Friend v Brooker & Anor

[2009] HCATrans 37

[2009] HCATrans 037

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 WEDNESDAY, 4 MARCH 2009, AT 2.17 PM

Copyright in the High Court of Australia

MR C.R.C. NEWLINDS, SC:   If the Court pleases, I appear with my learned friends, MR H.S. PACKER and MR B.R. KREMER, for the appellants.  (instructed by Bull, Son & Schmidt)

MR B.W. WALKER, SC:   May it please the Court, I appear with my learned friend, MR M.S. WHITE, for the first respondent.  (instructed by Levitt Robinson Solicitors)

FRENCH CJ:   Yes, Mr Newlinds.

MR NEWLINDS:   Your Honours, our case is that in order for the remedy of equitable contribution to be awarded there needs first to be identified a co‑ordinate liability.

FRENCH CJ:   Sorry, just before you go on, what is the position with the second respondent?

MR NEWLINDS:   The second respondent has never appeared and is a deregistered company, your Honour.

FRENCH CJ:   Thank you.

MR NEWLINDS:   So our case is that in order for equitable contribution to be awarded one must first identify a co‑ordinate liability, so much seems to be accepted by everyone who has ever spoken on the topic.  We suggest that that co‑ordinate liability needs to be a liability by the co‑obligors to a third party.  Our case is that for the equity to apply one needs to first have that co‑ordinate liability but the equity itself cannot be used to create the co‑ordinate liability.

To put that all in the facts of this case, Mr Brooker owed SMK some money, Mr Friend did not, SMK could not call upon Mr Friend to pay the money it was owed and accordingly, relevantly, there simply is and never was any co‑ordinate liability so as to allow the equitable remedy of contribution to bite.  At paragraphs 41 and 42 of the President’s first judgment, which is in volume 3 at page 1136, we see the heart of his Honour’s reasoning and there is no suggestion there that his Honour has identified any co‑ordinate liability in relation to the SMK loan or anything else.  Lest there be any doubt that what his Honour was purporting to do ‑ ‑ ‑

HAYNE J:   Is that perhaps buried in the notion, persons who embark upon a joint venture?

MR NEWLINDS:   It is.  Yes, that may be said against me.  My proposition is this.  That does not create any right in the hands of SMK.  These people may well have embarked on a joint endeavour, they may well have mutually trusted and had confidence in each other and whatever else one wants to say about their relationship.  That is all well and good, we say, but that does not give any rights to SMK.  SMK cannot sue both of them and cannot, at its election, choose to cause the loss to fall upon the one that it chooses to sue.

Your Honour Justice Hayne may be right.  His Honour may be asserting that that observation by his Honour creates a co‑ordinate liability, but it does not.  All that could ever do would be to create some relationship between the two men, but it has got nothing to do with SMK and accordingly, there is no room for the equity.

Now, I was about to say that lest there be any doubt that what his Honour was doing was applying principles of equitable contribution, if we go to paragraph 48 on the next page, 1138, after the words “fiduciary relationship”, about halfway down the paragraph, his Honour said:

I prefer the somewhat sharper equitable principles of contribution as the basis of analysing the rights of the parties.  If those principles are established, there is in my opinion, no additional requirement for the plaintiff to establish unconscionable behaviour.

So it comes down to this on the President’s findings.  If two directors in a closely held company trust each other and have confidence in each other and talk in terms of “we” in the plural and talk in terms of equality against the background that they hold 50 per cent of the shares in the company, then there is created without anything more an obligation in each of them to make good the personal liabilities of the other so long as those liabilities have been created for the purpose of going into the company.  In my respectful submission, if that be a correct analysis of what was going on here, in my submission, that really is putting the President’s findings at their highest.  It just cannot be right.

FRENCH CJ:   There was another element in the factual situation, was there not?  That was awareness and acquiescence on the part of Mr Friend and knowledge that this money was going to be borrowed and used for the purposes of the company.

MR NEWLINDS:   True.

GUMMOW J:   But not knowledge of the terms, was there?

MR NEWLINDS:   Not knowledge of the terms and not knowledge of the interest rate and, as the trial judge found, nothing unusual about one of them borrowing some money from a family member or a friend for the purpose of putting some money into the company and, of course, nothing unusual about the two gentlemen contributing their own money - that is money they had not borrowed from family or friends - into the company and, of course, recorded as directors’ loans, as one would expect, not recorded by any mechanism that looks anything like a partnership account.

Now, of course, the primary case that was run by Mr Brooker at trial was that there was an express agreement that at the end of the venture all losses occasioned as a result of all the money contributed into the company, and indeed, perhaps contributions that were non‑financial would be equalised.  That case stood or fell on whether the express agreement was made out.  The express agreement was not made out.  We do not read the Court of Appeal as overturning the factual findings the trial judge made in that regard.  So you are left with – as the Chief Justice puts to me – the fact that they like each other and trust each other and the fact that one knows the other one is borrowing some money for the purpose of lending that money to the company, to be recorded as a debt owed to that person by the company.

Now, in my respectful submission there is just no room for equitable contribution to bite.  What it really comes down to is ‑ ‑ ‑

GUMMOW J:   Just stopping there for a minute, is that because we have A and B both liable to X; as between A and B it is not to be in the choice of X to determine ultimately that only one of A and B bears the burden of satisfying X’s demand. 

MR NEWLINDS:   Correct, but there needs to be an X.

GUMMOW J:   Yes, that is your point.

MR NEWLINDS   That is my point.

GUMMOW J:   Whereas the President just concentrated upon the relationships between A and B.

MR NEWLINDS   Correct.  That is the second part of the equation; you do need to look at that, and you do need to look at the type of liability.  But before you get into that ‑ ‑ ‑

GUMMOW J:   The source of the equity is the avoidance of the unfair operation of chance or accident.

MR NEWLINDS:   Correct.

GUMMOW J:   By the selection on the part of X.

MR NEWLINDS:   Yes. It is not limited to people who can sue people.  If you go back to the old cases, if the captain of a ship threw someone’s cargo off the ship to save the whole of the cargo, then all the other people who had cargo on the ship had to make good pro rata that loss.  That is because it was just at the chance of whose gear was thrown off the ship.  If the Crown sees the wine before and after the mast the other people who had wine on the ship who just happened to have the good luck of not having theirs selected had to make up the loss.  But there has to be a third party whose choice causes the loss to fall on one person, whereas if that person made another choice, it would have fallen the other way.  As the cases tell us, it just goes back to basic fairness, or natural justice.

GUMMOW J:   You took us to paragraph 41, is it necessary to understand the President’s reasoning to go back a bit further to 34?

MR NEWLINDS:   Yes.

GUMMOW J:   Where he says the “equitable principle” line 29 “is not confined by legal structures”.

MR NEWLINDS:   Yes, and that is true.

GUMMOW J:   That is true, but it operates upon them.

MR NEWLINDS:   It operates upon them because you need to – yes, and they are cases that talk about, well, the sureties do not need to know each other, they do not need to be parties to the same contract.  If there are two insurance contracts they do not have to be precisely the same so long as they insure the same risk.

GUMMOW J:   Then the first sentence of 35 develops that in a way by invoking substance rather than form.

MR NEWLINDS:   Yes.

GUMMOW J:   But the question is what is the substance you are looking for?

MR NEWLINDS:   As a matter of substance you need a principal creditor or a person X, as Justice Gummow describes him or her.  That is the substance, and the substance has to be that the co‑obligors, the people amongst whom contribution will operate, each are exposed to a loss at the hands of that person, and it is the same loss.  So that person cannot recover more than the whole of the debt, but that person can recover the whole from any one of a group of people, and what we do not have in this case is that person.  Now, I would like to make that good by taking your Honours through a few cases just to demonstrate that that has always been the law and remains the law in this country.

HAYNE J:   Just before you do that, one finds the point perhaps reflected in the original, or the fifth amended – not the original, the fifth amended statement of claim at page 5 in paragraph 16 and following where the allegation is that loan to the joint venture or partnership is not a loan to one, it was a loan to both is the allegation that was made.

MR NEWLINDS:   Correct, that was the allegation, and the allegation was there was a joint venture or a partnership and that the loan was in fact to the joint venture or partnership.  What that means really is it was a loan to the two men.  Mr Brooker failed to make that case out.  Of course, he would have won if that was the case because then they would be jointly and severally liable for the same debt.

Can I take your Honour to some of these cases.  It is going to build up to Burke v LFOT and I am going to make the submission that the law has always been thus, but it certainly is thus since Burke’s Case and there really is no room for our learned friends to move.

GUMMOW J:   Do they not rely on Justice Cooper in Cummings?

MR NEWLINDS:   They do and I will then take you to Justice Cooper and those three cases to demonstrate either that they do not really stand for what they are said to stand for and, secondly, even if they were right when decided, they are certainly not right now and even if they were right when they were decided, they are out of step with what this Court said in Burke’s Case.  There is no such exception because if that be the exception, then the rule, as I have described it, cannot be the rule and you really are starting again in creating some other equity or obligation.  Because if the proposition is there has to be an obligation or a risk of loss at the hands of a third person, if that be right as the starting point for the equity, then there really is no room for any exceptions because those exceptions go right to the heart of that starting point.

In any event, each of those cases Justice Cooper referred to were actually decided on a more orthodox point.  It is true that in discussion statements are made that do assist our learned friends and I will deal with those cases.

GUMMOW J:   Any support for what the President did in that statement in Muschinski v Dodds 160 CLR 620 about joint enterprises that do not work out, to put it colloquially? He does not seem to mention it.

MR NEWLINDS:   He does not mention it.  My answer would be this.  Whatever that statement really ‑ ‑ ‑

GUMMOW J:   

[W]here the substratum of a joint relationship or endeavour is removed without attributable blame –

et cetera.

MR NEWLINDS:   Yes, but, in my respectful submission, that just cannot work when there is a company interposed.

GUMMOW J:   That may be a question.

