Gibson v Lewis
[2022] VMC 27
•17 October 2022
IN THE MAGISTRATES’ COURT OF VICTORIA
AT MELBOURNE
Case No. N10260657
| NOEL THOMAS GIBSON | Plaintiff |
| v | |
| GERAINT ELLIS LEWIS SHARON ANGELA TUDBALL SMITH | First Defendant Second Defendant |
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MAGISTRATE: | Magistrate T. W. Greenway |
WHERE HELD: | Melbourne Magistrates’ Court (online) |
DATE OF HEARING: | 10 October 2022 |
DATE OF DECISION: | 17 October 2022 |
CASE MAY BE CITED AS: | Gibson v Lewis |
MEDIUM NEUTRAL CITATION: | [2022] VMC 27 |
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SUMMARY JUDGMENT – Equitable right of contribution under guarantee – Whether it is not just and equitable to enforce right of contribution.
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APPEARANCES: | COUNSEL | SOLICITORS |
| For the Plaintiff | Mr E. Moon | Vadarlis & Associates |
| For the Defendant | Mr T. Bevan | Kingsford Lawyers |
HIS HONOUR:
Introduction
The plaintiff (Gibson) and the first defendant (Lewis) are former directors of NTL Drilling Pty Ltd (Debtor), a company which conducted a water boring and environmental drilling business. Lewis and the second defendant (Smith) are life partners. Shares in the Debtor were held 50/50 by Gibson’s family company, Missenden Pty Ltd (Missenden) and the defendants’ entity G.Lewis Investments Pty Ltd.
By summons, Gibson seeks that judgment be entered[1] on his claim against the defendants in the sum of $54,099.21. [2]
[1]Civil Procedure Act 2010 (CPA), s 63.
[2]Filed on 29 June 2022.
Gibson claims a right of equitable contribution against the defendants for repaying 100% of a Business Mortgage Loan owed by the Debtor to the Australian and New Zealand Banking Group Limited (ANZ), such debt being guaranteed by Gibson, Lewis and Smith.[3]
[3]The debt was also guaranteed by Gibson’s wife, however no claim is made against her.
The defendants resist summary judgment on the basis that is not just and equitable to order contribution in the circumstances. Reliance is placed upon Gibson’s conduct in procuring the appointment of a receiver who sold assets of the Debtor to repay monies owed to Missenden in priority to the ANZ. These matters are set out in more detail below.
Facts relating to Gibson’s claim for contribution
Gibson relies on the follow matters in support of his application.
At all material times after 2008, the ANZ acted as the Debtor’s banker (Creditor). By Letter of Offer dated 3 December 2012, the Creditor offered the Debtor various facilities totalling $210,000. This facility was secured by a General Security Agreement executed by the Debtor on or around 6 December 2012 over all its past and after-acquired property (GSA).[4]
[4]Exhibit GL-1, 7-53.
Pursuant to the GSA, the Creditor registered a ‘Commercial All PAAP’ security interest on the Personal Property Securities Register (PPSR) on or around 19 December 2012. The collateral class description was ‘all past and after-acquired property’.[5]
[5]Exhibit GL-1, 54.
On or about 21 July 2014, the Debtor obtained a ‘fully loan advance facility’ from the Creditor. By Individual Guarantee and Indemnity in favour of the Creditor (2014 Guarantee), the defendants and Gibson guaranteed the loan facility. The liability under the 2014 Guarantee was limited to the principal amount of $288,000.
The parties’ performance of the 2014 Guarantee was secured by a mortgage granted by Lewis and Smith over their residence located in Mount Evelyn (Mount Evelyn property).
On 21 May 2018, the Creditor offered the Debtor the following additional facilities:
(a) ANZ Business One facility with a limit of $25,000; and
(b) Business Mortgage Loan (variable rate) facility with a limit of $200,000 (full drawn advance) (BML).[6]
[6]Exhibit NTG-1, 28-37.
The maximum term of the BML loan was 5 year(s) and 0 month(s) from the date of the first drawing. Monthly Principal and Interest repayments were fixed at $3,750.40 until the expiry of term. Repayment of all outstanding money was then required at the end of the 5-year term.
