Hallam v Burns - [1998] QSC 277

IN THE SUPREME COURT
OF QUEENSLAND
No. 1641 of 1998
Brisbane
Before Williams J
[Hallam v Burns & Anor]
BETWEEN:
MURRAY JAMES HALLAM AND
GAIL MARGARET HALLAM
Plaintiffs
AND:

ROSS JAMES BURNS
First Defendant
AND:

DIANE MARIA BURNS
(AKA DIANE MARIA CAVALLARO)
Second Defendant
AND:

GLENN DALBY
Third Defendant
AND:

SUSAN MARGARET DALBY
Fourth Defendant

JUDGMENT - WILLIAMS J

Judgment delivered 11 December 1998

CATCHWORDS: Equity - Contribution between co-sureties - whether discharge of debt by principal debtor or guarantor - effect of assignment of original deed of loan to surety considered.

Counsel: D K Smith for plaintiffs
C Wilson for defendants

Solicitors:J N O’Donoghue for plaintiffs
Macgillivarys for defendants

Hearing Date: 12-14 October 1998
JUDGMENT - WILLIAMS J

Judgment delivered 11 December 1998

In the action the plaintiffs seek the following relief:
“1A declaration that the Plaintiffs are entitled to be subrogated to the rights of Heller Factors Pty Ltd in respect of securities given by the First and Second Defendants to Heller Factors Pty Ltd to secure obligations owed by Osprey Industries Pty Ltd.
2.Contribution from the Defendants in the sum of $107,618 as co-sureties for the debt of Osprey Industries Pty Ltd to Heller Factors Pty Ltd or in respect of such sums inclusive of interest as the Court determines.
3.In the alternative, for an order requiring the Defendants to exonerate the Plaintiffs’ in respect of the sum of $107,618.
4.In the further alternative, for exoneration and for interest on such sum at the rate of interest agreed between Heller Factors Pty Ltd, the Plaintiffs and the Defendants.
5.Alternatively, for interest at such rate and for such time as the Court shall think just.
6.Legal costs incurred by the Plaintiffs:
(a)Prior to the commencement of these proceedings in relation of the claim by Heller Factors Pty Ltd against the Plaintiffs as Guarantors;
(b)Of this action.”
At the end of the trial it seemed to me that the plaintiffs’ principal cause of action against the defendants was for contribution arising from the circumstances that all of the parties to the action were guarantors of the indebtedness of Osprey Industries Pty Ltd (“Osprey”) to Heller Factors Pty Ltd (“Heller”) and that the plaintiffs had (on their case) paid more than their due share of liability as co-sureties. The trial was complicated by a number of factors for which, in my ultimate view, the plaintiffs were primarily responsible and the resolution of factual disputes and proof of simple transactions was made vastly more difficult because of the failure of the plaintiffs to prosecute their claim for contribution promptly.
At the time of trial there was open antagonism between the plaintiffs on the one hand and the defendants on the other and that gave rise to many issues which were heatedly debated during the trial. Many of those, in my view, are irrelevant to the resolution of the ultimate issue. I have endeavoured in these reasons to deal only with matters which in my view are necessary to the determination of the action.
Prior to 1986 Glenn Dalby, the third defendant (“Dalby”), had been involved in a business specialising in the application of polyurethane foam, paint coatings and water proofing. On the dissolution of the previous partnership he was interested in restructuring the business. Dalby had known the plaintiff, Murray James Hallam (“Hallam”), since about 1983 and Hallam introduced Ross James Burns, the first defendant (“Burns”), to Dalby in about 1986. In that year there were discussions between the three men which led to them acquiring a shelf company and changing its name to Osprey for the purpose of continuing the business in question. Dalby had some contacts in Papua New Guinea and was interested in expanding the business activities there. Hallam had previously worked in Papua New Guinea and had contacts there; that was seen by Dalby as an asset.
Osprey was structured so that the directors were Dalby, Burns, and Hallam, and their spouses (the other parties to the action) were the share holders. Effectively Dalby provided an existing business to the new company.
In order to provide the company with working capital it was decided to borrow $60,000 from Heller. A Deed of Loan between Heller and Osprey was executed on 3 February 1987. It provided for the repayment of principal together with interest and charges as specified. All of the parties to this action were also parties to that Deed as guarantors. Osprey executed a Mortgage Debenture over all of its assets and business undertakings to secure repayment of all moneys lent to it by Heller. The Deed provided that the six guarantors were jointly and severally liable and set out with some particularity their legal obligations. The Deed also provided that in addition to the Mortgage Debenture the following mortgages would be required:
(a)A registered second mortgage over the house and land at Holland Park owned by Burns and Mrs Burns;
(b)A registered first mortgage over land at Coochiemudlo Island owned by Mrs Burns;
(c)A registered mortgage over house and land at North McLean owned by the plaintiffs.
Because of an absence of records relating to Osprey’s affairs (though this was the subject of some debate during the trial it is not necessary for me to determine why that is so and who is to blame) one cannot trace the receipt of the loan monies into Osprey’s accounts. The defendants were able to produce a page of Osprey’s bank statements with the National Australia Bank at Park Ridge for the months of January-February 1997 showing a cash deposit of $51,403.43 on 4 February. The defendants contended that that was the deposit of the loan funds from Heller. It was also the contention of the defendants that $8,500 of the loan was used by the Hallams to discharge personal liabilities and was not beneficially received by Osprey. On the whole of the evidence I find on the balance of probability that the money was advanced by Heller on or about 4 February 1987. The defendants were able to point to circumstances (such as the plaintiffs’ liabilities to other finance companies at the time) and the NAB statement of account referred to above in support of their contention that $8,500 of the loan was not beneficially received by Osprey. The evidence by Hallam and Mrs Hallam to the contrary (that is, that all the money save for $1,800 went to Osprey) was not convincing and that alone would not enable me to make any positive finding on the issue; the Hallams conceded that Heller paid $1,800 directly to Citicorp on their behalf. The treatment of the $1,800 supports the defendants’ contention that Heller wanted the Hallams to discharge their other liabilities before approving the loan; that could explain the increase from $50,000 to $60,000 in the amount of the loan. However, I regard as more significant the fact that none of the defendants raised this issue at an early stage. For example, one would have thought that the letter of 22 February 1988 from Heller to Osprey, or the letter of 11 April 1988 from Heller to Dalby, (or indeed any of the correspondence and demands up to February 1991) would have caused the defendants to raise the point if they then had evidence to support it. In the light of all that emerged at the trial I find on the balance of probabilities that all of the $60,000 save for $1,800 was beneficially received by Osprey.
