Gujarat NRE India Pty Ltd v Wollongong Coal Limited

[2019] HCATrans 226

[2019] HCATrans 226

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S222 of 2019

B e t w e e n -

GUJARAT NRE INDIA PTY LTD ACN 132 818 341

Applicant

and

WOLLONGONG COAL LIMITED ACN 111 244 896

Respondent

Application for special leave to appeal

KIEFEL CJ
KEANE J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 15 NOVEMBER 2019, AT 10.22 AM

Copyright in the High Court of Australia

MR J.T. GLEESON, SC:   May it please the Court, I appear with MR A.J. MACAULEY and MR N.J. CONDYLIS for the applicant.  (instructed by Gillard Consulting Lawyers)

MR D.L. WILLIAMS, SC:   May it please the Court, I appear with my learned friend, MR N.D. RIORDAN, for the respondent.  (instructed by Thomson Geer)

KIEFEL CJ:   Yes, Mr Gleeson.

MR GLEESON:   As your Honours know, the proposed appeal concerns the construction of a clause pursuant to which a guarantor pre‑emptively waives and covenants not to enforce any rights against the principal debtor.  In determining the effect of that clause, we seek to contend that two important issues of law arise from Justice Leeming’s approach; the first is the proper juridical basis for a guarantor’s right to be indemnified by the principal debtor for money paid to the debtor’s use and, secondly, the meaning and effect of a waiver pursuant to which a party irrevocably renounces a right. 

The clause, clause 5.3, is found in the book on page 155 and it sits as part of a guarantee, an indemnity clause, we would submit in favour of the principal creditor UIL.  Could I show that the two questions we seek to contend for arise on his Honour’s conclusion and have good prospects in law?  His Honour’s key conclusion is at paragraph 99 on page 180 and that is to say that the clause should be legally broken down into two separate elements.  The first is an immediate irrevocable waiver of what are said to be:

presently existing rights that it has –

and the second is a promise:

not to exercise any specified rights . . . in the future.

His Honour recognises that the latter part of the clause might readily have been qualified so that it was only in favour of the creditor but a unilateral waiver can never be “selectively enforceable”.  The first part of that finding, we submit, is in error because the correct juridical basis of this claim for indemnity is that which this Court identified in Friend v Brooker 239 CLR 129 at paragraph 55 which your Honours have and there the plurality said:

The surety who discharges the principal obligation is regarded as having paid money to the use of the principal debtor and may recover indemnity by means of an action against the debtor for money paid.

The reference is to Israel v Foreshore.  What we apprehend the Court is there saying is that to the extent the action was brought in indebitatus assumpsit and included an allegation of a promise to pay consequent upon the debt, that was a fictitious promise which can be stripped away as part of the substance of the action.  The result here is that as my client had not paid any money at the date of the clause 5.3 deed, there was no action for money paid.

The alternative view which the Court would be asked to consider on the appeal is the view that was expressed in England in Re a Debtor [1937] 1 Ch 156, particularly Lord Justice Slesser at pages 160 to 161, where his Honour referred to this action for money paid to the use of the principal but identified the basis of the action as being an implied promise to pay and went on to speak of the law raising an assumpsit. Our submission is that that case was erroneously influenced by the forms of action and the matter should now simply be recognised as an obligation imposed by law in response to identified circumstances.

KIEFEL CJ:   Does the fact that this – the clause and the document in which it is contained arose in the context of a settlement of negotiations bear upon the matter?

MR GLEESON:   It does, your Honour, because the starting point for our argument would be that the original guarantee which was given in March ‑ that is at paragraph 27 on page 152 ‑ on any view was given only in favour of the creditor and at that stage although there were three instruments, in none of those instruments were the guarantor and the debtor counterparties.  So, at that stage, there was no contractual relationship on the documents between them.  What happened, as your Honour has observed, in the settlement is that the aptly described override deed joined all four parties who had been variously parties to the earlier three agreements and contained a series of obligations which settled the matter.

The critical point in that settlement, we would submit, was that what 5.3 was doing was strengthening the position of the principal creditor.  The position was strengthened from that previously in clause 13.6 on page 152 to the new position in 5.3 and the essential purpose of it was to say that it now lay in the hands of the creditor for all time to control whether and when we as the guarantor might pursue claims against the principal debtor.