MR NEWLINDS:   In my submission, that just cannot come up because you do have, in this case – if you want to call it a partnership, that is fine, but you cannot ignore the fact that the legal structure was one of a company, that the money Mr Brooker advanced he did advance to the company and there are mechanisms for dealing with where the loss lies when companies fail; well understood and, in my submission, codified.  If this sort of equity exists, it would entirely outflank all the rules we understand on the winding‑up of insolvent companies, would create obligations not limited to shareholders, surprisingly enough, limited to directors.  Now, in this case the directors controlled the shares – well, perhaps it is qua their relationship as shareholders and directors.

So, in my submission, no room to work when there is a company involved.  It really looks through the company as if it does not exist and assumes that this is simply a relationship between two men, which it was back in 1977 for a few months, in which case no doubt, if they continued down that road, it would have been characterised legally as a partnership and if it was a partnership and it failed, once again well‑known and well‑understood mechanisms for working out where the loss lies and, indeed, partners bear the loss equally.

GUMMOW J:   Is there any evidence of any partnership tax returns, if there was a partnership?

MR NEWLINDS:   No.  No accounts ever kept on a partnership basis - I withdraw that.  No evidence of any accounts being kept on a partnership basis, and unlikely when you think about the timeframe.  It was very much in a start‑up phase that they operated without a company.

GUMMOW J:   No, I mean at the time when they had the company.  But it is also said there was a super‑added joint venture or partnership.

MR NEWLINDS:   And finding by the trial judge.

GUMMOW J:   There were company accounts.

MR NEWLINDS:   There were company accounts and that there were not partnership accounts.  Indeed, the liability we are talking about is simply folded into Mr Brooker’s loan account, which is where it belonged because it was a loan by Mr Brooker to the company.  The company had no relationship with SMK itself.  So on a winding‑up SMK would not prove in the winding‑up; it would simply look to Mr Brooker, and whether it looks to him or not he could prove in the company.  Now, he has not done any of that and my learned junior points me to paragraph 43 of the trial judge’s judgment at page 954:

It is common ground that no partnership accounts were kept, and that the accounts concerning the business were those of the company which conducted it.

But, your Honours, we have findings, which we do not think are disturbed, that there was no relevant partnership, there was no relevant joint venture and there was no relevant agreement.  We do not read the Court of Appeal as having purported to overturn those findings.  So what the President is saying stands above all of those findings.  Of course we have a finding that there is no overarching shareholders’ agreement between the gentlemen, which of course ‑ ‑ ‑

FRENCH CJ:   There seems to be some implied understanding of equality in all respects, which is reflected in the first line in paragraph 37, which seems to operate independently of characterisations, metaphoric or otherwise, of the relationship as a joint venture or a partnership.

MR NEWLINDS:   Correct, and seems to be an understanding which falls short of being a contract.

FRENCH CJ:   Yes.  So there is a conventional – one understanding, which may not be contractual, but that is ‑ ‑ ‑

MR NEWLINDS:   Correct, and not said to be a conventional estoppel, not said to found a representation estoppel.  In my respectful submission, in this area of the law such an understanding is an observation, not a conclusion.  It does not mean anything.  It is the same as to describe what they were doing as a quasi partnership.  In my respectful submission, that is meaningless.  If there is a finding that there is no partnership, to say that there is a quasi partnership perhaps is consistent with saying it is not a partnership but, in my respectful submission, is a creature unknown to law.

GUMMOW J:   But it seems to have influenced Justice McColl, does it not ‑ ‑ ‑

MR NEWLINDS:   It does.

GUMMOW J:   ‑ ‑ ‑ in deriving some fiduciary notion.

MR NEWLINDS:   Correct.  Now, the reference to quasi partnership came up in debate, and of course there is a concept of quasi partnership known to the cases of oppression in company law.  The cases that her Honour refers to in the passage where she is talking about a quasi partnership are those company cases.  Of course, shareholders or incorporators, when dealing with companies on the just and equitable ground, saying that they have been oppressed and treated unfairly and the like, often do seek and obtain findings to the effect that there was an understanding, that there was a quasi partnership and the like.  But that is in the special field of that statutory remedy and, in my submission, should not be allowed and cannot simply be transplanted into this area of discourse.

HEYDON J:   Is there any part of Justice Basten’s reasons for judgment that you would disagree with or do not support?

MR NEWLINDS:   We do not support his finding that there was fiduciary obligation of the type described, but the balance we accept, yes.  So we take issue with the fiduciary obligation which is something our learned friends seek to agitate on the notice of contention.  But certainly Justice Basten’s conclusion and the reasons for why he says he would not grant any relief we embrace.  In simple terms, it is too late.

HEYDON J:   Particularly paragraph 199?

MR NEWLINDS:    Yes.  Could I just take your Honours to a few cases.  This is just to make good the proposition that, notwithstanding the so‑called exceptions identified by Justice Cooper in 1992, time and time again in the last 150‑odd years the courts have spoken with one voice and certainly this Court, on every occasion we think that it has looked at this topic, has spoken with one voice in a way that does not afford any room for such exceptions.  Can I start not with Dering v Lord Winchelsea where everyone starts in this topic but in ‑ ‑ ‑

HEYDON J:   Woolmershausen v Gullick.

MR NEWLINDS: Thank you, your onour, that is very helpful. Which is reported in [1893] 2 Ch 514, the decision of Justice Wright. At page 524 his Honour tells us the interesting history of the Dering Case and tells us that Lord Eldon, when we think he was Mr Scott, argued that case and seems to have lost – so we think the was for the Earl – but later came to see the light.  So I am really picking it up at the top of page 524 where there is a reference to Craythorne v Swinburne:

Lord Eldon states the right of the surety in these terms: – “It has been long settled, that, if there are co‑sureties by the same instrument, and the creditor –

I pause there.  Immediately you are talking about that third party, the creditor –

calls upon either of them to pay the principal debt, or any part of it, that surety has a right in this Court, either upon a principle of equity, or upon contract, to call upon his co‑surety for contribution”. 

If your Honours then move down, jump a paragraph, there is the reference to Stirling v Forrester:

Lord Redesdale said: – “The principle established in the case of Dering v Lord Winchelsea is universal, that the right and duty of contribution is founded in doctrines of equity; it does not depend upon contract.  If several persons are indebted –

and I pause there again, indebted to a third party –

and one makes the payment, the creditor is bound in conscience, if not by contract, to give to the party paying the debt all his remedies against the other debtors.

GUMMOW J:   When they say “if not by contract” I think in this period that includes “if not on a common money count”. 

MR NEWLINDS:   Correct, that is right.

GUMMOW J:   For money had and received, which would involve a notion of request or implied request, would it not?

MR NEWLINDS:   Yes.

GUMMOW J:   Between A and B.

MR NEWLINDS:   That has fallen away because it is quite clear that this can apply between sureties who have never heard of each other, for example, so it does not turn on that.  But what is interesting is that it is suggested by Lord Redesdale that the equity is founded in the conscience of the creditor.  But, of course, the remedy is not against the creditor.  The creditor is allowed to do what he or she has done and collect from one, but then, as between the balance, equity provides the remedy.  I am not sure if that analysis has stood the test of time. 

It would be against equity for the creditor to exact or receive payment from one, and to permit, or by his conduct to cause, the other debtors to be exempt from payment.  He is bound, seldom by contract, but always in conscience, as far as he is able, to put the party paying the debt upon the same footing with those who are equally bound.  That was the principle of decision in Dering v. Lord Winchelsea . . .   The question depends upon equity, not upon contract; and in this case a contract is to be implied.

I am sure that has not stood the test of time either:

The decision in Dering v. Lord Winchelsea proceeded on a principle of law which must exist in all countries, that where several persons are debtors, all shall be equal.”

The page before at 523 – I will not read it to your Honour – but there is the reminiscences of Lord Eldon about what he thought when he argued Dering v Earl of Winchelsea and what he thought upon reflection and really about point eight of the page – and this is all a quote from Lord Eldon – there is the line:

it does not rest with him to determine, upon whom the burden shall be thrown exclusively; that equality is equity; and, if he will not make them contribute equally, this Court will finally by arrangement secure that object.”

Now, the “he” that is being referred to there is the third party principle, the Mr X that Justice Gummow referred to.

Can I then, your Honour, take your Honours forward to 1912 to a case called Smith v Cock [1911] AC 317 which is a decision of the Privy Council. It is an appeal from the High Court of Australia. The decision of this Court was overturned, but not on the question of principle as a question of fact, as I read it. At page 319 what you had here was two trusts and a group of beneficiaries and the question was, was there an obligation to make good a defalcation on one trust amongst all those. The High Court had said yes, the Privy Council said no. But if I just take your Honours to page 319:

Griffith C.J. and O’Connor J. held that Alice Smith was in respect of the two funds available for her maintenance in the position of a quasi creditor ‑ ‑ ‑

HEYDON J:   This is an account of the facts, of course.

MR NEWLINDS:   It is, your Honour.

HEYDON J:   Yes, not part of the judgment.

MR NEWLINDS:   Thank you, your Honour.  Yes, that is right, your Honour.

HEYDON J:   I just wanted to make plain what we were doing.

MR NEWLINDS:   That is correct.  Page 319 explains how the High Court split on the topic and, if I may say so, it does not appear that the High Court Justices were in disagreement as to the principle, it was a question of an analysis of the relationship between the various parties.  The part of the judgment I wanted to take your Honours to is at page 326, about halfway down the page.  This is a part of Lord Mersey’s judgment, I think.  Yes.  There is a passage that reads:

Without attempting to give a comprehensive definition of the expression “equitable contribution,” it is clear that the present case does not fall within it.  Before there can be any question of contribution there must be a common obligation upon those who are required to contribute.  Here there is none.

So the same point; there needs to be a common obligation to someone else, I would interpolate.  The next case is a decision of this Court, Ramsay v Lowther (1912) 16 CLR 1, and the judgment I wanted to take your Honours to is part of the judgment of Justice Isaacs starting at the bottom paragraph of page 23. His Honour said:

Marshalling regulates the order of different classes of assets, and does not operate between assets of the same class.  As between the latter the question is, properly speaking, one of contribution, and if that be borne in mind it supplies the answer to the problem we are considering.

A few words of Knight Bruce V.C., in Tombs v Roch are instructive: ‑ “Contribution, . . . if it differs from marshalling, does so in species rather than generically, in form rather than in nature.