The Debtor’s obligations under these additional securities were to be secured by:
(a) the 2014 Guarantee;
(b) a guarantee from Gibson’s wife, Maria Josephine Gibson (Maria) secured by a first registered mortgage over the property at 300 Cherry Tree Road, Panton Hill (Panton Hill property);
(c) a first registered mortgage over the Panton Hill property;
(d) a first registered mortgage over the Mount Evelyn property; and
(e) the GSA over all present and after acquired property to given by the Debtor in or around 6 December 2012.
On 28 May 2018, the Debtor accepted the Creditor’s offer, and each party and Maria signed a Guarantor Acknowledgment.[7] On the same day, a Disbursement or Progress Draw Authority was signed on behalf of the Debtor and the sum of $200,000 was deposited into the Debtor’s account in or about early June 2018.
[7]Exhibit NTG-1 35.
In or around May 2018, and before the documents were signed, Gibson discussed the security arrangement for the BML with Lewis and Smith in his offices in Whitehorse Road, Balwyn. Gibson said words to the effect that as between the four guarantors and the Creditor, each would be personally liable jointly and severally, but as between the 4 guarantors, each couple would be liable to pay only half of the BML debt. Lewis and Smith agreed.[8] The defendants deny that ‘each couple would liable to pay one half of the BLM debt’.[9]
[8]Gibson affidavit dated 29 May 2022, 17.
[9]Lewis affidavit, 7.
On 14 April 2021, the Debtor was wound up in insolvency in Supreme Court of Victoria proceeding S ECI 2021 00538 and Michael Carrafa was appointed liquidator for the purposes of the winding up. At that time, the amount owed by the Debtor to the ANZ pursuant to the BML facility was $113,721.42.[10]
[10]Exhibit NTG-1, 55.
On 28 June 2021, by notice to the Debtor, the Creditor withdrew the BML facility and demanded payment of $107,415.55 within 2 days of service.[11] That demand was made in respect of the Creditor’s security interest pursuant to the GSA. A copy of that demand was sent by Gibson’s solicitor, Eric Vadarlis, to the defendants’ solicitor, Ivan Andolfatto, at 8.43 am on 28 June 2021 with a request to advise as to the defendants’ intentions.[12]
[11]Exhibit NTG-1, 38.
[12]Exhibit NTG-1, 45.
The Debtor failed to make payment of the sum demanded. On 1 July 2021, the Creditor issued demands for payment within 35 days pursuant to the 2014 Guarantee to Gibson, Lewis and Smith.[13]
[13]Exhibit NTG-1, 43.
On 2 July 2021, Mr Vadarlis sent an email to Mr Andolfatto stating that Gibson and the defendants were half responsible for the BML debt to the Creditor and that Gibson would seek reimbursement if the Creditor took any action.[14]
[14]Exhibit NTG-1, 45.
On the morning of 6 July 2021, Gibson attended the Creditor’s Balwyn branch and paid $53,727.07 to the Creditor, being half of the demanded sum.[15] Later on, 6 July 2021, Mr Vadarlis sent an email to Mr Andolfatto advising of the payment and requesting advice whether the defendants have or will pay their share.[16]
[15]First Gibson affidavit, 28.
[16]Exhibit NTG-1, 48.
In late October 2021, Gibson was contacted by the Creditor about payment of the remaining BML debt and was advised of the payout amount. By email sent on 3 November 2021 to Mr Andolfatto, Mr Vadarlis advised that unless the defendants made payment of the outstanding BML debt by 4.00 pm on 4 November 2021, Gibson would pay the remaining debt and commence proceedings against them to recover the payment[17]. Mr Andolfatto acknowledged the email.[18]
[17]Exhibit NTG-1, 57.
[18]Exhibit NTG-1, 56.
Ultimately, the defendants did not make the payments as requested. At approximately 12:24 pm on 9 November 2021, Gibson paid the sum of $54,471.34 to the Creditor to retire the BML debt.
Gibson subsequently commenced this proceeding on 8 February 2022.
Monies lent by Missenden to the Debtor
In addition to monies lent by the Creditor, the Debtor also borrowed funds from Missenden, Gibson’s family company.