As the trial judge aptly observed, we would submit, at page 48, paragraph 148, that amply reflects the commercial intent because the entire freedom to control how and when we sought indemnity was placed in the hands of the creditor UIL who might, in particular circumstances, in fact, wish us to enforce the indemnity in order to, for instance, create two proofs of debt against the principal debtor which it could ultimately benefit from. 

So, within that settlement where all four parties were now in the one document, the critical ultimate question for the clause was going to be is 5.3 in favour of the creditor ‑ that is our view ‑ or is it somehow a clause which operates in favour of both the debtor and, indeed, the security agent, Argonaut.  Your Honours, could I mention the second ‑ ‑ ‑

KEANE J:   The ultimate answer to that question involves close consideration of all the terms of the deed. 

MR GLEESON:   The answer to that is yes, your Honour, but there are two legal steps to get there which we commend.  The first is that if Justice Leeming was wrong to consider that there were existing rights which could be waived, a critical plank in his reasoning ‑ ‑ ‑

KEANE J:   Existing rights or rights that are contingent?

MR GLEESON:   It would have to be an existing contingent right, that is the only way one could make sense of what his Honour has said, and so the underlying logic is you do have a contractual right of indemnity arising from March, contingent upon payment you will have a right at common law and in certain circumstances you might have a right in equity.  Now, that first plank we wish to say is wrong in law for the reason I have mentioned.

Could I mention the second plank which is also critical to his conclusion?  What his Honour has found at paragraph 99 is that the waiver can only operate once and for all in favour of everyone because it is a destruction of a right and once it is destroyed it is gone for all purposes.  For that reason, his Honour was not prepared to contemplate that the waiver might have been given in favour of only one of the various parties.  We would draw your Honours’ attention to what is said on page 177 in paragraph 92 where his Honour cites Justice Brennan in Verwayen in turn referring to Lord Hailsham who said, we submit, correctly:

‘In my view, the primary meaning of the word ‘waiver’ in legal parlance is the abandonment of a right in such a way that the other party is entitled to plead the abandonment by way of confession and avoidance if the right is thereafter asserted.’

What Lord Hailsham, we submit, has correctly identified is that this species of common law waiver places it in the ability of the counterparty who has the benefit of the waiver to rely upon it if the right is later asserted, for example, by pleading confession and avoidance or by other legal techniques.  What it does not do at common law is destroy the property or the right for all time irrespective of any action by the beneficiary.

Your Honours might think of a contrast under statute.  It is normally only by statute that this form of renunciation can lead to a right ceasing to exist merely upon a person saying so.  Under statute, for example, a liquidator can disclaim property under the Corporations Act because the Act says that the appropriate statement by the liquidator terminates the interest in the property. Section 33AA of theCitizenship Act states that a person loses their citizenship upon engaging in certain defiant conduct; that concept of the conduct of itself terminating the right, we would submit, is foreign to the common law. Now, the result of that is if those two ‑ ‑ ‑

KEANE J:   But to say that, is it not – is to beg the question as to the effect of what the parties have done by the terms of their deed.  Here there is a waiver that is not in terms confined as, for example, by saying waives so far as UIL is concerned and in this respect it is striking that other provisions of the deed do nominate the parties in whose favour terms are intended to operate.  This is the expression of a waiver that is not confined in any way.

MR GLEESON:   Your Honour is correct and the way we seek to put the application is that there are two legal errors underpinning paragraph 99, the second of which is that you do not need to inquire at all to whose benefit this waiver is given because the waiver operates in law by an immediate destruction of the right.

KEANE J:   I suppose my difficulty, Mr Gleeson, is that I have difficulty imagining that the parties to this deed when they signed it were sitting there thinking, I am pretty sure this is – we are talking about indebitatus assumpsit here.  I do not think they were worried about that, I think they were intending to achieve something broader and more commercial.

MR GLEESON:   Yes, and, your Honour, the answer to that is once those legal points which, we submit, are errors in the approach are stripped away, it is correct the application then comes down to the construction of these documents.  Those errors stripped away, what we would say is, firstly, 5.3 sits in the context of a clause, the whole of which appears to be strengthening the position of the principal creditor.

