Grundmann v Jochrisam Pty Ltd

[1992] HCATrans 196

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Brisbane Nos B14 and BlS of 1992

B e t w e e n -

DAVID GRUNDMANN

Applicant

and

JOCHRISAM PTY LTD

Respondent

Applications for special leave

to appeal

BRENNAN J

TOOHEY J

GAUDRON J·

Grundmann 1 25/6/92

TRANSCRIPT OF PROCEEDINGS

AT BRISBANE ON THURSDAY, 25 JUNE 1992, AT 9.40 AM

Copyright in the High Court of Australia

MR F.L. HARRISON, OC:  May it please the Court, I appear

with my learned friend, MR J.R. WEBB, for the

applicant in each matter.	(instructed by Roberts
Leu & North)

MR R.N. CHESTERMAN, OC:  May it please the Court, I appear

with MR o.c. ANDREWS for the respondent in each

matter. (instructed by Bayliss Rodgers)

BRENNAN J: Yes, Mr Harrison.

MR HARRISON:  If the Court pleases, these matters are

concerned with questions of contribution between
co-debtors arising out of a failed partnership

between two medical practitioners. The partnership

premises were leased by one partner, the present

applicant, and the company, the respondent,

Jochrisam, representing the interests of the other.

The company/respondent, paid rent and other

expenses in relation to the premises and sought
contribution from the applicant.

It was submitted to the applicant that the circumstances of the case did not give rise to any

equitable right of contribution. Judge Morley

in members agreed, decided the matter of contribution between these co-debtors, in our submission, on the basis that the common law rules relating to contribution applied unless there was

found favour of the applicant at first instance. the other

some equitable defence to the common law claim.

In our submission, that appears from his

judgment starting at page 48 line 20 and following,

where His Honour says:

The position is that, both at law and in

equity, persons under a co-ordinate liability

to make good one loss share the burden pro

rata. That the general doctrine of

contribution is as I have stated it and forms

part of the common law, in my view,

demonstrated by the analysis undertaken by

Kitto Jin Albion Insurance.

And then His Honour goes on to set out passages from Albion Insurance, and concludes on page 49

line 46:

The principle being thus understood it

seems to me that the appellant was entitled at

law to contribution once it was established

that it and the respondent were under

co-ordinate liability in respect of the rent

and renovation payments, and that the

Grundmann 25/6/92

appellant had discharged that liability. This

outcome is not dependent on some actual or

imputed intention of the parties, as Albion

and the authorities it canvasses show.

In other words, His Honour was referring to the

test at law and not the equitable test.

TOOHEY J: Was that right, Mr Harrison? Albion's case

itself, while it speaks in terms of the position at

law, does so by reference to doctrines that are

in truth equitable doctrines.

MR HARRISON:  In our submission, what Albion says in

relation to the legal doctrine is that when the

common law judges have used the term "equity" they

are using the sense in the non-technical term of

fairness, and not in the sense of, if I could put

it as we understand it, the equitable doctrine as

based on a determination that in the circumstances,

either one infers a common intention between the
parties that there would be contribution as it is

sometimes put, or alternatively, that in the

circumstances it is inequitable for the creditor

to look more to one creditor than to the other for

payment of what is a common debt.

TOOHEY J: But in this particular case you have a company

and a medical practitioner who take on a lease and

engage someone to fit out the premises, and the

company meets the obligations of both parties under

the lease and pays the builder to carry out the refit. On what basis is it said that the other

party to both agreements is not under some

obligation to contribute?

MR HARRISON:· Your Honour, we are saying that on the basis

af the equitable doctrines and not the common law

documents which Their Honours applied, one has to

look at all the circumstances of the case and to

undertaken for the purposes of the partnership. take into account, we would submit in this case, the fact that the obligation undertaken was one One can, for example, look a little down the

line. Suppose the judgment here were maintained.

In a partnership dissolution one would be met with

the odd problem of how the contribution that

Dr Grundmann makes here is to be dealt with in the

partnership.	He will have paid half and Dr Bayliss
will have paid none.	So oddly, and this is in one

sense favourable to our client, one will be having

a partnership dissolution in which only half the
relevant expenses are taken into account in the

partnership accounts.

Grundmann 3 25/6/92

GAUDRON J: But does that not involve your treating the

company as the agent of the partner?

MR HARRISON:  Not necessarily. We would submit, in fact,

the company was the agent but we appreciate we have

this difficulty, that although we pleaded that it

was the agent His Honour did not make that specific

finding, but instead found that it was the alter

ego.

GAUDRON J: And there are findings against you in the Full

Court, are there not, on that?

MR HARRISON:  In our submission, not on the question of

agency, no, Your Honour.

