Ody v Andrews
[2013] TASSC 9
•28 March 2013
[2013] TASSC 9
COURT: SUPREME COURT OF TASMANIA
CITATION: Ody v Andrews [2013] TASSC 9
PARTIES: ODY, Matthew
v
ANDREWS, Claire
FILE NO: 310/2011
DELIVERED ON: 28 March 2013
HEARING DATES: 5, 6 February 2013
(Written submissions: 13, 20 February 2013)
JUDGMENT OF: Porter J
CATCHWORDS:
Restitution – Restitution resulting from unenforceable incomplete illegal or void contract – Recovery of money paid – General principles – Total failure of consideration – Agreement for sale of shares where no time set for vendor's performance – Fully paid vendor failed to transfer shares – Purchaser took no steps to enforce or terminate agreement – Remedy not available.
Baltic Shipping Co v Dillon (1993) 176 CLR 344; Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221, applied.
Aust Dig Restitution [10]
Guarantee and Indemnity – Rights of surety – Against co-sureties – Contribution – Plaintiff and defendant co-sureties for company's indebtedness – Defendant sole shareholder – Plaintiff an employee and with a beneficial interest in one half of the company's shares under an agreement for sale – Defendant paid company's debt – Plaintiff gained a benefit from the guarantee and liable to contribute to the extent of one half.
Official Trustee in Bankruptcy v Citibank (1995) 38 NSWLR 116; Ogilvie v Ferry [2010] NSWSC 379, considered.
Bater v Kare [1964] SCR 260, distinguished.
Aust Dig Guarantee and Indemnity [31]
REPRESENTATION:
Counsel:
Plaintiff: D F M Zeeman
Defendant: R D Strong
Solicitors:
Plaintiff: Butler McIntyre & Butler
Defendant: Toomey Maning & Co
Judgment Number: [2013] TASSC 9
Number of paragraphs: 102
Serial No 9/2013
File No 301/2011
MATTHEW ODY v CLAIRE ANDREWS
REASONS FOR JUDGMENT PORTER J
28 March 2013
Introduction
The plaintiff is seeking to recover the sum of $100,000, or alternatively damages for breach of contract, from the defendant. It is common ground that the defendant was the owner[1] and sole director of a company known as Tasmanian Publishing Company Pty Ltd which published a magazine called "Tasmanian Life". The company has now been wound up[2].
[1] The plaintiff's counsel said in opening that the evidence would show that there were 10 shares in the company. As things eventuated, there was no evidence about the actual shareholding but it was implicit in the conduct of the trial that the defendant was the only shareholder.
[2] In his opening, the plaintiff's counsel told me that the company had been wound up and the evidence would show that it was deregistered on 28 December 2012. As things eventuated, it was stated to be common ground that the company had been wound up, but there was no evidence or stated common ground as to when that happened. There was no evidence as to the state of the company's affairs at the time of liquidation.
It is also common ground that in late 2010 the plaintiff was an employee of the company, and that he paid a total amount of about $100,000 mostly to or on behalf of the company, but with a small amount being paid to the defendant personally. The payment of the various amounts came about because the plaintiff was interested in acquiring a 50% interest in the business of the company, by way of acquiring half the shareholding from the defendant. The company needed funds to continue.
A number of documents relating to the payment of these sums of money were executed by the parties, the first three of which were headed "Loan Agreement", whilst the fourth and last one, dated 6 December 2010, was entitled "Partnership Agreement". I will later consider the terms of these documents.
On the same day as the so-called partnership agreement was signed, the plaintiff and the defendant secured a credit facility for the company with a printer, Southern Colour (Vic) Pty Ltd. They did this by co-signing a deed of guarantee and indemnity. Ultimately, the company owed about $41,500 to Southern Colour, which debt was compromised by the acceptance of a lump sum of $30,000. That sum was paid by the defendant. The plaintiff's potential liability to the defendant as co-surety is the subject of a counterclaim brought by the defendant.
The issues for determination are:
· whether the plaintiff has established, within the confines of his pleadings, any basis for the defendant's liability to pay to him the sum of $100,000;
· alternatively, whether the plaintiff has established a breach of an agreement entitling him to damages; and
· whether the plaintiff is liable to the defendant as a co-surety for contribution to the extent of $15,000, or such other sum as may be determined appropriate.