Secondly, the purpose of the deed was to enhance the level of protection of the creditor given that it was extending time.  Thirdly, there is nothing in the deed to indicate consideration was moving from the principal debtor to the guarantor.  Fourthly, there was nothing in the deed to indicate that the debtor was intended to receive new benefits out of the settlement.  Finally, as I have indicated, there are circumstances in which it would be

important for the creditor, who is the ultimate beneficiary here, to be able to decide whether this clause is enforced or not.

KIEFEL CJ:   You say that it ought to be read as operating as postponed to the action of the party in whose favour it operates.  

MR GLEESON:   Yes, and that is the legal step his Honour did not take and then one asks who is that party and is that party ‑ the options then are is it the creditor, that is our case.  It is actually difficult then to work out what the alternative case is because it is surely not given in favour of the security agent.  The alternative case would have to be it is somehow given jointly or severally in favour of the creditor and the principal debtor.  Now, none of that difficulty has been teased out by the Court of Appeal’s judgment.

KIEFEL CJ:   As a question of construction in its particular circumstances, where is the point of general principle?  Why is this not just a bespoke deed?

MR GLEESON:   If it was only a bespoke deed, your Honours would refuse leave.  The point of construction is that in coming to the conclusion at paragraph 99 his Honour has taken two legal steps.  The first is that there is an existing right even if contingent which is capable of being immediately waived and that proposition is not correct if we are correct in our proposition about Friend v Brooker.

Secondly, his Honour has a proposition that, with this species of renunciation the statement of the words destroys the property right without need to inquire who was the beneficiary of the right.  So, those two questions, if answered in our favour, then remove the planks of his Honour’s reasoning and they allow the ultimate question to be addressed.  That is the application, your Honours.

KIEFEL CJ:   Yes, Mr Williams.

MR WILLIAMS:   The Court should refuse leave because this is a bespoke deed.  Ultimately, the question that would need to be answered is what is the proper construction of the deed.  That is most clearly or perhaps most starkly recognised in section D of the applicant’s submissions commencing at application book 198 where it is said that:

Once the errors in the Court of Appeal’s reasoning are revealed, this Court is left with the task of construing cl 5.3 . . . to determine the identity of the intended promisee/beneficiary –

Of course, it should read promisees, promisee or promisees or beneficiary or beneficiaries.  In that context there is no debate about the correct principles of construction to be applied when looking at the ultimate question of construction.  They are three primary matters that we would point to as suggesting that the – on that central question of the proper construction of the deed that there would be no sufficient prospects of success.

Firstly, the proper construction of a deed and, in particular, clause 5.3, begins with the text itself.  Clause 5.3 clearly contains a benefit for WLC; it operates to relieve it from a liability which it otherwise would have.  The trial judge’s findings at 136, application book 45 are relevant in this context where his Honour observed that it was – that WCL had “an obvious interest” in enforcing the provision and that clause 5.3 “on its face” contained “a substantial benefit for WLC”.  Thus, the clause itself is highly supportive of the notion that any intended beneficiary of the clause was the very party against whom rights were released. 

The second point is that the clause is a general provision in a multi‑party document where the parties, in other parts of the document, as your Honour Justice Keane has observed, took care to identify that they operated in a bilateral or trilateral way and not for the benefit of other parties; in other words, where it was intended to confine the benefits of other provisions of the deed that a drafting device was adopted.

Thirdly, the applicant’s construction requires words to be read into the clause so as to qualify the general expression of its operation.  The Court of Appeal dealt with those features at paragraphs 80 and 82 at application books 172 to 173.  Fourthly, we would submit, that there is no reason, let alone any compelling reason, why such words would be read in or the general provision be qualified when the provision itself, on its face, creates a substantial benefit to WCL and WCL has an obvious interest in enforcing it.

What all this suggests, your Honour, is irrespective of the questions that my learned friend wishes to articulate as his special leave grounds that the real issue that would need to be determined here is the construction of a bespoke deed in the various complicated factual circumstances that ‑ ‑ ‑

KIEFEL CJ:   What about the point that the first point in relation to Justice Leeming’s reasons at paragraph 99, namely, that it assumes the existence of – that there are presently existing rights capable of waiver?

