learned friend did not make any oral submissions as to imminence of demand and ready, willing, and ableness of payment, although we do think there is an acknowledgement that equity has got something to do with the case he is propounding because if he has not paid the full amount, he does need to engage in equity.  We reiterate that we do not accept that all of the SMK loan went to the benefit of the company, the business or the common design, call it what you will.  It is common ground that not all of it did.  That is important. 

We understood at trial that all such questions were to be determined on the taking of accounts.  We do not accept that the Trade Credits money, the De Bakker’s money and the other creditors money themselves was used for the benefit of the business.  So it is not enough for our learned friends to say “Well, there you go, the SMK money went to Trade Credits”.  Mr Brooker says the Trade Credits went to the business.  So we do not accept the starting point. 

Once again, at page 1312, paragraph 60 of Mr Friend’s affidavit, not read at trial, but tendered on recall to show the evidence that would have been called if we had understood we were meeting a case.  Mr Friend would have given evidence, if he had understood that that was part of the case, that he thought about 61 per cent of the portion of Mr Peterson’s loan was applied to the business.  At paragraph 133, while your Honours are on that page, he also said that the debt to his family is being ignored and that $102,000 was borrowed by him from his family and that does not include interest.

HEYDON J:   Where is the 61 per cent reference?

MR NEWLINDS:   At the very bottom of the page, 1312.

HEYDON J:   Yes, I see, thank you. 

MR NEWLINDS:   We do not accept that all of the money went to the company.  We certainly do not accept the 250,000 repayment is a repayment to the account of Mr Brooker.  Prima facie, if I can risk a Latin phrase, it did not.  It was paid by the company.  Sure, evidence could explain that was in fact a payment by Mr Brooker, but there is no such evidence.  We also observe that there are other – in Mr Peterson’s statement of the account – completely unexplained draw downs that happened later in the piece.  So not only was SMK receiving payments, every now and again it advances some more money.  At appeal book volume 1 at page 296 there are two entries, one for 28 January 1997 for $30,000 and one for 7 April 1999 for $60,000.

HEYDON J:   Just give me those references again.  I am sorry, I have been following it.  We are on page 296?

MR NEWLINDS:   Page 296 and the date ‑ ‑ ‑

HEYDON J:   Yes, you said 28 January ‑ ‑ ‑

MR NEWLINDS:   28 January 1997.

HEYDON J:   $742,000.

MR NEWLINDS:   $30,000.  Then it goes across to the “Comments”, “Addn’l $30k”.  Your Honour will see if you start in the first column, the running account increases by $30,000, so that is a payment out by SMK.  Then, the third‑last line on that same page in the “Comments” column on the right there is “$60k Advance” and there is, once again, in the running account, the amount increases by $60,000.  I should say, to be complete, later on there are some repayments that no one has talked about.  No evidence whatsoever as to what that is all about and yet we are being charged interest.  The claim assumes that that money went for the benefit of the business because the grossed‑up amount, including interest, includes interest charged on that money.

GUMMOW J:   These maters of detail you have been taking us to may bear upon paragraph (c) of the written formulation this morning.

MR NEWLINDS:   Absolutely.

GUMMOW J:   Namely, you have to look - accepting that this is a legal principle - you would have to look at the parties’ relationship and the nature of their common design and ask what could fairly be expected.

MR NEWLINDS:   Correct, and you would need to examine the ‑ ‑ ‑

GUMMOW J:   Your point seems to be that the Court of Appeal could not have reached that conclusion from the state of the evidence and the state of the evidence is the product of the way the trial was run.

MR NEWLINDS:   Exactly.  If we can just go back to the pleading.  If my learned friend sought to read the phrase “joint venture” as interchangeable with the concept “common design” may I just point out that joint venture is a defined term in the pleading and stands or falls with there being an express agreement.  It is not something other than a contract and so common design was not pleaded but, of course, pleadings generally get struck out if they say things like common design.  People say, “Well, what are the material facts upon which you rely?” and those are things that the trial judge finds.  You do not find a finding of something called a common design and you certainly do not find any material facts pleaded or found that would give rise to one.

I just need to show you it is true that a separate case based on the SMK loan was in play in the Court of Appeal.  That proposition is true if you accept that a court determined to decide the case upon a basis that it is determined to decide the case, notwithstanding the ways the parties are conducting it, forces a party to adopt a case really against their wishes.  Can I just give your Honours a few references to how this came about and how Mr Forster of senior counsel valiantly resisted accepting the invitation, but perhaps understandably ultimately his rule was overborne, when in the most lukewarm way in the written submission put in after the conclusion of the appeal a submission was pitched that said if the court is minded to decide the case upon this basis it can be justified on the pleading.  That was the submission, if that be a submission ‑ ‑ ‑

GUMMOW J:   You had better take us to that first.

