Jeans v Bruce

[2004] NSWSC 539

CITATION:	John Anthony Jeans v John Richard Bruce & Ors [2004] NSWSC 539
HEARING DATE(S):	15/06/04, 16/06/04, 17/06/04, 21/06/04, 22/06/04, 23/06/04, 24/06/04, 25/06/04
JUDGMENT DATE:	19 July 2004
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Einstein J
DECISION:	Parties to bring in short minutes of order
CATCHWORDS:	Contract - Guarantees - Co-guarantors - Contribution in equity as between contributing co-sureties - Release of one co-surety discharges other sureties as if creditor had released them from their obligations - Whether the availability of equitable contribution depends upon person claiming it having actually paid or being about to be required to pay an obligation from his own money - Whether surety, against whom creditor has obtained judgment on guaranteed debt is entitled to contribution from co-surety before surety has paid that debt-Failure of surety to demonstrate ability and willingness to pay his just proportion of guaranteed debt is factor to be taken into account in determining what, if any, relief is available to the surety in a contribution action - Futility of granting declaratory relief - Covenant not to sue - Whereas release of one of a number of joint, or joint and several, debtors releases all of them from the joint debt, a covenant not to sue does not-Distinctions between release and covenant not to sue - Jurisprudential provenance of rule that an indemnifier is estopped from averring contrary to a judgment handed down in previous relevant proceedings to which his/her indemnified was a party - Whether such an estoppel can arise in respect of a non-party co-guarantor - Principles - Res judicata - Cause of action estoppel - Issue estoppel - Anshun estoppel - General rule that only parties to the proceedings and their privies are bound by a res judicata, subject to a limited exception in respect of a non-party bound by contract to indemnify a party for a liability the subject of the first proceedings - Examination of indemnifier's exception to general rule that only parties and their privies are bound by a res judicata - Evidence - Admissibility by estoppel route
LEGISLATION CITED:	Evidence Act 1995 Law Reform (Miscellaneous Provisions) Act 1946 Law Society Rules (NSW)
CASES CITED:	Albion Insurance Co Ltd v Government Insurance Office of New South Wales (1969) 121 CLR 342 Amalgamated Investment and Property Co Ltd v Texas Commerce International Bank Ltd [1982] QB 84 Anderson-Berry, Re; Harris v Griffith [1928] Ch 290 Armstrong v Commissioner of Stamp Duties (1967) 69 SR (NSW) 38 Barry v Moroney (1873) 8IrRepCL 554 Belan v Casey (2003) 57 NSWLR 670 Ben Shipping Co (Pte) Ltd v An Bord Bainne (The C Joyce) [1986] 2 All ER 177 Blair & Perpetual Trustee Co Ltd v Curran (Adams' Will) (1939) 62 CLR 464 Bond v Larobi Pty Ltd (1992) 6 WAR 489 Bonner v Tottenham & Edmonton Permanent Investment Building Society [1899] 1 QB 161 Bonser v Cox (1841) 4 Beav 379 Brice & Ors v J H Wackerbarth (Australasia) Pty Ltd [1974] 2 Lloyd's Rep 274 Burke v LFOT Pty Ltd [2002] HCA 17; (2002) 76 ALJR 749 Cacciola & Ors v Fire & All Risks Insurance Co Ltd [1971] 1 NSWLR 691 Carl Zeiss Stiftung v Rayner & Keeler Ltd (No 2) [1967] AC 853 Carl Zeiss Stiftung v Rayner & Keeler Ltd. (No 3) [1970] Ch. 506 Cave v Mills (1862) 7 H&N 913; 158 ER 740 C E Health Casualty & General Insurance Ltd & AMP General Insurance Ltd v Pyramid Building Society (in liq) [1997] 2 VR 256 Central London Property Trust Limited v High Trees House Limited [1947] KB 130 Cheetham v Ward (1797) 1 Bos & P. 630 Cockburn v GIO Finance Ltd (No.2) (2001) 51 NSWLR 624 Codelfa Construction Pty Limited v State Rail Authority (NSW) (1982) 149 CLR 337 Commonwealth v Verwayen (1990) 170 CLR 394 Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 CSR Limited v Cigna Insurance Australia Limited & Ors (1997) 189 CLR 345 Dering v Earl of Winchelsea (1787) 1 Cox Eq Cas 318 Director of Public Prosecutions v Humphrys [1977] AC 1 Dorgal Holdings Pty Ltd v Buckley (1996) 22 ACSR 164 Duffield v Scott (1789) 100 ER 628 Edwards v Culcairn Shire Council (1963) 64 SR (NSW) 62 Edwards v Insurance Office of Australia Ltd (1933) 34 SR (NSW) 88 Effem Foods Pty Ltd v Trawl Industries of Australia Pty Ltd (Receivers and Managers appointed( (in liq) & Ors (1993) 43 FCR 510 Ellesmere Brewery Company v Cooper [1896] 1 QB 75 EWA (a debtor) Re [1901] 2 KB 642 FAI General Insurance Company Ltd v Interchase Corporation Ltd (in liq) (1998) 10 ANZ Ins Cas 61-428 Fireproof Doors Limited, In re v The Company [1916] 2 Ch 142 Foss v Harbottle (1843) 2 Hare 461 Gracechurch Holdings Pty Ltd v Breeze & Anor (1992) 7 WAR 518 Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 Heimann v Commonwealth of Australia (1938) 38 SR (NSW) 691 Henderson v Henderson (1843) 3 Hare 100 Hoysted v Federal Commissioner of Taxation (1921) 29 CLR 537 Hunter v Chief Constable of the West Midlands Police [1982] AC 529 Insurance Exchange of Australia v Dooley & Anor (2000) 50 NSWLR 222 Jackson v Goldsmith (1950) 81 CLR 446 JN Taylor Holdings Limited (in liq) and JN Taylor Finance Pty Ltd (in liq) v Bond & Ors (1993) 59 SASR 432 Johnson v Gore Wood & Co (a firm) [2002] 2 AC 1 Jones v Williams (1841) 8 M & W 349 Jorden v Money [1843-60] All ER Rep 350 Kendall v Hamilton (1879) 4 App Cas 504 King v Hoare (1844) 13 M & W 494 King v Norman (1847) 4 CB 884 Legione v Hateley (1983) 152 CLR 406 Lockyer v Ferryman (1877) 2 App Cas 519 McLean v Discount & Finance Ltd (1939) 64 CLR 312 Mahoney v McManus (1981) 180 CLR 370 Mercantile Bank of Sydney v Taylor (1891) 12 LR (NSW) L 252 Mercantile Investment & General Trust Company v River Plate Trust, Loan & Agency Company [1894] 1 Ch 578 Mills v Cooper [1967] 2 QB 459 Morrison Rose & Partners v Hillman [1961] 2 QB 266 Murphy & Ors v Abi-Saab & Ors (1995) 37 NSWLR 280 Nicholson v Revill (1836) 4 Ad & El 675 Parker v Lewis (1873) LR8ChApp 1056 Pollak v National Australia Bank Ltd [2002] FCA 237 Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 Post Office v Norwich Union Fire Insurance Society Ltd [1967] 2 QB 363 Ramsay v Pigram (1968) 118 CLR 271 R v Inhabitants of the Township of Hartington Middle Quarter (1855) 4 El &Bl 780 Reichel v Magrath (1889) 14 App Cas 665 Roberts v Karr (1809) 1 Taunt 495 Rogers v R (1994) 181 CLR 251 Smith v Crompton (1832) 3 B & Ad 407 South Australian Housing Trust v State Government Insurance Commission (1989) 51 SASR 1 State Bank of New South Wales Ltd v Alexander Stenhouse Ltd & Ors (1997) Aust Torts Reports 81-423 (NSWSC) State of New South Wales v AXA Insurance Australia Ltd (formerly known as Union Des Assurances De Paris IARD) (2002) 54 NSWLR 409 Sterling Engineering Co Ltd v Patchett [1955] AC 534 Street & Halls v Retravision (NSW) Pty Ltd (1995) 56 FCR 588 Taylors Fashions Ltd v Liverpool Victoria Trustees Co Ltd [1982] QB 133 Duchess of Kingston's Case (1776) 20 State Tr 355 Thompson v Palmer (1933) 49 CLR 507 Trawl Industries of Australia Pty Ltd (in liq) & Ors v Effem Foods Pty Ltd (1992) 36 FCR 406 VACC Insurance Co Ltd v BP Australia Ltd (1999) 47 NSWLR 716 Walker v Bowry (1924) 35 CLR 48 Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387 Ward v National Bank of New Zealand Limited (1883) 8 App. Cas 755 Wolmershausen v Gullick [1893] 2 Ch 514 Woolmington v Bronze Lamp Restaurant Pty Ltd [1984] 2 NSWLR 242 Yat Tung Investment Co Ltd v Dao Heng Bank Ltd [1975] AC 581
PARTIES :	John Anthony Jeans (Plaintiff) John Richard Bruce (First Defendant) Harpley Nominees Pty Limited (Second Defendant) Advance Publicity Pty Limited (Third Defendant)
FILE NUMBER(S):	SC 50104/03
COUNSEL:	Mr J Ireland QC (Plaintiff) Mr W Hodgekiss (First Defendant) Mr B Rayment QC, Mr D Kell (Second and Third Defendant)
SOLICITORS:	Moloney Lawyers (Plaintiff) Gary Cassim & Associates (First Defendant) Efron & Associates (Second and Third Defendant)