“Marshalling and contribution are, each of them, the adjustment between several persons of their rights respectively, inter se, in respect of a charge or claim, which, affecting all of them, or properties belonging to all of them respectively, has been or may be enforced in a manner not unjust, as far as the person is concerned by whom it was or may be enforced, but not just as between the persons or properties liable.”

So once again you need that third person who has the choice to cause the loss to lie with one of more than a group of people.  Interestingly enough, no suggestion by Justice Isaacs that there is anything wrong with the conscience of that person in doing what he or she has done, it is simply the consequence of that actions that as between the co‑obligors creates the equity.

The next case, your Honour, is Albion v Government Insurance Office (1969) 121 CLR 342. The judgment of Justice Kitto is referred to in many of the cases that post‑date this case, and at page 351 of the report Justice Kitto, after referring to the case of Godin v London Assurance Co says:

The justification for the description may be seen from Dering v Winchelsea itself and the notes to that case in White and Tudor’s Leading Cases in Equity . . . The principle proceeded, as Lord Redesdale said in Stirling v Forrester which Lord Halsbury approved in Ruabon Steamship Co v London Assurance, “on a principle of law that must exist in all countries, that where several persons are debtors, all shall be equal”.

So once again, at the risk of repeating myself, the several persons are debtors, that self‑evidently there is a creditor involved who has the power to cause the loss to fall unequally.

Towards the bottom of that page, on another point in this appeal, his Honour briefly describes some of the differences between the rights of equity and the rights of law.  I will come back to that.  I will just give your Honours a reference to a case called Street v Retravision (1995) 56 FCR 588, a decision of Justice Gummow when his Honour sat on the Federal Court of Australia. The relevant passage is at page 597 and over the page. Perhaps I should take your Honours to this case. At line C on page 597 Justice Gummow said, after referring to a number of cases:

It is, of course, not a prerequisite of the application of the doctrine of contribution that the co‑ordinate liabilities arise from the same instrument.  Thus obligations arising from distinct instruments of guarantee may suffice, provided that the liabilities in question are “co‑ordinate” in the sense required by the authorities.

If we move down the page, in my submission, it is quite clear that “in the sense required by the authorities” means a common obligation to a third person.  I get that from line G where his Honour is dealing with the facts in BP: 

His Lordship held that, BP having paid the authority, it might recoup half of its outgoing from Esso.  It was not to the point that the common obligations to the port authority arose as to BP from contract and as to Esso from statute.  The liability of the parties was “of the same nature and the same extent” because each was liable to the authority to make good the damage to the jetty.

But I emphasise that there was a necessity for there to be the authority, it having the power to cause the loss to fall where it fell.  Can I then come forward, your Honours, to Burke v LFOT (2002) 209 CLR 282. Your Honours probably recall the facts of this case were a bit strange – perhaps “ambitious” is a better description – that there was a person who suffered harm, a purchaser of some property who was misled by the vendor. That person suffered a liability at the hands of the Trade Practices Act and sought contribution from the solicitor who was acting for the vendor at the time of the contract, saying “Well, you owed that vendor a duty of care because you were its solicitor.  You breached that duty of care because you did not notice my misleading and deceptive conduct.  Therefore, you should contribute to my loss because you are a person who has a co‑ordinate liability to the damaged vendor for the same loss”. 

Ultimately, this case is decided by the Justices either saying, well, that liability is of a different nature or level, or some of the Justices said that at the end of the day there is a discretion involved and equity would never let the ultimate wrongdoer recoup in such a way.  In any event, I think it was identified that, as a matter of fact, if the remedy was awarded, the wrongdoer would actually end up with a form of a windfall.

So the case was not decided on the question of common liability or obligation, but in our respectful submission it is very clear from each of the judgments that what is required is a common obligation of the type I have described and, in my submission, this case leaves no room for any exceptions to that starting point.

Can I start, your Honours, by asking you to look at page 292, which is part of the joint judgment of Acting Chief Justice Gaudron and Justice Hayne.  There is a heading, “Equitable contribution” at about line 14:

In general terms, the principle of equitable contribution requires that those who are jointly or severally liable in respect of the same loss or damage should contribute to the compensation payable in respect of that loss or damage, either equally where they are liable in the same amount or proportionately, where the amount of their liability differs.

Then there is a series of common examples given:  co-sureties, co‑insurers, partners, co‑owners and the like.  The next paragraph:

The doctrine of equitable contribution applies both at common law and in equity.  It is usually expressed in terms requiring contribution between parties who share “co-ordinate liabilities” or a “common obligation” to “make good the one loss”.  More recently, in BP Petroleum Development Ltd v Esso Petroleum Co Ltd, the right to contribution was said to depend on whether the liability was “of the same nature and to the same extent”.

Then, importantly:

The notion of “co‑ordinate liability” is one that depends on common interest and common burden.

Then about line 18 on page 293 there is a reference to part of the judgment in Dering v Earl of Winchelsea.  That is the example of how, if the plaintiff in one of the throwing the cargo overboard examples – if the person seeking contribution had actually deliberately caused the hole in the ship equity would not come to assist him or her because, apart from anything else, he was the author of all the loss.

GUMMOW J:   He would have some unclean hands, I think.

MR NEWLINDS:   Described there as “clean hands”.  In any event, one can well understand why, if there was any discretion left in the world, such a person would not get relief.  At page 294, still in the judgment of Justices Gaudron and Hayne, at about line 22 point 5, there is a reference to Justice Kitto in Albion v GIO.  This is the reference to the phrase “natural justice” which crops up in a lot of these cases:

In this context, “natural justice” requires that if “one of several persons has paid more than his proper share towards discharging a common obligation” he is entitled to be recompensed by those who have not.

If we can then move into the judgment of Justice McHugh, starting at about page 299, just above line 39, his Honour says:

An order of contribution prevents the injustice that would otherwise flow to the plaintiff by the defendant being enriched at the plaintiff’s expense in circumstances where they have a common obligation to meet the liability which the plaintiff has met or will have to meet.

May I immediately pause to suggest that the word “enriched” there should simply be given its natural meaning and should not direct us down paths of unjust enrichment and the like.  His Honour then goes on to refer to the Albion Insurance Co Ltd v Government Insurance Office Case and, importantly, at the top of page 300, at line 40, referring to the Earl of Winchelsea Case:

His Lordship held in that case that the doctrine of contribution applied in the case of sureties who were severally bound by different instruments to the same principal.

Then at the very bottom of that page, the last paragraph, line 42:

The principles of contribution are therefore designed to adjust the rights of the co‑obligors when one of them, voluntarily or involuntarily, discharges their common obligation.  Rowlatt, in a passage cited by Clauson LJ in Whitham v Bullock, stated the principle as follows:

“[I]f, as between several persons or properties all equally liable at law to the same demand –

and so on.

His Honour then goes on to deal a little bit with the different levels of obligations and how that can be relevant to the decision.  But if we go over the page to page 302, about halfway below line 46, there is a reference to Acting Justice Ipp in a decision in the Court of Appeal of New South Wales, Cockburn v GIO Finance: 

Ipp A-JA pointed out that any payment of damages to the mortgagee by the solicitors would have had no effect on any liability of the GIO to the mortgagee.  The basic rationale of the right to contribution was consequently lacking –– the discharge by one co‑obligor of its liability to the principal which discharged the liability of the other.

Now, that is another way of looking at the same point.  The effect of a payment by one of the co‑obligors discharges the liabilities of the other.  If that be the consequence of a payment by one of them then not self‑evidently what you had to start with was a true common obligation. 

Now, there was then an interesting or perhaps ironic discussion by Justice McHugh.  His Honour refers – after discussing Cockburn about halfway down below line 47 there is a reference to one of the well‑known texts and the quote is the last four lines:

They suggest that contribution may be recovered “where the liabilities of the co‑obligors to the principal claimant are such that enforcement by him against either co‑obligor would diminish that obligor in his material substance to the value of the liability”.

That same quote has found its way through to the later edition of that book, but then perhaps ironically Justice McHugh identifies a passage in Mason and Carter where those authors:

doubt whether the class of available contribution claims is as broad as Meagher, Gummow and Lehane suggest.  Mason and Carter point to cases that have satisfied their test yet the courts have refused to order contribution.  They argue that there must be, “at least”, an involvement of the parties in a common design to achieve a common end.  In their view - which I think is correct - only such a community of interest will make it inequitable for the party –

Now, can I pause there?  Firstly, Justice McHugh reads what Mason and Carter are saying as a narrower test than has otherwise been proposed; that is the first point.  The second point is what Mason and Carter are saying there is that you need a common obligation and you need a common design to achieve a common end.  They are not saying you do not need a common obligation, you just need a common design to achieve a common end, and yet ‑ ‑ ‑

HEYDON J:   People are co‑obligors, do they not have a common obligation?

MR NEWLINDS:   Well, they do.

HEYDON J:   I am just questioning whether this distinction which has been drawn is well based.  In other words, I am questioning whether the later authors have correctly construed the last four lines at the bottom of page 302, but I appreciate the – some might call it playing the man – but I appreciate the point you are making.

MR NEWLINDS:   I was really focusing on the idea of a common design, which does seem ‑ ‑ ‑

GUMMOW J:   You do not have to have a common design if you have co‑obligors because the sureties need not know about one another.  So what is going on?

MR NEWLINDS:   Well, perhaps it is a cheap point.  I am just saying there is an echo of what is being said in that passage in paragraphs 41 and 42, but it seems to have fallen away to a proposition that all you need is a common design and, in my submission, neither of those textbooks ‑ ‑ ‑

GUMMOW J:   That may be a good point.

MR NEWLINDS:   ‑ ‑ ‑ nor Justice McHugh would suggest that a common design by itself is enough, and yet when you boil it down in our case the Court of Appeal has found a common design ergo equitable contribution.  In my submission, that is wrong.  The next Justice who considered the topic is Justice Kirby at page 316.

HEYDON J:   He was dissenting, of course.

MR NEWLINDS:   He was dissenting, but on this point he was not.  Between 88 and 89:

That is, “a principle of nature justice” observed “in all countries, that where several persons are debtors all shall be equal”.  Fundamentally, this idea rests not on doctrines peculiar to Chancery law but on doctrines of “equity” in the sense of “reason, justice and law”.