During 1987 most of Osprey’s work involved jobs near Brisbane, but through Dalby’s contacts a number of jobs were undertaken in Papua New Guinea. In order to facilitate tendering for work in that country Osprey Industries Pacific Pty Ltd (“Osprey Pacific”) was formed in about July 1987. Osprey held 50% of the shares in Osprey Pacific and the balance was held by/or for Ronbar Pty Ltd (which had engineering and architectural interests). Ronbar Pty Ltd is often referred to in the evidence as the E.T.S. Group and was the organisation which had introduced Dalby’s original business to Papau New Guinea. For a period Dalby and Hallam worked primarily with Osprey Pacific and Burns was primarily responsible for Osprey. Then for a period Dalby was commuting regularly between Brisbane and Papua New Guinea. Dalby’s active involvement with Osprey and Osprey Pacific ceased by about the end of 1989.
By about September 1987 Burns resigned as a Director because of ill health. Mrs Burns declined to transfer her shares in Osprey until the securities given by Burns and Mrs Burns were released.
Probably because most time was being spent on the activities of Osprey Pacific the affairs of Osprey in Brisbane were largely neglected. Payments required by the Deed of Loan were not made on time. Certainly by the beginning of 1990 Osprey was in serious default pursuant to the Deed of Loan with Heller. Despite numerous letters of request that default was not remedied. On or about 10 August 1990 Heller:
(i)gave notice pursuant to the Property Law Act 1974 of intention to exercise power of sale pursuant to the Mortgage Debenture given by Osprey;
(ii)gave notice to Mr and Mrs Hallam pursuant to the Property Law Act 1974 of intention to exercise power of sale with respect to the mortgage given by them to secure their obligation as guarantors;
(iii)caused similar notices to be given to Mr and Mrs Burns.
That was followed by Heller giving each of the guarantors notice dated 16 August 1990 of Osprey’s default, of the fact that it had accelerated payment of the total sum of $52,057.84 plus interest and costs, and calling on the guarantors to pay that amount within 30 days otherwise action would be taken to enforce recovery.
Messrs Cannan & Peterson, solicitors, on 28 August 1990 wrote to Messrs Carter Newell, solicitors for Heller, stating inter alia:
“We act for Osprey Industries Pty Ltd.
We have been provided with a copy of your letter of 27 July, 1990 addressed to our client at its registered office in Paddington.
We also refer to the telephone conversation between your James Conomos and our Michael Beirne and confirm your advice to the effect that a Notice pursuant to Section 364 of the Company’s Code has been sent to the company’s registered office, together with notices relating to the exercise of a Power of Sale and notices to Guarantors of the facility provided to Osprey Industries Pty Ltd by your client.
...
It is our client’s desire to maintain the facility with your client and to bring this account into order within the shortest possible time. ...
We are instructed that although the account has fallen into arrears we again stress our client’s wish to maintain the facility with your client and to henceforth, keep the account in order.
...”
By letter of 11 September 1990 Carter Newell notified Cannan & Peterson of the conditions on which Heller was prepared to continue the loan.
By this time John McGaw was acting as solicitor for Mr and Mrs Burns and he had been in contact with both Carter Newell and Cannan & Peterson.
On 13 September Cannan & Peterson sent a letter addressed to:
“Mr and Mrs M Hallam
Osprey Industries Pacific Pty Ltd”
in which they sought instructions with respect to the offer from the solicitors for Heller in the letter of 11 September 1990. They also asked for a sum of money to cover costs. There was then a further letter dated 14 September 1990 from Cannan & Peterson to Carter Newell. It was headed:
“Osprey Industries Pacific Pty Ltd
Your client: Heller Financial Services Ltd.”
In very broad terms that letter put forward a counter-proposal for continuation of the loan facility. It also sought a review of the amount claimed for legal costs pursuant to the Deed.
The next letter of relevance for present purposes is from Cannan & Peterson to John McGaw dated 24 September 1990. It is headed:
“Osprey Industries Pty Ltd ats Heller Financial Services Ltd
Our Client: Murray Hallam
Your Client: Robert Burns”
In the course of that letter the following passages appeared:
“We are presently negotiating with Heller Financial Services Ltd on Mr Hallam’s behalf to settle the present demands made on Osprey Industries Pty Ltd and on your client and Mr Hallam in relation to the securities given by each of them.
We confirm that Mr Hallam proposes that in consideration of his meeting the Company’s indebtedness to Heller Financial Services Ltd, your client transfer his wife’s share in the company to Mr Hallam.
...
That is, our client is presently renegotiating the present facility on the basis that it would be paid within a period of 12 months and that a certain sum of money per month will be paid in reduction of principal and interest. It is a term of the agreement proposed by our client that no contribution be made by Mr Burns to reducing the Company’s indebtedness.
It is further proposed that upon the expiration of the 12 month period, or earlier if the facility is renegotiated or the indebtedness extinguished, your client will be released from the security given by him for the Company’s indebtedness to Heller Financial Services Ltd.
Having regard to our client’s exposure to the present and other proceedings commenced by creditors of the company it is not proposed that our client provide your client with an indemnity until the share held by Diane Burns has been transferred. ”
On 25 September 1990 Cannan & Peterson also wrote to Mr Dalby. The critical part of that letter read:
“We act for Murray Hallam in relation to demands by Heller Financial Services Ltd for the indebtedness of Osprey Industries Pty Ltd.
...