–

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

Einstein J

Monday 19 July 2004

50104/03 John Anthony Jeans v John Richard Bruce & Ors

JUDGMENT

The proceedings

1 These proceedings are conveniently divided into two separate although related sets of claims.

The claims for contribution in relation to the guarantees of 12 June 1998

2 These claims raise a number of issues arising from two documents dated 12 June 1998 under which the plaintiff, Mr John Anthony Jeans and the first defendant, Mr John Richard Bruce purported to guarantee the obligations of Deangrove Pty Limited (Receivers and Manager's Appointed) ["Deangrove"] to the Commonwealth Bank of Australia (in each case "the guarantee”). The guarantees are near enough in identical terms to one another.

3 Each of Mr Jeans and Mr Bruce by different routes have become liable to the Commonwealth Bank following proceedings in the Federal Court of Australia [N 1142/2000] in which each was a cross defendant. The proceedings were settled as between the Bank and Mr Bruce. The Bank proceeded against Mr Jeans obtaining a judgment.

4 Mr Jeans seeks declaratory relief upholding his contention that (to the extent that the guarantee binds him) he has a claim for contribution in equity against Mr Bruce as co-guarantor which right is unaffected by the settlement reached between Mr Bruce and the Commonwealth Bank in the Federal Court proceedings. The claim is one in terms of an alleged entitlement to be reimbursed any sums paid by him to the Bank pursuant to a judgment recovered by the Bank against Mr Jeans in the Federal Court in excess of 50% of the liability of Deangrove to the Bank under the guarantee.

5 Mr Bruce by cross-claim seeks declaratory relief upholding his contention that he has a claim for contribution in equity against Mr Jeans as co-guarantor to be reimbursed any sums paid by him to the Bank pursuant to the Bank's judgment recovered against Mr Bruce in the Federal Court in excess of 50% of the liability of Deangrove to the Bank under the guarantee.

The claims relating to the 'Heads of Agreement'

6 Mr Jeans in the summons and Mr Bruce by the cross-claim assert that:

· a binding agreement was entered into by Mr Bruce, Mr Jeans, the second defendant, Harpley Nominees Pty Ltd ["Harpley Nominees"] and the third defendant a Victorian company, Advance Publicity Pty Ltd [“Advance” or “Advance Publicity"] in terms of a document called “Heads of Agreement” ["the heads of agreement "] dated 9 August 1999;

· under this agreement [if authentic] Mr Bruce has an indemnity from Harpley Nominees and Advance in respect of his obligations under the guarantee, including an indemnity in respect of his obligation to Mr Jeans for contribution as a co-guarantor.

7 The proceedings presently before the Court litigated as a central issue, the circumstances in which the so-called heads of agreement are said to have been entered into.

8 Mr Jeans case as finally put was that on or about early September 1999 a document entitled heads of agreement recording the typewritten date “6 August 1999” was executed (inter alia) between Mr Jeans, Mr Bruce, Harpley Nominees and Advance Publicity. Harpley Nominees and Advance contended that no such document was ever executed on their behalf [nor agreed to] for reasons examined below. [A movement had occurred during the final hearing from the original claim that the document had been signed on or about 9 August 1999 – the matter was litigated accordingly]

Clause 6.8

9 Clause 6.8 of the heads of agreement as propounded by Mr Jeans is in the following terms:

“Advance and Harpley shall indemnify and keep indemnified Bruce from and against all liability incurred by Bruce in respect of any personal guarantees given by Bruce of the obligations of Deangrove to the Commonwealth Bank of Australia whether in respect of principal, interest or costs under any Mortgage effected by Deangrove to the said Bank or any obligation incurred by Deangrove to the said Bank in the acquisition or development of the Holloways Beach development.”

The proceedings are dismissed against the Commonwealth Bank

10 On 12 September 2003 an order was made dismissing these proceedings against the Commonwealth Bank which was then a further defendant.

Problems which arose during the course of the final hearing in terms of the Court being in a position to give rulings on admissibility of particular documents

11 By reason of the unusual circumstances where:

(i) Mr Jeans was not called to give evidence; and

(ii) his case sought to prove that particular issue estoppels bound the defendants in particular ways [as for example contending that there was a concluded question as between himself and Mr Bruce that they were both bound to the Commonwealth Bank for the debts of Deangrove],

extensive time was taken while Mr Jeans was still in his case, during which submissions on admissibility were received.

12 The central issue concerned the so-called general rule that a judgment is not binding on a person who was not a party to the proceedings in which it was given and the identification of exceptions to this rule. On some authorities those exceptions have been said to arise where an indemnifier may be found to be estopped from denying the validity of a judgment, as for example, when having been given notice of the proceedings.

13 The matter was ultimately dealt with consensually as follows:

· the plaintiff was granted leave to further amend the summons;

· the defendants were granted leave to further amend their defences to cope with the new amendments to the summons;

· the plaintiff was granted leave to file a reply to those defences which reply in the event, turned out to be quite extensive;

· directions were given for the parties to have some little time in which to reorganise for the litigation of these new issues;

· additional directions with respect to discovery in relation to the new issues were given and complied with;

· by reason of the complexities which had arisen in relation to the admissibility questions and in order to explain the courts decision to reserve rulings on the tender of the so-called sensitive documents, a reasonably detailed set of reasons was delivered in the form of an interlocutory judgment.

14 It seems presently unnecessary to repeat the terms of that judgment which is self-explanatory and it is taken as a given that the matters set out in that judgment will wherever appropriate, be read together with this judgment.

The amended pleadings which came forward

15 The amended pleadings which then came forward are particularly important and appropriate to be noted. Appendix ‘A’ to this judgment records the new pleadings.