MR NEWLINDS:   In my respectful submission, a court’s role is to decide a case presented for decision by the parties and has no place and leads itself into problems if it takes the course that the court took in this case.

HEYDON J:   I am on page 1116, is that where I should be?

MR NEWLINDS:   No, I was going to start at 1044, line 55.  Perhaps line 50, the President:

It certainly shows that the large number of borrowings over the period of the relationship.

FORSTER:   Yes, the SMK loan which as I say plays a very significant role in this matter is in a sense an illustration of the proposition I was putting, namely the SMK loan which is the subject of continuing dispute was made in December 1986.  The borrower is Mr Brooker, the appellant.  Security was given by his wife and his mother –

Then at line 10:

MASON P:   Do you want them all brought into account?

Now “them” is all of the loans.   Answer:

FORSTER:   Yes, your Honour.

MASON P:  Do you submit that the arrangement was that they’d all be brought into account when the company was wound up.

The answer is, if I may paraphrase, “Yes”. 

If your Honours then go forward to 1050, about line 4 – and this, in my respectful submission, is something that no judge should ever do, for a whole realm of reasons, notwithstanding it causes enormous angst between legal practitioners and their clients – but the Bench poses the question:

Why didn’t you propound a claim based on the events of November 1986 using the 1977 discussion as ‑ ‑ ‑

HAYNE J:   Where are you?

MR NEWLINDS:   I am sorry, 1054.  At line 4, the question from the Bench:

Why didn’t you propound a claim based on the events of November 1986 using the 1977 discussion as background which might have led to just concentrating just on the equities arising out of this one transaction which seems to have been rather unique.

GUMMOW J:   Justice Lockhart said to me when I was starting off 27 years ago, “You’ve got no idea what’s gone on behind the Bar table.  You just see the tip of an iceberg”.

MR NEWLINDS:   If the true answer is, “Well, we didn’t because we forgot”, all the judge is doing is ‑ ‑ ‑

GUMMOW J:   There could be all sorts of reasons which could not and should not be spoken in public.

MR NEWLINDS:   Correct.  Often the answer is, because we did think about it and it was a particularly silly idea, but you cannot say that.  Now, the answer is, the SMK loan is admittedly the largest part of the plaintiff’s case.  It is not the only part, the very fact.  My learned friend, as you always have to do when pitched that question, does not answer it but again says, “We’re running a wider case”.  Then, if I can move forward, there are lots of others.  I am trying to give your Honours the highlights.  At page 1079 and, if I may say so, from this point on the President became determined to decide the case in the way it was decided and he was going to do it no matter what anyone said to him.  This is line 16:

Mr Forster what unfinished business is there apart from the SMK loan?

GUMMOW J:   I am not sure you should be putting this to us in reply, though.

MR NEWLINDS:   No.  My learned friend says, this case, the SMK case, was run, was in play before the Court of Appeal and I am explaining to you – I am accepting that it was in the sense that it was forced upon our learned friends by the court.  I am going to build up to take you to their written submission after trial where they say “If the court is minded to decide the case upon that basis”.  All that happened was our learned friend’s predecessors relented from saying, “Do not decide it upon this basis”.  They never said, “Do decide it on this basis”.  They said, “Well, if you want to, we think you can tease it out of the pleadings”.  If that is in play, it was in play but, in my respectful submission, the ground of appeal which we emphasise is the Court of Appeal had no business deciding it upon this basis.

GUMMOW J:   Well, have you a ground of appeal?

HAYNE J:   Perhaps 5.

MR NEWLINDS:   It is our 5.

GUMMOW J:   Yes, thank you.

MR NEWLINDS:   This submission was made on the recall application as well and we lost.  So in a way the reasons why the Court of Appeal says it is entitled to do this are found somewhere in judgment No 2..

HEYDON J:   I thought I once had but I seem to have lost the submissions used on the recall application.  Are they in the books?  If so, could Mr Kremer ‑ ‑ ‑

MR NEWLINDS:   Yes, they are.  We will give your Honour a reference to that.

HEYDON J:   That can be answered later.

MR NEWLINDS:   It is 1233 and following of volume 3.  I think there were three propositions.  We said the whole judgment is based on a fundamental misunderstanding of the facts, that being paragraph 12.  We said that you decided it on a case that was never run and if we had known it was going to be run on that basis we would have adduced evidence.