On or around January 2015, Missenden entered into a loan agreement with the Debtor.[19] This was accompanied by a General Security Agreement (undated) (Missenden GSA) that also provided for the registration of a security interest.[20] Both agreements were signed by Lewis and Gibson on behalf of the Debtor and Maria for Missenden.
[19]Exhibit NTG-2, 10-26.
[20]Exhibit GL-1, 55-97.
The terms of the Missenden loan agreement were, inter alia:
(a) Principal Sum - $240,000 as at the Loan Date, plus such other further advances as may be made from time to time;
(b) Loan Date – 1 January 2015;
(c) Principal Repayment Date – 31 December 2016;
(d) Higher Rate – Two percent (2%) above the Standard Rate;
(e) Standard Rate – One percent (1%) above the RBA Rate from time to time;
(f) Interest Payment Date – Monthly in arrears, with the first interest payment to be made on 31 January 2015.[21]
[21]Exhibit GL-2, 22.
Missenden registered a ‘Commercial All PAAP’ pursuant to the Missenden GSA on the PPSR on 10 March 2015.[22]
[22]Exhibit GL-1, 98.
It was common ground that the Creditor’s GSA had priority over Missenden’s GSA as it was registered first in time.
By the end of August 2017, the Debtor owed Missenden approximately $325,000.[23] This had increased to $475,000 by mid-October 2019.[24]
[23]Second Gibson affidavit, 9.
[24]Ibid, 11.
In late October 2019, Missenden issued demands for repayment. The Debtor did not comply with the demands and on 29 October 2019, Missenden appointed Peter Andrew Goodin of Magnetic Insolvency as receiver and manager of the Debtor. [25]
[25]Missenden GSA, cl 16.
On 3 February 2020, an online auction of the Debtor’s surplus assets was conducted by Dominion Group (Dominion).
Gibson’s evidence was that Dominion paid the sum of $100,000 to Goodin.[26] However, out of that amount, Goodin paid back to Dominion the sum of $61,129.85 for goods purchased by Missenden at the auction, leaving a balance of $38,870.15. Goodin then deducted his fee of $10,000.00 and the balance of $28,870.15 was deposited into the Debtor’s trading account on 19 February 2020.
[26]Second Gibson affidavit, 18 - 20.
On 2 March 2020, Dominion paid the Debtor the balance of the auction sale proceeds of $95,893.15.
Goodin’s appointment ended on 20 March 2020. The ASIC Form 5604 – End of administration return filed by Goodin records a payment of $100,000 to Missenden on 2 March 2020. [27]
[27]GL-1, 107.
The defendants do not believe that the Creditor was notified of Missenden’s appointment of Goodin as receiver and manager. Lewis deposes to the following:
We repeat that we are unaware of, and do not have in our possession, documentation in respect of communications between ANZ, Noel and Mr Goodin in respect of the receivership. We understand that there may have been such correspondence however further discovery is required to establish the circumstances of the receivership and the dealings between Noel, Mr Goodin and the ANZ... [28]
We do not believe that the ANZ was notified that Missenden has appointed Mr. Goodin as receiver in a timely manner, or within the time period prescribed by the ANZ GSA. We repeat that we contacted the ANZ on a date after 19 November 2019 to advise of the receivership and the Debtor’s probably [sic] insolvency and were notified that this was the first instance that they were made aware in respect of the Debtor [sic] financial difficulties. We are also unaware of correspondence between Mr. Goodin, Noel and the ANZ in respect of the receivership as we did not have access to the Debtors [sic] finances and financial affairs (including bank accounts) until around 23 September 2019. I only had partial access to the Debtors [sic] accounts (being full access to the loan account but limited access to the Debtors [sic] other accounts) for short period of time as my access ceased upon the appointment of Mr Goodin as receiver (29 October 2019). Noel was the primary, and essentially only, point of contact between the Debtor and the ANZ. We were essentially kept ‘out of the loop’ during the receivership.[29]
[28]Lewis affidavit, 16.
[29]Ibid, 17.