Difficulties involved in determining factual issues

16 This case is an example of the difficulties encountered by a trial judge in explaining both the evidence which was given, as well as the findings of fact. This is primarily because the case of the third and fourth defendants is that the heads of agreement in the form sued upon were never signed on their behalf. However at a particular point in time, as they accept, a single execution page was signed by Mr Herzog and sent by facsimile.

17 An important witness was a solicitor, Mr Butler, whose many disparate communications between the respective entities [proposed to be the parties to the heads of agreement] have been the subject of such close scrutiny.

18 This is a case where forgery as well as very substantial wrongdoing are alleged. A solicitor has been accused of ethical misconduct of the highest order inter alia in claiming to have sent particular correspondence when it is alleged that no such correspondence was sent.

19 In this particular case it is simply not practicable nor possible in explaining factual findings, to avoid going into very considerable detail in relation to which drafts of the heads of agreement were sent to which persons and in descending to specific evidence as necessary. Forgery allegations and allegations of professional misconduct require that treatment.

20 Particular focus is also given to whom were, or were perceived to be, legal advisers to the disparate parties and at what points in time.

The background

21 Certain of the background events giving rise to this litigation are not in contention. In the Federal Court proceedings brought by Deangrove as first applicant and Mr Jeans as second applicant against the Commonwealth Bank, the Commonwealth Bank cross-claimed against Deangrove as first cross defendant, Mr Jeans as second cross defendant and Mr Bruce as the cross defendant. Mr Bruce also cross-claimed against the Bank. Neither Harpley Nominees nor Advance Publicity was a party to the Federal Court proceedings.

22 After Mr Bruce had given evidence in the Federal Court proceedings heard by Sackville J, the proceedings between the Bank and Mr Bruce were settled.

23 The Bank maintained and the Federal Court held:

· that Mr Jeans executed the guarantee;

· that Mr Bruce was liable to the Bank on the said guarantee; and

· that Mr Jeans was liable to the Bank in respect of Deangrove’s obligations to the Bank.

24 On 16 May 2003 judgment was entered against Mr Jeans in favour of the Commonwealth Bank in the sum of $4,749,813.30. Mr Jeans appealed from the decision at first instance and that appeal was dismissed by the Full Federal Court on 19 December 2003. Mr Jeans has filed an application for special leave to the High Court of Australia which has not yet been heard.

The redevelopment in Cairns

25 Mr Jeans was at material times the sole director and a shareholder of Deangrove. That company had entered into various agreements and arrangements in terms of its proposal to acquire land at Holloways Breach, Cairns in Queensland for redevelopment purposes.

26 Mr Bruce’s company John Bruce & Partners Pty Ltd [“JBP” or “John Bruce and Partners”] was the registered proprietor of a property at Broadbeach which was being developed. Harpley was the second mortgagee. Suncorp-Metway [“the Metway Bank” or “Suncorp-Metway”] was the first mortgagee.

Late 1997/early 1998 – Holloways Beach land

27 In late 1997 or early 1998, Mr Jeans and Mr Bruce agreed that the first defendant or his nominee would acquire a 50% interest in the net profit of the development of the Holloways Beach land.

March 1998

28 In March 1998, negotiations were undertaken by Mr Jeans with the Bank for finance in relation to the proposed acquisition of the Holloways Beach land and the construction of a development thereon.

Prior to 3 June 1998

29 Prior to 3 June 1998, the Bank proposed that certain securities be delivered by Deangrove, Mr Jeans and Mr Bruce in relation to financial accommodation to be provided to Deangrove by the Bank in respect of the Holloways Beach development.

3 June 1998

30 On or about 3 June 1998, the Bank prepared security documents relating to advances that might be made by the Bank to Deangrove in relation to the proposed land acquisition and development.

31 The security documents proposed and propounded by the Bank to Deangrove included a form of guarantee for execution by Mr Jeans and Mr Bruce in respect of the obligations of Deangrove to the Bank.

Evidence given by Mr Bruce

32 Mr Bruce gave evidence that at material times he had been the sole director and secretary of John Bruce and Partners Pty Ltd-Architects, Project Managers and Development Consultants, having known Mr Jeans since 1995. He had been introduced by Mr Jeans in 1996 to Mr Herzog with whom he had become acquainted and had certain dealings.

33 Mr Bruce gave evidence:

· that in the period 1996 to 1999 there was correspondence between Harpley and John Bruce and Partners with numerous requests for interest to be paid and that it is common ground that there were difficulties in discharging these commitments. John Bruce Partners was struggling to keep up with its mortgage commitment to Harpley Nominees in relation to the Broadbeach units [Transcript 292];

· in 1998 Mr Bruce made an arrangement with Mr Jeans concerning the Deangrove venture at Holloway's Beach. His firm was the architect of that project. It had a financial arrangement with Mr Jeans and hence Deangrove?

· the undocumented arrangement between his interests and Mr Jeans was that if there was an up-side, that is profit on Deangrove, he would be entitled to 50 percent of that profit;

· it was because of that arrangement that Mr Bruce had been willing in June 1998 to give a guarantee to the Commonwealth Bank of Deangrove's obligations.

34 In about February 1999 Mr Bruce had written to Mr Herzog seeking to disband the then relationship between Mr Herzog, Mr Jeans and John Bruce and Partners.

35 Mr Bruce had consulted with Mr Jeans and Mr Butler [who was his usual solicitor during March and April 1999] as to how best to proceed and determined that a special meeting should be arranged and asked Mr Jeans to arrange for such a meeting to be attended by all interested parties and their relevant advisers to negotiate what he described as "an equitable and non-confrontational solution for [John Bruce and Partners]".

36 That meeting had taken place on 19 April 1999 and had been attended by Mr Herzog, Mr Backway, Mr Jeans, Mr McGillvray (an accountant with Mr Bruce), Mr Bywaters (an employee with Mr Bruce) and himself. The background to the meeting included Harpley being under secured [cf letter Mr Herzog to Mr Bruce at page 5 of Exhibit JRB 1 and cross examination of Mr Backway at transcript 417].

The group

37 Mr Backway was the senior finance controller of the group in 1999. The relevant group comprised companies including Advance Publicity [which was apparently a trustee of a trust] and Harpley Nominees [which was itself a trustee for a partnership of two trusts, the beneficial interest in one of which was held by Mr Herzog's wife and in another of which was held by Mr Herzog's sister-in-law]. [Transcript 413]

38 Mr Backway had joined the group in September 1996 and had remained there until August 2000, no one having been appointed to take his place at the precise time when he left. By the time he returned to Australia a successor had been appointed. He had left the country and had returned after approximately 18 months towards the end of 2001. It had become necessary for him to endeavour to locate his former files [which had already been put into different files by another person] so that he had had to endeavour to rebuild his own files.

39 Obviously it goes without saying that there may well have been documents which could not be located or had been misfiled with this background.

40 The meeting of 19 April had discussed the parameters of what was proposed. Mr Herzog had not been prepared to agree with certain proposals set out in earlier letters from Mr Bruce to him of February and March 1999 and had said that John Bruce and Partners had two principal assets [being the Noroton debt and the equity in Deangrove arising from the Holloways Beach development]. Mr Herzog had said that he wanted:

(i) the Noroton debt to offset what John Bruce and Partners owed Advance and

(ii) the Deangrove equity to offset the Broadbeach deficiency and to secure the investment of Harpley Nominees.

41 Mr Bruce had indicated that this was not equitable as he saw it as the amount of the Noroton debt and the Deangrove equity exceeded the amount of the Advance loan and the Broadbeach deficiency.

