Haider v Gudelj
[2021] ACTCA 9
•11 February 2021
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
COURT OF APPEAL
| Case Title: | Haider v Gudelj | ||||||||||
| Citation: | [2021] ACTCA 9 | ||||||||||
| Hearing Date: | 11 February 2021 | ||||||||||
| Decision Date: | 21 April 2021 | ||||||||||
| Before: | Murrell CJ, Loukas-Karlsson and Perry JJ | ||||||||||
| Decision: | Appeal dismissed with costs. | ||||||||||
Catchwords: | EQUITY – EQUITY OF CONTRIBUTION – Equitable defences – Where appellants and respondents provided bank guarantees – Consideration of equitable contribution between guarantors – Whether improper conduct of appellants adequately pleaded – Whether appellants’ conduct meant that they had failed to come | ||||||||||
| to equity with clean hands | |||||||||||
| Legislation Cited: | Court Procedures Rules 2006 (ACT) r 407 | ||||||||||
| Cases Cited: | Albion Insurance Co Ltd v Government Insurance Office (NSW) | ||||||||||
| (1969) 121 CLR 342 AMP Bank Limited v Brown and Kavanagh [2017] NSWSC 313 | |||||||||||
| Ankar Pty Ltd v National Westminster Finance (Australia) Ltd | |||||||||||
| (1987) 162 CLR 549 | |||||||||||
| Australian Competition and Consumer Commission v CG | |||||||||||
| Berbatis Holdings Pty Ltd [2003] HCA 18; 214 CLR 51 BP Petroleum Development Ltd v Esso Petroleum Co Ltd [1987] SLT 345 Burke v LFOT Pty Limited [2002] HCA 17; 209 CLR 282 Caledonian Railway Co v Colt (1860) 3 Macq 833 | |||||||||||
| Coulls v Bagot’s Executor and Trustee Co Ltd (1967) 119 CLR | |||||||||||
| 460 Dering v Earl of Winchelsea (1787) 1 Cox 318; 29 ER 1184 Dunbar v Dunbar [1909] 2 Ch 639 Friend v Brooker [2009] HCA 21; 239 CLR 129 | |||||||||||
| Global Consulting Services Pty Ltd v Gresham Services | |||||||||||
| Property Investments Ltd [2018] NSWCA 255; 365 ALR 143 Haider v Gudelj [2019] ACTSC 213 HIH Claims Support Ltd v Insurance Australia Ltd [2011] HCA 31; 244 CLR 72 House v The King (1936) 55 CLR 499 Lavin v Toppi [2015] HCA 4; 254 CLR 459 Leigh-Mardon v Wawn (1995) 17 ACSR 741 Mahoney v McManus (1981) 180 CLR 370 Morgan Equipment Company v Rodgers (1993) 32 NSWLR 467 Muschinski v Dodds (1985) 160 CLR 583 Official Trustee in Bankruptcy v Citibank Savings Ltd (1995) 38 NSWLR 116 Parker v Alessi [2011] NSWSC 947 | |||||||||||
| Sky Channel Pty Ltd v Tszyu (No 2) [2000] NSWSC 1150 | |||||||||||
| Trotter v Franklin [1991] 2 NZLR 92 | |||||||||||
| Volanne Pty Ltd v International Consulting and Business | |||||||||||
| Management (ICBM) Pty Ltd (No 2) [2017] ACTCA 33; 322 FLR 324 Water Board v Moustakas (1988) 180 CLR 491 Whisprun Pty Ltd v Dixon [2003] HCA 48; 77 ALJR 1598 | |||||||||||
| Parties: | Tedo Iqtidar Haider (First Appellant) Maria Haider (Second Appellant) | ||||||||||
| Vinko Gudelj (First Respondent) Carlo Anthony Pasquariello (Second Respondent) | |||||||||||
| Merhdad (Nick) Takalubegash (Third Respondent) Rita Elizabeth Takalubegash (Fourth Respondent) | |||||||||||
| Representation: | Counsel | ||||||||||
| M Karam with H Cooper (First and Second Appellant) P Greenwood SC with D Reynolds (First to Fourth Respondents) | |||||||||||
| Solicitors | |||||||||||
| McInnes Wilson (First and Second Appellant) | |||||||||||
| Kamy Saeedi Law (First to Fourth Respondents) | |||||||||||
| File Number: | ACTCA 39 of 2019 | ||||||||||
| Decision under appeal: |
| ||||||||||
| THE COURT: | |||||||||||
| Introduction |
1. Dr and Mrs Haider (the appellants, who are husband and wife) and Mr Gudelj, Mr Pasquariello, and Mr and Mrs Takalubegash (the respondents) purchased land at Harrison, ACT, for the purpose of developing townhouses on the land. HIT Harrison Pty Ltd (HH) undertook construction of the development.
2. The development was funded by the National Australia Bank (NAB) through a succession of facilities, each of which subsumed the previous facility. In January 2007, the Haiders and the respondents executed guarantees in relation to one such facility. Those guarantees gave rise to the appeal.
In July 2012, Dr Haider settled the NAB’s claim on guarantees that he had given, inter
alia, paying an amount of $441,090 to the NAB in relation to the succession of loan
facilities provided by the NAB to HH.4. The Haiders brought proceedings against the respondents, claiming equitable contribution towards the debt of $441,090, the legal costs of their dispute with the NAB ($98,583), and interest on those sums. The respondents resisted the claim.
5. On 13 August 2019, Elkaim J (the primary judge) entered judgment for the
respondents and ordered that the Haiders pay the respondents’ costs of the
proceedings: Haider v Gudelj [2019] ACTSC 213.
The appeal and notice of contention
6. The Haiders appealed, alleging that the primary judge had erred in:
(a) allowing the respondents to advance a defence based on unconscionable conduct by the NAB (at [26] of the judgment); (b) finding that, as it had acted unconscionably, the NAB had no entitlement to enforce guarantees against the respondents (at [96]); (c) dismissing Mrs Haider’s claim for contribution on the basis that, if she succeeded, her victory would be a victory for Dr Haider (at [104]);
(d) finding that the Haiders and the respondents were not equally liable to the NAB (at [43]); (e) refusing the Haiders’ claims because they had obtained the whole benefit of the subject matter of the guarantees (at [114]–[115]); and
(f) finding that Mrs Takalubegash was excluded as an equitable co-contributor, on the basis that she had lacked relevant knowledge (at [81]). 7. The Haiders sought judgment against the respondents, asking that damages be assessed by the Court of Appeal. Alternatively, they requested that the matter be remitted to the primary judge for an assessment of damages.