GUMMOW J:   Just a minute.  You are going too fast.  What page are you on?

MR NEWLINDS:   I am just recapping what the basis of the recall application was – page 1233.

GUMMOW J:   I am distracting you.  Let us go back.

MR NEWLINDS:   Thank you, your Honour.  It is page 1079.

GUMMOW J:   Yes.

MR NEWLINDS:   Line 15, the question is:

what unfinished business is there apart from the SMK loan?  I realise your client says that he’s paid some of it.

FRENCH CJ:   We have just done that, I think.

MR NEWLINDS:   Yes.  Answer:

FORSTER:   No, as I’ve said the biggest individual is there SMK loan and – ‑

MASON P:   Are there any others . . . 

FORSTER:   If I could take you to the relief in the statement of claim.

BASTEN JA:   Is that the relevant relief, we should ignore the notice of appeal?

The notice of appeal is at volume 3, 977.  Now, just pausing there, there is no ground of appeal based on an individual analysis of the SMK loan, and so Justice Basten is saying, well, hold on ‑ ‑ ‑

GUMMOW J:   I was going to ask you about that.  Was there any amendment of the notice of appeal?

MR NEWLINDS:   No.  Then there is a discussion about, well, what is the relief?  Justice McColl says:

I think the notice of appeal reflects the relief sought in the statement of claim.

Then there is a reference at the bottom of the page:

restitution and various other things . . . 

equitable compensation and restitution are not repeated in the notice of appeal.

In any event, your Honours notice nothing along the lines of equitable contribution.  Then over the page at 1080, line 19, Justice Mason:

At the moment I haven’t heard any reference to any argument that goes beyond the issue of exoneration of the SMK debt perhaps with a bit of recouping for what you’ve paid already.  Why can’t that be translated into a specific declaration and/or a sum of money?

FORSTER:   It could, and that would –‑

MASON P:   The last thing appropriate to do is to order a general accounting when there’s only one item in dispute.

McCOLL JA:   I thought you had said though Mr Forster that there was a more general accounting required to deal with an inequity in the parties contributions over the period of the business relationship, however it be characterised, so that I thought you were saying this morning it went beyond merely the SMK loan.

FORSTER:   Yes it does, I keep saying that’s the principal item, but to respond to the question the further matter is the dealing with or resolving the inequality of the loan accounts between the parties as they presently stand.

Then they move on.  At page 39 of the transcript, 1081, Mr Forster is just about to finish his submissions.  He still has not – and I use the football analogy – picked up the ball and run with it.  Justice Mason, at line 47:

Would you give some thought to this question of remedy and perhaps in reply we can visit the issue again, but I really am very unhappy with the form of the relief that’s sought in the notice of appeal.  It may be the parties could reach some agreement or it could be framed in terms of a one line declaration.  I mean we’ve got $6000 in the kitty and a fight over a bit of past history with the SMK loan and a bit of present history.  I query why that can’t all be translated into a schedule of he should pay me X dollars -

The Chief Justice yesterday, I think, put the proposition does this mean it all just collapsed down to one transaction?  The President is really saying “If that’s right, can’t we just decide the question on that transaction?” having been told relentlessly by counsel for the appellant that there was more to it than that.  Then Justice Basten said:

And if that’s really what Mr Brooker wants it’s up to the respondents to say if there’s some offsetting to be undertaken, they may not have said it so far but unless you have some further claim which would benefit your client it’s not really a matter which goes beyond the SMK loan as I understand your submissions.

Then I stand up.  When Justice Mason said “Well, I haven’t heard anything to the contrary”, of course he had only heard one side of the argument.  I say:

The reason we haven’t said anything to date as to whether we have an offsetting claim or not is because that’s not the case that’s ever been brought against us.  The case that was brought against us and very clearly the case that was run before the trial judge was they wanted a full accounting, we assumed that contributions, we assumed they didn’t want an accounting back to the company, albeit that would be one way to do it, and I’m not in a position to tell you that there isn’t an offsetting claim, and I’m certainly not in a position to tell you that it’s accepted that the SMK money all went for company purposes and I’ll show you in the evidence where there’s a hint as to why this arose as an issue between the parties.

BASTEN JA:   So it’s the substance in Mr Forster’s argument there has to be a full accounting of all contributions, is that your position?

NEWLINDS:   We think so but—

BASTEN JA:   Or financial contributions?

I then say: “I don’t know” because then there is this vexed question of time contributions: 

I’ll show you where in the evidence the dispute between Mr Brooker and Mr Friend arose when Mr Brooker put to Mr Friend that he owed about 900 or a million dollars because of the disproportionate non financial contributions, because of the extra time Mr Brooker had spent running the litigation.