MR WILLIAMS:   Well, the starting point for that analysis is that there is no contractual ability to immediately release or waive a right of a contingent or executory nature.  We submit that that proposition is just not sound.  In this Court in Wardley the nature of a right with which we are concerned was described as “executory or contingent”.  In the English Court of Appeal in Re a Debtor it was described in somewhat similar terms as inchoate but still something that existed ‑ existing and capable of enforcement and expression at the time it was entered into. 

KEANE J:   You say there was a contingent right to recover an indemnity for any sums that might be paid?

MR WILLIAMS:   Yes, and one is entitled by contract to waive it.  So, the point does not get off the ground.  Even if there was some interesting question about the juridical nature of a right of indemnity the fact is that parties by way of contract can contract out of that right.  So, we submit, that both as a matter of substance, in other words, when looking at the prospects of the appeal ultimately succeeding one is ultimately looking at a bespoke deed and a construction of it involving normal concepts of construction.

The supposed special leave point when it is analysed does not really go anywhere.  Even if it was right, one still has to come back to the ultimate question of construction that is set out in section D of my friend’s submissions.  For all those reasons it is not – I am sorry, I should add to that the special leave point that is being divined is not one that was run before either the Court of Appeal or the primary judge.  That is why we do not have analysis in either of those judgments about the juridical nature of the right of indemnity.  So, that is an additional reason why this is an inconvenient vehicle for that matter and the interesting questions it might give rise to to be the subject of a grant of special leave. 

Finally, in terms of the proper construction of the deed, my friend submits, rather boldly, that the only person that this – or the only entity that this deed could properly have been intended to benefit was UIL.  That ignores a number of matters.  It ignores the factual background and relationship between the parties.  GNI, the beneficiary of that right, had as its – sorry, was a wholly owned subsidiary of the Indian parent, Gujarat India, which itself was the 62 per cent shareholder in WCL.

As his Honour the trial judge identified in the first instance judgment, there was all sorts of solvency issues in relation to Wollongong Coal, WCL, at the time when this deed was entered into, very good commercial reasons why in circumstances where the solvency of the company which was indirectly – in which GNI indirectly was interested was in issue, that it would waive such a right.

Lastly, it is suggested that in some circumstances that UIL might want to retain for itself the unilateral right to wield the benefit of this clause.  The first point to make about that is that the applicant itself accepts in paragraph 41 of its reply submissions at 200 that there are at least some

circumstances in which it would be in UIL’s commercial interest for WLC to enforce the clause, or to be able to enforce the clause.

The example that is given about an insolvency situation and preferences just does not work, that is because in a situation of insolvency UIL would have rights both against GNI and against WCL to be enforced against both.  If one was insolvent it would enforce against the other.  To the extent that both were insolvent, there is no increased pot of money that was available for it depending upon which it enforces against.  So, there is no benefit that needed to be protected in the case of a preference claim.  If it pleases the Court, they are our submissions.

KIEFEL CJ:   Anything in reply, Mr Gleeson?

MR GLEESON:   Just three matters, your Honour.  The first ‑ one proposition was that these arguments are not clearly run below.  The answer to that is that it is the manner in which Justice Leeming reasoned in paragraph 99 that has required close attention to the two key questions.  In particular, as to the first question, Mr Williams has not identified where in the March documents a contract arose which gave rise to the contingent rights asserted in July.

As to the second question, your Honours will see from the end of paragraph 99, that whether a unilateral waiver can be selectively enforceable or not is a critical matter and you have received no answer to our submission based on Lord Hailsham.

Your Honour, there are two other matters; secondly, there has been no explanation at the commercial level for why the debtor giving no consideration would receive this benefit and, finally, the insolvency example we gave works in a situation where the guarantor has exhausted its assets in favour of the creditor who is its only creditor and, in that circumstance, UIL would benefit significantly from being able to advance two proofs.  May it please the Court.

KIEFEL CJ:   Thank you.

In our view no question of general principle arises in this case.  It involves the question of construction of a provision in a bespoke deed created in particular circumstances.  It would not enjoy sufficient prospects of success to warrant a grant.  Special leave is refused with costs.

AT 10.50 THE MATTER WAS CONCLUDED