Harpley Nominees Pty Ltd v Jeans - [2006] NSWCA 176

NEW SOUTH WALES COURT OF APPEAL

CITATION: HARPLEY NOMINEES PTY LTD & ANOR v JEANS & ANOR [2006] NSWCA 176

FILE NUMBER(S):
40765/04

HEARING DATE(S): 27 March 2006, 28 March 2006

DECISION DATE: 30/06/2006

PARTIES:
Harpley Nominees Pty Ltd - First Appellant
Advance Publicity Pty Limited - Second Appellant
John Anthony Jeans - First Respondent
John Richard Bruce - Second Respondent

JUDGMENT OF: Handley JA Beazley JA Basten JA

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S): SC 50104/03

LOWER COURT JUDICIAL OFFICER: Einstein J

COUNSEL:
Mr B.W. Rayment QC/Mr D.T. Kell - First and Second Appellants
Mr J. M. Ireland QC/Mr H. Altan - First Respondent
Ms Britton on behalf of Trustee in Bankruptcy - Second Respondent (excused)

SOLICITORS:
McCabe Terrill, City Agent for Efron & Associates, Redfern - First and Second Appellants
Moloneys Lawyers, Potts Point - First Respondent
Gary Cassim & Associates, Milsons Point - Second Respondent

CATCHWORDS:
EQUITY - claim by co-guarantor to equitable contribution for any amount paid in excess of 50% of the debt - guarantor seeking relief but with no prospect of paying his 50% of debt - co-guarantor bankrupt - appropriateness of granting declaratory relief in such circumstances

LEGISLATION CITED:
Bankruptcy Act 1966 (Cth), ss 82, 153

DECISION:
(1) Appeal allowed
(2) Set aside the declarations and orders made in the Equity Division on 13 August 2004 in proceedings no. 50104 of 2003
(3) In lieu thereof, order that the summons filed on behalf of the First Respondent (John Anthony Jeans) be dismissed with costs
(4) Order that the cross-claim filed on behalf of the Second Respondent (John Richard Bruce) be dismissed, with no order as to costs
(5) Order that the First Respondent pay the Appellants’ costs of the appeal
(6) Grant the First Respondent a certificate under the Suitors’ Fund Act 1951 (NSW) in relation to the appeal

JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40765/04
SC 50104/03
HANDLEY JA
BEAZLEY JA
BASTEN JA
30 June 2006

HARPLEY NOMINEES PTY LTD & ANOR v JEANS & ANOR

Mr Bruce and Mr Jeans were jointly liable under a guarantee in favour of the Commonwealth Bank of Australia with respect to the debts of a company, Deangrove Pty Ltd, which was insolvent. The Bank had obtained judgment against each of the guarantors for a sum in excess of $4.5 million. It settled its claim against Mr Bruce upon receipt of an agreed amount of $50,000.

Mr Jeans had paid no part of his liability to the Bank, but sought a declaration that Mr Bruce was liable to pay contribution to him for any amount he paid in excess of 50% of the debt to the Bank. He also sought a declaration that Harpley Nominees Pty Ltd and Advance Publicity Pty Ltd (the Appellants) were liable to indemnify Mr Bruce in respect of his liability to pay a contribution to Mr Jeans in the event that he (Jeans) paid more than 50% of…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2006] NSWCA 176
Decision Date: 30 June 2006

CaseChat Overview and Summary

The appeal concerned a dispute between Harpley Nominees Pty Ltd (the Appellants) and John Anthony Jeans (the First Respondent), with John Richard Bruce (the Second Respondent) also involved. Mr Jeans sought equitable contribution from Mr Bruce as a co-guarantor for any amount he paid in excess of 50% of a debt. However, Mr Jeans had no prospect of paying his 50% share of the debt, and Mr Bruce was bankrupt. The case was heard in the Court of Appeal of New South Wales.

The primary legal issue before the court was whether declaratory relief, specifically concerning equitable contribution between co-guarantors, should be granted when one party seeking relief was bankrupt and unable to meet their own obligations, and the other party was also unable to meet their obligations. The court was required to determine the appropriateness of granting such relief in these circumstances, considering the discretionary nature of equitable remedies.

The Court of Appeal allowed the appeal, setting aside the declarations and orders made by the Equity Division. The court reasoned that relief should be refused on discretionary grounds, citing the principle that equitable remedies are not granted where it would be futile or inequitable to do so. Given that Mr Jeans was bankrupt and could not pay his share of the debt, and Mr Bruce was also bankrupt, the court found it inappropriate to grant declarations that would require contribution. The court also noted that Mr Bruce's cross-claim was defensive and that his trustee in bankruptcy did not appear to uphold the orders made below. Consequently, the summons filed on behalf of Mr Jeans was dismissed with costs, and Mr Bruce's cross-claim was also dismissed.