BASTEN JA:   But that’s not the argument that’s being put against you now as I understand it.

NEWLINDS:   We don’t think so but –

Now, over the page at 1084, this one line answer from me at line 40 is held against us on the recall application.  Justice McColl says:

McCOLL JA:   Presumably Mr Newlinds also over the time in which this company conducted its business some of those loans advanced by the directors were repaid with they being the conduits to their families from the company’s funds, that’s also the appellant’s case as I understand it.

NEWLINDS:   We think they all were.

McCOLL JA:   That’s why he says the SMK loan fell into that category and should be treated differently.

Now, pause there, he has not said that.  The judge is verballing the barrister.  Mr Forster has never said the SMK loan should be treated differently and falls into a different category.  But, in any event, the concession by me is “We think they all were.” is perhaps all the on‑lending transactions had been paid out, not that all financial contributions had been paid out.  I will not give any editorial.  At page 1100 at line 15 – just bear in mind that we are discussing now between Bench and Bar a case which, it seems to be accepted by everyone in the discussion, was not run at trial and was not the subject of the pleadings.  There has not been any discussion of the pleadings yet, and I say at line 16 “Can I come then to relief?”.  In light of the discussion between the President and Mr Forster one can well understand that I am a little bit anxious:

I’m not sure whether this is a matter for contention because ultimately my learned friend if successful, I say this only applies if my learned friend is unsuccessful in contract . . . if he’s successful in contract then these type of defences don’t apply ‑

I am about to go onto laches acquiescence and delay ‑

although your Honours will need to think about when the obligation ensuring on arose for the question of limitation type questions.

Justice McColl, very emphatically:

I don’t think you’ve pleaded any limitation point, Mr Newlinds so forget about that.

NEWLINDS:   No we didn’t plead it but of course ‑‑

McCOLL JA:   If you don’t plead it we don’t look at it.

Well, we embrace that.  Now, over the page, 1104, at the bottom of the page the oral submissions finish.  At 1104, line 45, the President says:

Thank you and we’re grateful for counsel’s assistance in this matter.  Mr Newlinds anything further form you by end of tomorrow and by the end of the week for you Mr Forster.

One wonders why the order was in that way, but it was.  Then you go to the document that we put in after appeal and, relevantly, at page 1112 – our learned friends used this passage as evidence of the fact that the issue was in play.  The submission I made in relation to relief was:

The case before the trial judge was very clearly run upon the basis that the relief sought by the Plaintiff was a full account as to all of their contribution and receipts “in the sense that one takes accounts in a partnership” –

all the references – and 6:

The case was run upon that basis.  Forensic decisions were taken upon that basis.  There are many unanswered questions –

which we have discussed over the last day or two here –

that arise from the evidence.  For example, the exact payments and repayments (if any) in relation to the SMK loan, the amount of interest charged to the SMK loan, whether the parties agreed as to interest on loan accounts and, perhaps most importantly, whether Mr Friend has been allowed interest –

Then at paragraph 8 I am talking about the basis of the account is obscure.  So, in play at that point that I am alive to the fact that the court appears to have a singular determination to deal with the case in a certain way and I am putting a submission forward as to why it should not happen at a point where counsel for the appellant has yet to make a single sound that could be understood as in any way adopting that case but they do in writing at page 1117.

GUMMOW J:   Were you directed to go first?

MR NEWLINDS:   Yes, for reasons that were never explained.

GUMMOW J:   Where do we see the direction that you go first?  It is back on 1104, is it?

MR NEWLINDS:   At the very bottom of 1104, “Mr Newlinds anything further from you”.

FRENCH CJ:   “[B]y end of tomorrow”.

MR NEWLINDS:   Which I dutifully complied with.

GUMMOW J:   Anything further about what?

MR NEWLINDS:   It is the old whatever anyone else wants to say.  But, of course, I would suggest, come on Mr Forster ‑ ‑ ‑

HEYDON J:   I think you offered, halfway down 1104, to send a note about an article.

MR NEWLINDS:   About something.

HEYDON J:   And there may have been some other questions of that kind.

MR NEWLINDS:   Yes.  In any event, I am sure it was not deliberate.  Then relief, 1117.  So, bear in mind, I have already made what I would have thought was a pretty to the point submission.  My case was not run upon this basis.  We made forensic decisions.  Answer:

Mr Brooker sought various alternative forms of relief in his statement of claim . . . He also sought an order that the matter be referred out . . . 