8. The respondents contended that:
(a) The orders of the primary judge should be confirmed on the grounds that the Haiders had failed to establish “the equity in the circumstances that entitled
them to the relief”, Dr Haider’s conduct disentitled him to the relief sought, and
the guarantees would not have been enforceable by the NAB against the
respondents (at [119]).(b) The orders of the primary judge were correct for the additional reasons that:
(i) as the Haiders were the proximate cause of any loss that they had suffered, they were not entitled to contribution; (ii) to grant the relief sought would unjustly enrich the Haiders; (iii) as the Haiders had not explained their conduct, they had not established the necessary equitable basis for their claim; and (iv) as a director and shareholder of I Haider Pty Ltd (I Haider, the company that ultimately profited from the development), Mrs Haider had been a party to the arrangements with the NAB that constituted disentitling conduct. (c) The primary judge had erred in concluding that an entitlement to equitable contribution arose immediately following the execution of the 2007 guarantees (at [38]). (d) The primary judge had erred in treating Mrs Haider as a “non-contributing” party; as a director and shareholder of I Haider, she was responsible for the
disentitling conduct (at [104]).9. For the reasons explained below, the appeal should be dismissed.
Facts
10. In 2005, the ACT Land Development Agency invited interested persons to participate in a ballot for the purchase of undeveloped blocks of land in the suburb of Harrison.
11. Mr Merhdad (Nick) Takalubegash and Mr Daniel Ivancic owned a building company, Miracle Homes Pty Ltd (Miracle Homes). Mr Takalubegash knew Dr Haider. He and Mr Ivancic spoke to Dr Haider about purchasing and developing several of the blocks that were to be balloted.
12. The parties perceived that the ballot was open only to individuals (rather than companies) and that there was a limit on the number of blocks that could be purchased by one individual. Consequently, Dr Haider and Mr Takalubegash each
applied in their own name and their respective wives’ names. In addition, Mr
Takalubegash applied in the names of his friend Mr Vince Gudelj and his brother-in- law, Mr Carlo Pasquariello. Mr Gudelj and Mr Pasquariello owned Mint Kitchens, a joinery business.
13. As a result of the ballot, in February 2005, the parties were allocated Blocks 1–6 and 15–20. Mr and Mrs Takalubegash acquired Blocks 1–4. Dr Haider acquired Blocks 5
and 6. Mr Gudelj acquired Blocks 15 and 16. Mr Ivancic acquired Blocks 17 and 18.
Mr Pasquariello acquired Blocks 19 and 20.14. Miracle Homes was to construct townhouses on the land, subcontracting the joinery
work to Mint Kitchens. Blocks 1–6 were to be developed in a first stage, and Blocks
15–20 were to be developed in a second stage.15. No purchaser provided funds to purchase the land that was acquired in their name. Funds of $1.6 million were loaned by the NAB to HH, which was to be the vehicle for developing the land.
16. HH was registered in June 2005. At all material times, Dr Haider and Mr Ivancic were the sole directors of HH. Each held and beneficially owned one share.
17. As a condition of providing finance to HH, the NAB required guarantees from the individuals in whose names the blocks had been purchased. The NAB understood that Dr Haider would maintain financial control of both stages of the development and Mr Ivancic would act as project manager through Miracle Homes. Dr and Mrs Haider were the only guarantors who provided security over real property other than the Harrison land.
18. The arrangement between the parties was that, when each developed block was sold, the proceeds would be used to repay the NAB. Once the debt to NAB had been fully discharged, any profit would flow 55 per cent to Dr Haider and 45 per cent equally to Mr Takalubegash and Mr Ivancic (via Miracle Homes). Consequently, any profit would come from the sale of the last blocks in the development.
19. On 20 July 2005, funds from the first NAB facility were used to purchase the twelve blocks.
20. In October 2005, HH sought approval for construction funding of $1.2 million to
construct terrace houses on Blocks 1–6 and develop the remaining six blocks. The
second facility subsumed and replaced the first facility, increasing the NAB debt to
$2.802 million.21. By June 2006, the first stage of the development was complete. Blocks 1–6 were
sold.
22. Mr Takalubegash and Mr Ivancic fell out. Miracle Homes continued to work on the project, but Mr Takalubegash was not involved. In September 2006, Mr Takalubegash resigned as a director of Miracle Homes. Later, he returned to the project through another company, which completed work on Blocks 19 and 20, and was paid.
23. In 2006, Block 15 was sold in an undeveloped state for a negligible profit and removed from the project. The NAB loaned no construction funding for Block 15.
24. In September 2006, HH sought further funding of $823,100 to construct townhouses on Blocks 16, 17 and 18. The funding was approved, bringing the total loan amount to $2,240,586. The respondents executed guarantees for the new facility.
25. In December 2006, HH sought additional funding in the sum of $445,000 to develop Blocks 19 and 20 (which was to be subdivided to create Blocks 20 and 20A). Prior
funding conditions for Blocks 16, 17 and 18 remained effective. As a “condition precedent” to any drawdown of the further funds, the borrower was required to furnish
evidence of executed pre-sale contracts for Blocks 19, 20 and 20A. It was a further
condition that those contracts remain on foot throughout the development.26. This facility brought the total loan amount to $2.685 million (plus an overdraft of $16,000). The facility was to be repaid in August 2007.
27. The facility was secured by mortgages over the unsold blocks and mortgages over private properties owned by the Haiders.
The NAB required guarantees from the respondents “for security purposes only”. In
January 2007, each of the respondents executed the guarantees required by the
NAB.
Contrary to the “condition precedent”, pre-sale contracts were not exchanged before
the funds were advanced; the blocks were not sold until much later. When the funds were advanced by the NAB, the respondents were not informed that the pre-sale conditions had not been met, although Dr Haider would have known that they had not been satisfied: judgment at [89] and [97].
30. Under the guarantees, the NAB was required to adhere to the Code of Banking Practice (the Code). Pursuant to clause 28.4(d)(ii) of the Code, the NAB was to provide a final letter of offer to every guarantor. Although a final letter of offer was provided to the directors of HH, there was no evidence that it had been sent to the respondents: at [91].
31. Clause 14.2 of the guarantee purported to provide protection to the NAB by excluding certain matters that might otherwise affect its obligations under the guarantee. On the appeal, the appellants argued that this may have provided a basis for the NAB to enforce the guarantees against the respondents.
32. By agreement between Dr Haider, Mr Ivancic, and the NAB, the facility was extended on 14 June 2007 (to December 2007), and again in December 2007 (to February 2008), in February 2008 (to May 2008) and in May 2008 (to August 2008). The first extension was signed by Dr Haider and Mr Ivancic for HH and by the Haiders as guarantors. It was not signed by the respondents, who were unaware of any of the extensions.
33. In accordance with the scheme agreed between the parties, up to August 2008, all proceeds of sales were paid to the NAB in reduction of the debt owed to it.
34. At the request of Mr Takalubegash, on 8 May 2008, for tax purposes, Colliers valued Block 19 at $305,000 and Block 20 at $370,000 (a total of $675,000).
35. In June 2008, friends of Mr Takalubegash offered to buy Blocks 19 and 20 at the
Colliers valuation price. Following “input” from Dr Haider, the offer was rejected.
Mr Takalubegash offered to buy Block 20 for $729,000 ($450,000 for “Unit 1” of Block
20 and $279,000 for “Unit 2” of Block 20). His offer was also rejected.