Pausing there, I simply emphasise the several persons have to be debtors, therefore there needs to be a creditor.  Finally, Justice Callinan at page 332, his Honour refers to the judgment of Justice Lee in dissent, I think on the case on appeal.  He says:

Lee J, in dissent but with whose approach I would generally agree, held that no basis for contribution in equity arose in this case.  His Honour said this:

“For the principle of equality of contribution to apply in equity there must be mutuality between the parties in respect of the burden to be discharged.  That is, the parties must share a common burden in respect of obligations owed to a third party –

So the submission is that there is no room for any suggestion that equitable contribution does not require a common obligation to a third person in any of the judgments, whether they be ‑ ‑ ‑

GUMMOW J:   I thought the best you could get out of Justice McHugh is probably at paragraph 44 on page 301, the sentence beginning “Similarly” with the quotation from La Rosa, and the statement:

Nor will it apply merely because the claimant’s payment has benefited or relieved the other party financially”.

MR NEWLINDS:   That is right.  Going back to paragraphs 41 and 42 and cutting through the facts that Justice Mason identifies, that is all you have in our case.  But, of course, it is wrong in our case because, looked at properly, it is the company who benefited.  So even to get to the point where one can make a sensible finding that the claimant’s payment has benefited or relieved the other party financially, there is not even a factual basis for that here, but we would win, I would suggest, even if there were.

Can I then, your Honours, come to Justice Cooper and the cases his Honour identified as exceptions.  There is about three of them.  They are quite interesting cases factually, I think.  It is a relative thing, of course.  The case we are talking about is Cummings v Lewis (1993) 41 FCR 559. This was a case where the horse trainer, Bart Cummings, was involved with some promoters and they were going to buy racehorses and get in investors and make lots of money.

It ended up falling apart and Mr Cummings was left owning all the racehorses which he had purchased from his own money and so he was unhappy about that and he sought contribution from the other parties to the venture.  The first point is, he lost.

FRENCH CJ:   These were accountants who were seeking investors through syndicates.

MR NEWLINDS:   Correct.  At page 561 the majority of Justices Sheppard and Neaves ‑ ‑ ‑

GUMMOW J:   They were all agreed on the outcome.

MR NEWLINDS:   They were.

GUMMOW J:   They were not a majority.  They are just a plurality – if that is the right word.

MR NEWLINDS:   Thank you, your Honour.  The reason Justices Sheppard and Neaves found that he lost is in the first full paragraph on page 561:

We agree that the contribution claim should fail for the following reasons.  Although his Honour found no contract or partnership, he accepted, as was clearly the case, that the parties were in a business relationship.  The way his Honour explained it, correctly in our opinion, was that the relationship between Mr Cummings and Mr Leckie on behalf of Coopers & Lybrand was not that of client and accountant; rather Mr Leckie was acting in an entrepreneurial capacity.  He would market certain tax avoidance schemes – “tax effective packages” –

et cetera.  Then jumping over the next paragraph:

Both Mr Cummings and Mr Leckie were confident that the project would be successful.

Just pausing there, your Honours.  It has a ring of Justice Mason’s judgment in our case - two men getting together to try and make some money, both confident it would succeed, not turning their mind to what would happen if it failed:

So were Mr Lewis and Mr Rundle.  Peats had not been involved in the marketing of similar syndicates –

et cetera.  At the bottom of the page:

In relation to his claim for contribution we consider the following to be the essential facts . . . 

1.There was no contract or partnership between Mr Cummings and any of the accountants or accounting firms.

2.There was a loose arrangement pursuant to which Mr Cummings would acquire horses and the two firms of accountants would prepare the tax effective packages through which the horses would be marketed, and would market those packages.

3.At the time these arrangements were made none of the parties contemplated failure.

4.Mr Cummings spent several million dollars in the acquisition of horses.  He is liable to the vendors or auctioneers for the prices which he agreed to pay.

5.The parties were not in a fiduciary relationship.  It was not submitted that they were.

6.In relation to this matter Mr Cummings was not a client of either firm of accountants.  No relevant accountant/client relationship existed.

 . . . 

The question is whether, those being the essential facts, they give rise to a claim for contribution.  A number of suggested analogies were referred to in argument.  These have been dealt with in the judgment of Cooper J.  They do not help Mr Cummings’ case because none is truly analogous to the circumstances of this case.

FRENCH CJ:   On any view, it is about as hard a case as one could mount for equitable contribution.

MR NEWLINDS:   Correct, but, in my submission, I read out those essential facts because they are the essential facts of my case.

GUMMOW J:   The first paragraph on page 563, beginning at the third sentence, may be important for an understanding of it:

It was an informal arrangement  . . . each bringing to the relationship a different expertise and skill.  These were to be combined for the benefit of each of the parties, not in the sense that each would share profits . . . but in the sense that each would, as a result of his interest in the project, take to his own business undertaking the advantages –

et cetera.  So he is saying they remain sufficiently distinct.

MR NEWLINDS:   Arm’s length.

GUMMOW J:   Yes.

MR NEWLINDS:   It concludes with:

On no basis does such an arrangement impose obligations on one party to contribute to the losses of the other.

GUMMOW J:   Justice Cooper?

MR NEWLINDS:   Justice Cooper, starting at page 590, conducts a lengthy and detailed and very helpful review of the law in relation to contribution. 

GUMMOW J:   Page 599 is the critical part, is it not, about point 3:

To succeed on the appeal the appellant must show that the respondent had a common liability to discharge the debt to the auctioneers –

MR NEWLINDS:  

[O]r that he has against the respondents an equity to enforce equitable contribution –

It is the “or” that we take issue with in Justice Cooper’s judgment.

GUMMOW J:   Then he goes on to say that “there was no co‑ordinate liability”.  Then he goes on to say in the third sentence in the next paragraph:

There is nothing in the facts as found by his Honour which would bring into play . . . because the characteristics of joining together for a common end or purpose is lacking.

MR NEWLINDS:   Now, your Honours, his Honour identifies Spottiswoode’s Case, Ashhurst v Mason and Jackson v Dickinson as standing for an exception, that being that if people join together ‑ ‑ ‑

FRENCH CJ:   You would accept, would you not, that there is a distinction on the facts of that case and this that here there is a common end or purpose?  They are both operating the one business, whereas in Cummings v Lewis they are each deriving benefit from the activity for their own businesses, business purposes.  I am referring to the passage that Justice Gummow took you to earlier. 

MR NEWLINDS:   Yes, there is a distinction.

GUMMOW J:   Yes, but the distinction may be that here there was a company, they were joined in a company. 

MR NEWLINDS:   I was about to say that.  One of the distinctions is they put a company between them.  But we do need to look at Spottiswoode ‑ ‑ ‑

HAYNE J:   Because you cannot identify a common purpose or common enterprise without identifying purpose and enterprise.  Is the common purpose or common enterprise the purpose of conducting a series of companies, or is it, as seems to have been assumed below, some common purpose or enterprise of carrying on an engineering business?  The latter was the company’s business.  It was not the individual’s business.  They did not carry on business as engineers at any relevant time.  The only thing they appear to have done was from time to time form and participate through about three intermediate steps in the promotion of companies.  Until you approach with some care this question of common purpose and common enterprise, you are liable to be misled.  

MR NEWLINDS:   I think I embrace that. 

HAYNE J:   I thought you might.  You do not know where the knife in the napkin lies yet, Mr Newlinds.  That will emerge over time perhaps, we will see.

MR NEWLINDS:   The common purpose is the engineering business, which is how these judgments read.  They were going to get together to try and make money by pooling their talents.  If that is the common purpose that common purpose was tipped into the company and that is the end of it, in my submission.  That is the first point.  The second point is the exception identified by Justice Cooper, in my submission, has not survived Burke v LFOT and we do observe that it predates Burke’s Case and does not appear to have found its place in a footnote or found favour with any of the discussions in that case as to the principle.

In my submission, if there is such an exception then it completely destroys what I have described as the fundamental starting point of the equity.  So I would invite your Honours to look at the three cases to identify what they were about, to observe that they are quite old, though that is not necessarily a bad thing, but at least in relation to the company case, Spottiswoode, it was really decided around the dawn of time as far as companies were concerned.

GUMMOW J:   It was a joint stock company, was it not?

MR NEWLINDS:   It was never a joint stock company.

GUMMOW J:   It was going to be a joint stock company.

MR NEWLINDS:   It was a stillborn joint stock company.

HAYNE J:   In particular it was therefore not to be a limited liability entity, is that right?

MR NEWLINDS:   It was not to be a limited liability entity, but the problem in that case is because there was this concept of provisional registration with the promoters then running around doing things, including taking deposits from potential shareholders and putting forward really their application to Parliament for their Act of Parliament which it seems you needed if you wanted to have a railway company, one got into all sorts of bother if the company never became finally registered and you were left with these promoters who were holding money, who had incurred debts and you had to deal with it. 

Now, there was a finding by the House of Lords that the venture should be wound up as if it was a company and for that reason the Master then had to settle a list of contributories which, of course, is a difficult question since there were never any shares issued.  What happened was there was a list of contributories finally settled ‑ ‑ ‑

GUMMOW J:   Where do we find the provision for provisional registration in the statute, do you know?

MR NEWLINDS:   Mr Kremer has found it this morning.  It is in the 1844 Joint Stock Companies Act which is the first Act, we think, after the Bubble Act.  So after about a century of companies only being allowed if there was a royal charter – after the disaster of the South Sea Bubble Company or the South Sea Company Bubble companies are being allowed back in and ‑ ‑ ‑

HAYNE J:   Which section?

MR NEWLINDS:   Section IV.

HAYNE J:   7 & 8 Vict c 110.

MR NEWLINDS:   That is right, your Honour.  1844, 110, that is right.  At the very bottom of that page ‑ ‑ ‑

GUMMOW J:   There is a discussion of the 1844 Act by Professor Gower in his work on company law in chapter 2.

MR NEWLINDS:   So under section IV ‑ ‑ ‑

GUMMOW J:   He says:

it provided for incorporation by mere registration as opposed to a special Act or charter; but this it did by a system, curious to modern eyes, of provisional registration, which only authorised the company to function for certain strictly limited preliminary purposes, followed by complete registration on filing a deed of settlement containing the prescribed particulars and other documents when for the first time the company became incorporated.