The Notice of Appeal included prayers for relief based on these alternate claims . . . 

If it were minded to do so, the Court could fashion relief directed at compensation relating only to the circumstances of the 1986 SMK Investments loan.  Allegations specific to the SMK investments were made in paragraphs 23 and 24 –

There was not a breath of “The case was run this way below.  Our opponents, if they are saying they were prejudiced, are wrong” and of course when you read judgment 1 you will not find any reference to there being any issue that this was something that was raised for the first time on appeal by the Bench.  In fact, Justice Mason, I think, commences his judgment with “The case ultimately propounded by the appellant was one for equitable contribution”.

HEYDON J:   Are you finished with this Court of Appeal background ‑ ‑ ‑

MR NEWLINDS:   Yes, I think so.

HEYDON J:   That last submission of Mr Forster’s was on 17 March 2006.  The Court of Appeal gave its first judgment on 20 December 2006.

MR NEWLINDS:   That is right.

GUMMOW J:   There was a five‑month delay, by the look of it.

HEYDON J:   You then moved on 23 February – in other words, the vacation plus three weeks or so for recall.

MR NEWLINDS:   Correct.

HEYDON J:   That was not heard until 29 November 2007.  There were some written submissions in the middle of the year.  Why did it take so long to be heard?

MR NEWLINDS:   I do not know, your Honour.

HEYDON J:   And then on 7 May, five months later, the second judgment was delivered.  Is there anything that explains these delays?

MR NEWLINDS:   I think, to be fair, the delay between the filing of the motion and the hearing of the recall application is probably readily explicable by the difficulties in timetabling reconstituting the same Bench.  Justice Basten, who was the only judge whose judgment was not criticised, had a few directions hearings and case managed because there was a question of what evidence would be tendered on the application.  We threatened tendering the 25 folders.  In fact, I think notionally we did.  Yes, the case being marred by delay, of all the criticisms we make that is not one we lay at the feet of the court.  It is a busy court.  But, of course, judges misapprehending the basis upon which a case was argued is something that is more likely to happen the longer they reserve, but that might just be a consequence of the system.

Just so your Honours understand the three things we complained about on the recall application was we said paragraph 12 was a misunderstanding of the facts and was fundamental to the judgment.  We said that the legal argument of equitable contribution had never been run and we were never heard on the law in the cases and we finally said that the case as decided by the Court of Appeal had not been run at trial and ought not have been decided upon that basis on appeal.  We made some observations, for example, that it was not in the notice of appeal which had never been amended.

Some submissions we filed in support of that start at page 1233.  We lost that application on all grounds, but we do have an appeal by leave to

this Court from the submission that the Court of Appeal simply should not have decided the case upon the narrow focus on the SMK loan and that the answer to this case was account on the one hand or nothing and even if the court was persuaded that there was an accounting party finding then, for the reasons given by Justice Basten as a matter of discretion, relief should have been withheld.

HEYDON J:   Is there any transcript in the appeal book of the oral argument before the Court of Appeal on the recall motion?

MR NEWLINDS:   It is not in the appeal book, so the answer is no.  Thank you, your Honours, those are my submissions.

FRENCH CJ:   Thank you, Mr Newlinds.

MR WALKER:   Your Honours, may I say a sentence each about the 17th and 18th century material we saw for the first time in reply?

FRENCH CJ:   Yes, Mr Walker.

MR WALKER:   As to the 1698 decision, Sheppard v Wright, in our submission that entirely fits with the later description of the age‑old reason why general average leads to contribution and the short answer is there was absolutely no common benefit being served by the silk being taken off and the oil being left on, later to be taken by the French.  It is immaterial to the legal question, but one notices factually, in fact, the oils turned out to have kept the ship from sinking.

In any event, the fact is that the silk was not taken off to save the oil.  It had nothing in common with the ordinary general average case at all.  It was quite the opposite.  It was being taken off because it was perceived to be more valuable to be snatched from the jaws of the French.  It did not save anything, it was not there, it was not taken in order to save anything.  The losses lay where they fell.

As to the abridgement propositions, as my friend puts it, at the latest they are 1744.  That is 33 years before Dering v Winchelsea and, in our submission, it is the common interest, common burden, analysis of Lord Chief Baron Eyre and what flowed from that in the 19th century and into the 20th century upon which this Court would turn its attention.  May it please the Court.

FRENCH CJ:   Thank you, Mr Walker. 

The Court will reserve its decision.  We will adjourn till 10.15 am, Tuesday, 10 March 2009.

AT 12.23 PM THE MATTER WAS ADJOURNED