37. By August 2008, Blocks 17 to 20 remained unsold.
38. In late August, Dr Haider reached an arrangement with the NAB that he would use his
own funds to purchase Blocks 19 and 20 from Mr Pasquariello, put the properties “to
market”, and clear the NAB debt by October 2008.
39. On 15 October 2008, through I Haider, the Haiders purchased Blocks 19 and 20 at the Colliers valuation price.
40. On 27 October 2008, the NAB emailed Dr Haider pointing out that:
The ongoing maintenance issue here is that all guarantors remain liable for the facility until such time as it is cleared in full, therefore the quicker we act on clearing the facility the better as interest will again be charged at the end of this month.
41. By that stage, all the funding and management of the project was in the hands of the
NAB and Dr Haider: at [116]–[118]. Any profit that emanated would be from the sale
of Blocks 19, 20 and 20A.
42. In April 2009, Block 17 was sold for $485,000. The proceeds of the sale were paid to the NAB.
43. In May 2009, I Haider sold Block 19 for $500,000.
44. In July 2009, Block 18 was sold for $488,000. There was significant delay in reaching settlement, but the proceeds of this sale were eventually paid to the NAB, as explained below.
45. In September 2009, I Haider sold Block 20 for $479,000. In July 2010, it sold Block 20A (which by that time had been subdivided from Block 20) for $416,000.
46. None of the profit earned by I Haider from the sale of Blocks 19, 20 or 20A was paid to the NAB; the entire profit was retained: at [119]. The total profit flowing to I Haider from the sale of Blocks 19, 20 and 20A was $720,000.
47. On 9 February 2010, the NAB made a demand on all guarantors for $915,297.87.
48. On 24 February 2010, the NAB reissued the demand only to Dr Haider, Mrs Haider and Mr Ivancic, claiming $921,062.03.
49. On 26 February 2010, Dr Haider’s solicitor wrote to Dr Haider, confirming that the
arrangement with the NAB was that Dr Haider would pay the balance owed to the
bank in return for release of his security and guarantee.50. On 2 July 2010, the NAB issued a further default notice to the Haiders and Mr Ivancic, but not to the respondents. This demand was for $495,978.21 because, by that stage, the NAB had been paid the proceeds of the sale of Block 18.
51. Litigation ensued between Dr and Mrs Haider and the NAB in the Supreme Court of New South Wales in relation to the HH facility and another overdraft facility for which the Haiders had provided guarantees to the NAB.
52. In July 2012, the Haiders agreed to pay $783,000 to the NAB, including an amount of $441,090 for the HH debt.
53. The Haiders then commenced proceedings against the respondents in this jurisdiction, claiming $609,386.85 plus interest and costs.
Primary judge’s reasons
54. At [67], the primary judge proposed three questions:
(a) Were the defendants so naïve and divorced from the reality of the funding arrangements that they should not, from a justice point of view, be required to contribute to the monies paid to the bank by the plaintiffs? (b) Is there any reason the NAB could not have recovered guaranteed funds from the defendant, had it decided to pursue that course? (c) If the answer to the first proposition is “no” then was the conduct of the plaintiffs, in particular in relation to the dealings with Blocks 19, 20 and 20A such that they, in relation to the defendants, unjustly created a debt to the bank which was outside any obligation that arose from the guarantees they had signed?
First question: the respondents’ engagement in the funding arrangements
55. Except in relation to Mrs Takalubegash, the primary judge answered the first question in the negative: at [79].
56. As to Mrs Takalubegash, his Honour concluded that she had not been financially
interested in the development and had signed the guarantee “in obedience” to her
husband or another respondent, understanding that it was a bank document but little else: at [80]. Consequently, his Honour excluded her as an equitable co-contributor: at [81].
Second question: the NAB’s conduct
57. Before proceeding to the second question, the primary judge considered whether, having regard to pleading deficiencies in the further amended defence, the respondents should be permitted to pursue the issue.
58. At [8] of the judgment, his Honour stated:
The defendants relied heavily on an argument that said that if the NAB had taken action against them, under the 2007 guarantees, then the bank would have failed. This would have been a product of the unconscionability of any liability that might have otherwise been attached to them. It was common ground that if this circumstance was established then the plaintiffs could not succeed in this action.
59. Despite very substantial deficiencies in the pleadings, the primary judge permitted the respondents to advance a contention that the Haiders could not succeed as, had the NAB sought to enforce the guarantees against the respondents, it would have failed because of its unconscionable conduct towards them.
60. His Honour answered the second question in the affirmative. In doing so, his Honour relied on Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 (Ankar). In Ankar at [8], Mason ACJ, Wilson, Brennan and Dawson JJ stated:
Breach of an essential term or a breach going to the root of the contract will of course
discharge the surety from future liability if the surety elects to rescind for breach. … A
condition precedent may be unfulfilled without any breach of contract, but when performance by the creditor of a contractual promise is a condition precedent to the liability of the surety under a contract of suretyship which otherwise involves no more than a
guarantee of payment of the debt owing to that creditor, the creditor’s promise is
necessarily an essential term of the contract. The terms of the contract itself demonstrate that the surety would not have entered into the contract of suretyship unless he had been assured of a strict performance of the promise.
(Citation omitted)
61. His Honour also relied on a passage in the separate judgment of Deane J in Ankar (at
[11] ): A failure by the creditor to observe the terms of that contract would, if the surety
nonetheless remained liable, alter the surety’s obligations in the sense that the surety
would not be held liable in circumstances which did not accord with the letter of his
engagement as specified by the contract.62. The primary judge equated the NAB’s letter of offer (incorporating the conditions
precedent and the Code) to the letter of engagement to which Deane J had referred.
63. At [96], the primary judge concluded:
In my view the conduct of the bank in providing the funds under the offered facility without ensuring the conditions precedent had been met, and not informing the defendants that this was the case, taken together with the failure to adhere to the Code would have prevented the bank succeeding in any action against the defendants to enforce their obligations as guarantors.
64. In other words, his Honour found that, as the NAB could not have succeeded in an
action against the respondents as guarantors, there was no “co-ordinate liability”
between the Haiders and the respondents and there was no basis upon which the
Haiders could claim contribution.
Third question: the Haiders’ conduct
The primary judge described Dr Haider’s conduct in late 2008 as “rogue”: at [57].
Having rejected third-party offers to purchase Blocks 19 and 20 at the Colliers valuation price, Dr Haider had purchased the properties at that same valuation price. After completing the development of the blocks, between May 2009 and July 2010, he had sold them for a very substantial net profit.
His Honour rejected the Haiders’ contention that, when I Haider purchased Blocks 19
and 20 in October 2008, it did so as an independent buyer. His Honour found that Dr Haider had taken advantage of his position to obtain the properties at an advantageous price: at [109].
67. The primary judge observed that, in September 2008, Dr Haider and the NAB had agreed that Dr Haider would use his own funds to purchase Blocks 19 and 20, put the
properties “to market” and clear the debt to the bank. However, when the properties
were sold, the debt was not cleared: at [111].
The primary judge described Dr Haider as “complicit” in the NAB’s actions (in that he
would have known that the conditions precedent had not been met when he drew down the facility), to the extent that the complicity precluded him from obtaining contribution from the respondents: at [97].