42 Mr Herzog had said that this was not a problem as he simply wanted to control the position in respect of Noroton and Deangrove so that he could get his money. He had said that what was left would be paid to Mr Bruce [presumably referring to Mr Bruce’s interests].

Mr Butler to draft the heads of agreement

43 Mr Bruce gave evidence in his first affidavit that it was further suggested by someone at the meeting that Mr Butler be asked to draft heads of agreement which should contain appropriate clauses for the protection of each party and that Mr Butler should submit the draft to each party for comment. His evidence was that Mr Herzog had stressed that the heads of agreement which Mr Butler was to prepare required to be urgently finalised as Suncorp Metway were about to enter into possession. Mr Herzog had said that he wanted to cover his position and to take over the Suncorp Metway loan and to control the sale value of the units. He had suggested that Mr Jeans go to Brisbane to make a deal with Suncorp Metway.

44 Mr Bruce gave evidence in the witness box as follows:

“Q. And at the end of this meeting or towards the end of the meeting was there anything said that you recollect by any person about preparation of an agreement?
A. Yes.

Q. Who said what?
A. I can't recall that exactly, but if I might continue, it was something that everybody agreed to. [Mr Butler] was the only common denominator in the room, the only party that had some relationships to both sides of the - both parties.”
[Transcript 302]

“Q. Why did you ask for Mr Butler to be at this meeting?
A. Mr Butler was also a solicitor, one of two that I used generally in the day to day operations of the company, and he is somebody that I trust. I think he has a fine ability to structure deals and agreements, structure them semantically so that it says what it's meant to say, and I felt comfortable with that, and I was aware that he had handled various tasks for Mr Herzog and I had a plan in my mind that whatever emanated from the meeting would be something that Butler might be able to take an intermediary type role.”
[Transcript 303-304]


“Q. You see in the facsimile [PX 14] on page 14 he had written to you, "As discussed, I have prepared the document as a draft on the basis that separate legal advice will be obtained"?
A. Yes.

Q. What did you understand that to be a reference to at the time you received it?
A. Confirmation of a discussion that was held at the meeting on 19 April where everybody was declared to have a responsibility to seek their own legal advice if they so desired.

Q. And did what he said in that note accord with your recollection of the discussion on 19 April or not?
A. Yes, it does.”
[Transcript 305]

45 Mr Bruce’s evidence was that he did not at any time on his own behalf or on behalf of his company retain Mr Butler's firm to prepare the heads of agreement and that Mr Butler never sent him a bill for preparation of the heads of agreement. Nor could he recall such a bill being sent to his company. [Transcript 303]

Mr Herzog gives evidence as to legal advisers

46 Mr Herzog was also cross-examined as to his beliefs in terms of the solicitors acting for him in relation to the heads of agreement:

“Q. You have said, I think, that you engaged Mr Efron in connection with the heads of agreement in around May for some advice, is that right?
A. Correct.

Q. Did you pay his firm for those services or don't you know?
A. No, I am sure I paid them.

Q. And he sent you a bill, did he?
A. I wouldn't know.

Q. Now, you did never get a bill from Mr Butler, did you, in connection with the heads of agreement?
A. No.

Q. And I think you said earlier in your evidence that at least in the beginning Mr Butler's function was that he knew everybody and he was going to prepare a document but that you would have a right for your own legal advice in relation to it?
A. No, at the beginning, he was definitely doing it for all parties. Then he suggested I should get an independent.

Q. And from that point you did not regard Mr Butler as your solicitor, did you?
A. I did. We were fairly close to each other and I did definitely regard him as my solicitor.

Q. And he was your solicitor in relation to some continuing but different matters, wasn't he?
A. No, in this matter too. He was constantly involved in all of this.

Q. So notwithstanding the fact that you had engaged and ultimately paid Mr Efron for advice in relation to the heads of agreement, you tell his Honour that you regarded Mr Butler as your solicitor in July 1999 in relation to what you should do about the heads of agreement?
A. I expected him to work with me together on the heads of agreement, yes.

Q. Now, answer my question. Does that mean you did regard him as your solicitor ?
A. Yes .

Q. But you never paid him?
A. I think there was some arrangement there to pay fifty-fifty, but I can't remember if I paid him or not.

Q. You didn't pay him, did you? You can't swear that you did?
A. I can't, no.

Q. So is what you're saying essentially this, that because you knew Mr Butler and because he was involved you had an expectation of him concerning the heads of agreement and his function, is that right, so far as you were concerned?
A. I expected him to be fair about it and do the right thing for all parties.

Q. Right, but you were never deprived of Mr Efron's advice, were you?
A. No.

Q. In relation to the heads of agreement?
A. No.”
[Transcript 564 -565]

Evidence given by Mr Butler

47 Mr Butler had at material times been employed by Jennifer E Darin solicitors as an employed solicitor working in the Chatswood office of that firm. He was the first witness put forward by Mr Jeans in these proceedings and was closely cross examined for over a day, generally in relation to the circumstances in which the heads of agreement were brought into existence. Extremely serious allegations were levelled at him during the cross-examination including the suggestion that particular letters which went into evidence and appeared to be letters signed by him had never been sent at all. He was accused of lying. He was accused of ethical misconduct.

48 Mr Butler gave evidence that he had acted for Mr Herzog from time to time in a number of matters from 1995 onwards and had had an involvement in preparing the heads of agreement. Mr Herzog had controlled Advance Publicity which was a Victorian company.

49 Mr Butler had also acted for Mr Jeans on his appeal to the Full Federal Court and on his application for special leave to the High Court. He had known Mr Jeans for approximately the last 10 years, a friendship having developed between them and he having acted for Mr Jeans in a large number of matters.

50 He had also known and acted for Mr Bruce on many occasions. Mr Bruce had also become a friend of his.

51 His evidence was that although he agreed to draw the heads of agreement he had not been acting for any individual party to the exclusion of the others. His evidence was that he "was probably acting on instructions from all the parties, but on the understanding that they would all get independent legal advice." [Transcript 58]

52 His evidence included:

“Q. So were you to act - do I understand what you are saying - in the interests of all of them as their solicitor?
A. It was made clear from the time that I first agreed to prepare the draft that I couldn't act for all in that manner because they had differing interests and that is why - it was suggested that I do the draft simply because I was familiar with the various transactions that they wished to have dealt with and it was more a matter of convenience to the parties that I do a draft, but it was clearly understood that I wasn't preparing it on the basis that I was advising them all and that they would get independent advice about it before they committed themselves.

Q. …Did you prepare the document in the interests of all of them?
A. I prepared the document to try to reflect the agreement that they had reached or were trying to reach.

Q. Were you in a conflict position in this matter?
A. I think anybody that purported to act for all of the parties would be a conflict, I wouldn't - and that's why I never agreed to act other than to prepare a draft.

Q. Well, then once you prepared a draft you were leaving the matter to the parties to attend to, were you, for themselves or with their other solicitors?
A. Yes, I wasn't acting for any one of them to the exclusion of the others. I was preparing draft documents.

Q. Were you acting for all of them?
A. I was acting for all of them in preparing a draft.”
[Transcript 74]

53 On his evidence, in about May 1999 he became aware that Mr Graham Efron, solicitor of Graham Efron & Associates of Melbourne, was advising Advance and Harpley Nominees in the matter [Transcript 55].

54 Excluding questions of his own involvement, he had never become aware of any solicitor advising Mr Jeans or Deangrove Pty Ltd. Nor had he become aware of any other solicitor advising John Bruce and Partners Pty Ltd or Mr Bruce in relation to the transaction [Transcript 55]. Nor had he communicated with any such person.