Applicable Legal Principles for Summary Determination
The relevant legal principles are not in dispute.[30]
[30]Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd (2013) 42 VR 27, 35.
The test for summary judgment is whether the respondent has a ‘real’ as opposed to ‘fanciful’ chance of success. There may be cases in which it appears that, although the respondent’s case is not hopeless or bound to fail, it does not have a real prospect of success.
At the same time, it must be borne in mind that the power to terminate proceedings summarily should be exercised with caution and thus should not be exercised unless it is clear that there is no real question to be tried.
In addition, s 64 of the CPA provides:
Despite anything to the contrary in this Part or any rules of court, a court may order that a civil proceeding proceed to trial if the court is satisfied that, despite there being no real prospect of success the civil proceeding should not be disposed of summarily because—
(a) it is not in the interests of justice to do so; or
(b) the dispute is of such a nature that only a full hearing on the merits is appropriate. [31]
[31]CPA, s 64.
Pursuant to r 22.05, the defendant may show cause against the summary judgment application by affidavit or otherwise to the satisfaction of the Court.[32]
[32]Magistrates’ Court General Civil Procedure Rules 2020, r 22.05.
Gibson’s Submissions
Gibson’s claim is based upon the doctrine of contribution amongst sureties. That principle was explained by Gibbs CJ in Mahoney v McManus as follows:
A surety is entitled to contribution from his co-sureties so that the common burden is borne equally and so that no surety is required, as between himself and his co-sureties, to pay more than his due share. The right arises whether the sureties are bound jointly, jointly and severally, or severally, and whether by the same or different instruments, and whether or not the sureties knew of each other's existence, provided that they are liable in respect of the same debt.[33]
[33](1981) 180 CLR 370, 376.
For the purpose of this application, Gibson relied upon Haider v Gudelj where the Court of Appeal of the Supreme Court of the Australian Capital Territory recently summarised the principle as follows:
(a) The doctrine of contribution among sureties is founded in equity.
(b) Contribution is available where the claimant and the respondent are under “co-ordinate liability” to make good the one loss. This is because payment by the claimant to the creditor also discharges the respondent’s liability and, as the respondent derives the benefit of release from liability to the creditor, they should also bear the burden proportionately.
(c) The operation of the principle should not be defeated by “too technical an approach”. It is no answer to a claim for contribution that the claimant supplies monies to the principal debtor for the purpose of the principal debtor discharging the liability to the creditor (as in Mahoney), or that “co-ordinate liability” derives from different sources of legal liability (such as statute and contract).
(d) The rationale for “co-ordinate liability” is the parties’ imputed intention to share the common obligation equally. This inference will not be displaced lightly. However, if at the time when the obligation is undertaken, it is the parties’ express or imputed common intention that, as between themselves, the burden should be borne by only one of them, there is no “co-ordinate liability”. The circumstances that only one party will benefit from the transaction may inform the imputation of intention.
(e) A claimant will fail in their claim for contribution if their conduct has “an immediate and necessary relation to the equity sued for” such that they do not come to equity with “clean hands” for example (as referred to in Dering) where they bored the hole in the ship that caused the loss of the ship and its cargo.[34]
[34][2021] ACTA 9, 139.
First, Gibson submitted that the Court need not resolve the factual dispute regarding the discussion between the parties around the time of the acceptance of the Creditor’s offer of the BML in May 2018. This was because the defendants remain liable for repayment of half the BML debt as two of the four co-sureties.
Secondly, it was not unjust or inequitable for Gibson, as director of Missenden, to appoint Goodin as receiver and manager to the Debtor on 29 October 2019. Such a right was conferred by the Missenden GSA. Further, Gibson and Missenden are separate legal entities.
Thirdly, the defendant’s assertion that Missenden received $100,000 from Goodin from the online sale of surplus assets was not supported by any evidence. Reliance was placed upon Gibson’s second affidavit:
(a) Total proceeds of the sale (inclusive of GST): $219,085.00
(b) Less costs of the sale (inclusive of GST): $23,191.35
(c) Less Receiver’s fees of sale: $10,000
(d) Less goods purchased ‘in kind’: $61,129.85
Net proceeds: $124,763.80
(e) Represented by:
(i) Payment on 19 February 2020: $28,87-.15
(ii) Payment on 2 March 2020: $95,893.15. [35]
[35]Second Gibson affidavit.