69. His Honour found that the respondents had not been informed of the dealings between Dr Haider and the NAB. They did not know that the facility had been extended, a matter that may have affected their willingness to remain as guarantors: at [98]. They had no opportunity to reject the extensions or seek relief from the guarantees that they had provided: at [100].
70. At [38]–[47], the primary judge addressed the law on equitable contribution, referring
to Albion Insurance Co Ltd v Government Insurance Office (NSW) (1969) 121 CLR 342 (Albion), Burke v LFOT Pty Limited [2002] HCA 17; 209 CLR 282 (Burke), Sky Channel Pty Ltd v Tszyu (No 2) [2000] NSWSC 1150 (Sky Channel) and AMP Bank Limited v Brown and Kavanagh [2017] NSWSC 313 (AMP).
71. At [42], his Honour noted that, in AMP at [40], Kunc J had identified four exceptions to co-contribution between co-sureties:
The authorities disclose four exceptions to the general principle of equality as between co-
sureties (the “accepted exceptions”):
(1) Contract, or something less than contract, being the manifestation of the common
intention to modify or exclude rights to contribution;
(2) Where one surety has obtained the whole benefit of the guarantee;
(3) Where one surety is guilty of “fraud, illegality, wilful misconduct or gross
negligence”;
(4) Equitable defences such as clean hands.
72. His Honour found that the first and third exceptions were inadequately pleaded but that the second and fourth exceptions were established.
73. As to the second exception, his Honour observed that, by the time that the properties were sold to I Haider, the whole of the funding and management of the project had been in the hands of the NAB and Dr Haider: at [116].
74. His Honour found that the fourth exception was established by his earlier findings.
We take this to be a reference to Dr Haider’s disentitling conduct establishing a lack
of clean hands. In particular:
(a) From mid-2007, Dr Haider had control of the project. (b)
Having rejected third party offers to purchase Blocks 19 and 20 at valuation, Dr Haider purchased them at valuation (an advantageous price) through his company, I Haider.
(c)
I Haider sold the blocks for a very substantial net profit but, contrary to the arrangement between the parties, Dr Haider failed to apply any of the net profit to the NAB debt which the respondents had guaranteed.
(d) I Haider’s purchase and sale of the blocks were enabled by the NAB, pursuant to an arrangement with Dr Haider.
(e) To Dr Haider’s knowledge, there had been no compliance with the condition precedent for the funding that was guaranteed by the respondents, which
required exchange of pre-sale contracts for Blocks 19, 20 and 20A.(f) The respondents were not informed of the extensions to the funding. 75. In essence, his Honour found that, through I Haider, the Haiders derived the entire
benefit of the borrowing, and that the benefit was enabled by Dr Haider’s improper
conduct.
Mrs Haider’s position
76. The primary judge rejected the argument that Mrs Haider was not tainted by Dr
Haider’s conduct and was entitled to contribution.
77. First, his Honour observed that there was no evidence that Mrs Haider herself had made any payment to the NAB. Although the terms of settlement with the NAB obliged the Haiders to pay the settlement sum, at least the first $400,000 had been paid by I Haider: at [103].
78. At [104], his Honour continued:
More importantly the plaintiffs [sic] claim is based on the overall equitable position of doing justice between the parties. In the same way that Rita Takalubegash can be seen as
simply a non-contributing figure in the defendants’ camp, I think Mrs Haider assumes the
same status as a plaintiff. In other words if Mrs Heider [sic] were to succeed her victory would essentially be effective victory for Dr Haider, a result which I would regard as against the balance of equitable justice as between the parties.
Primary judge’s conclusions
79. At [119]–[121], his Honour summarised his conclusions.
In summary, I have rejected the plaintiffs’ case for two specific reasons:
(i) The guarantees would not have been enforceable by the bank against the defendants. I note Counsel for the plaintiffs conceded that a finding to this effect would
automatically have defeated the plaintiffs’ claim.
(ii) The conduct of Dr Haider, complicit with the bank, in his dealings with Blocks 19, 20 and 20A was such that he assumed complete control of the project to the extent that he, despite assurances to the bank to the contrary, retained the whole of the profits consequent upon the sale of these blocks.
At a more general level the plaintiffs’ claim has failed because I do not think they have
established the equity in the circumstances that entitles them to the relief that they seek. This broad statement is derived from the natural justice concept explained in Albion at 351 and in Burke at 294. Put another way I do not think that the liability for the debt to the bank should be seen as resting equally as between the plaintiffs and the defendants. In my view
the plaintiff’s [sic], certainly by the time of the sale of Blocks 19, 20 and 20A to I Haider,
had assumed a position in which they bore the responsibility for the debt. This I think fits
within this statement in Burke at [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 the liability differs. The principle has regularly been applied between co-sureties, co-insurers, partners, co-owners, where payment is made by one in discharge of a common liability, and co-trustees who are in pari delicto.
When the sale of the three blocks was made to [I Haider] the respective parties had ceased
to be in pari delicto. The ‘fault’, originally designed to be shared when the guarantees were
signed, had shifted to Dr Haider.
Issues on appeal
80. The principal questions raised by the appeal were:
(a) Having regard to the pleadings, did the primary judge err in permitting the respondents to rely on improper conduct by Dr Haider (the pleading point)? (b) If not, did his Honour err in dismissing the Haiders’ claim because of Dr Haider’s disentitling conduct, by which the Haiders obtained the whole of the
benefit of the guarantee?
(c) Did the primary judge err in dismissing Mrs Haider’s claim for contribution because of her husband’s conduct (or was she otherwise precluded from
maintaining a claim)?
(d) Did the primary judge err in permitting the respondents to allege unconscionable conduct towards them by the NAB despite pleading deficiencies? (e) If not, did his Honour err in finding that the NAB was not entitled to enforce the guarantees against the respondents? 81. The following additional questions were raised:
(f) Given the concession made by counsel at the trial, should the Haiders be granted leave to argue that the law recognises no exception to the doctrine of equitable contribution where one co-surety has obtained the whole of the benefit of a guarantee (the second exception identified by Kunc J in AMP)? (g) Did the primary judge err in finding that Mrs Takalubegash was not liable under the January 2007 guarantee because of her lack of knowledge about the guarantee and its implications? (h) In any event, was contribution unavailable because there was no entitlement to equitable contribution as at January 2007 (the “common intention issue”)?
82. As we have concluded that the respondents should succeed on issues (a), (b), (c), and (h) and that the Haiders should not be granted leave to argue the substance of issue (f), it is unnecessary to consider the remaining issues.
Pleading point concerning Dr Haider’s conduct
83. The primary judge did not err in permitting the respondents to rely on Dr Haider’s
improper conduct despite pleading deficiencies.
84. Rule 407(3) of the Court Procedures Rules 2006 (ACT) (CPR) requires that a defendant specifically plead any matter that allegedly makes a claim of the opposite party not maintainable, shows that a transaction is void or voidable, or raises a new issue of fact.