We have instructed that in consideration of our clients’ satisfying the indebtedness of Osprey Industries Pty Ltd to Heller Financial Services that you transfer the whole of your interest in Osprey Industries Pty Ltd to him.”
It appears that there was then a refusal by Heller to accept the basis on which Cannan & Peterson proposed on behalf of the Hallams that the facility be extended. The threatened enforcement proceedings by Heller were again enlivened. That appears to be the position reached by about 28 September 1990. By letter of that date Cannan & Peterson advised Mr and Mrs Hallam of the position. In broad terms the Hallams were advised that if they were unable to satisfy Heller’s terms set out in the letter of 11 September they should take immediate steps to refinance.
As at 4 October 1990 Heller intimated that the pay out figure was $55,527.77 made up as follows:
Principal  $44,812.64
Interest to 31/8/90                   $ 7,806.01
Interest 1/9/90 to 1/10/90        $     742.17
Legals to 31/8/90  $ 2,150.30
FID  $      16.65
On 5 October 1990 Cannan & Peterson wrote to John McGaw informing him of the breakdown of negotiations with Heller and asking for his “client’s attitude to the previous negotiations”. The reply by letter dated 24 October 1990 indicated that Burns would arrange for the transfer of the share in Osprey held by Mrs Burns in exchange for a release of the mortgage.
The letter from Jeff Thomas & Associates, solicitors, to Mr and Mrs Dalby of 26 October 1990 indicates that the Hallams were prepared to arrange a similar compromise with the Dalbys.
About the end of September Michael Beirne left Cannan & Peterson; until then he had been the solicitor in charge of this matter. Until 13 November 1990 Cannan & Peterson continued acting, primarily seeking refinancing from Citicorp. By letter of 13 November 1990 the Hallams withdrew instructions from Cannan & Peterson and re-engaged Beirne who was then with Murrell Stephenson. By letter of 13 November 1990 to Beirne, Hallam indicated he should be in a position to provide funds of about $30,000 in the immediate future for payment to Heller. At that stage the attitude of Carter Newell was that the exercise of the power of sale should proceed and it commenced steps to have the Burns’ security properties valued prior to sale.
On or about 14 November 1990 Hallam arranged for $9,400, being private monies of himself and his wife, to be transferred from a Suncorp account to Murrell Stephenson. As at 15 November 1990 Heller informed Beirne that it required $30,000 by 16 November 1990, $15,000 by 10 December, and the balance by 31 January 1991, otherwise enforcement proceedings would be taken.
24 On or about 14 September 1990 the plaintiffs had deposited a sum of money in the trust account of Cannan & Peterson. By Papua New Guinea law an employer had to retain some wages in a gratuity account for all expatriate employees. Osprey Pacific was holding moneys in a gratuity account for Mrs Hallam and she was able to access it by way of a loan from the company to enable a payment to be made to meet Heller's demand. That was the background of the deposit in September 1990 into Cannan & Peterson's trust account.
As at 16 November 1990 Cannan & Peterson were holding in their Trust Account $8,000 being the property of the Hallams. Murrell Stephenson arranged with Cannan & Peterson for the latter to draw a cheque for that amount payable to Heller. That was done on that day, 16 November 1990. In addition to the $9,400 referred to above, Murrell Stephenson received, on or about 14 November 1990, $13,000 from Papua New Guinea in circumstances which will be discussed in more detail subsequently. Murrell Stephenson were then able to write a Trust Account cheque for $22,000 in favour of Heller on 16 November 1990. That meant that on 16 November 1990 Heller received the $30,000 it had demanded. The defendants conceded that of that amount $17,400 (the $8,000 from Cannan & Peterson and the $9,400 from the Suncorp account) were monies of the Hallams; however, they disputed that the balance was provided by the Hallams personally.
On 12 December 1990 an amount of $14,995 was deposited into Murrell Stephensons Trust Account from Papua New Guinea. A cheque for that amount was drawn immediately and paid to Heller. Again the defendants do not admit that that amount was provided by the Hallams personally.
In a letter of 16 November 1990 from Murrell Stephenson to Carter Newell the following passages appeared:
“To assist us in determining the rights as between the guarantors, please provide us with a copy of each of the securities granted by Osprey Industries Pty Ltd, the Hallams, the Dalbys, and the Burns.
We confirm that upon satisfaction of our clients’ indebtedness, Gail and Murray Hallam wish to be subrogated to the rights of Heller Financial Services Pty Ltd, and accordingly we ask that upon completion of the arrangement entered into between the parties on or before 31 January 1991, that the securities given by the Dalbys and Burns be transferred to Gail and Murray Hallam. Please acknowledge that subject to further requests, having regard to negotiations between the guarantors, that the Hallams wish to be subrogated.”
By letter dated 23 November 1990 Carter Newell informed John McGaw that the Hallams were making payments to Heller and had indicated that they wished to be subrogated once the account had been finalised.
Acting on express instructions from the Hallams, on 7 December 1990 Murrell Stephenson wrote to Jeff Thomas & Associates proposing that upon the transfer of Mrs Dalby’s share in Osprey to Hallam, the Hallams “will undertake not to pursue their rights as co-sureties to be subrogated to the rights of Heller Financial Services Pty Ltd upon the satisfaction of the Company’s indebtedness to Heller Financial Services Pty Ltd”. Apparently a similar letter was written to John McGaw with respect to the interests of Mr and Mrs Burns.
The letter of 8 January 1991 from John McGaw would suggest that Mr and Mrs Burns accepted the offer made by the Hallams. The letter from Jeff Thomas & Associates of 14 January 1991 indicates a conditional acceptance of the Hallam’s offer by Mr and Mrs Dalby. Their acceptance was conditional upon payment of $18,200 to Mrs Dalby “by way of consideration for the sale of the share in full and final satisfaction of all claims that she may have against the company for monies owed to her either by way of salaries or expenses not reimbursed”. As the reply of 16 January 1991 from Murrell Stephenson indicated there was also an issue to be resolved (primarily with the Dalbys) relating to a claim with respect to work done on the Soho Hotel. The stage was reached where documentation evidencing a final resolution of the matter as between the Hallams and the Burns was prepared.