Fourth, the Creditor did not call up the BML during the period the Debtor was in receivership. It was said the defendants provided no explanation or evidence as to why the Creditor did not act on its GSA when Goodin was appointed. Further, during and after the receivership, the Debtor continued to discharge its obligations under the BML. The indebtedness to the Creditor decreased from $150,819.50 on 19 October 2019 (appointment of Goodin) to $103,692.08 as at 1 July 2021 (date of Creditor’s demand).
In conclusion, it was submitted that the ‘just and equitable defence’ would only have a prospect of success if Gibson’s conduct had an ‘immediate and necessary relation to the equity sued for’. On the facts, it was said, there was no such relationship because the receivership terminated more than 12 months prior to the winding up of the Debtor. It was, therefore, the winding up order which resulted in the Creditor calling up the BML facility.
Lewis’ Submissions
Lewis’ submissions were as follows. The Debtor owed monies to the Creditor and Gibson’s family company, Missenden. Both creditors held registered security interests over the Debtor’s present and after-acquired property. As the first interest in time, the Creditor’s security interest had priority.
Notwithstanding this priority, Gibson procured the appointment of Goodin to realise the assets of the Debtor. Goodin’s report evidenced that he realised a total of $378,657 of which $100,000 was paid to Missenden in partial discharge of the debt owed to it.
In those circumstances, proceeds from the sale of assets were used to discharge Missenden’s debts before the Creditor’s debts were paid in full, notwithstanding that the Creditor had a first-ranking security interest. Accordingly, by appointing a receiver, Gibson:
(a) diminished the assets of the Debtor that were available to pay the Creditor’s debt the subject of the guarantees;
(b) impaired the capacity of the Debtor to meet the obligations it owed to the Creditor;
(c) in substance improved his position vis-à-vis the Creditor to the detriment of the defendants; and
(d) created the circumstances under which the Creditor was required to call upon the guarantors.
Reliance was placed upon the following excerpt from the learned authors of the Modern Contract of Guarantee:
In an action for contribution by the paying surety, the liability of the other guarantors will be reduced to the extent that they have been prejudiced by the loss or impairment of the securities; Greenwood v Francis [1899] 1 QB 312 at 322, per Smith LJ, 324 per Collins LJ. This loss or impairment will generally operate to their detriment because the securities would have been available to them as a means of enforcing their claim to indemnity or reimbursement from the principal debtor or their claim to contribution from another co-surety.[36]
[36] James O’Donovan and John Phillips, Modern Contract of Guarantee (LBC Information Services, 3rd ed,
1996) [12.1880].
Determination
First, I accept Gibson’s submission that the principles of contribution are applicable to his claim and that the parties were under co-ordinate liability in relation to the 2014 Guarantee.
In relation to the defendants’ submissions, the preceding passage from the Modern Contract of Guarantee refers to a situation where a co-surety has acquired the creditor’s security. This was not the case here. However, an analogous principle applies to diminution of the creditor’s security. Subject to the terms of the guarantee, a guarantor of a secured debt is entitled to show that their liability to the secured creditor should be reduced as a result of some shortcoming in the realisation or management of the security by the mortgagee.[37] I accept this principle may have application to Gibson’s claim.
[37] GE Capital Australia v Davis (2002) 180 FLR 250, 86 (Bryson J); Williams v Frayne (1937) CLR 58
CLR 710, 738 (Dixon J); Buckeridge v Mercantile Creditors Ltd (1981) 147 CLR 654, 671 (Aickin J) and 674 – 676 (Brennan J).
The alleged diminution relied upon by the defendants is the sale by Goodin of the Debtor’s assets. These assets were secured by the Creditor’s first-in-time security interest. Ordinarily, a receiver in Goodin’s position would have rights over assets that were not subject to a prior security. By selling the assets subject to the Creditor’s security interest, I accept there may have been a diminution in the Creditor’s All-PAAP security. In turn, any such diminution (if established) would have had an immediate and necessary relation to amount ultimately owing under the BML facility and therefore, the 2014 Guarantee.