TOOHEY J: But "agency" here is a bit of a red herring, is

it not? The company itself was the party to the

lease, and the company itself participated in engaging the builder to fit out the premises.

MR HARRISON:  Yes, Your Honour.

TOOHEY J: And your argument, or at least as reflected in

the judgment below, is that because of conduct on

the part of Dr Bayliss the company somehow loses
its right to obtain contribution from the other

party to the lease.

MR HARRISON:  No, Your Honour, our argument is that the

circumstances are not such as to give rise to a

right of contribution - - -

BRENNAN J: But here is a liability under a lease resting

upon two parties jointly and severally. One

discharges it. What is there to say except the

other one has to make contribution?

:

MR HARRISON:  Your Honour, what there is to say is that that

was discharged on account of an obligation of one

of the two partners, Dr Bayliss - - -

BRENNAN J: That cannot be said. You are saying that it is

discharged on account of. Do you mean that

Dr Bayliss was under the obligation to pay the

rent?

MR HARRISON:	No, Your Honour.
BRENNAN J:	Then how can it be on account of in any relevant

sense?

MR HARRISON:  I say "on account of" in the sense of on

account of his obligations to the partnership, and

the circumstances therefore are such that one would

not infer an intention as between Dr Grundmann and

the company.

Grundmann 4 25/6/92

BRENNAN J: Is this a partnership asset?

MR HARRISON:  If one litigated, in our submission, one would

probably conclude that it was, yes, Your Honour.

BRENNAN J: Well, was it litigated?

MR HARRISON:  No, Your Honour.

BRENNAN J: Well, how do we know?

MR HARRISON:  Your Honour, what we know is that the lease

was undertaken by the company at the request of

Dr - - -

BRENNAN J: Well, if it was a partnership asset, then it

must be that Bayliss, as the partner, secured the

company, Jochrisam, to act in the matter holding

its interest in trust for him.

MR HARRISON:  It could be either that, or it could be that

it held its interest in trust for the partnership.

BRENNAN J: Well, in trust for the partnership be it so.

But as between the two parties who are liable for

the rent to the creditor the transaction is as

simple as can be. They have to be worked out in

the taking of partnership accounts depending upon

whether this asset is an asset of the partnership,

and if so, what are the equitable interests in it?

MR HARRISON:  Your Honour, with respect, it is not, in our

submission, a sufficient answer simply to say it is

a simple transaction. If I could give a couple of

examples where the courts have held that a right to

contribution did not arise - because our difference

is really from the point from which we approach it.

We are seeking to approach it on the basis that under the equitable principles it is necessary to conclude that the circumstances give rise to a

right of contribution; whereas Your Honour is, as

it were, approaching it as though there is

necessarily such a right unless we show some reason

why there is not.

BRENNAN J: What I am putting to you is that the transaction

is one in which there is a joint and several

liability resting on two and discharged by one, and

that those are the relevant circumstances out of

which both in law and in equity an obligation to

contribution arises.

MR HARRISON:	We would start by saying, in our submission, not necessarily. To give another example of a
lease, Cunningham-Reid v Public Trustee,
(1944) 1 KB 602. That was the case of a lease by
two persons, one of whom subsequently died. The
Grundmann	25/6/92

continuing lessor sought contribution from the

estate of the lessee. The Court of Appeal held

that no right of contribution arose in the

circumstances of that case.

BRENNAN J:	Was it a joint tenancy?
MR HARRISON:	Because in equity it was a joint tenancy, and

therefore - - -

BRENNAN J: Well, what happened on survivorship?

MR HARRISON:  On survivorship, the surviving tenant became

solely entitled to possession, and because of that

circumstance despite the fact that it was a joint

covenant there was no right of contribution.	I am
simply giving that as an illustration of the

application of the principle that one has to look
at the circumstances to see whether the right of

contribution arises.

To take another example of Re Bentinck;

Bentinck v Bentinck, (1889) 80 LT 71 - it was a case of a joint covenant by a father and son in

favour of the supporting marriage settlement. When

the father died insolvent, his trustees sought

contribution from the son for monies paid in excess

of his joint share by the father. As I say, it is

an example of the application of the principle that

we contend for, and that is that it does not follow

necessarily from the fact of a joint covenant that

in equity there will be a contribution. The court

there held that one should not infer in the

circumstances of that case an agreement between the

parties that if one paid more than his half, there

would be contribution.

TOOHEY J: But your difficulty is, Mr Harrison, is it not,

that you want to convert this into a partnership

action?

MR HARRISON:  No, Your Honour.

TOOHEY J: And to hold the company responsible for the

conduct of Dr Bayliss.

MR HARRISON:  No, Your Honour, we are not concentrating on

the conduct of Dr Bayliss. We are saying that in

the circumstances of the relationship of the

company taking the lease on Dr Bayliss's side of

the partnership, no right of contribution arose.