Murrell Stephenson indicated to Carter Newell that the final balance payable to Heller could be paid on 26 February 1991. Carter Newell advised that the amount then required was $14,806. The Hallams caused to be deposited to the Trust Account of Murrell Stephenson the sum of $16,245.96 on 25 February. Payment to Heller was duly made on 26 February 1991. Again, the defendants dispute that those monies were provided by the Hallams personally.
By letter dated 25 February 1991 John McGaw informed Murrell Stephenson that “as a result of certain information coming to my client’s attention which materially affects the company, its shareholders and your clients’ conduct” Mr and Mrs Burns withdrew from further negotiations with respect to the transfer of the share in Osprey and the release of the mortgage. That resulted in Murrell Stephenson requesting that Carter Newell prepare a transfer of the securities given by Mr and Mrs Burns to the Hallams “to secure their right of subrogation”. The Hallams also sought an assignment of the charge given by Osprey.
By transfer executed 22 March 1991 Heller, for the consideration of $2, transferred to the Hallams mortgages numbers J72234 and J69214; they are the mortgages given by Mr and Mrs Burns. By separate Deed executed 27 March 1991 Heller assigned to the Hallams all of its rights under the Mortgage Debenture given by Osprey. That assignment was said to be in “consideration of the assignees having discharged the indebtedness of the promisor to the assignor, such discharge which is acknowledged, the assignor assigns to the assignee absolutely all of the assignor’s right title and interest under the said charge”. Subsequently the transfers of the mortgages were registered on the respective titles. Notices of the assignments were given to Mr and Mrs Burns by formal notice dated 30 April 1991.
The next relevant step for present purposes was a letter from Hallam to Burns dated 29 September 1995 in the following terms, so far as is material:
“As you are aware Osprey ... is indebted to me for $60,000 plus interests and costs since approximately February 1991.
This debt is secured by a second mortgage over a house and land at Holland Park and a first mortgage over land in Redland Bay.
The terms of the mortgage provide for an interest rate described as “the acceptable rate of interest” which is, 5% above the “average rate of interest paid or payable by the lender”. These, and other terms can be found in the document clause 6 regarding interest.
...
It is in your interest to try to reach a settlement as soon as possible as the interest is accumulating continuously, and the most conservative calculation puts the total now in excess of $100,000 ...”
That was the first written demand for contribution. Later in December 1995 there was a meeting at which the question of contribution from the defendants was discussed.
Nothing appears to have happened thereafter until the letter of 20 March 1996 from Murrell Stephenson to Mr and Mrs Burns; so far as is relevant it stated:
“As you are aware, the borrower defaulted under the terms of the loan referred to above and our clients, as guarantors, paid out the loan.
Further:
(a)co-guarantors for the loan were yourselves and G & S Dalby;
(b)our clients now hold the security over your property previously held by the lender.
Our clients, intend to proceed to have recourse to that security including recourse to the right as mortgagee to sell your property if they do not receive contribution for the loss incurred by them as guarantors.
Our clients’ loss involves:
(i)payment of approximately $66,000 (including interest) to the lender;
(ii)interest on (i) above;
(iii)legal expenses.
The purpose of this letter is to attempt to settle this matter before our clients have recourse to the security they hold over your property. ...
Should a satisfactory response not be received within that 7 day period our clients intend to have recourse to their security. ...”
By March 1996 MacGillivrays, solicitors, were acting for Mr and Mrs Burns and the Dalbys. They replied to the letter of 20 March 1996 requesting further details supporting the claim of the Hallams. In their reply of 18 April 1996 Murrell Stephenson asserted that the Hallams had made the following payments as guarantors to Heller:
14 September 1990                 $12,356.51
14 November 1990                 $ 9,400.00
14 November 1990                 $13,000.00
10 December 1990                 $15,000.00
22 February 1991                   $16,250.96
TOTAL  $66,007.47
The next step taken by the Hallams to enforce their claim was the giving of a Notice of Demand under Loan Deed dated 29 October 1996 to Mr and Mrs Burns and the Dalbys. Relevantly that Demand stated:
“We, Murray James Hallam and Gail Margaret Hallam are by force of law subrogated to the rights and obligations of Heller Factors Pty Ltd under the said Loan Deed by reason that we, as your co-guarantors in joint several liability, did satisfy in full under the guarantee contained within the Loan Deed, a Notice of Demand issued by Heller Factors Pty Ltd in 1990 pursuant to the Loan Deed.
We hereby make formal demand for payment by you of the amount of One Hundred and Seven Thousand Six Hundred and Eighteen Dollars and Sixty-one ($107,618.61) being the amount of principal and interest outstanding pursuant to the said Loan Deed in accordance with calculations set out in the Schedule attached hereto and marked “A”.
Unless the whole of the amount owing is paid within fourteen (14) days by you to us, we will proceed to exercise our rights and options ...”
Separate Demand Notices were specifically given to Mr and Mrs Burns pursuant to their mortgages. Schedule “A” was a calculation of interest on $59,801 from March 1991 adopting an interest rate being the “Bank rate for commercial loans from time to time plus 7% as provided in the Loan Deed”. The interest accruing each month was capitalised to the principal as provided for by the Loan Deed. That gave a total for interest from March 1991 to September 1996 of $101,626. In consequence it was claimed that the total amount payable pursuant to the Loan Deed was $161,427.
The Hallams asserted that they were only liable in equity for _ of that amount, namely $53,809, leaving a balance remaining to be paid by the defendants of $107,618.
MacGillivrays, on behalf of the defendants, disputed liability as claimed and demanded delivery up of the bills of mortgage together with a release. The Hallams then proceeded to arrange for an auction of the Coochiemudlo property, but that brought a threat of injunction proceedings from Mr and Mrs Burns (letter from MacGillivrays 16 December 1996). By December 1996 J N O’Donoghue was the solicitor acting for the Hallams and he responded by letter of 16 December 1996 threatening to proceed with the sale of the Coochiemudlo land. On 19 December 1996 Mr and Mrs Burns obtained an injunction from this court restraining the Hallams from selling the subject property until the trial of the action. The plaintiffs' action had in fact been commenced in the District Court on 12 November 1996.