85. In the further amended defence, the respondents pleaded:
21. The Nominated Defendants … say in response to the whole of the claim that the
Plaintiffs have not contributed more than their fair proportion of the debt to the NAB.
…
24. In further answer to the allegations in the Amended Statement of Claim, the Nominated Defendants say that the Plaintiffs are not entitled to equitable contribution and would be unjustly enriched if the relief sought was granted as:
(a) … Any loss sustained by the NAB or the Plaintiffs was a direct result of the conduct of the Plaintiffs and or the Second Defendant, not the Nominated Defendants;
(b)
any loss sustained by the NAB or the Plaintiffs was a direct result of the culpability of the Plaintiffs and or the Second Defendant, not the Nominated Defendants;
(c)
the Nominated Defendants did not share a common interest and common burden with the Plaintiffs;
(d) … The Plaintiffs purchased three properties on blocks 19 and 20 for $675,000, for an undervalue and subsequently sold them for $1.35m but failed to contribute the
profits realised on the sale of those properties in reduction of the claimed liability;(e) …
86. The respondents supplied particulars of the allegations in [24]. Inter alia, they stated:
The Plaintiffs and the Second Defendant gained the benefit of the Nominated Defendants giving them complete and unfettered control over managing, developing and dealing with the land which was nominally in their names.
Between 2007 and 2009 the conduct of the Plaintiffs and/or Second Defendant in arranging facilities with the NAB, drawing down funds on those facilities for their own purposes and failing to make sufficient repayments directly led to monies being owed to the NAB.
…
The situation was aggravated by the conduct of the Plaintiffs in purchasing block 19 for $305,000 and block 20 for $370,000, being less than a fair and reasonable value, and subsequently selling them for a profit and failing to pay the proceeds to the NAB to reduce the indebtedness. This was done despite an offer by the Fourth Defendant to purchase block 20 for $729,000.
…
Between 2007 and 2009 their activities in arranging facilities with the NAB, then drawing down funds on those facilities for their own purposes and failing to make sufficient repayments directly led to monies being owed to the NAB.
…
Thereafter, between 2009 and 2012, the Plaintiffs and the Second Defendant failed to repay the NAB which led to increased indebtedness by way of interest and costs.
87. In our view, the further amended defence (as explained by the particulars) met the requirements of r 407 of the CPR.
88. In any event, the decision of a trial judge as to whether a pleading is adequate to fairly raise an issue involves the exercise of a wide discretion. To succeed, the Haiders needed to show that it was not reasonably open to the primary judge to exercise his discretion in the manner in which he did exercise it: House v The King (1936) 55 CLR 499 at 504. They have not done so.
Leave to argue that the law does not recognise a “whole benefit” exception
89. At first instance, the Haiders accepted that the law recognises an exception to the doctrine of equitable contribution where one co-surety has obtained the whole of the benefit of a guarantee. Consequently, they require leave to argue otherwise on appeal: Volanne Pty Ltd v International Consulting and Business Management (ICBM) Pty Ltd (No 2) [2017] ACTCA 33; 322 FLR 324.
90. In Water Board v Moustakas (1988) 180 CLR 491, a majority of the Court (Mason CJ, Wilson, Brennan and Dawson JJ) held that (at 497):
[I]t has been held by this Court that a point cannot be raised for the first time upon appeal when it could possibly have been met by calling evidence below. Where all the facts have been established beyond controversy or where the point is one of construction or of law, then a court of appeal may find it expedient and in the interests of justice to entertain the point, but otherwise the rule is strictly applied.
91. In Whisprun Pty Ltd v Dixon [2003] HCA 48; 77 ALJR 1598 (Whisprun), Gleeson CJ, McHugh and Gummow JJ stated (at [51]):
Nothing is more likely to give rise to a sense of injustice in a litigant than to have a verdict taken away on a point that was not taken at the trial and could or might possibly have been met by rebutting evidence or cross-examination.
92. The grant of leave to argue a new point on appeal may undermine public confidence in the judicial system by, among other things, eroding confidence in the finality in litigation. Ultimately, whether leave should be granted is a discretionary question to be decided by reference to what is in the interests of justice.
93. In this case, the respondents identified no basis upon which, from an evidentiary perspective, the raising of the issue in the Court below would have altered the way in which their case was run at trial. The existence of the exception is an issue of general importance, particularly as the dicta of Leeming JA in Global Consulting Services Pty Ltd v Gresham Services Property Investments Ltd [2018] NSWCA 255; 365 ALR 143 (Global Consulting) (an authority to which the primary judge was not taken) may suggest an approach that differs from that of Kunc J in AMP. Further, the admitted existence of the exception was important to the reasoning of the primary judge.
94. However, we consider that it is not in the interests of justice that the Haiders be permitted to raise the point for the first time on the appeal. The trial was largely concerned with legal rather than factual issues. If raised at the trial, the point that the Haiders now wish to raise may have fundamentally changed the way in which the trial was run. In those circumstances, to allow a new point of general importance to be raised for the first time on appeal may undermine public confidence in the judicial
system. Further, this Court does not have the benefit of the primary judge’s views on
the question.
95. We refuse leave to argue that the law does not recognise an exception to the doctrine of equitable contribution where one co-surety has obtained the whole of the benefit.
Application of principles governing equitable contribution to Dr Haider’s conduct
96. It is convenient to consider the remaining questions raised by the notices of appeal and contention together, having regard to the principles governing equitable contribution. This entails a broader approach than that which the primary judge took
when answering the “third question”.
The primary judge posed the “third question” as follows:
Was the conduct of the plaintiffs, in particular in relation to the dealings with Blocks 19, 20 and 20A such that they, in relation to the defendants, unjustly created a debt to the bank which was outside any obligation that arose from the guarantees they had signed?
98. In answering this question in the affirmative, the primary judge relied on the second and fourth exceptions to co-contribution identified by Kunc J in AMP at [40] and that,
having regard to the “natural justice concept” explained in Albion and Burke, the
Haiders had failed to establish the equity that entitled them to the relief that they sought: at [120].
Cases preceding Albion
99. In the seminal case of Dering v Earl of Winchelsea (1787) 1 Cox 318; 29 ER 1184
(Dering), at 1185–1186, Eyre LCB said:
Now to come to the particular case of sureties; it is clear that one surety may compel a contribution from another, towards payment of the debt to which they are jointly bound. On
what principle? … What difference will it make if they are severally bound and by different
instruments, but for the same principal, and the same engagement? In all these cases the sureties have a common interest, and a common burden; they are joined by the common end and purpose of their several obligations, as much as if they were joined in one
instrument …
(Emphasis original)
100. While the Lord Chief Baron rejected an argument that the claimant was disentitled to contribution because he had known that the debtor was misusing public funds, he
contrasted the claimant’s position with that of a claimant who was the immediate
author of a loss, stating (at 1185):
If a contribution were demanded from a ship and cargo for goods thrown overboard to save the ship, if the plaintiff had actually bored a hole in the ship, he would in that case be certainly the author of the loss, and would not be entitled to any contribution.