TOOHEY J:  But that is not the way the court below

approached it, is it? As I read the judgment below

it was that Dr Bayliss's conduct somehow was

sheeted home to the company, and that that conduct

was such as to not make it unconscionable for

Grundmann 6 25/6/92

Dr Grundmann to hold on to what would otherwise be

his contribution.

MR HARRISON:  That is the way the Full Court dealt with it.

That is not the - - -

TOOHEY J: No, I understood that to be the way it was dealt

with below at first instance.

MR HARRISON:  The judge at first instance, I think one has

to say, did take that into account among the other

circumstances. He also placed emphasis on the fact

that, as he found, the company acted as

Dr Bayliss's banker and alter ego. But we seek to go back to what we submit is the proper test, and

that is whether, in the circumstances, either one

implies an agreement for contribution, or whether

in the circumstances it is inequitable for the

creditor to have looked to one rather than to both.

We would favour the implied agreement test as that

seems to be the one used in the couple of

authorities I have mentioned to Your Honours.

GAUDRON J:  It seems to be quite a different case from what

you have presented below.

MR HARRISON: Well, Your Honour, may I say that I did not

below present the "clean hands" argument. It does

not appear anywhere in my outline of argument. It

was raised by, I think, Mr Justice Derrington, in

the course of argument. One does not have a

perfect recollection of what occurred, but I see

that I wrote on my notes for response "not a case

of clean hands". I did not argue that, and I do

not seek to uphold it on that basis.

BRENNAN J: What is the factor which, in addition to the

factors of the payment of a debt which was jointly

due, is the factor which should lead the Court to

abstain from making a contribution order?

MR HARRISON:  The factor is that the liability of the

company was undertaken in the course of - and I am

afraid I have to put it in with some precision - a
larger relationship. Because it was part of the

larger relationship of the partnership between the

two individuals, one should not focus simply on the
relationship between the company and Dr Grundmann.

One should take account of the fact that the
company was acting, as His Honour Judge Morley

found, as the alter ego of Dr Bayliss, and say that

in those circumstances when one sees a position

where Dr Grundmann was dealing with Dr Bayliss but

not objecting to his bringing in his company, that

one would not infer an agreement on the part of

Dr Grundmann or any legal relationship between

Dr Grundmann and the company because he was

Grundmann 25/6/92

entering into legal relations with Dr Bayliss. Therefore, it is not a case to give rise to an inference of a right of contribution.

TOOHEY J: Even though they are both parties to a lease as

joint lessees?

MR HARRISON:  If the test as we submit it is one of

intention, yes, Your Honour, because of the wider

relationship involved.

BRENNAN J: Yes.

MR HARRISON:  And we say that the Full Court, in fact, has

come to the wrong conclusion because it approached

the matter on, in our submission, an entirely

erroneous basis by proceeding to consider, as we

have submitted, the position at common law and, we

would submit, has left, with respect, the state of

the law in an uncertain position because, as an

authority, this will lead persons subsequently to

face the position that they have a finding of the

Full Court, that it is sufficient in a case such as

this to establish a right of contribution at law as

opposed to a right of contribution in equity. On

that basis, in our submission, there is a question

which this Court ought to deal with because it does

leave uncertainty as to the operation of

section 5(11) of the Judicature Act.

In Albion's case, Mr Justice Kitto set out the position at law, set out the position in equity,

pointed out that the principles were different, but then went on to say that it was unnecessary in that

case because they produced the same result. In

cases such as the two that I mentioned earlier

involving contribution, the result was different in

equity from in law. In cases involving insolvency

of one of the contributors the supreme court's

decision will lead to uncertainty because one will

be left in this position: that although it is

clear, for example, in the case of principle and

surety that the equitable principles are applied.

If a court comes to approach the matter in

another case such as a pure joint covenantors, one

is left with this precedent of the Full Court

saying apparently that one applies the common law

principle and not leaving it clear as to how one

resolves the conflict between the two sets of

principles when they differ. I do not think I have

anything further to submit, if the Court pleases.

BRENNAN J:  Thank you, Mr Harrison. We need not trouble

you, Mr Chesterman.

Grundmann 25/6/92

The actual decision of the Full Court in this

matter is not attended with sufficient doubt to

justify the grant of special leave to appeal.

Accordingly, special leave to appeal will be

refused.

MR CHESTERMAN:  I ask for the costs of both applications, if

it please the Court.

BRENNAN J:	Do you have anything to say, Mr Harrison?
MR HARRISON:	I have nothing to say, Your Honour.

BRENNAN J: Refused with costs.

AT 10.04 AM THE MATTER WAS ADJOURNED SINE DIE

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