It is now convenient to return to the activities of the Hallams in Papua New Guinea and the background to the transfer of funds to Murrell Stephenson on or about 14 November 1990, 12 December 1990, and 22 February 1991.
In Papua New Guinea there were Government restrictions on the range of work which could be undertaken by a company which was regarded as a foreign company. If an indigenous person held the required percentage of shares then the company would be permitted to undertake a broader range of work. Osprey Pacific was, so it would appear, severely hampered by the limitations imposed on it and the decision was taken by the Hallams to set up another company with an indigenous share holder to overcome the problem.
In consequence of that Programmed Maintenance Services Pty Limited was acquired in about April 1989. Hallam, Dalby and Peterson (a Ronbar representative) became directors of Programmed Maintenance Services Pty Limited, but its shareholding (primarily through another director, Mr Gideon) was such as to satisfy control by Papua New Guinea nationals. Then by an agreement dated 13 April 1989 Osprey Pacific was retained to carry out management services for Programmed Maintenance Services Pty Limited; that included carrying out the business undertaking of the latter. Clearly the intention was that thereby Osprey Pacific could overcome the national control requirements for the benefit of all its shareholders.
That position pertained until early 1990 when the Hallams, without the knowledge of the other shareholders in Osprey Pacific, took steps to further improve their position.
In or about the month of February 1990 Hallam acquired a share in Mirotone Pty Ltd (“Mirotone”) and shortly thereafter became a director. Then in March the other share in Mirotone was transferred to Simon Bisi, a Papua New Guinea national. Bisi had been employed previously as sales manager of Osprey Pacific. Hallam gave as the principal reason for acquiring Mirotone the following: “I was being pressed for payment of the Walter Heller debt. My principal objective for Mirotone was that it would earn income for my wife and I, and additionally, to discharge our Heller debt, assuming that Osprey was likely to be unable to do so”.
Hallam’s evidence was that Bisi agreed that he would hold his share, and any other shares he acquired, on trust for the Hallams. To give effect to that agreement Bisi (according to Hallam) signed a Declaration of Trust and gave Hallam a signed Share Transfer in blank. No trust document was produced in evidence. Following allotment at a directors' meeting on 28 November 1990 Bisi held 4 shares and Hallam one.
There are grounds for believing that much of the New Guinea work, previously carried out by Osprey Pacific, was thereafter performed by Mirotone. That was denied by the Hallams but their evidence does not clearly define the work performed by each company. According to the Hallams they “generated revenue for the company (Mirotone) by seeking out the work, providing our management skills and labour to the construction work”. As was said in Hallam’s affidavit, they “regarded the company (Mirotone) as our own”. The evidence suggests that much of Hallam's time was spent on Mirotone's affairs to the disadvantage of Osprey Pacific and its associates.
According to Hallam by about the end of 1990 each company was “a profitable venture”. On the evidence one would have to doubt that.
For some reason not explained by the evidence Mr and Mrs Hallam were not formally appointed as directors of Mirotone until November 1990. On 28 November each signed a consent to act as director, and they (together with Bisi) were appointed directors at a meeting held on that date. However it seems clear that they had effectively controlled the company from February. J.K. Gavie, one of the original directors had signed a resignation as director on 22 March 1990. Whether or not the failure to make the formal appointment was an attempt to disguise the involvement of the Hallams in Mirotone is impossible to determine on the present evidence. No submissions were made to the effect that decisions taken prior to November were invalid because of the lack of formal appointment of directors.
I am satisfied on the evidence that prior to January 1991 the Hallams did not inform the defendants of their involvement in Mirotone and the extent to which Mirotone was competing with Osprey Pacific for work in Papua New Guinea. The Ronbar interests had some knowledge of Mirotone's activities from about August 1990. The amounts of $13,000, $14,995 and $16,250.96 deposited into the Trust Accounts of Murrell Stephenson on 14 November 1990, 12 December 1990, and 22 February 1991 respectively came from the Mirotone account in Papua New Guinea. The case for the plaintiffs is that each amount was a loan from Mirotone to the plaintiffs to enable them to pay out Heller.
There appears to have been a falling out between the Ronbar (E.T.S.) interests and Hallam over the control of Osprey Pacific in about October 1990. The evidence does not clearly establish the source of that dispute, but later events suggest that the real cause was Hallam’s conflict of interest in being effectively in control of both Osprey Pacific and Mirotone which were competing with each other.
I am satisfied that Burns first became aware of Mirotone in about January/February 1991, and that is why he pulled out of negotiations with Hallam as to the transfer of his wife’s share in Osprey in return for a release of the mortgages. It seems fairly clear on the evidence that from about February 1991 at the latest Burns, Dalby and the Ronbar (E.T.S.) interests were so concerned over Hallam’s conflict of interest between Osprey Pacific and Mirotone that they decided action had to be taken.
There is evidence that an Extraordinary General Meeting of Osprey was held in Brisbane on 25 February 1991 at which a resolution was passed removing Hallam as a director and secretary of the company. Dalby says notices of the meeting were duly sent, but there is no documentation available relating to that meeting. A letter signed by Dalby and dated 26 February 1991 was sent to Hallam informing him of his removal. Dalby then wrote to Murrell Stephenson on 9 April 1991 asking for the company seal of Osprey and other documentation and assets of the company held by that firm. Murrell Stephenson replied by letter dated 23 April 1991 in which they asserted that the meeting of 25 February 1991 was irregular because Mrs Hallam had not been given proper notice of it. In evidence Mrs Hallam denied receiving notice of this meeting. It is not possible in this litigation (nor is it necessary) to determine whether or not such a meeting was held and was valid. What is of more significance for present purposes is that Murrell Stephenson acknowledged in their letter that “the letter of 26 February 1991, reached our client”. In other words Hallam received notice of his removal (or purported removal) as a director of Osprey in about February but had not reacted in any way prior to 23 April 1991.