101. As Kunc J stated in AMP, the judgment in Dering makes it clear that the doctrine of contribution among sureties is not founded in contract, but in equity on the ground of equality of burden and benefit: at [32]. As to disentitling conduct, Kunc J observed
that, as stated in Dering, to succeed on such an argument, the claimant’s conduct must have “an immediate and necessary relation to the equity sued for” such that
they did not come to equity with “clean hands”.
102. In Coulls v Bagot’s Executor and Trustee Co Ltd (1967) 119 CLR 460 (Coulls), the
issue was whether Mr Coulls’ executor could obtain contribution from Mrs Coulls in
circumstances where Mr and Mrs Coulls had jointly mortgaged a jointly owned house. Barwick CJ (with whom McTiernan J agreed) considered that the evidence established that Mr Coulls had purchased the house alone and had conveyed a joint interest to Mrs Coulls by way of advancement. Alternatively, the mortgage secured a loan that had enabled Mr Coulls to purchase the property. It followed that the money borrowed on the security of the land was:
not borrowed for them both but for [Mr Coulls] alone. The signature of the mortgage, including its personal covenant, was not intended by the parties to create any right of contribution or indemnity.
103. Similarly, Taylor and Owen JJ considered that whether a right of contribution accrues
as between joint mortgagors “depends upon the implication of a contractual obligation
or arises in some other way.” Referring to Dunbar v Dunbar [1909] 2 Ch 639, their
Honours stated that (at 488):
[I]t seems that no such right will arise where such a result would clearly be contrary to the
intentions of the parties at the time when the joint obligation was undertaken … [T]he two
mortgages in question were given in order, temporarily, to enable [Mr Coulls] to complete
the purchase …
Albion
104. In Albion, an employer was indemnified against liability to an employee, both under a workers compensation policy and under a motor vehicle policy. Because both policies
covered the risk giving rise to the employee’s claim, a right of contribution arose. At
349–350, Kitto J (with whom Windeyer J agreed) referred to the “fundamental principle” of law that underpinned the rule as to contribution between co-insurers,
stating:
a principle applicable at law no less than in equity, is that persons who are under co- ordinate liabilities to make good the one loss (e.g. sureties liable to make good a failure to pay the one debt) must share the burden pro rata.
105. At 350, Kitto J stated:
The general doctrine of contribution, as I have said, forms part of the common law. … This
was because the basic concept was accepted by both law and equity is one of natural
justice, as indeed it had been by the law of other countries since ancient times.
106. At 351–352, his Honour explained:
The right arises at law when “one of several persons has paid more than his proper share
towards discharging a common obligation” … and it arises in equity when a liability of one
of several to pay more than his share has been ascertained … but for present purposes
this difference is immaterial: what is important is the reason, namely that payment by the one discharges not only himself but each of the others, and qui sentit commodum sentire debet et onus [the person who derives the benefit should also bear the burden].
(Citations omitted)
107. In Mahoney v McManus (1981) 180 CLR 370 (Mahoney), two company directors had
guaranteed company debts. When the company was unable to meet its creditors’
demands, one of the guarantors provided funds that enabled the company to pay the creditors and the company used the advances to do so. Although, at the time of the advances, there had been no arrangement as to how much should be paid to each creditor and although the monies were paid to the creditors via a company, the Court found that the director who had made the advances was entitled to contribution from the director who was a co-guarantor. At 378, Gibbs CJ (Murphy and Aickin JJ concurring) stated:
It should be remembered that the doctrine of contribution is based on the principle of natural justice that if several persons have a common obligation they should as between themselves contribute proportionately in satisfaction of that obligation. The operation of such a principle should not be defeated by too technical an approach to the question whether a surety has paid the creditor, when he has supplied moneys to the principal debtor for the purpose of making such payment.
108. In Muschinski v Dodds (1985) 160 CLR 583 (Muschinski), Gibbs CJ cited with approval the view of Taylor and Owen JJ in Coulls (that there was no entitlement to contribution when such a result would be contrary to the intentions of the parties at the time when the joint obligation was undertaken), adding at 597:
There are other authorities that support the view that a right to contribution may be
excluded by the intention of the parties as well as by agreement … and I shall assume that
this view is correct.
109. Similarly, citing Coulls with apparent approval, Deane J stated at 617:
It was the common intention of the parties, at the time those particular payments were made, that the burden of them should be borne by Mrs Muschinski alone. As I presently see the matter, it follows that Mrs Muschinski had no right to claim reimbursement from Mr Dodds in respect of an appropriate part of those payments under any doctrine of
contribution … It is, however, unnecessary that I form a concluded view in that regard …
110. In Morgan Equipment Company v Rodgers (1993) 32 NSWLR 467 at 476, referring to Coulls and Muschinski, Giles J observed that the general rule about equal contribution between co-guarantors may be modified or excluded by a common intention that falls short of an express or implied agreement. At 477, his Honour continued:
While equal sharing should not be lightly departed from, where the rationale for equal sharing is that the parties are taken to have intended to share equally then a contrary intention must suffice to displace the general rule.
111. Of such references to intention, in Global Consulting, Leeming JA said at [66] that they:
are plainly not references to their subjective intentions, but rather to the intentions to be
imputed to them having regard to the transaction in its context.112. Official Trustee in Bankruptcy v Citibank Savings Ltd (1995) 38 NSWLR 116
(Citibank) was a case in which the Official Trustee of a couple’s bankrupt estate claimed that the husband’s parents were liable to contribute in relation to a liability
owed by the couple’s company to Citibank, which liability had been guaranteed by the
couple and by the husband’s parents. Bryson J observed that, although the documents showed that the husband, the wife and the husband’s parents were co-
sureties with a common liability, it was necessary to consider the substance of the
transactions: at 119. After stating that the “justice of the situation” was such that the
parents should not be required to contribute, Bryson J said (at 128):
This can also be seen as the result produced by the intention which it would be reasonable to attribute the parties in the absence of any expression of intention or advertence by any of them to the question of liability to contribution. It is impossible to attribute to the parties
an intention that after meeting the company’s liabilities under their guarantee, the
guarantors who controlled the company would have recourse to [the parents] and security
against their house for half of what they had paid to meet the debts of their own company.113. His Honour stated that it was not necessary that there be any expression of an
intention or arrangement in circumstances where the intended outcome was “so clear
and obvious that it must be imputed to the parties that they intended it”: at 128.114. Although, in Citibank, Bryson J referred to the “justice of the situation” and relied upon
other arguably abstract notions, as Leeming JA observed in Global Consulting at [67], it may be that the outcome of the case is best regarded as no more than an example
of where the imputed intention of the parties meant that there was no “co-ordinate
liability”.
Burke
115. In Burke, a vendor had engaged in misleading or deceptive conduct in relation to the
purchaser’s acquisition of retail premises by representing that the retail tenants were
of high quality. The purchaser had recovered damages from the vendor, being the difference between the value of the property at the time of purchase and the
purchase price. The vendor claimed contribution from the purchaser’s solicitor on the
basis that the solicitor had been negligent in failing to enquire about the financial
standing of the retail tenants.116. All members of the bench cited Kitto J’s decision in Albion with apparent approval.