55 Mr Jeans was at the time very closely associated with Mr Herzog. At the time of the initial draft of the heads of agreement, Mr Jeans was not a party to the heads of agreement. Mr Butler had understood that Mr Jeans was in a position to give him instructions on behalf of Deangrove. [Transcript 60]

Separate legal advice

56 The very first communication from Mr Butler addressed to Mr Herzog of 13 May 1999 and copied to Mr Backway [PX 79] at least gives some confirmation of Mr Butler's evidence that he had prepared the draft on the basis of separate legal advice being obtained:

"As discussed, I have prepared the document as a draft on the basis that separate legal advice will be obtained. The draft has not as yet been submitted to John Bruce who is away until Monday - I would appreciate your thoughts and I will make any necessary changes and submit a copy to John".

The difficulties faced by Mr Butler

57 A great deal of the difficulties which faced Mr Butler and in respect of which he was intensively cross-examined concerned the mix and match of the manner in which he had communicated: sometimes with other solicitors and often directly, as by speaking to or writing to Mr Backway and permitting others [as for example Mr Backway] to himself play a part in providing documents or in speaking to others [see for example PX 91 where Mr Backway was to discuss particular letters with Mr Herzog and was to provide a copy of a document to Mr Bruce for his consideration].

58 It is not putting too fine a point on what actually happened to summarise the matter by describing Mr Butler as the central cog in terms of the initial draft and later changes to the proposed heads of agreement: his sources of information as to which parties had which particular requests and which instructions being somewhat cloudy to say the least.

59 Mr Butler does not seem to have appreciated the need for parties apparently seeking to negotiate at arm's length, to be protected in terms of their own interests, nor the pervasive problems which can arise where one solicitor acts as some sort of conduit: now preparing a draft; now taking an instruction or request from one of the parties to make a change; now taking an instruction or request from another of the parties to make a different change; now receiving a communication from a solicitor acting for one of the parties [Mr Efron acting for Advance [PX 128]] which solicitor makes suggested changes in terms of a draft and requests that Mr Butler contact his office with the response and with a redraft of Agreement] and then proceeding, notwithstanding that request, to communicate directly with that solicitor's client about the matter. [PX 153]

60 It is hardly surprising in such circumstances where problems arise in relation to what is said to have become a legally binding contract, that it becomes so very difficult to disentangle:

· what instructions were given and by whom and on what advice;

· how and where, if at all, such instructions were implemented;

· whether particular instructions were implemented on an informed basis as to all or only some of the parties [and if so, which parties and in what respects].

The genealogy of the heads of agreement

61 A great deal of evidence was adduced in relation to the genealogy of the heads of agreement and although a deal of that evidence is chronicled hereafter, it is not practicable to chronicle all of that evidence in the judgment. Hence the detail given in the judgment is not intended to be exhaustive. Much of it was documentary and is to be found in Exhibit PX. All of the evidence is of course taken into account in the judgment.

The central purpose of the heads of agreement

62 Mr Butler gave evidence that at the time he was preparing the heads of agreement in 1999:

"[T]he central purpose of the document was to provide a mechanism under which the Herzog interests (Harpley Nominees and Advance) might be repaid the existing debts owed to them out of money that might become available to Mr Bruce or his company JBP."

Sources of funds

63 On the evidence of Mr Butler those potential sources of funds were:

· Mr Bruce's interest in the Deangrove Holloways Beach Development;

· Mr Bruce's interest in the 19 units in the Broadbeach Motor Inn;

· entitlements which then existed in terms of moneys due from Noroton Holdings Pty Ltd and Australian Property Holdings Ltd in consequence of a property development at Katoomba.

Additional general background

64 It is clear from the evidence given by Mr Backway [transcript 416-418] that:

· in about March 1999 a valuation had been carried out of the 19 Broadbeach units by Erin Todd White;

· the Suncorp-Metway loan under the first mortgage was for a sum of $1.950 million;

· the valuation had produced a figure of $2.235 million with a result that the potential equity in the 19 units to satisfy the claim of Harpley Nominees as second mortgagee was $285,000.

65 Mr Backway accepted under cross-examination that the position was that Harpley Nominees was hopelessly under secured for its loan of $1.230 million, meaning that this investment was, as he believed, precarious at that stage. There were however two other assets of Mr Bruce which had some potential for recovery. The first was the entitlement that Mr Bruce's company was negotiating in terms of acquiring monies from Noroton Holdings. The second was Mr Bruce's entitlement through Deangrove in the Holloway's Beach Development which depended upon a successful financial outcome in that development.

66 There was a further loan of $350,000 which had been made to Mr Bruce's company which was secured by debenture. There had been a default in payment of interest to Harpley Nominees of approximately $136,000.

67 In short the total debts claimed by the Herzog interests were $1,230,950, [being the principal under the second mortgage over the Broadbeach units, $136,000 identified as overdue interest, and the $350,000 owed by way of loan secured by an equitable charge over the assets of the practice]. On those figures there was $1,716,950 owed to the Herzog interests and $285,000 worth of potential equity in Broadbeach [after satisfaction of the first mortgagee] to secure that.

68 Mr Backway gave evidence under cross-examination [transcript 423] that when the draft of the heads of agreement was received under cover of letter of 13 May 1999 [PX 39] he noticed clause 6.8 providing for the general form of indemnity in favour of Mr Bruce by Advance Publicity. His reaction was that such an indemnity should not be provided since the relevant companies in the group were owed $1.7 million so that there seemed to be no possible call for them to give an indemnity. He would have discussed that matter with Mr Herzog.

Relationship between Mr Bruce and Mr Jeans

69 Mr Bruce gave evidence that Mr Jeans had been a consultant to Mr Bruce/Mr Bruce's company. Mr Jeans in that capacity had been a business development manager who was supposed open up opportunities for Mr Bruce. His evidence included:

“Q. And he had more to do, do I understand you, with Mr Herzog than you did?
A. Yes.

Q. And you found, did you, that you could sometimes achieve more if he represented you in discussions than you represented yourself with Mr Herzog?
A. Yes, but it was also a question of focus. I had to earn the income because architecture was our source of income, so I had to do that and somebody had to mind some of the administration issues that needed to be dealt with.

Q. Yes, and is it consistent with your recollection that you asked him to negotiate on your behalf with Mr Herzog for the lending of money required to pay an instalment to Suncorp Metway?

A. I repeat I can't recall asking him to do it, but it was a thing that was necessary to be done and he went ahead and did it.

Q. And it was consistent with the role that you gave him generally in the matter?
A. Yes.

Q. As your consultant, one of his jobs was to have negotiations with Mr Herzog?
A. Well, Mr Herzog was perceived to be a source of potential work on a contact list and Tony's role, in a sense, was to keep that relationship smooth, but we also knew that Mr Herzog was at that stage a timely source of income for things that were necessary.

Q. Well, after the negotiations of April there were several further sums, were there not, that you wanted Mr Herzog to pay which had not been mentioned in April arising from later requirements of Suncorp?
A. Well, there was one that was mentioned in the heads of agreement of $15,000 which I can't remember what it was for and then there was some money that was specifically related to the Suncorp Metway settlement, but I must sound an idiot to you that I can't recall all those details, but I tend to sort of put my mind into channels and those were things that I wasn't intimately involved in the day to day workings of.