There is also evidence that on or about 27 February 1991 Hallam was informed by Ron Gove of Ronbar that he (Hallam) had been sacked as a director and employee of Osprey Pacific. Mrs Hallam received a letter dated 20 February 1991 indicating that by a resolution passed at a directors' meeting of Osprey Pacific on 19 February 1991 she had been removed from all positions with the company. At or about that time the Hallams were also served with documents showing that the National Court had issued an injunction on 26 February 1991 freezing their personal assets and also bank accounts of Mirotone.
In February 1991 two actions were commenced in the National Court of Papua New Guinea which are of significance for present purposes. In action 113 of 1991 Osprey Pacific was the plaintiff, Hallam was first defendant, Mrs Hallam second defendant, and Mirotone third defendant. The other action, No. 313 of 1981, was between Osprey as plaintiff, Hallam as first defendant, and Mirotone as second defendant. The evidence strongly suggests that the Ronbar (E.T.S.) interests were responsible for commencing the first action.
On 7 March 1991 a meeting (the minutes would suggest a General Meeting) of Mirotone was held; M Tonkin (Chairman), Bisi, and Mr and Mrs Hallam were present. The minutes so far as are material for present purposes record the following:
“1.Appointment of Murray J Hallam as General Manager.
2.Formalise loan arrangements for Osprey Brisbane.
...
5.New accommodation for Simon Bisi be found urgently.
6.Simon Bisi is to take up his appointment as Sales and
Marketing Manager as soon as practicable.
7.Assets Journal be drawn up urgently.”
Then at 6 p.m. on that date there was a Directors’ meeting of Mirotone held at which the same four persons were present. At that meeting it was resolved that Hallam be appointed General Manager of Mirotone as of 7 March 1991. I reject Hallam's explanation that this resolution was passed for the purpose of his obtaining a work permit. Then there is a minute of another meeting of Directors of Mirotone purportedly held at 6 p.m. on the same date, 7 March 1991. The document records Mr and Mrs Hallam and Bisi being present though it is signed by those three and Tonkin. There is a sub heading: “Re: Advance to Osprey Industries Pty Ltd Brisbane”. The only matter recorded is as follows:
“It is resolved that various advances have been made with the full authority of the directors, to be used to satisfy a debt of Osprey Industries Pty Ltd Brisbane, and that the monies will be repaid to Mirotone Pty Ltd at a rate yet to be specified.”
It may or may not be significant that the date, 7/3/91, is written in ink whereas the balance of the document is typed. Hallam tried to pass off the heading as a clerical error made by his wife, but I reject his evidence in that regard.
The following day, in action 113 of 1991 the National Court appointed R W Smith as Receiver of Mirotone.
Then on 11 March 1991 Bisi wrote to Hallam at Mirotone in these terms:
“I, Simon Bisi, have sought legal advice with a number of lawyers and have come to the conclusion that your management is no longer required by me as the 75% national shareholder. Your employment as General Manager and as an employee of Mirotone Pty Ltd is terminated as of 11 March 1991. Documentation which shows that a huge sum of money was drawn without the directors’ knowledge is now with me.
You have proven yourself to be incapable of running the company sufficiently. You have drawn Mirotone Pty Ltd’s fund and used it to satisfy your personal needs, again, that was without the directors’ authorisation.
I find that an act of fraud, I do also want to see that monies being paid back to Mirotone Pty Ltd’s account with interest yet to be set at a later date.
Should you fail to pay the debts at a set date, you will be liable for damages incurred by you during the duration of your management. And I shall request that 25% share of yours with Mirotone Pty Ltd be transferred to myself, should that not be done, I will seek further legal action towards yourself.”
According to the evidence of Hallam "some days later" Bisi personally handed him the handwritten letter exhibit 14 withdrawing what was said in the letter of "16-3-91" and apologising. Hallam said in evidence that Bisi wrote and signed exhibit 14. The signature is nothing like that of Bisi which appears on documents at pages 116,117, 295, 320 and 321 of exhibit 1 and page 466 of exhibit 2. Further, at least at first glance, the writing constituting the body of the letter does not seem to be in any way similar to the signature at the foot or to the signatures of Bisi on the other documents. The alterations to the text suggest it was not spontaneously written. Also it is odd that the wrong date was inserted. In the light of all the evidence I am not satisfied that exhibit 14 is a genuine document.
There is a dispute on the material as to the extent to which the Hallams co-operated with the receiver; again it is neither possible nor necessary to make specific findings in relation thereto. Suffice it to say that I am satisfied on the material before me that the receiver found that there had been an inter-mingling of assets of Mirotone and Osprey Pacific. That was commented on by the receiver in his report to the Court of 17 April 1991, and tends to be confirmed by the minutes of the meeting on 7 March 1991. The receiver required Mrs Hallam to prepare books of account of Mirotone, in particular a cash payments journal. Three pages of that journal as prepared by Mrs Hallam are found in exhibit 1 at pp. 217, 238 and 308. On those pages one finds recorded the transactions involving the transferral of funds to Murrell Stephenson on 14 November 1990, 12 December 1990, and 22 February 1991. The entry for 14 November 1990 shows a reference to Murrell Stephenson’s trust account followed by the word “Hallam” above “Osp.BNE”. To the right hand side of the page the amount in kina is shown in a column headed “Loans” and again there is the notation “Hallam - Osp.BNE”. The entry for December 1990 again shows a reference to Murrell Stephenson with the amount $15,000 followed by “Osp.BNE”. Above that there appears the notation “Loan account Hallam”, but just from looking at the entry it is impossible to say whether or not that notation relates to the entry in question. To the right of the page the amount in kina is shown in the column headed “Loans” and again there is a notation “Osp.BNE Hallam”. The final relevant entry is for 22 February 1991. The particulars there are “Loan Hallam - Osp.BNE” with Murrell Stephenson written above. On the right hand side of the page the column in which the amount appears does not have a heading, but alongside the amount there appears “loan” above the initials “MH” which are above the notation “Osp.BNE”. According to Mrs Hallam in drawing up that Cash Payments Journal she showed each amount as a loan to the Hallams.