MR NEWLINDS:   That is right, and there also seems to have been a class of companies that still required an Act of Parliament as well as registration, and the company that Messrs Spottiswoode and others were seeking to have incorporated appears to have fallen into that class, mainly because it was a railway line.

HAYNE J:   Well, that company was a great beneficiary to the legal profession at this time.  There was a lot of litigation.

MR NEWLINDS:   Yes, it was a festival of litigation.  We notice, your Honour, the House of Lords gave leave for a direct appeal from the Master to the House of Lords which perhaps will not attract your Honours as a good idea.  This is all 10 years after Stephenson’s rocket was invented, so no doubt there was some sort of railway line boom going on.  These gentlemen were trying to raise £2,000,000 of capital to build a railway line I think from Brighton to Birmingham.  So very big capital raising required which perhaps explains why companies were being let back loose on society, but you had this period of provisional ‑ ‑ ‑

GUMMOW J:   Who were these managing committee members?  What was the managing committee, do we know?

MR NEWLINDS:   I am not sure if we find reference to the managing ‑ ‑ ‑

GUMMOW J:   Were they the promoters?

MR NEWLINDS:   They are effectively the promoters, they are the promoters, and they receive deposits for the shares it appears with no obligation to hold them on trust.  They then just go and deal with it.  In the meantime, they are putting together what is effectively a type of prospectus which includes very narrowly drafted objects and the like, and the fact that they have people interested in buying shares, the names of the subscribers to the company needs to be given and so on.

So it is a highly regulated system but it has this period when the start of - what would be called in modern jargon the start‑up work is being done for the enterprise that is hoped to be carried out, and money is being collected by a group of people who have a provisionally registered company, which means it does not exist yet, and one has to grapple with, as the courts did, what happens when it all goes wrong.

Of course, of the original promoters, by the time Spottiswoode’s Case comes before the House of Lords some of them are dead, some of them are insolvent, some of them have decamped overseas.  Mr Spottiswoode and Major Amsinck – obviously very wealthy gentlemen – Mr Spottiswoode has been called on about three times to make payments pursuant to the list of contributories that he was on, and when he gets called on a third time filed a motion to set aside the entire process.

GUMMOW J:   Well, he had been sued ‑ ‑ ‑

MR NEWLINDS:   He had been sued by some shareholders ‑ ‑ ‑

GUMMOW J:  ‑ ‑ ‑ in 153 ER 947 in 15 M & W 501.

MR NEWLINDS:   That is right, and they were cases for moneys had and received, people who had paid their deposit saying, “I never got my shares, can I have my money back?” and they won.

GUMMOW J:   They just sued him.  They did not sue anyone else.

MR NEWLINDS:   Well, they did sue some other people.

HAYNE J:   There was a deal of litigation in three House of Lords cases about the same company, which is 10 ER 61. There is another round of the litigation in the House of Lords at 3 HL Cas 341, that is 10 ER 133. As I say, it was a benefaction to the legal profession of a kind not often made.

MR NEWLINDS:   Yes, well, there is probably a good movie in it as well, your Honour.

HAYNE J:   I do not think the paperback writes itself. 

MR NEWLINDS:   There is a case of Newton v Blunt which is in the Common Bench Reports; it is in 136 ER as well.  That is just an example of a prospective shareholder suing another one of the promoters, a Mr Blunt.

HAYNE J:   The root of it all is, is it not, the promoters of the company or, as they were sometimes referred to, the projectors had authority to bind each other and they could go and raise money but they did so on terms, I think, that bound each other and then there were questions as to organising the liabilities as between them?  That in turn spawned a series of questions about what to do with those who had been procured to subscribe and what their position was before registration.  Did this company ever get registered?

MR NEWLINDS:   It never got registered.

HAYNE J:   Never did?

MR NEWLINDS:   Never did.

HAYNE J:   What was to happen as between subscribers?  Were they to be listed as contributories bound to contribute the amount for which they had contracted to contribute?

MR NEWLINDS:   It was held they did not have to because they never got their share and they were entitled to sue, and successfully sued, various promoters for the deposit they paid back.

GUMMOW J:   The money had not received ‑ ‑ ‑

MR NEWLINDS:   Yes, total failure of consideration.  They say, “Well, I never got my share, so can I have money back?”

HAYNE J:   But now what is the principle, if any, that we get out of these cases that bears upon the issues that now have to be decided, bearing in mind that we are talking about joint stock companies and we are talking about a joint stock company not yet finally registered, therefore never incorporated, let alone ever incorporated with limited liability?  Where are we getting to?

MR NEWLINDS:   Correct, but being wound up as if it was a company and the decision is an application to review the Master’s decision to reject a motion to set aside the list of contributories and start again.  That was the actual process that was before the court.  Of course, what happened is the House of Lords, having received that motion and given leave to appeal, then sent it back to the Master to settle the facts, which probably did not augur well for the moving party, and they say, “No, you can’t”.  It seems for various of reasons, one of which is, “You, Mr Spottiswoode, have gone along with this process for so long and haven’t complained about the list and paid earlier calls”, that it is too late.  That is one way to explain the decision.  I will take your Honours to the decision.

GUMMOW J:   What is the actual decision?  Is it Spottiswoode’s relationship to the other promoters?

MR NEWLINDS:   The Master’s list of contributories stay put and so he remained jointly and severally liable as a statutory contributor.

GUMMOW J:   In the winding‑up?

MR NEWLINDS:   In the notional winding‑up, or in the ‑ ‑ ‑

FRENCH CJ:   He was seeking a declaration that no part of the call should be borne by him.

MR NEWLINDS:   Correct.  And I think he was also asking for the money he already paid out by earlier calls to be paid back.  It seems he had been just pushed a little bit too far and he wanted to unwind the whole process.  He said, “Look, I never really was a promoter.  What’s happened is I came in and tried to rescue the situation to help everyone out and now I’m being called upon to pay another large amount of money”.

GUMMOW J:   He was told that he had adopted ‑ ‑ ‑

MR NEWLINDS:   Yes.  So one way to explain the decision is, “It’s too late.  You’ve gone along with this process”.  He filed a motion at the time of the first call to set aside the list and then withdrew it and paid that call.  There was then another call.  He paid that one.  On the third one he revisited the motion.  The Master would not hear him and rejected it in limine and it was a review or an appeal from that Master’s decision.

GUMMOW J:   What are they meant to be contributing?

MR NEWLINDS:   That is a good question.

GUMMOW J:   Are they meant to be putting in the moneys that have been received from the public?

MR NEWLINDS:   I think they are being asked to pay any liabilities that were incurred pre‑incorporation to third parties.  I cannot myself work out from the report whether that is being done as if it was a call notionally on shares.

HEYDON J:   Justice Turner said at the top of English Reports 1278:

Mr Spottiswoode . . . has contributed to the payment of the liabilities contracted by his co‑directors.  As to part of those liabilities he has actually agreed to bear an equal proportion of them.

Now, if all the co‑directors contracted to pay certain liabilities it would be a simple case of contribution and the general words which Lord Justice Turner had earlier used about “In aequali jure, the law requires equality” and so on would have to be read according to that context.  If, on the other hand, he did not directly contract, he appears to have later contracted to have borne an equal proportion, how does this support Cummings?

MR NEWLINDS:   Well, in our submission, as best we can understand it, he does not.

GUMMOW J:   Yes.  Spottiswoode seems to be saying, “There seems to be this joint obligation into which I’m being roped.  I don’t want to be roped in, but if I am roped in, there’s contribution”.

MR NEWLINDS:   Yes.  He certainly wants to be let out.  He wants to be unroped.  He wants the whole process of settling the list to start again.  He loses that application.

HAYNE J:   Do we understand it from English Reports 1267 and 1268 where at De Gex. Macnaghten & Gordon 346 we see that Spottiswoode and Major Amsinck are appointed to the managing committee.  After the scheme is abandoned, the allottees who have paid deposits sue the persons appointed members of the managing committee to recover back their deposit, is that right?

MR NEWLINDS:   That is right and they are successful.

HAYNE J:   Are we concerned then immediately, are we, with the arrangement of affairs as between members of the managing committee?

MR NEWLINDS:   In my submission, the case is not directly concerned with that because it is directly concerned with whether they should be on the list at all.  We read it that it is either decided because there was an express agreement between these people that they bear the losses, alternatively, because Mr Spottiswoode had gone along with the process for so long he ought be taken to have agreed, either by acquiescence or the like, or in that age‑old method of judicial determination, there seems to be a real element of it is just too late to unravel the situation. 

FRENCH CJ:   It is a fairly broadly stated proposition at 1277 in the English Reports, is it not, at the bottom?

MR NEWLINDS:   It is.

FRENCH CJ:   The principle applying to the directors of companies, not because they are directors of companies, as such, but:

They are united together for the purpose of effectuating the objects for which the companies are formed . . . have adopted each other’s proceedings, I think they must bear equally the burthens consequent upon their acts.

In the preceding paragraph:

persons are joined together for one common end or purpose –

MR NEWLINDS:   Correct.  And then at the top of the next page, 1278:

Mr Spottiswoode, as it seems to me, has adopted everything which has been done.  He has qualified as a managing director.  He has contributed to the payment of the liabilities contracted by his co‑directors.  As to part of those liabilities he has actually agreed to bear an equal proportion of them.

FRENCH CJ:   But it emerges out of it a more broadly stated principle than one dependent upon the fact of directorship.

MR NEWLINDS:   Correct.  But I do need to grapple with the passage the Chief Justice just read.  We observe, of course, that this is 40 or 50 years before Salomon v Salomon. 

FRENCH CJ:   It is in a particular context, I accept that.

MR NEWLINDS:   It is in a particular context.  The law has not quite, it seems, come to grips with the idea that the company is a separate individual and ‑ ‑ ‑

GUMMOW J:   All you are saying is that there is a co‑ordinate liability.  Is it not saying more than that, in terms of principle?

MR NEWLINDS:   Yes.

GUMMOW J:   And there is a burden.