Q. Did you leave those to Jeans, did you?
A. I left a lot of it to Jeans, yes.”
[Transcript 348]

The indemnity issue

70 It was put to Mr Butler under cross-examination that from the beginning Mr Backway had told Mr Butler that there would be no indemnity given to Mr Bruce for any personal guarantees in respect of Deangrove. His response was that this had not been said to him early in the peace but that he thought that in one conversation which he did have with Mr Backway, he had said that Advance did not want to give a guarantee [transcript 62].

71 After looking at the file and file notes his evidence was that this had not been stated to him by Mr Backway directly but was a conversation [apparently of 31 May] which he had had with Mr Jeans, who had in turn conveyed to him that Mr Backway had advised that Advance would not provide any indemnity to Mr Bruce in respect of the Commonwealth Bank debt on Deangrove. [Transcript 65]

22 June letter

72 The matter had been clearly stated in a letter from Mr Efron to Mr Butler of 22 June 1999:

"Clause 6.8 is too broad. Pursuant to clause 6.8”.. Advance shall indemnify Bruce personally against all liability in respect of any personal guarantees given by Bruce of the obligations of Deangrove whether in respect of principal, interest or costs under any of the mortgages effected by Deangrove or any obligation incurred by Deangrove in respect of the development”. This clause is not acceptable, and implies ongoing obligations of Advance. Advance will not indemnify John Bruce and Partners or John Bruce personally ." [PX 131] [emphasis added]

[It is convenient to interpolate that in the same letter Mr Efron had requested "that a joint guarantor be proposed by your client " - Mr Butler having assumed that this was a reference to Mr Bruce or to John Bruce and Partners. [Transcript 90]

73 It is convenient to interpolate that Mr Bruce gave evidence that he had never seen this letter. [Transcript 340]

74 Mr Herzog albeit giving evidence [transcript 542] that he had not read this letter at the time [and contending that, even as he was in the witness box, he had still not read the letter], gave the following evidence in relation to the suggestions made by Mr Efron to him in the context of this letter:

“Well, first of all, I should definitely don't give any guarantees and you need to get the numbers that are outstanding. If you'd ever want to look at it you should get the numbers. We haven't got a clue what the outstandings are there.
…

Q. By "get the numbers", you mean something along the lines of a requirement for disclosure of Deangrove's financial position?
A. Correct.”
[Transcript 541]

75 Mr Herzog had also been aware that Mr Efron had [in the same letter], sought a disclosure of the financial position of Deangrove. [Transcript 541]

File memorandum – 31 May 1999

76 Mr Butler noted in a file memorandum of his own of 31 May 1999 that he had telephoned Mr Efron [then acting, as Mr Butler understood it, for Advance and Harpley Nominees] who confirmed that the company was not prepared to give an indemnity. [PX 102] [Transcript 70-71] The file note makes the point that Mr Efron's client's were taking an option for the assignment of the Deangrove interest to cover both debts with any excess to be paid to Mr Bruce.

Further file memorandum – 31 May 1999

77 A further file note made by Mr Butler of 31 May 1999 [PX 103] records an attendance upon Mr Jeans and a confirmation of the terms of Mr Butler's discussion with Mr Efron and includes:

"He rang… Beckway who confirms that Advance will not provide any indemnity to John Bruce in respect of the Commonwealth Bank debt on Deangrove.

Confirms that Advance would want the option of repayment of the Noroton liability from any monies received on account of the Deangrove facility in which case the Noroton debt would be re-assigned."

2 June 1999 – Butler writes to Backway

78 A good example of the problems which were being encountered by the particular position of Mr Butler is to be found in the circumstance that following the 31 May 1999 file memorandum, he wrote on 2 June 1999 to Mr Backway enclosing what he described as "copy of draft Heads of Agreement herewith to incorporate the various changes discussed…"

79 He added:

"A copy has been provided to John Bruce today and he is wanting to execute today or tomorrow."

80 However on examination it becomes quite plain that the draft heads of agreement enclosed under cover of this facsimile had not removed nor altered every word of the earlier indemnity. His cross-examination included:

“Q. How could you possibly write what appears at 104? He wants one thing. Advance wants something else. How on earth would you say what is said at 104?
A. It was said and the draft was sent on the basis that that's what John Bruce insisted upon, that is what appeared in the document in the first place. I was still waiting for advice from Mr Efron.”
[Transcript 79]


“Q. And it was false, wasn't it, to say that the heads of agreement that you forwarded on 10 June incorporated the various changes discussed, wasn't it ?
A. Well, it did. There were the changes - any further changes that Advance wanted were yet to come from Mr Efron in a note or letter which he advised me on 31 May in due course I would receive.

Q. Well, you see, you have moved on to what Mr Efron was going to send you. There is no suggestion about what you had written on 10 June, is there, that this is pending receipt of any document from Mr Efron, is there?
A. No.”
[Transcript 80]

10 June 1999 – Butler writes to Bruce

81 On 10 June 1999 Mr Butler wrote to Mr Bruce stating inter alia:

"I enclose herewith a further draft of the Heads of Agreement which takes into consideration those matters raised by you and Advance Publicity Pty Ltd and incorporates those changes required by Advance Publicity P/L.

I note that you will seek your own independent advice…"
[PX 123]

82 The cross-examination of Mr Butler included:

“Q. That was completely false, wasn't it?
A. No.

Q. It was completely false, wasn't it?
A. No.

Q. If you look back at 102 and 103?
A. No.

Q. There had been no account taken of the matters raised by Advance through Mr Backway noted in paragraph 2 at 103, had there?
A. In terms of 102--

Q. No, 103, second paragraph, there had been no account taken of that, had there?
A. As to an indemnity - the indemnity being--

Q. Yes, the removal of an indemnity?
A. No.”
[Transcript 83]

83 Mr Butler was taxed under cross-examination with the fact that there were no notes of his own, making the point that he had drawn the attention of Mr Bruce to the fact that Advance was not prepared to give the indemnity. Yet in many of his internal file memoranda he had recorded detailed discussions with a number of parties about particular numbered clauses. His evidence was simply that he had drawn the attention of Mr Bruce to the reluctance of Advance to give an indemnity. [Transcript 85-86]

84 Mr Bruce accepted that following receipt of the letter of 10 June 1999 from Mr Butler he would have had telephone conversations with Mr Butler about the heads of agreement. [Transcript 308.1]

85 Mr Bruce believed that he had been aware in June 1999 that Mr Efron had been consulted on behalf of Advance Publicity with respect to the heads of agreement but could not be precise. Although he could not recall the date, he also believed that it may have been sometime after the heads of agreement were signed when he first became so aware. [Transcript 308]

15 June 1999 – Butler writes to Backway

86 Mr Butler wrote to Mr Backway on 15 June 1999 stating inter alia:

"I enclose herewith a further re-engrossment of the proposed Heads of Agreement taking into consideration the various comments made by you and Mr Bruce."
[PX 127]

87 The enclosed document was admitted into evidence as exhibit D1. It included clause 6.8 which had not been deleted. The cross-examination of Mr Butler included:

“Q. If you were treating Advance Publicity as one of your clients for any purpose, you surely had to draw to their attention that one thing that they had asked for was not in this document, namely, the deletion of clause 6.8 or any indemnity to it, didn't you?
A. No, that is not what my conversation with Mr Efron was.

Q. Well, you surely had to draw to their attention that this was a provisional document subject to whatever might be received from Mr Efron, didn't you ?
A. It was always a provisional document. It was a draft. It had--

Q. You didn't say so though, did you? Mr Butler, you didn't mention Mr Efron or anything that you were waiting from Mr Efron for in your letter at page 127, did you?…

Q. You said nothing about Mr Efron or anything--
A. Advance knew of the involvement of Mr Efron.

Q. Yes.
A. The document was obviously a draft. It had blanks in it that needed to be filled.

….