However, it is not clear that Gibson or the Creditor were involved in any potential diminution. Under cl 16.1(c) of the Missenden GSA, a receiver appointed is the agent of the Debtor unless otherwise specified in its appointment.[38] Further, under cl 16.1(d) the Debtor is solely responsible for the receiver’s acts, defaults and omissions and the receiver will not, in any circumstances, be liable to the Debtor for any act or default. Plainly, these provisions are intended to shift liability for the receiver’s acts and omissions from Missenden to the Debtor.[39]
[38]Goodin’s appointment documents were not in evidence.
[39] Carey v Korda (No 2) (2011) 85 ACSR 331; [2011] WASC 220, 38.
Gibson’s involvement in the receivership is unknown. However, a mortgagee/chargee may be liable for the acts or omissions of a receiver where it instructs, directs or interferes with the exercise of powers by the receivers.[40]
[40] American Express International [2000] Ch 86, 95; Visbord v FCT (1943) 68 CLR 354; 17 ALJ 200; [1943]
HCA 4, 370 (CLR).
In Bank of Western Australia Ltd v Abdul, Justice Croft said the following:
…it is necessary to establish… that the mortgagee, the secured creditor, was ‘heavily involved’ in the performance of the activities of the receiver. The evidence must show that the mortgagee, the secured creditor, was so intimately involved in the performance of the receiver’s activities as to transform the character of the relationship between the mortgagee, the secured creditor, and the receiver into one of principal and agent. [41]
(emphasis in original)
[41] [2012] VSC 222, 41 citing State Bank of New South Wales Ltd v Chia (2000) 50 NSWLR 587, 631,
885.
On the current state of the evidence, the Court is unable to determine Gibson’s involvement (if any) in the receivership. The defendants’ position is that they require further discovery to establish the circumstances of the receivership.[42] I accept this evidence would not be in their knowledge or possession.
[42]Lewis affidavit, 17 - 18.
Secondly, there is no evidence before the Court as to why the Creditor did not enforce its security interest upon the appointment of Goodin pursuant to the Missenden GSA. Under the GSA, this was an ‘Event of Default’ entitling the Creditor to call in the BML facility. Whether Goodin realised the Debtor’s assets without input from the Creditor is also unclear. During the term of the receivership, the Creditor received the monthly repayments under the BML Facility, as well as $42,973.46 and $10,584.90 on 20 March 2020.[43] Whether the Creditor’s conduct has impermissibly diminished the value which its All-PAAP could have yielded is not clear.
[43]Lewis Affidavit, ASIC Form 5603, 107 – 108.
Thirdly, there is a conflict of evidence as to what amount (notional or otherwise) Missenden received from the sale of the Debtor’s assets. On the one hand, the ASIC Form 5603 records a payment of $100,000 to Missenden. On the other, Gibson deposes to only receiving ‘goods in kind’ equating to $61,129.85.
Accordingly, in the above circumstances, I do not consider Gibson has established that there is no real question to be tried.
The following questions of fact cannot be determined at this stage of the proceeding:
(a) Gibson’s involvement (if any) in the performance of the activities in the receivership;
(b) The Creditor’s conduct in relation a potential diminution of its All-PAAP security interest; and
(c) The quantum received or notionally received by Missenden from the sale of the Debtor’s assets.
For the same reasons, I also consider the dispute is of such a nature that only a full hearing on the merits is appropriate. This conclusion is reinforced by the complexity of legal and factual submissions advanced by the parties.
Leave to Defend on Terms
In the alternative, Gibson submitted that if the Court declined summary judgment, it should grant leave to defend the proceeding on condition that the defendants pay the sum of $54,099.21. into Court. As the defendant has established a triable issue, I do not consider such conditional leave be granted.[44]
[44]Bank of New South Wales v Murray [1963] NSWR 515; Fieldrank Ltd v Stein [1961] 3 All ER 681.
Conclusion
For the foregoing reasons, I will dismiss Gibson’s summons and hear the parties on the question of costs and any further orders.
MAGISTRATE GREENWAY
17 October 2022
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