The document at page 499 of exhibit 2 is also significant. Mrs Hallam admitted she prepared it but could not recall when. The first three payments are clearly the payments from Mirotone to Murrell Stephenson. The heading "Loans to OSP.BNE" is significant and more so, if as suggested by Mrs Hallam, the document was prepared after these proceedings had commenced.
The totality of the evidence from the Receiver indicates that the deficiency in Mirotone at March 1991 when he was appointed was of the order of K.27,550 and the total of the payments to Murrell Stephenson referred to above was of the order of K.32,600. It is clear that recovery of those amounts from the beneficiary of the loans (whoever that might be) was vital to the future of the company.
I have already mentioned that in his report to the court dated 17 April 1991 the receiver referred to the intermingling of assets of Mirotone and Osprey Pacific. That report also contained the following observation of relevance for present purposes: “Receiver’s representative obtained further details from Osprey of inter-company loan accounts and payments made by Mr Hallam to Heller Financial Services Ltd Brisbane”. That was taken up again in a letter dated 23 April 1991 from the receiver to Hallam; it is in these terms:
“Attached is a copy of our report that is to be filed with the National Court. As previously stated we have made no assessment of the legitimacy or otherwise of claims made by Mirotone with respect to expenditures incurred by that company on behalf of Osprey and reflected in the inter-company loan accounts of Mirotone nor has the Receiver assessed the legitimacy or otherwise of Osprey sales claimed by Osprey to be involved by or received by Mirotone.
These matters, in the Receiver’s opinion will be responsibility of Court to adjudicate and resolve under outside the jurisdiction of the Receiver as detailed in Court Order WS113/91.”
Some two days later, 25 April 1991, Hallam wrote to Murrell Stephenson a letter headed: “Regarding: Action to recover loan monies from Osprey Industries Pty Ltd”. The balance of the letter does not appear to be of great significance for present purposes, but the heading quoted cannot be ignored.
The question of the money from Mirotone which was used to pay out Heller was then taken up again in a series of letters during the period November 1991 to March 1992. The first is a letter of 25 November 1991 from the receiver to Hallam in his then capacity as the manager of Allclad Pty Ltd. The letter is as follows:
“Re: Mirotone Pty Ltd (Receiver Appointed)
I refer to the above mentioned administration and advise that all plant and equipment owned by Mirotone Pty Ltd will be advertised for sale in the near future. ...
We would appreciate you making suitable arrangements to have those assets still in your possession delivered or alternatively we will sell the assets “as is where is” ...
We would also appreciate further details as to whom to contact at Osprey Industries Pty Ltd Brisbane to enable us to collect the advances made by Mirotone.
Thank your for your assistance to date and we hope that these matters can be resolved quickly and to everyone’s satisfaction.”
The reply, under the hand of Hallam is dated 25 November 1991; the relevant paragraph are as follows:
“If you wish to contact Osprey Industries Pty Ltd you may contact a Mr Ross Burnes at 1 Hector Street, Holland Park, Brisbane, or alternatively their accountant and registered office at Anthony Ryan & Associates, 219 Latrobe Terrace, Paddington (07) 368 3883, Mr Anthony Ryan.”
Hallam's extraordinary explanation is that he was asked a "silly question" so he gave a "silly answer". By this time the Hallams had been registered as mortgagees of the Burns property for more than six months.
There was then a further letter from Hallam to the receiver dated 29 November 1991 which included the following which is relevant for present purposes:
“If you wish to contact Osprey Industries Pty Ltd in Australia you may contact a Mr Ross Burns, 1 Hector Street, Holland Park, Queensland.”
Next came the letter from the receiver to Hallam of 18 February 1992 in these terms:
“Thank you for your letter of 29 November 1991.
We note your advise in that letter that certain monies were advanced by Mirotone Pty Ltd (Receiver appointed) to Osprey Industries Pty Ltd (Brisbane).
We are currently contemplating taking steps to recover these outstanding loan monies from Osprey. To assist us in that regard, we ask that you advise us as to the amount of the monies which were advanced by Mirotone to Osprey Industries, the purpose of that advance, what Osprey did with those monies,
whether there was any formal agreement between the companies as to terms whereby the loan was to be repaid, and so forth.
We ask that you let us have the above information as soon as possible.”
The reply from Hallam dated 3 March 1992 was terse; it merely said: “In reply to your letter of 18 Feb 92, the matter is “sub judice”.” That could only be taken as a reference to the litigation in Papua New Guinea.
I accept the evidence of the receiver, R W Smith, that he was told by Hallam in March 1991 that the amounts in question were advances made by Mirotone to Osprey. I am also satisfied that Hallam never informed Smith that the amounts in question were loans to either or both Mr and Mrs Hallam.
On 12 July 1991 the National Court ordered the plaintiff in action 313 of 1991 to provide security for costs. Apparently that was not done and that action (and maybe the other) was struck out in February 1993. It would appear that an order that the plaintiff in action 113 of 1991 provide security for costs was made in about April 1992. There had been some ten days of hearing over a period of time before the litigation was ended without any judicial finding as to the propriety of the conduct of the Hallams.
The receiver of Mirotone was discharged in December 1993, and the plaintiffs in evidence admitted that Mirotone was now in liquidation. The plaintiffs conceded in evidence that they had no intention of repaying the loans to that company; indeed there would now be no practical way of doing that. Success in this litigation could therefore be classed as windfall for them.
It is clear that the affairs of Osprey, Osprey Pacific, and Mirotone, at least from the present time perspective, are a complete shambles. There are no clear records, accounting and otherwise, now available to give the court a complete picture of what was happening. It seems clear that financial records were not properly kept on a day to day basis; the relevant cash book of Mirotone, for example, was written up well after the critical transactions had occurred and at a time when the person recreating the records had a real interest in what they demonstrated. As I have already indicated it is neither necessary nor possible for this court to answer many of the questions which were incidentally raised in the course of this litigation.
I am satisfied that from about mid 1989 onwards the plaintiffs saw Papua New Guinea as the place where most profits could be made from the business which had initially been acquired by Osprey from Dalby. By that time, for health reasons, Burns was no longer active in the business affairs of the companies, and Dalby was minded to divorce himself from the affairs of the companies if, through the sale of his wife's share in Osprey, he received what he regarded as adequate recompense. From about mid 1989 onwards their potential liability as guarantors of the Heller loan was the only factor which gave the defendants a continuing interest in the affairs of Osprey and Osprey Pacific. It was clear that profits from the business of Osprey Pacific, returned to Osprey as a major share holder, gave the latter the only possible way of discharging the Heller loan.
I am satisfied on the evidence, incomplete though it be, that there was at least a basis for the belief of the defendants that the Hallams so conducted the affairs of Osprey Pacific and Mirotone that they, the Hallams, alone stood to benefit financially. That was an issue which was raised in the Papua New Guinea litigation and not resolved by the peremptory determination of those actions. As already noted, those issues cannot be finally resolved in this litigation. My only finding is that, if it be relevant, the defendants had good cause for believing that the Hallams were conducting the affairs of the companies in such a way as to benefit themselves and to disadvantage the defendants.
What is more important for present purposes is whether or not the plaintiffs have proved that they personally, as guarantors, made the final three payments to Heller on 14 November 1990, 10 December 1990, and 22 February 1991. It is only if they establish that proposition that they have an entitlement to be subrogated with respect to the other securities and to claim contribution.
The defendants, in the light of the evidence, rightly conceded that the $8,000 (being monies Mrs Hallam derived by way of loan from Osprey Pacific against her gratuity entitlement and paid to the trust account at Cannan & Peterson) and the $9,400 transferred from the Suncorp account were monies the property of the plaintiffs which were used by them, in their capacity as guarantors, to reduce the liability of Osprey to Heller.
However, it will be remembered that Heller paid $1,800 of the loan monies directly to Citicorp on behalf of the Hallams to reduce a personal liability. On the evidence I find that that amount was the only part of the original loan used to satisfy a personal indebtedness of the plaintiffs. On the evidence available I find that the defendants' contention that $8,500 was so used is not established.
In the circumstances the $1,800 would have to be deducted from the $17,400 before the plaintiffs were entitled to claim contribution from the defendants; the balance being $15,600.
The critical question is whether or not the plaintiffs have established that the balance of the amounts paid to Heller in November 1990, December 1990 and February 1991 came from their personal funds or was paid in such circumstances as to be treated in equity as a payment by them personally.
This has been an extremely difficult question of fact to resolve, made more difficult because of the deficiencies in the evidence to which I have already referred. The onus is on the plaintiffs of proving that they made the payments in question as guarantors in circumstances such that they are entitled to claim contribution. As is made clear by Mahoney v McManus (1981) 180 CLR 370 it is important in circumstances such as this to make clear findings as to the true nature of the payment. In transacting business affairs short cuts are often taken, and a finding as to the true nature of a particular payment often involves looking beyond the mere bones or framework of the transaction. Here the money trail went directly from Mirotone to Murrell Stephenson to Heller. What the plaintiffs must prove in these proceedings is that the true nature of the transaction involved them having a legal entitlement to the monies so that in truth it could be said that they personally discharged the liability in their capacity as guarantors. Here there is no doubt that as guarantors they were under threat of enforcement proceedings instituted by Heller, and it was in their interests to see that the loan was repaid before enforcement proceedings were taken under the security they had given.