Q. Were you hoping that it wouldn't be noticed that 6.8 was still in this document?
A. No,…"

Q… Were you intending to set this by?
A. Absolutely not.

Q. Well, why don't you mention that it will need to be revised when you get Mr Efron's letter or advice?
A. I envisaged that that draft would be referred by Advance to Mr Efron whilst he was considering the various matters that had been discussed in my previous conversations with him and, to the extent that it incorporated the comments of John Bruce, would allow him to take those into account as well.”
[Transcript 87-89]

15 June 1999 - Letter from Mr Butler to Mr Bruce

88 On 15 June 1999 Mr Butler wrote to Mr Bruce [who gave evidence that he received this letter around the date it bore - transcript 306] inter alia in the following terms:

“I refer to the telephone conversations of recent date and would confirm that I have re-engrossed the Heads of Agreement, taking into consideration the matters referred to in your fax of the 10th instant and our discussions of the 11th instant.

I am advised that Advance Publicity is not prepared to agree to the deletion of Clause 4.9 or the amendment of the period in Clause 5.3.

I have amended Clause 6.6 to take into consideration your concerns.

I note that Mr Jeans is to provide the unit numbers to be inserted in Clause 6.9 and that your Company is to provide the unit numbers for insertion in the First Schedule.

I have forwarded a copy of the Heads of Agreement as enclosed herewith to Advance Publicity and note that you will liaise with the Company with a view to an exchange.”
[PX 126]

Request for comprehensive alterations

89 The letter from Mr Efron to Mr Butler of 22 June 1999 [which has already been referred to] constituted a request for comprehensive alterations to the draft heads of agreement and, in the last paragraph, a request that Mr Butler contact the office of Mr Efron in light of the matters raised in the letter "and/or [produce] a re-draft of Agreement reflecting answers to same". The following evidence was given by Mr Butler under cross-examination:

“Q. Now, Mr Butler, from this point of time onwards, if not before, I suggest to you, it was apparent to you that the companies of Mr Herzog were no longer represented by you in this transaction, if they had previously been represented by you at all?
A. Again, my position was still the drafting of the document. It wasn't acting for any one of these parties to the exclusion of another. Efron had been instructed, as I had asked Advance to do, from the beginning, to get independent advice about what I was drafting.

Q. Do you see in paragraph 5, last sentence, Mr Efron was saying to you, page 131, "We request that a joint guarantor be proposed by your client", do you see that?
A. Yes.

Q. He was treating Bruce as your client, wasn't he?
A. That's the inference I guess from that.

Q. And asking to you get back to him, in the last paragraph on page 132, with "your response to the matters raised herein or a redrafted agreement", do you see that?
A. Yes.

Q. That would treat you as no longer the solicitor, if you ever were, as no longer the solicitor for Advance, wouldn't it?
A. I never regarded myself as the solicitor for Advance to the exclusion of any of the other parties.

Q. Whether to the exclusion or otherwise, you were asked to deal with their solicitor, weren't you, by the last paragraph of this letter?
A. I was asked to take those matters into consideration in draft.

HIS HONOUR: Q. Was there anyone else who you at this time considered to be acting for Mr Bruce?
A. No, I think Mr Bruce had advised that he may get advice when a final form of document had been agreed upon before he committed himself to it, but he wasn't proposing to do it until then.

Q. So the answer to my question was no?
A. No.”
[Transcript 82 - 83]

Alleged breach of the Law Society Rules

90 Instead of responding to Mr Efron, Mr Butler communicated directly with Mr Backway. It was put to Mr Butler that for him to communicate directly with Advance constituted a breach of rule 31 of the Law Society Rules. This rule provided that a practitioner who was acting on behalf of a party in any transaction must not communicate directly with any other party for whom, to the knowledge of the practitioner, another practitioner was currently acting, unless a procedure was gone through and even then, that such communication could be only for very limited purposes. The cross-examination of Mr Butler included:

“Q. You see, there was a solicitor, Mr Efron, who was another legal practitioner, wasn't he?
A. Yes.

Q. And he was acting on behalf of Advance and had asked you to respond to him by his letter of 22 June, hadn't he?
A. To contact his office.

Q. And instead of doing that you went straight to his client, didn't you?
A. I continued to send drafts to his client on the same basis as I had commenced to act to provide him with drafts with him getting advice. I had subsequent communications directly with Mr Backway. There was never any suggestion that I should forward anything to Mr Efron to the exclusion of Mr Backway.

Q. If you regarded Mr Backway or Advance Publicity as your client, you were in a hopeless position of conflict, weren't you, such that you could not accept instructions to act for them at the same time as acting for the other parties to this transaction?
A. Well, I have explained my position there before.

Q. That is a greater problem, isn't it, if that was so, than a breach of rule 31 to your understanding, if you were in such a position of conflict?
A. I was not in that position. I was in a position, again, where I was drafting a document to assist the parties to come - to reflect an agreement that they had reached with them getting their own advice about it.”
[Transcript 94-95]

29 June 1999 – Butler to Backway/Advance bypassing Mr Efron

91 Mr Butler by his letter of 29 June 1999 addressed to Mr Backway/Advance Publicity responded directly to the particular proposed amendments which had been suggested in the letter from Mr Efron.

The variation to clause 6.8

92 The version of the heads of agreement enclosed by Mr Butler under cover of his letter of 29 June 1999 only varied clause 6.8 very slightly. As already indicated the previous form of clause 6.8 [Exhibit D1/ PX 111] had read:

"Advance shall indemnify and keep indemnified Bruce from and against all liability incurred by Bruce in respect of any personal guarantees given by Bruce of the obligations of Deangrove whether in respect of principal, interest or costs under any Mortgage effected by Deangrove or any obligation incurred by Deangrove in the acquisition or development of the Holloways Beach development."

93 The new form of clause 6.8 [PX 151] now read:

"Advance shall indemnify and keep indemnified Bruce from and against all liability incurred by Bruce in respect of any personal guarantees given by Bruce of the obligations of Deangrove to the Commonwealth bank of Australia whether in respect of principal, interest or costs under any Mortgage effected by Deangrove to the said Bank or any obligation incurred by Deangrove to the said Bank in the acquisition or development of the Holloways Beach development."

94 Clearly this new form of the clause did not cope with the request which had come forward from Mr Efron in terms of his instruction that "Advance will not indemnify John Bruce and Partners or John Bruce personally" [PX 131]. This was put to Mr Butler:

“Q. Yes, the only amendments to take account of Mr Efron's paragraph 6 on page 131 are those which appear from 6.8 at page 151?
A. Yes.

Q. And that doesn't get within a bull's roar of it, does it?
A. Well, it limits the liability to John Bruce's personal liability in respect of his guarantee to the Commonwealth Bank rather than the obligations of Deangrove.

Q. It doesn't get within cooee of what Mr Efron had asked for on page 131 in paragraph 6, does it?
A. I wouldn't say within cooee, it's a variation on the broad terms of 6.8 before which, as he says, clause 6.8 is too broad. It was cut down substantially….