Orders

Orders of the court

(1) Appeal allowed; (2) Set aside the declarations and orders made in the Equity Division on 13 August 2004 in proceedings no. 50104 of 2003; (3) In lieu thereof, order that the summons filed on behalf of the First Respondent (John Anthony Jeans) be dismissed with costs; (4) Order that the cross-claim filed on behalf of the Second Respondent (John Richard Bruce) be dismissed, with no order as to costs; (5) Order that the First Respondent pay the Appellants' costs of the appeal; (6) Grant the First Respondent a certificate under the Suitors' Fund Act 1951 (NSW) in relation to the appeal

Background

Background to the litigation

Mr Bruce is presently a bankrupt. His trustee appeared at the commencement of the appeal, but was excused and took no further part in the proceedings. Neither Deangrove nor the Commonwealth Bank was a party to the proceedings. Somewhat ironically, it was the Appellants who asserted that Mr Jeans was not a guarantor with Mr Bruce of the debts of Deangrove, whereas Mr Jeans (the active Respondent in the proceedings) asserted that he was a co-guarantor. It was not the only curiosity raised by the proceedings.Background Mr Bruce was the sole director of John Bruce & Partners Pty Ltd (“JBP”), a company which provided architectural and planning services and was also involved in land development. In particular, in 1998, it was developing land at Broadbeach in Queensland. The Broadbeach development was subject to a mortgage in favour of Suncorp-Metway and a second mortgage to the Appellant, Harpley Nominees. Each of the Appellants was a company associated with Mr Israel Herzog. Mr Bruce gave evidence (Tcpt, p 292) that JBP had always had “difficulties” in maintaining interest payments to Harpley Nominees. In the period late-1997 to early 1998, Mr Jeans was seeking to acquire land at Holloways Beach near Cairns, for development purposes. In 1998 he proposed to Mr Bruce that Mr Bruce enter into an agreement whereby JBP would provide architectural services in return for a 50% interest in the net profit of the development. Mr Jeans then obtained finance from the Commonwealth Bank to allow a company controlled by him, Deangrove Pty Ltd, to purchase the land at Holloways Beach. The amount sought to be obtained from the Commonwealth Bank, via a bill facility, was in the order of $7.5 million. The Bank required that each of Mr Jeans and Mr Bruce execute guarantees in respect of Deangrove’s obligations to the Bank. In about March 1999, a valuation of the Broadbeach development had been obtained, giving a figure of $2.235 million. The amount owing to Suncorp-Metway, secured under the first mortgage, was $1.95 million. That left a potential equity of $285,000 as security for the loan from Harpley Nominees, which was then $1.23 million. There were other moneys owed by JBP to companies controlled by Mr Herzog, totalling $1,716,950: Judgment at [67]. At that stage, JBP was perceived to have two assets with potential value, one being an amount owed to JBP by a company known as Noroton Holdings Pty Ltd, and the other a 50% interest in the prospective profit from the development of Holloways Beach. There were discussions between April and August 1999 between Messrs Herzog, Jeans, Bruce and their agents and lawyers, with respect to an agreement, the final version of which was dated 9 August 1999, and which his Honour found was executed in September 1999. The primary purpose of the agreement was to secure the position of Advance Publicity in relation to the Broadbeach development. The effect of the agreement was that Advance Publicity would take over the Suncorp-Metway mortgage obligations by purchasing the units at Broadbeach for a consideration of $2.235 million. If the net proceeds of the sale of the units exceeded that amount, JBP was entitled to the excess. However, if the amounts owing under the Suncorp-Metway mortgage and the mortgage to Harpley Nominees, exceeded $2.235 million, Advance was to be entitled to obtain the balance from the interest in the Deangrove development. JBP and Mr Bruce agreed to assign to Advance the debt payable by Noroton Holdings, being an amount of approximately $445,000, payable to JBP in relation to a share in the profits with respect to an increased valuation of a development known as the “Katoomba Golf Course Project”. (In April 2001, Advance issued proceedings in the District Court with respect to that amount.)

Evidence

Evidence Before The Court

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Decision

Reasons for decision

In these circumstances relief should be refused on discretionary grounds for the reasons discussed by Owen J in Bond v Larobi. It is not necessary to decide other questions.Conclusions In the exercise of the Court’s discretion, the relief sought by Mr Jeans should not have been granted on his application. It is true that Mr Bruce also sought declarations in similar form against the Appellants, by way of cross-claim, but they appear to have been brought defensively, against the event that Mr Jeans was successful against him. He did not appear on the appeal to defend the orders made below, nor was any argument put to the Court as to why relief should be granted on his cross-claim if it were inappropriate to be granted on the application of Mr Jeans. The other substantive order made by his Honour was to refer the matter to the Master to inquire into and certify the sums presently due to be paid by the Appellants to Mr Bruce pursuant to the declaration concerning the effect of the indemnity. The cross-claim brought by Mr Bruce did not in fact seek payment of any amount, but merely sought an order “for all necessary inquiries and accounts between the parties”. Further inquiries and accounts would involve Mr Bruce’s trustee in expense. Because his trustee in bankruptcy did not appear to uphold that order, and because it was made consequentially upon declarations which should be set aside, that order should also be set aside. The remaining orders made by his Honour involved either stays or costs orders. They too must fall with the substantive relief. It follows that there is no cause to continue the hearing of the appeal to deal with the factual challenge to the finding of the primary judge that the agent of the Appellants in fact executed a form of the 1999 agreement containing the indemnity in clause 6.8. Accordingly I would propose the following orders:(1) Appeal allowed.(2)Set aside the declarations and orders made in the Equity Division on 13 August 2004 in proceedings no. 50104 of 2003.(3)In lieu thereof, order that the summons filed on behalf of the First Respondent (John Anthony Jeans) be dismissed with costs.(4)Order that the cross-claim filed on behalf of the Second Respondent (John Richard Bruce) be dismissed, with no order as to costs.(5)Order that the First Respondent pay the Appellants’ costs of the appeal.(6)Grant the First Respondent a certificate under the Suitors’ Fund Act 1951 (NSW) in relation to the appeal.

Ratio Decidendi

Legal Principle Established

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