Gaudron ACJ, McHugh and Hayne JJ concluded that there was no entitlement to equitable contribution because, in the circumstances, it was not inequitable for the vendor to pay the whole sum. Callinan J found that there was no entitlement to equal contribution because none of the conditions for the application of the doctrine of contribution stated by Kitto J in Albion had been satisfied. Kirby J dissented, finding that contribution was available.
117. At [14]–[17], Gaudron ACJ and Hayne J stated:
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. …
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”. …
The notion of “co-ordinate liability” is one that depends on common interest and common
burden. … [T]he notion of “co-ordinate liability” has not traditionally been expressed in
terms requiring equal or comparable culpability or a requirement that the acts or omissions of the persons in question be of equal or comparable causal significance to the loss in
respect of which contribution is sought. However, the requirement that liability be “of the
same nature and to the same extent”, as stated in BP Petroleum, is apt to include notions
of equal or comparable culpability and equal or comparable causal significance.
Culpability, as a factor bearing on the right to equitable contribution, clearly explains the requirement that for there to be a contribution between co-trustees, the co-trustees must be in pari delicto. So, too, it explains the rule that a person has been guilty of fraud, illegality, wilful misconduct or gross negligence is not entitled to contribution from his partners.
In Dering v Earl of Winchelsea, Lord Chief Baron Eyre hypothesised that:
If a contribution were demanded from a ship and cargo for goods thrown overboard to save the ship, if the plaintiff had actually bored a hole in the ship, he would in that case be certainly the author of the loss, and would not be entitled to any contribution.
That example was given by the Lord Chief Baron in exposition of the requirement that, to
obtain contribution in a court of equity, the applicant should have “clean hands”. However,
the example his Lordship gave is one that directs attention to causation, in the sense of legal responsibility for the loss in question. The same consideration may have some
bearing on the law’s acceptance that contribution cannot be obtained if the person against
whom contribution is sought is entitled to indemnity from the applicant.
(Footnotes omitted)
118. The reference to the requirement that liability be “of the same nature and to the same
extent” was a reference to BP Petroleum Development Ltd v Esso Petroleum Co Ltd
[1987] SLT 345 at 348, per Lord Ross, referring to Caledonian Railway Co v Colt
(1860) 3 Macq 833 at 844 (Caledonian), per Lord Chelmsford.119. Caledonian was a case before the House of Lords concerning two claims. The first was a claim for damages relating to a failure by the Railway Company to create a substitute road necessitated by disruption that the Company had caused. Second, there was a claim relating to a contract under which Colt had agreed with a third party to create the substitute road if the Railway Company failed to do so. Lord Chelmsford held that the question for determination was:
whether the liability of the railway company to the respondent is of the same nature, and to the same extent, as the liability of the respondent to [the third party], so as to entitle the respondent to call upon the company to take upon themselves all of the burden of the action brought against him by the [third party], and to relieve from all the consequences of that action.
120. In BP Petroleum, the requirement that liability be “of the same nature and to the same extent” was articulated in support of the proposition that, in that case, co-contribution
was available; although the obligation of one party was statutory and that of the other party was contractual, both were liable to the local authority to make good all the
damage that a vessel had caused to a jetty. The way in which that requirement “is apt
to include notions of equal or comparable culpability and equal or comparable causal
significance” is not immediately apparent.
121. In Burke, Gaudron ACJ and Hayne J proceeded to contrast the vendor’s culpability
and causation of the loss (it had positively induced the purchase) with that of the
solicitor (who had omitted to make inquiries that would have revealed the vendor’s
misleading conduct), before continuing at [22]:
It is unnecessary in this case to further explore the relevance of culpability and the causal
significance of the acts and omissions of persons claiming equitable contribution. … That is
because the doctrine of equitable contribution is founded on concepts of fairness and
justice – “natural justice”, as that term was explained by Kitto J in [Albion]. 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 [the vendor] were to receive contribution from [the solicitor], they would, to the extent of that contribution, not have paid their proper share but would, instead, be unjustly enriched. That is because they would ultimately receive an amount in excess of the true value of the premises which their misleading conduct caused [the purchaser] to purchase.
(Footnotes omitted)
122. In a separate judgment, McHugh J emphasised that “the right of contribution
depended upon matters of substance, not form”, such that, if sureties were severally
bound to the same principal by different instruments executed at different times, they may nevertheless be considered to have a common interest and a common burden:
at [40]. It was this “community of interest” that made it inequitable for the party against
whom the contribution was sought to keep the benefit it derived from the claimant
discharging its obligations: at [48].123. At [142], Callinan J set out various ways in which the foundation for a right of contribution had been expressed.
124. In a dissenting judgment, at [93], Kirby J referred to a “trend towards accepting a
broad ambit for equitable contribution”, and continued:
that trend was encouraged, and furthered, by the analysis of the essential purposes of
contribution undertaken by Kitto J in Albion. … [W]hat the trend of cases proves is that it is essential, where a dispute arises, to return to the spring of “natural justice” from which the
concept of contribution originates.
125. At [94]–[96], his Honour referred to three principles of equity that help to guide a
decision-maker towards the resolution of the availability of contribution in a particular
case: the precept that equality is equity (“no one ought to profit by another man’s loss
where he himself has incurred a like responsibility”), that equity prefers substance
over form (identity of rights is not essential), and that the principle of contribution
should not be “defeated by too technical an approach”. His Honour opined that when
the solicitor’s culpability (his conduct was by omission rather than positive act) and
causation (the solicitor acted on the vendor’s advice) were considered, neither
consideration absolved the solicitor from liability for contribution: at [106]–[110]. Nor was it a case of the vendor seeking “unjust enrichment”; by their respective acts and omissions, both the vendor and the solicitor had caused the purchaser’s damage.
Cases following Burke
126. In Friend v Brooker [2009] HCA 21; 239 CLR 129 at [38]–[39], French CJ, Gummow,
Hayne and Bell JJ stated:
Equity follows the law in the sense that it does not seek to direct the manner of exercise of the rights of the creditor, but equity does make an adjustment between the debtors. Thus equity does not interfere with the action of the creditor but seeks to ensure the sharing of the burden between those subjected to it.
The equity to seek contribution arises because the exercise of the rights of the obligee or creditor ought not to disadvantage some of those bearing a common burden; the equity does not arise merely because all the obligors derive benefit from a payment by one or
more of them. …
Hence the basic characteristics of the doctrine were identified, with reference to long established authority, in Burke as requiring contribution between parties sharing co- ordinate liabilities or a common obligation to make good the one loss, where the liabilities were of the same nature and to the same extent.
(Footnotes omitted)
127. At [41], the expression “co-ordinate liabilities” was preferred to that of “common
obligation”, on the basis that the former subsumed the latter “as indicative of the class
of circumstances in which the equity arises”.