Q. And you say 6 is dealt with by amendment to clause 6.8?
A. Yes.

Q. That hardly deals with 6, does it?
A. Well, it deals with it.

Q. Some of the subject matter, but by no means do you comply with the requests, do you?
A. It deals with the request and narrows the extent of the indemnity that was previously there.”
[Transcript 87-88]

Legal Practitioners - period 22 June 1999 up to 5 July 1999

95 Mr Butler was asked in relation to the period from 22 June 1999 up to 5 July 1999 which legal practitioners were acting for which clients in the matters relating to the heads of agreement. His evidence under cross-examination was that at that stage as he understood it, Mr Backway and Mr Herzog were getting advice from Mr Efron. He was not aware of whether or not Mr Bruce or Mr Jeans or Deangrove were getting other advice. [Transcript 101-102] His evidence included:

“Q. Are you suggesting you didn't know one way or the other whether they were getting other advice?
A. My understanding from what they told me was that when it appeared that the document was in final form they proposed to get advice at that stage, and probably not until then.

Q. Probably. But you didn't think there was anyone else advising them about these documents at all, did you, at any time actually?
A. I didn't know whether they were getting any advice from anybody else. I was dealing directly with them.

Q. You'd never been told that they were getting advice from anyone else, had you?
A. No, I hadn't.”
[Transcript 102]

2 July 1999 letter from Clayton Utz to John Bruce & Partners and how the parties reacted

· Accordingly, a non-party co-guarantor (C) may be bound by a res judicata to which the other guarantor (D) is directly subject on the basis that, by analogy with the above rule in respect of non-party indemnifiers acting with notice of a litigation, C has set up an estoppel by representation to the effect that he/she is content to be bound by the outcome.

Applying the analysis to the present facts

375 To my mind the evidence clearly satisfies the criteria necessary to establish the requisite estoppel by representation as against both the first as well as the second and third defendants. On the evidence each of these two sets of parties by their relevant conduct and/or inaction, represented that they were content to treat the judgment in the Federal Court proceedings as binding upon themselves, although in fact and in law, as at the moment when Sackville J published his reasons for judgment, the first defendant was not longer a party to those proceedings, the second and third defendants never having been parties to the proceedings. It would be unjust to allow either of the two sets of parties to now deny that the Federal Court judgment is to be treated as binding upon them.

376 It is unnecessary to examine the position of Mr Bruce who was on notice in every possible way not only of the nature of the proceedings, but also of Mr Jeans unsuccessful attempts to obtain leave to withdraw his admission that he had signed the guarantee.

377 It is also plain on the evidence that the second and third defendants were given formal notice of the claim made against Mr Bruce under his guarantee in the Federal Court proceedings. A letter was written to Mr Herzog by solicitors acting for Mr Bruce on 13 August 2001 [PX 329-330] drawing specific attention to the existence of the Federal Court proceedings and the claim against Mr Bruce under his guarantee. Specific attention was also drawn to clause 6.8 of the heads of agreement. The stance taken by Advance Publicity and Harpley Nominees was to deny that the indemnity was ever executed on behalf of the companies (PX 330A). Further, on 5 September 2001, after some discussions between Mr Bruce and Mr Herzog, an attempt was made by the solicitors acting then for the second and third defendants to obtain a formal release from Mr Bruce and his company and replace the heads of agreement with another document which omitted the indemnity previously found in clause 6.8 [PX 332-340]. However, that document was not executed.

378 Each of the facts pleaded in paragraphs 1-10 and 12-15 and 17 (a)-(d) of the Reply had been clearly proved.

379 In the result the circumstances proven by dint of the facts pleaded in paragraph 1-10 of the Reply give rise to a binding estoppel operative against the first defendant preventing him from asserting:

· the invalidity of the respective liabilities of Mr Jeans and of himself under their guarantees;

· the invalidity of the liability of Deangrove to the Commonwealth Bank.

380 Further to the detriment of Mr Bruce, the assertion by the second and third defendants of an entitlement to recover moneys from Noroton Holdings and Australasian Property Holdings precluded Mr Bruce from any such recovery operating to his detriment.

381 Further the circumstances proven by dint of the facts pleaded in paragraphs 12-15 and 17 (a)-(d) of the Reply give rise to an estoppel operative against the second and third defendants preventing them from asserting the invalidity of the judgments entered against Mr Jeans, Mr Bruce and Deangrove in the Federal Court proceedings.

382 For the reasons already given the submission of the second and third defendants that the principles as between an indemnifier and a person indemnified have no application to the position as between co-guarantors is rejected. The suggested distinction [in terms of the fact that persons who might in the future be called upon to make equitable contribution as co-guarantors are not required to intervene in pending proceedings against persons who might one day make such a claim against them, even if they are aware of the fact that such proceedings are pending] is on analysis not one of substance.

Evidentiary rulings

383 The plaintiff having established the existence of issue estoppels against not only the first defendant, but also the second and third defendants arising from the Federal Court proceedings:

· The short minutes of order in the Federal Court proceedings dated 2 April 2003 directing judgment for the Commonwealth Bank against the first defendant Mr Bruce are admissible against him in these proceedings, as they constitute an issue estoppel in respect of the following matters:

- the fact that Mr Jeans was a guarantor to the Bank of the debts of Deangrove;

- the fact that Mr Bruce was a guarantor to the Bank of the debts of Deangrove;
- the amount of their liability respectively under the judgments.

· It is incorrect to characterise the document at PX 58-60 as “Terms of Settlement”. Judgment was directed to be entered in accordance with those terms in the Federal Court proceedings on 3 April 2003 [transcript pp 604-605]. The document at PX 58-60 constitutes evidence of the judgment of the Federal Court.

· The amended cross-claim upon which that judgment was based is also admissible. In order to determine and identify the precise issue estoppels which exist - see generally Spencer Bower, Turner & Handley (3rd Ed) para 204 and especially Sterling Engineering Co Ltd v Patchett [1955] AC 534 at 541 where Viscount Simon said:

“So far as the action was concerned, an order was made whereby it was dismissed with costs, and that was awful. And it is clear that whatever else your Lordships may look at in the event of a plea of res judicata being raised, you are at least entitled to know what were the issues raised in the pleadings in the action ...” [emphasis added]

· As between Mr Jeans and Mr Bruce, their common liability to the Commonwealth Bank as guarantors is a concluded question determined by the earlier proceedings.

· As between Mr Jeans and the second and third defendants, the pleadings and the judgment in the Federal Court action as to:

- the liability of Mr Jeans to the Bank as guarantor;

- the liability of Mr Bruce to the Bank as a guarantor
are also admissible.

384 The exhibit markings will be as follows:

· As to the guarantee by Mr Bruce, which is pages 1 to 12 of the PX red volume, there was no objection by any of the defendants and that material is already included in exhibit PX.

· The guarantee by Mr Jeans is pages 13 to 25 of the PX red volume.

· The Federal Court judgments are to be found at PX pages 26 to 57 and 63 to 75.

· As to the documents following page 58, namely the terms of settlement against Mr Bruce, those terms of settlement were not the subject of an objection by the first defendant to the tender as against it and those pages are already part of exhibit PX but only as against the first defendant. They are now also admitted against the second and third defendants.

The way forward

385 The parties ought now to be in a position to seek to formulate short minutes of order, although perhaps not in every respect. The principal issues litigated have been the subject of reasons for judgment. The complexities involved and the many disparate sets of submissions mean that it is appropriate to reserve leave to address on any pleaded matters which it may be submitted still remain to be dealt with. Submissions will also be taken on costs. It is to be hoped that the parties will endeavour to reach a consensus on any matters of detail in terms of the proper orders to follow from the reasons for judgment.

I certify that paragraphs 1 - 385
are a true copy of the reasons
for judgment herein of
the Hon. Justice Einstein
given on 19 July 2004

___________________
Susan Piggott
Associate
19 July 2004

Last Modified: 07/26/2004