MR NEWLINDS:   Yes, but where it gets confusing is, there is no doubt there is a co‑ordinate liability for the claims of the people who had paid their deposits for shares because it would seem that they could claim against any promoter and no doubt pick the solvent ones, like Mr Spottiswoode.  But I have to say against myself, the case is also about other liabilities, it seems, incurred perhaps to third party creditors by the company.  Whether that would be seen to be a co‑ordinate ‑ ‑ ‑

GUMMOW J:   There was no company.

MR NEWLINDS:   Sorry, by the ‑ ‑ ‑

HAYNE J:   It had not started trading.

MR NEWLINDS:   Correct.  So, yes, in my submission, it can be explained equally by simply observing that they had a co‑ordinate liability.  But the principle the Chief Justice just read is obviously against me.  In my submission, if that was ‑ ‑ ‑

GUMMOW J:   Why is it against you?   I will just read it, “They are united together”.

HAYNE J:   The one thing you cannot do with that passage is equate the word “director” with what a director is in a limited liability company, and you cannot equate the word “company” with what is now a corporation, because the company of which they were then speaking was “company” as commonly used at that time to refer to an unincorporated group of co‑venturers. 

GUMMOW J:   Even a partnership.

HAYNE J:   Yes.

MR NEWLINDS:   If your Honour pleases.  That is Spottiswoode’s Case.

GUMMOW J:   I think if you look at Walstab v Spottiswoode in 153 ER 947 15 M & W 501, Chief Baron Pollock talks about quasi partnerships in this area, in this very situation. All I am putting to you is, it is all about bearing equally some burdens ‑ ‑ ‑

MR NEWLINDS:   Which is a co‑ordinate liability.

GUMMOW J:   - - - which is common to them, which must be a co‑ordinate liability.  So what is the fuss?

MR NEWLINDS:   There is no fuss, your Honour.  We have given your Honours a reference to another report of the same case.  It is in the 1854‑5 The Equity Reports.  It is written in the third person.  It is a little bit easier at some passages to work out what people are trying to say.  We do observe that the Royal Printers at the time were ‑ ‑ ‑

GUMMOW J:   What is the name of this case?

MR NEWLINDS:   It is the same case, In Re The Direct Birmingham, Oxford, Reading, and Brighton Railway Company.  Ex Parte Spottiswoode.  Ex Parte Amsinck.  It is exactly the same case.

GUMMOW J:   Reported where?

MR NEWLINDS:   At 1854-5 The Equity Reports at page 681.  Mr Kremer will organise to send some copies.  What is interesting is that the report is printed by A and G A Spottiswoode, New‑Street‑Square, London, and Andrew Spottiswoode is the Spottiswoode in the railway case.  Perhaps it was a common name.  Mr Kremer tells me the Registrar has an electronic copy of that case, which may or may not be of assistance.

The other two cases are Ashhurst v Mason and Jackson v Dickinson, the first in time being Ashhurst v Mason (1875) 20 LR Eq 225.  This is another company case.  What happened here is there were some shares issued in a company ‑ ‑ ‑

HAYNE J:   But we have come forward to the 1862 Act, have we?

MR NEWLINDS:   Yes, we have.

HAYNE J:   A company incorporated with limited liability.

MR NEWLINDS:   And we have a company.

HAYNE J:   Yes.

GUMMOW J:   Yes, but we still think directors are trustees – we now think directors are trustees.

MR NEWLINDS:   We do and I am going to take your Honour to a textbook that explains this decision upon the basis that when there was ultra vires acts of a company ‑ ‑ ‑

GUMMOW J:   Do not worry about a textbook.  Look at the argument of Mr Kay, page 232, middle of the page:

the right of contribution is not affected by the circumstance that these shares, for which they all became liable as trustees for the company, were, as a matter of convenience ‑ ‑ ‑

MR NEWLINDS:   The reason he was saying they became liable as trustees is because the act was ultra vires the powers of the company and the law at that time appears to have been pretty solidly that directors were treated as trustees on any loss caused by an ultra vires act.  That is one way to explain the decision, but the facts were these.  There was a shareholder who wanted out of the company and he wanted to give his shares back ‑ ‑ ‑

GUMMOW J:   You better tell us the textbook, had you not?

MR NEWLINDS:   I will, your Honour.  So there is a shareholder who wants to get out, he wants to get rid of his shares because he does not want to have the risk of being called upon.  The ultra vires act is that the company, I think, pays to take back some of its own shares.  They then have to decide in whose name are these shares going to be held.  If we look at the top of page 226, there is a meeting:

At a board meeting held on the 5th of October, 1869, and attended by Fowler, Simpson, Coventry, and the Plaintiff, Leyland –

It was being suggested that Mr Leyland should have these shares put in his name.  He does not think that is a great idea because he has worked out that that will expose him to a potential cause –

Leyland suggested that it would not be right that the shares should stand solely in his name, and that the Plaintiff’s name should be added.  The Plaintiff, according to his statement, at first objected, but upon the express arrangement that his co‑directors should hold him harmless against all consequences ‑ “see him through it” ‑ he agreed –

Of course, what happens is, I think Mr Leyland then is insolvent or disappears and Mr Ashhurst is called upon pursuant to the shares and pays up and seeks contribution from his co‑directors.  Over the page at 229 – this is still in the facts – the first full paragraph:

The directors from whom contribution was sought in the suit of Ashhurst v Mason (relating to Brockett’s shares) –

Mr Brockett is the original shareholder who gave his shares back –

were Mason, Fowler, Coventry, T Simpson, Sir J Rowe, and Keyworth; in Ashhurst v Fowler (relating to Elder’s shares), Fowler, Mason, Coventry, T Simpson, Sir J Rowe, J Simpson, and Coles.

It is important to observe that because Mr Coles get off because he was not at the relevant meeting, which, in my submission, explains why very clearly this case was decided upon the basis of an express agreement by the other directors that they would “see him through it”.

If we move forward to page 234, this is the judgment of Vice‑Chancellor Sir James Bacon.  At the top of page 234 he says:

There can, I apprehend, be no doubt in the world about it.  The affidavits of Leyland and Ashhurst prove in detail the fact that the liability possible, but not then very much contemplated, as I am willing to believe, was present to the minds of Ashhurst and of the gentlemen whom he names in his affidavit, and to whom he mentions the subject.  He says, “You will stand by me,” and they say, readily, “Yes.”

Stopping there, in my submission the case is decided there and then.  There is an express agreement made at the meeting that they will all stand together.  What you cannot quite work out from the report is whether that was taken to be a full indemnity by them or whether they had to contribute equally.  But either way his claim succeeds at that point.  Now, the judgment then goes on:

Without saying the consequences would have been the same, I do not think the case would be determined if that feature were wanting.  At deliberate meetings of these directors the plan is suggested in detail, and it is shewn that Mr. Brockett was ready to resign his shares, of which he got tired.

That can happen.

Whether he paid for them does not appear.  It is clear that no money passed.  No pecuniary advantage was to result to any of the persons connected with that transaction, and it having been done by the common assent of the gentlemen who were present at the meeting, it is impossible, in my opinion, to resist the conclusion that they are all equally liable to bear any burden that has ensued thereupon.

What is being said there is even if there was not the express “we will stand by you” agreement, the fact that they were all at the meeting, observed what was happening and went along with it was enough to establish liability.  In my submission, that can easily be explained as a common liability – a group of people in a room where a decision is being taken, all directors of the company, all going along ‑ ‑ ‑

GUMMOW J:   The point is, though, that if you look at the decree at the bottom of 236, the first paragraph, the first few lines, of the declaration, they:

became jointly and severally liable to contribute to and make good the calls paid, and all further calls, if any, to be paid by Plaintiff on the 250 shares transferred to him and Defendant Leyland as in the bill mentioned -

The point was that calls would be made against the parties on the register, surely.

MR NEWLINDS:   That is right, legally.

GUMMOW J:   The court is saying that nevertheless there is a right of contribution from these other gentlemen who were not on the register.

MR NEWLINDS:   But all went along with the idea that the share would be held in this person’s name.  So, in my submission, those persons could have been called upon themselves to pay the call.  Now, can I just go on to explain why it is - Mr Coles gets off because he is not at the meeting at all.  So the proposition does not apply to everyone who was a director of this company.  Under the paragraph at 234 that we were just looking at there is then a discussion by Sir James Bacon as to Mr Keyworth’s position, and I will summarise.  But what Mr Keyworth said was, “Yes, I was at the meeting but either I was out of the room or I didn’t hear what was going on and I really didn’t know about any of this, so I should not be liable”.  I think essentially it is fair to say he was not believed and, like a lot of modern day judges ‑ ‑ ‑

GUMMOW J:   Could you not say – would it not be a proper construction that what happened was that these persons were on the register as trustees for themselves and these other people?

MR NEWLINDS:   Yes.

GUMMOW J:   Is that not the substance of what is happening?  They were just nominees, as against the making of the call they had to pay up.

MR NEWLINDS:   Because they are the only person legally obliged.

GUMMOW J:   Yes, but as “trustees” they would be entitled to an indemnity from the true actors.  There is no suggestion in your appeal that either client was trustee of the other in respect of himself and the other party for the SMK loan, is there?

MR NEWLINDS:   Correct.  Perhaps that all becomes clear at the bottom of page 235.  We are still dealing with poor old Mr Keyworth.  What is being said really is, “Well, I do not know whether he actually heard what was said, but the minutes record that he was there”.  At the very bottom of 235:

he and the other persons who sanctioned that proceeding would be liable for the loss; and that is the whole of his case.

That is the express agreement.  Pausing there, the case is decided there and then.  They had agreed that they would be liable for the loss and that is the end of the case.  Moving down 236:

For very good reasons, as they thought–for reasons in respect of which no moral blame can be imputed to them–they considered it expedient that these shares should be dealt with in the manner shewn.  They counsel, they resolve upon it; it is done; when done, it is done wrongly; and being done wrongly, a pecuniary liability ensues.