128. In HIH Claims Support Ltd v Insurance Australia Ltd [2011] HCA 31; 244 CLR 72, Gummow ACJ, Hayne, Crennan and Kiefel JJ cited with approval the view of Gibbs CJ in Mahoney that the search for the basic requirement of a common obligation to
make good the one loss (co-ordinate liability) “should not be defeated by too technical
an approach”. However, at [42], their Honours cautioned:As the requirement of co-ordinate liabilities is essential for the operation of the doctrine of
equitable contribution between obligors, the duty to contribute is not based on “some
general principle of justice, that a man ought not to get an advantage unless he pays for it”.
(Footnote omitted)
129. In Lavin v Toppi [2015] HCA 4; 254 CLR 459 (Lavin), the question was whether a surety who pays a creditor a disproportionate amount of a guaranteed debt is entitled to recover contribution from a co-surety when the creditor has given that co-surety a covenant not to sue for payment of the guaranteed debt.
The Court affirmed that, because the creditor’s covenant not to sue the co-surety did
not release the co-surety from liability under the guarantee, all co-sureties continued to share co-ordinate liabilities and the sureties who had paid more than their proportionate share of the guaranteed debt could recover contribution from the co-
sureties: at [3]. At the time of the default, or at least from the creditor’s demand on
them, they had shared a common interest and common burden in relation to the
guaranteed debt: at [37].
131. At [41], the Court addressed an argument about benefit to the claimant, saying:
Once it is understood that the concern of the doctrine is to ensure that the burden of a common liability is borne equally, it can be seen that the existence of co-ordinate liabilities and benefit from payment are not separate and distinct elements of the right. When a common liability is discharged by a surety, the discharge of the liability inevitably benefits a co-surety in that, without a right of contribution in the surety, the co-surety who pays less than his or her fair share is unjustly enriched.
AMP
132. In AMP, Kunc J considered whether, in the exercise of its equitable jurisdiction, the
Court could adjust the “prima facie” entitlement to equal contribution from co-
guarantors because of the greater “culpability” of one co-guarantor: at [1]–[3].
133. After referring to Dering, at [35], his Honour said:
It follows that, from the very origins of the principle of equal contribution between co- sureties, the fact that one of those co-sureties (the plaintiffs) has caused or increased the guaranteed debt is insufficient to deny the plaintiff a right to contribution unless it can be
shown that the plaintiff does not come to equity with clean hands. …
134. At [39], his Honour said:
Therefore, it is of the very essence of the equity that if two co-sureties are equally liable to a creditor, then between themselves there is a right to equal contribution. In my view, as a matter of principle, the existence of any general discretion to depart from equal contribution by reference to subjective notions of culpability or liability is completely inimical and alien to the equity itself. Putting this another way, if the alleged culpability or responsibility of one co-surety for the debt to the creditor makes no difference to both co-sureties being equally liable to that creditor, then it can make no difference to the right of equal contribution between the co-sureties.
135. This view was reinforced by his Honour’s review of the authorities and texts: at [47]–
[82]. While his Honour found no binding decisions that determined that there was no general discretion to depart from the position of equality between co-sureties, his Honour considered that the decisions of Hodgson J in Leigh-Mardon v Wawn (1995)
17 ACSR 741 at 752 and Young J in Sky Channel at [7]–[12] and the observations of
Bergin CJ in Eq in Parker v Alessi [2011] NSWSC 947 at [119] provided persuasive support for that proposition. If, as suggested in Trotter v Franklin [1991] 2 NZLR 92 (Trotter) at 98, there was a general discretion in the law of New Zealand, then, in his
Honour’s view, the common law of Australia did not permit the right to contribution
between co-sureties to be adjusted by reference to general considerations of justice
and fairness: at [79] and [106].136. At [40], Kunc J identified four exceptions to the general principle of equality as between co-sureties: express or implied intention, obtaining the whole benefit, fraud etc, and equitable defences such as clean hands (see [71] above).
137. As was observed by Gleeson CJ in Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd [2003] HCA 18; 214 CLR 51 at [10], there is a risk that, in referring to apparently convenient categories, principles may be supplanted.
Global Consulting
138. In Global Consulting, Leeming JA (with whom Bathurst CJ and McColl JA agreed) opined that there was no discretionary power to withhold equitable relief based on notions such as “the justice of the matter” and considered that Trotter did not reflect
the law in Australia: at [77]. His Honour observed that the High Court of Australia had
emphasised that the entitlement to contribution depended on “co-ordinate liability”, i.e.
that liabilities were “of the same nature and to the same extent”: at [62]. His Honour
accepted as uncontroversial that the right of contribution was not available if there
was a contrary agreement or a “common intention” falling short of a legally
enforceable agreement: at [64]–[65]. The case was resolved on the basis that the
parties had agreed that their liabilities were not co-ordinate.
Principles
139. From the above cases, we distil the following propositions.
(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 supplied 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 circumstance 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.
140. It is not clear that “notions of equal or comparable culpability and equal or comparable
causal significance”, of themselves, have a role to play in determining whether a
claimant may obtain contribution. Nor is there an established discretionary power to withhold equitable relief on the basis of abstract considerations of justice and fairness.
Application of the principles
141. Any “co-ordinate liability” arose in January 2007, when the respondents executed the
relevant guarantees.
142. At the time that the guarantees were executed, the documentation contemplated the execution of pre-sale contracts, meaning that it was highly unlikely that the respondents would be exposed to a claim from the NAB. The intention to be imputed to the parties (and the NAB) is that the previous arrangement would continue; the proceeds of sale would be paid to the NAB and any profit would be paid to the
parties. Arguably, “co-ordinate liability” was contingent on the parties adhering to this
arrangement. However, we do not decide the case on this basis as the appeal was
not put in that way.143. The conduct of the Haiders (through the vehicle of I Haider, which they owned and controlled) in flouting the arrangement with the respondents and the NAB by failing to apply the sale proceeds to the NAB debt was the immediate and fundamental cause
of the NAB’s loss. It amounted to “boring the hole in the ship”. Consequently, the
Haiders do not come to equity with clean hands and must fail in their claim.
Mrs Haider’s claim for contribution
144. In determining whether Mrs Haider has a claim for contribution, we prefer to avoid reliance on her spousal status as putting her in the same camp as her husband such
that any claim for contribution by her is constrained by her husband’s disentitling
conduct (as the primary judge found).
145. However, we agree with his Honour that Mrs Haider cannot recover contribution as there was no evidence that she had contributed anything towards the discharge of the
guarantee: Lavin at [48]–[54]. Where a co-ordinate liability has been discharged, the
equity of contribution is only available to co-sureties who have contributed to its discharge. Consequently, the basis for a claim for contribution by Mrs Haider was not established.
146. Further, Mrs Haider was a co-director of I Haider and was responsible for its conduct as the vehicle by which Dr Haider effected the conduct that resulted in the loss. She, too, does not come to equity with clean hands.
Orders
147. The appeal should be dismissed with costs.
I certify that the preceding one hundred and forty-seven [147] numbered paragraphs are a true copy of the Reasons for Judgment of their Honours Chief Justice Murrell, Justice Loukas-Karlsson and Justice Perry.
Associate:
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