The case asserted by the plaintiffs is that Mirotone lent the money to them so that in truth it could be said that they personally paid Heller.
Some attempt was made by the Hallams in evidence to suggest that Mirotone at the time was indebted to them for wages and the like, and that there was in consequence some basis for Mirotone making a payment to them. I am not satisfied on the evidence that such was the case. In any event the case ultimately pursued was that the monies were lent; that involves acceptance by the Hallams of an obligation on their part to repay.
There is no document in existence and no evidence suggesting that at the time the alleged advances were made by Mirotone there was any understanding as to the terms of repayment. Nothing was recorded at all at the time in any of the records of Mirotone. It will be remembered that the cash book was written up well after the transactions in question. The bank transfer documents were kept but they are neutral as to the point in issue. At the end of the day there is only the evidence of the Hallams personally that the monies were lent to them, as distinct from being lent to Osprey.
I am not satisfied that at material times Cannan & Peterson and Murrell Stephenson acted only for the Hallam’s personally. It is clear that they did at least some work for Osprey. Cannan & Peterson sought finance from Citicorp for Osprey and otherwise acted for that company (see letter 28 August 1990). Murrell Stephenson in the fax of 1 February 1991 to the Hallams clearly acknowledged handling the Soho matter on behalf of Osprey (see also fax 13 November 1990). In consequence the fact that the money trail passed through those solicitors is in no way indicative of who made the payment.
The events of March 1991 are in my view critical to the determination of the issue. By then the Hallams were aware that Ronbar, Dalby and Burns were contending that the Hallams had breached fiduciary duties they owed to Osprey and Osprey Pacific by the way in which they had conducted the affairs of Mirotone. They were then aware of the injunction granted on 26 February 1991 and of the fact that the Mirotone bank accounts were frozen. I am satisfied that the directors' meetings held on 7 March 1991 were a belated attempt to put some of the affairs of Mirotone in order before the matter next came before the courts. It was in that context that the formal resolution was passed relating to the "Advance to Osprey Industries Pty Ltd Brisbane". The only possible advances that that resolution could refer to are the three advances in question made in November 1990, December 1990 and February 1991. On 7 March the Hallams caused to be formally recorded a resolution that the Mirotone monies had been used to satisfy a debt of Osprey; inferentially the reference in the resolution to repayment was a reference to repayment by Osprey.
It may well be, though I do not need to make a finding to this effect, that such a resolution was seen as a way of demonstrating that the affairs of Mirotone had not been conducted so as to result in detriment to Osprey and Osprey Pacific.
I am also satisfied that Hallam orally informed the receiver that the monies in question were loans to Osprey and that the Hallams actively encouraged the receiver to look to Osprey, rather than them, for repayment.
I have already recorded a finding that the letter exhibit 14 is not a genuine document. That does not mean that Bisi's letter of 11 March 1991 carries much weight; but it is another pointer to the fact that the affairs of Mirotone were not carried on openly. At the time of the November transaction the Hallams were not even formally directors of Mirotone.
The Hallams were not at any material time open and frank with their co-guarantors so that the latter were not aware of the true position and indeed were never in a position to properly assess their legal position.
Strictly it is not necessary for me to make a finding that the payments in question were loans to Osprey; it would be sufficient to say that I am not satisfied that they were loans to the plaintiffs. However, on the evidence available, and in the light of the matters discussed in these reasons, my conclusion is that the true nature of the transaction was that Mirotone made available money by way of loan to Osprey to enable the latter to discharge its indebtedness to Heller.
Similar findings would have to be made with respect to monies from Mirotone that were used to pay the costs of Heller's solicitors. It is true that some money of the plaintiffs in addition to the $8,000 went into Cannan & Peterson's trust account and was used to defray legal costs. Clearly on the evidence Cannan & Peterson were entitled to charge the plaintiffs for work which was not directly associated with the plaintiffs personal discharge of the Heller loan. The evidence does not permit me to make a finding that anything more than the $8,000 referred to from the monies paid to Cannan & Peterson could be categorised as an expenditure in personally discharging the obligation as guarantors.
The plaintiff’s case was put in the alternative on three bases. The first was in contract; they had acquired by assignment all of the rights of Heller against the defendants. The first alternative case was based on s.4 of the Mercantile Act of 1867. The second alternative case was based on the principles of equity entitling a grantor who paid more than his fair share of the principal debt to obtain contribution from fellow guarantors.
It was important from the plaintiff’s point of view for them to succeed on the contract claim because, as the argument was presented, that entitled them to claim an additional sum of approximately $160,000 by way of interest on the $59,801 they claimed to have paid to Heller (exhibit 29). According to the argument they were also entitled to $68,143 being legal costs paid and interest thereon (exhibits 30 and 39).
In consequence it is necessary to consider the validity of the plaintiff’s claim in contract.
Counsel for the plaintiff put his argument this way: “The position for the plaintiffs might have been different had they not obtained the whole of the basket of rights held by Hellers. Once the plaintiffs took the assignment of the charge, they then stood in the shoes of Hellers, and became entitled to exercise all of the rights that Hellers had, as against the defendants.”
The fallacy in the argument, in my view, is that as at 27 March 1991 when Heller assigned to the plaintiffs all of its rights under the Mortgage Debenture given by Osprey, the loan secured by that Debenture had been fully extinguished. If, as I have held, Osprey discharged its liabilities to Heller by using moneys advanced by the Hallams then the Deed of Loan was fully discharged by performance (or at least by accord and satisfaction) and there was no outstanding liability thereunder which could be assigned to the Hallams. It was the same with the Mortgage Debenture. Payment by Osprey discharged the liability secured by the Mortgage Debenture and there were no rights extant thereunder which could be assigned to the Hallams. Further, even if the Hallams had personally discharged that liability the position was the same. Once the liability under the Deed of Loan, secured by the Mortgage Debenture, had been discharged there were no extant rights thereunder which could be assigned to the Hallams. If the Hallams had any rights against the defendants they were limited to claims for contribution based on the fact that the Hallams had contributed more than their fair share of the indebtedness of Osprey. Such rights were not rights under either the Deed of Loan or the Mortgage Debenture.
Counsel for the plaintiff relied, in support of his submission, on Clark v Dedvukaj [1993] 2 Qd R 10 and International Leasing Corporation (Vic) Ltd v Aiken [1967] 2 NSWR 427. The question in each of those cases was whether there had been an assignment of the principal debt without an assignment of the guarantee. The factual situation considered therein is in no way similar to that here, where the principal debt had been discharged before the assignment. Counsel for the plaintiffs also relied on Farrow Mortgage Services Pty Ltd v Hogg (1995) 64 SASR 450. Again, if only because the assignment of the mortgage therein took place whilst loan monies were still outstanding, the reasoning is clearly distinguishable and of no assistance here. Given the facts of this case, at best for the plaintiffs, they are guarantors who expended more than their co-guarantors in discharging the total indebtedness of Osprey to Heller. The only basis of any claim they have against the defendants is in equity for contribution; and so far as the liability of Mr and Mrs Burns to make contribution is concerned, the plaintiffs have the benefit of the mortgage provided by Mr and Mrs Burns to Heller.

It follows that the plaintiffs are not entitled to claim interest on the basis set out in exhibits 29, 30 and 39.
Given all the above reasoning the plaintiffs are entitled to contribution from the defendants on general equitable principles with respect to the $15,600 they personally paid in reduction of the indebtedness of Osprey to Heller.
That payment was effectively made on 16 November 1990, and the question arises whether the plaintiffs are entitled to interest from that date. In my view this litigation has been principally occasioned by the unreasonable and illegal demands made by the plaintiffs against the defendants. The demands made by the plaintiffs have been for amounts well in excess of what was proper, particularly the demands for interest. Any litigation alleging contribution with respect of $15,600 could have been speedily resolved. Bearing in mind that the plaintiffs are recovering in equity, and that equitable principles permit the court in such circumstances to determine what is fair and reasonable, I will allow interest on $15,600 for a period of 3 years at 8% per annum.
The plaintiffs are therefore entitled to contribution from the defendants with respect to the $15,600 and interest as stated. Upon satisfaction of that judgment Mr and Mrs Burns would be entitled to redemption of the mortgages they gave to Heller and which have been assigned to the plaintiffs.
I will hear further submissions on the appropriate form of order, including orders as to costs.