Pausing there, that is because it was done ultra vires the power of the company.  The law at the time was that from that moment on the directors are trustees for the purpose of any loss caused by that ultra vires action.  What that means is co‑ordinate liability:

and it would be against every principle of justice and reason that the persons who were parties to the transaction should say to the one of them who, by their resolution and direction, is by name only the person under a legal liability ‑ ‑ ‑

GUMMOW J:   The critical thing is the words “by name only”.

MR NEWLINDS:   Correct:

that he should bear that exclusively as between him and themselves.

Mr Coles, though, gets off because he is not at any of the meetings, and the finding is he does not know about any of it.  So he is innocent.  Now the textbook - we have seven copies of Lindley & Banks on Partnership.  No, we do not.  We have seven copies of A Treatise on the Doctrine of Ultra Vires by Mr Howard Street, published by Sweet & Maxwell in 1930 in England.

GUMMOW J:   Now, what do we get from Professor Street?

MR NEWLINDS:   What we get from this Mr Street, at page 295 under the heading “LIABILITY OF DIRECTORS TO THE CORPORATION”, so we are speaking in 1930 - we are on page 295, about halfway down that column there is the paragraph that starts “Secondly”:

Secondly, the Courts have for two centuries been unable to accurately to define ‑ ‑ ‑

GUMMOW J:   This is a 1985 reprint, is it not?

FRENCH CJ:   1981.

MR NEWLINDS:   Yes, I am sorry, your Honour:

the position of a director.  In 1742 Lord Hardwicke said:  “I take the employment of a director to be of a mixed nature . . . it partakes of the nature of a public office, as it arises from a charter of the Crown.  But it cannot be said to be an employment affecting the public government, and for this reason none of the directors of the great companies are required to qualify themselves by taking the sacrament,” and in 1924 Romer, J., came to the conclusion that “it is indeed impossible to describe the duty of directors in general terms, whether by way of analogy or otherwise”.

So that is the topic.  If your Honours then go forward to page 808 to Proposition 131, and the heading is “A director has a right of contribution against co‑directors who have taken part in an ultra vires transaction”:

This relief has been conceded in cases where directors have exceeded their powers of borrowing, invested funds in shares of their own company –

and then footnote (r) is Ashhurst v Mason –

and granted unauthorised loans.  It is an equitable principle that so far as possible all debtors should be placed on the same footing, but it must be shown that the party against whom contribution is claimed took an active part in the transaction.  It would appear that he may take part therein so as to make him liable to the corporation, without at the same time making himself liable to contribution, but the basis of the distinction is not made clear.  Conversely, he may be liable to contribute in circumstances where the right of the corporation to recover from him is doubtful.

Footnote (u) is Ashhurst v Mason again, and “as explained in Jackson v. Dickinson” which we are about to come to.  So at least the author of this textbook understands Ashhurst v Mason as being decided upon the basis that the directors who are involved in the decision, so Mr Coles is out of the picture because he is not involved in the act, are liable as trustees for what was an ultra vires act, therefore they have a co‑ordinate liability, therefore the result of the case is explicable on orthodox principles.

GUMMOW J:   There is a similar treatment of it in what Justice Hayne has referred to as the 4th edition of Lindley on Partnership and Companies, 1878 at pages 773 and 774.  There is a treatment there of Ashhurst v Mason which I think is consistent with what Street wrote later.

MR NEWLINDS:   In the Eighteenth edition of Lindley & Banks on Partnership, paragraph 20‑20 under the heading “Breach of Trust” the statement is:

On the basis of the above principle, Lord Lindley apprehended that, in the case of a breach of trust committed by all members of a firm, if one partner were to make good the breach out of his own moneys, he would be allowed, in taking the partnership accounts, to charge his co‑partners, rateably with himself, with the amount so paid.

The footnote for that proposition is Ashhurst v Mason and Jackson v Dickinson.

HAYNE J:   This view of the position of directors was also considered in connection with wrongful payment of dividends.  One could go to 7th edition Buckley at pages 537 and thereabouts.  You will find consideration of the position of a director of a company where there has been a wrongful payment of dividend out of capital rather than out of income.  It all seems to stem from a decision of Lord Justice Kay when a judge of first instance in a decision of Ramskill v Edwards 31 Ch 100. There seems to be a deal of treatment to that effect. So there are these ideas of trustees floating about and joint and several liability following from that characterisation.

MR NEWLINDS:   It does not matter whether it was right or wrong or whether it is still the law.  What matters is it was identified then as a co‑ordinate liability, therefore the case is perfectly explicable upon what I would suggest are the well‑understood modern principles and is not an exception at all, as described by Justice Cooper.  Jackson v Dickinson [1903] 1 Ch 947, a decision of Justice Swinfen Eady, who Mr Kremer tells me was junior counsel in the Ramskill Case.  How he knows that, I do not know.  I know it is more popular to talk in terms of obiter, but may I suggest that this is ‑ ‑ ‑

HEYDON J:   Obiter dicta.

MR NEWLINDS:   May I suggest that this is double obiter dicta because his Honour had decided the case twice before he gets to the discussion that Justice Cooper refers to and the judgment starts at 951:

SWINFEN EADY J., after stating that in his view the correspondence and other evidence shewed that the trustees when making the unauthorized investment had agreed to contribute equally to any liability arising therefrom, continued: – If that is so, there is an end of the case, the plaintiff being entitled to contribution under the agreement.  But I do not think it right to rest my judgment on that point alone.

So case decided on the basis of an expressed agreement.

GUMMOW J:   But it is also treated as authority for this proposition, is it not, that the death of one trustee does not exonerate the estate of that trustee from the obligation to contribute in respect of breaches in which that trustee participated when alive?

MR NEWLINDS:   Exactly, and that upon death the other trustee’s shares should not have passed to the surviving trustee, which is what happened, and that in truth they remain beneficially the property of the estate of the deceased trustee and therefore there is a relevant co‑ordinate liability and that is the second way his Honour decided the case.  That is all explained in the first full paragraph at 952:

It was contended that the liability to contribution only arose where both parties were liable to be sued for the same debt or liability.  But in Ashhurst v Mason two lots of shares of a company were . . . 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 ‑ ‑ ‑

GUMMOW J:   It is not at all clear, though, is it?

MR NEWLINDS:   I am sorry, your Honour?

GUMMOW J:   It is not at all clear what his Lordship is getting at in Ashhurst v Mason, is it?

MR NEWLINDS:   No.

GUMMOW J:   It is all set out there, a whole page of it.

MR NEWLINDS:   In any event, the case had already been decided twice so this case rises no higher than Ashhurst v Mason itself.

HEYDON J:   That might be true if you are a judge in the Chancery Division in England, but if there is a good idea here, it is a good idea.

MR NEWLINDS:   I am not suggesting that is not correct but, in my submission, it is not a good idea because it ‑ ‑ ‑

GUMMOW J:   There are two steps, are there not?  The first step is at 953, about line 12, “I think it is clear that, as well before as after” there was a liability to contribute.  Then he says, “The only question that remains is whether the position was affected by” the death of the plaintiff.  What is the problem that is being perceived to require some special treatment of the significance of Jackson v Dickinson by translating it into language of joint undertaking or something?  Why was Justice Cooper saying this case is out of the ordinary run is what I want to ask you?

MR NEWLINDS:   I think it is the passage in the middle of 952 where Ashhurst v Mason is referred to and is explained by saying:

Now the co‑directors were not liable at law as contributories as they did not hold the shares.  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.  But they were not liable for the call, which was the liability in respect of which contribution was claimed.

It seems to be an observation that what happened in Ashhurst v Mason is not an example of a co‑ordinate liability because the shareholders could not have sued anyone other than the person whose name the share was in.  That seems to be the observation.

FRENCH CJ:   His Honour brings 598 back to what seems to be the broader, common end, common purpose proposition out of Spottiswoode’s Case which you were discussing earlier.

MR NEWLINDS:   Yes.  In my respectful submission, each of the cases we looked at ‑ ‑ ‑

GUMMOW J:   Is it not sufficiently explained by the submissions of Eve, KC, at the bottom of 950:

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

MR NEWLINDS:   Yes.  Well, the submission goes on to say that the shares remain beneficially in the estate of the deceased trustee and therefore there is a co‑ordinate liability, that is the submission.

GUMMOW J:   Yes.

MR NEWLINDS:   The discussion about Ashhurst v Mason does range wider than that basis, I accept that.

GUMMOW J:   All I am saying is that I think Mr Justice Eve might stand a bit higher in the halls of authority in a way – Justice Swinfen Eady, when it comes to clarity of expression.

MR NEWLINDS:   Those are the cases I wanted to take your Honours to on that topic.  The submission is, as I have stated it, you need the third party, the Mr X, who has to be able to either sue or cause a loss at his or her election to a group of people.  If you have that as your starting point, you then move into a discussion as to whether the other elements are satisfied, but without that you cannot have equitable contribution.  That is our first submission. 

Our second submission is this.  Lots of efforts have been made to explain definitively the differences between contribution at law and contribution at equity and different judges and different writers seem to give different emphasis to different of the distinctions, but one is clear.  You can only get contribution at law if you have paid up.  So you have to shell out the money from your own pocket before you can go looking for ‑ ‑ ‑

GUMMOW J:   That is because it is money paid.

MR NEWLINDS:   That is because it is a common money count, but equity does not have that requirement, but what equity does require is imminence of payment.  You can in certain circumstances get true quia timet relief.  What I mean by that is, you can sometimes obtain an order that a co‑obligor pay directly to the creditor an amount of money.  That is unusual though.  But what you do need before the equity bites is imminence of payment.  The cases tell use that that criterion is satisfied by the person claiming contribution demonstrating that the creditor has a judgment against them.  That is enough.  But absent a judgment, there needs to be evidence and there needs to be a finding that there is a threat that the person claiming contribution is going to have to pay up more than his or her fair share.

It is important in the context of this decision to emphasise that contribution only applies after the person seeking contribution has paid more than their fair share.  If the common debt is $100 and joint debtor number one pays $10, he cannot go to joint debtor number two and say “Can I have five” because he has not paid his fair share yet.  He has to pay 50 or more before he has any rights.  In this case the evidence is that Mr Brooker has paid some money back to SMK, but the evidence is certainly unclear as to whether at any point in time he paid more than his fair share.  It is difficult to work out because of course interest is running on the debt from time to time, but there is no finding that he has paid more than his fair share.  The Court of Appeal seems to proceed upon the basis that so long as he has paid something that is enough.  It is not.

The person behind SMK is Mr Peterson, who is Mr Brooker’s old friend who gets in the witness box and far from saying that he is about to enforce his debt against his old friend, or that he is even thinking about enforcing his debt against his old friend, he actually says he has no present intention to enforce his claim against Mr Brooker.

GUMMOW J:   This is at page 119?

MR NEWLINDS:   Yes, your Honour.

GUMMOW J:   Whereabouts?

FRENCH CJ:   There was no evidence as to terms of repayment agreed, and certainly no finding.

MR NEWLINDS:   It seems to be payable on demand and the evidence is that there is no demand, there is no imminence, there is no agreement, and the actual creditor has got in the witness box saying he has no present intention.

GUMMOW J:   There was evidence that unpaid interest had been capitalised, was there not?

MR NEWLINDS:   Yes.

GUMMOW J:   That is why the figures seem so large.

HEYDON J:   Nothing had actually been paid.

MR NEWLINDS:   No.  Some money has been paid over time.  Can I look that up overnight, your Honour?  The evidence is a little bit hard to follow.  There have certainly been some payments.

FRENCH CJ:   Several hundred thousand dollars, was there not?

MR NEWLINDS:   Several hundred thousand dollars.  But the question is, is there a finding or even was there evidence to justify a finding that more than 50 per cent had been paid.

GUMMOW J:   Was there evidence as to the rests on which interest was to be computed?

MR NEWLINDS:   No.  I am just looking for a decision of Justice Needham in the Supreme Court of New South Wales called Bronze Lamp, which seems to have fallen off the trolley.  But I will take your Honours to that in the morning, if I can.  In our submission the equity has always required there to be the storm clouds gathering, or the imminence of payment.  It is just not here.  Of course, it is not just a cute old‑fashioned equity point.  This is what causes the Court of Appeal to have to send so many vexed issues off to the Associate Justice because the question of when and how payment is to be made has been ‑ ‑ ‑

FRENCH CJ:   Is it a possibility that Mr Brooker might not have to pay anything?

MR NEWLINDS:   Of course, and yet the order that has been made contemplates direct payment by Mr Friend to SMK.

GUMMOW J:   SMK has not been joined.

MR NEWLINDS:   Correct.  There are some English cases where such an order has been made, but the question of enforcement is always stood over.  I cannot find any cases where enforcement is explained, but perhaps it could be done by a mandatory injunction.  But the orders do leave the spectre that the ultimate result of the case might be that Mr Friend pays more than Mr Brooker.  But the Master has been asked to work out how much Mr Brooker has paid to date.  I think he has been asked to work out whether payment is imminent or not.  Now, in my submission, that is wrong because without a finding that payment is imminent, there ought never to have been any orders at all.  Usually in these cases there is a lack of evidence.  In this case we have positive evidence. 

HEYDON J:   As to what has been paid, leaving aside the arguments you have devoted most of the afternoon to, why should not half of that be paid?

MR NEWLINDS:   Because you only get made good ‑ ‑ ‑

HEYDON J:   And as to the rest that there is no threat, there is no immediate peril and so on, but just as to what has been paid.

MR NEWLINDS:   Because he has not paid his fair share yet.  Mr Brooker has not paid 50 per cent and if that ‑ ‑ ‑

HEYDON J:   What is the authority that says he has to pay 50 per cent or whatever his fraction might be?

GUMMOW J:   He may have paid 50 per cent of what so far has been demanded.  Do you see the difference?

MR NEWLINDS:   He may have, there is no finding about that.  I will have a look for that, your Honour, it is certainly my understanding ‑ ‑ ‑

HEYDON J:   Was this sort of factually investigated?

MR NEWLINDS:   No, for reasons I will develop.

FRENCH CJ:   Do we know whether what he has paid was credited to interest or capital?  It was capitalised, I suppose, was it not?

MR NEWLINDS:   It was capitalised at a point in time and some of the payments might have happened before then.  We do not know.  I will endeavour to come back to Justice Heydon on that.  Certainly my submission is that the equity only bites – you only get contribution – when you have paid more than your fair share, unless the creditor gives a release.  I will try and find an authority for that because if that be wrong, then obviously what I am saying now is wrong because some relief is available.

But the reason none of these matters which seem so obvious now are the subject of findings or clear evidence is because the way the case was run and this case was never run upon a single transaction.  It was never a case about the SMK debt.  It was always a case that sought the taking of accounts, accounts of all of the contributions and benefits the two men received from 1977 to now.

GUMMOW J:   There was some distinct reference in the statement of claim though to the SMK loans, was there not?

FRENCH CJ:   I think that was brought on in Justice Mason’s second judgment.

MR NEWLINDS:   Yes, because the SMK loan – the statement of claim is in volume 1 of the book, starting at page 2.

HEYDON J:   The loan is mentioned in paragraph 13 at the top of the page ‑ ‑ ‑

MR NEWLINDS:   It is mentioned in paragraph 13.  Now, it is pleaded as an advance to the joint venturer partnership.  That is the case that it was a loan from SMK direct to the two gentlemen for the purpose of funding the business.  Then paragraph 14:

the plaintiff and defendants agreed that the Joint Venture or partnership borrow the $350,000 from SMK.

At 15 - the Joint Venturer agreed to pay the interest rate; 16 there are some advances; 17 there is some interest accruing.

GUMMOW J:   But there was an unjust enrichment count at paragraph 24.

MR NEWLINDS:   There is indeed.

GUMMOW J:   That seems to be triggered by a failure to contribute.

MR NEWLINDS:   Yes.  Paragraph 19 is a plea ‑ ‑ ‑

FRENCH CJ:   24 does not depend upon a joint borrowing, does it?

MR NEWLINDS:   No, it does not.  Can I just deal with the pleading that deals with SMK, because 19 is a plea that:

The second defendant as a joint venturer with the plaintiff, or as a partner of the plaintiff in the partnership, had a duty to account to the plaintiff for the second defendant’s share of the obligation of the joint venture or partnership to repay the SMK loans.

Then there is the request.  Then 21, the failure to account is the breach of fiduciary duty; 22, the failure to account is a breach of the agreement; 23, is the pleading of benefit, that is, that Mr Friend took the benefit of the payment; and 24 is the ‑ ‑ ‑

GUMMOW J:   Wait a minute.  No, 23 is saying, “to or for the benefit of the joint venture or partnership”, is it not?

MR NEWLINDS:   Yes.  All the pleadings from 13 through to 22 are predicated on there being a finding of joint venture or partnership.

GUMMOW J:   When Justice Nicholas found there was no joint venture or partnership, you did not have to go any further, I suppose.

MR NEWLINDS:   That is right.

GUMMOW J:   Except for maybe 24.

MR NEWLINDS:   Except for maybe 24.  But, importantly, if ever there was a case where the issues were clearly delineated between the parties and the Bench at trial it was this, and all the plaintiff wanted was an account, and the question for determination by the trial judge was, was there an obligation to account, not account for the SMK loan by itself, but account for all transactions over the whole period of the venture.  I can make that good without a shadow of a doubt.  And that is why Justice Nicholas makes no particular findings concerning the SMK loan.

GUMMOW J:   The Court of Appeal refused a general account as well, did they not?

MR NEWLINDS:   They did and that should have been the end of the case because it was account or nothing.

GUMMOW J:   Why did they refuse it?

MR NEWLINDS:   They do not actually articulate it, but implicitly it is because it is all too late and too hard.

GUMMOW J:   Is it on the footing that the SMK loan was all that was left?

MR NEWLINDS:   Well, that is the paragraph 12 finding.

GUMMOW J:   Paragraph 12?

MR NEWLINDS:   Of Justice Mason’s judgment, judgment No 1.  Appeal book volume 3, page 1127.

HEYDON J:   Which I think you say is an erroneous finding.

MR NEWLINDS:   We do, but we have not got special leave to appeal it, but can I make this point.  Even if it be a correct finding – can we just look at it:

The two directors eventually discharged all external company debts with the proceeds of the Eurobodalla claim.  These included debts owed to the directors for on‑lending transactions, except for the SMK loan involving the appellant.

Now, “external company debts” means trade creditors and the like and I think that that is – well, we are not sure, but that is probably right.  External debts in the context of what his Honour is saying there includes moneys owed by the company to family and friends of either director because they were spoken of as external debts because of course they were external debts.  They were moneys owed by the company to people other than the directors.

Even if this finding stands – and at the moment I am not challenging it – what that leaves is the financial contribution of each director that was not the product of a borrowing from one of their family and friends.  In other words, there is this wholly illogical distinction drawn by the Court of Appeal where money that a director contributes to the venture that comes from the shoe box under their bed is ignored for the purpose of this exercise, but money that is contributed by that same director but was borrowed by him from one of his friends is treated differently.

Now, they are both financial contributions.  They are both financial contributions by the directors and so the paragraph 12 finding as it stands does not justify in any way, shape or form treating SMK as a stand alone because you still have to deal with the financial contributions of the directors that they made from their own money.  Now, of course, it is all from their own money because they borrow to themselves and then on lend, but that distinction, in my submission, just has no basis in logic.  The other type of contributions, of course, is the non‑financial contributions; how many hours did they put in?

Both these men put claims against each other, both of which would end up with the other owing the money and they both claim for time spent doing work on the venture.  Now, if you are going to have a balancing up of all losses incurred as a result of the venture, the rhetorical question is, well, why do you not count time spent and not paid for?  But even putting that to one side it must be the case that you have to bring to account all financial contributions.

Now, the Court of Appeal makes that mistake in judgment number one, and if I may say so, I made the point I just made till I was blue in the face on the recall application and you will not find any reasoning for why the finding at paragraph 12 justifies treating SMK on its own.

FRENCH CJ:   No need to go blue in the face now, it is 4.15.

MR NEWLINDS:   No, no, it is my fault, I was probably shouting at them.

FRENCH CJ:   All right, we will adjourn until 10.15 tomorrow.

AT 4.22 PM THE MATTER WAS ADJOURNED
UNTIL THURSDAY, 5 MARCH 2009