The plaintiff's claims
Having regard to the way in which the plaintiff's case was conducted at trial, and to the arguments advanced on both sides, it is desirable to set out the plaintiff's statement of claim in full, rather than to summarise it. It reads as follows:
"BREACH OF CONTRACT / MONEY HAD AND RECEIVED
1By an agreement in writing dated 6 December 2010 ('the Agreement') the Plaintiff agreed to pay the Defendant $100,000.00 ('the Purchase Price') in exchange for a 50% share ('the Equity') in the company known as Tasmanian Publishing Company Pty Ltd ('TPCPL').
Particulars of the Agreement
The Agreement is contained in a document dated 6 December 2010 that is available for inspection at the offices of the Plaintiff's solicitors, Butler Mclntyre & Butler at 20 Murray Street, Hobart, by appointment during office hours.
2Between October and December 2010 the Plaintiff paid the Purchase Price to Defendant.
3In breach of the Agreement the Defendant has failed to provide the Plaintiff with the Equity.
4The Plaintiff seeks repayment of the Purchase Price by reason of the total failure of the Defendant's consideration under the terms of the Agreement.
5The Plaintiff has demanded repayment of the Purchase Price from the Defendant ('the Letter of Demand').
Particulars of the Letter of Demand
The Letter of Demand is dated 6 April 2011 and is available for inspection at the offices of the Plaintiff's solicitors, Butler Mclntyre & Butler at 20 Murray Street, Hobart, by appointment during office hours.
6By the Letter of Demand the Plaintiff notified the Defendant that the Purchase Price would accrue and continue to accrue interest under section 34 of the Supreme Court Civil Procedure Act 1932 (Tas) from and including 6 April 2011.
7The Defendant has refused and/or failed to repay the Purchase Price to the Plaintiff.
8The Defendant continues to refuse and/or fail to repay the Purchase Price to the Plaintiff.
MONEY LENT
9Alternatively, the plaintiff loaned the following amounts to the Defendant on or about the following dates:
i $5,000.00, 15 October 2010;
ii $10,000.00, 20 October 2010;
iii $14,542.45, 11 November 2010; and
iv $70,457.55, 6 December 2010,
Totalling $100,000.00 ('the Loan Amount') loaned by the Plaintiff to the Defendant.
10There was no term as to the repayment of the Loan Amount.
11The Plaintiff has demanded repayment of the Loan Amount from the Defendant by the Letter of Demand.
12By the Letter of Demand the Plaintiff notified the Defendant that the Loan Amount would accrue and continue to accrue interest under section 34 of the Supreme Court Civil Procedure Act 1932 (Tas) from and including 6 April 2011.
13The Defendant has refused and/or failed to repay the Loan Amount to the Plaintiff.
14The Defendant continues to refuse and/or fail to repay the Loan Amount to the Plaintiff.
AND thee Plaintiff claims the sum of $100,000; in the alternative, damages:
1Damages;
2Interest; and
3Costs to be taxed."
The defence
The essence of the defence is as follows. In relation to the allegations under the heading "Breach of contract / Money had and received", the defendant admits that she entered into the Partnership Agreement. She says this was an agreement which:
· "purported to record that the plaintiff had paid $100,000 to the plaintiff [sic defendant] as agent for and on behalf of the company" as an investment in the company's business;
· bound the defendant to transfer to the plaintiff a 50% shareholding for no additional payment, "and bound the defendant [sic plaintiff] to accept the transfer"; and
· provided that the terms of the contract would be restated in a fuller and more precise document, but not one different in effect.
Further, the defendant pleads an earlier agreement, partly in writing and partly oral, by which:
· the defendant agreed to negotiate with the plaintiff for him to have a share in the business of Tasmanian Life Magazine in return for an investment in the company;
· the plaintiff agreed to provide funds to keep the business going pending the completion of those negotiations.
Further to that allegation, it is pleaded that the plaintiff paid a number of amounts to the company's creditors or for its ongoing business expenses, and that by the agreement of 6 December 2010 the plaintiff and the defendant agreed that:
· the amount to be invested by the plaintiff would be $100,000;
· the plaintiff would be entitled to a 50% share in the company;
· all amounts paid by the plaintiff would be applied towards satisfaction of the investment amount of $100,000.
The plaintiff says that the consequences of those two agreements and the actions of the plaintiff is that on and from 6 December 2012, or alternatively the date when the plaintiff made the last of the payments totalling $100,000, the defendant held 50% of the shares in the company upon an implied or constructive trust for the plaintiff.
The defendant further pleads that on or about 21 March 2011 the plaintiff purported to "retract" the 6 December memorandum of agreement, asserted that the defendant was personally indebted to him in the sum of $100,000, and resigned his employment with the company. The defendant admits that she has not paid the sum of $100,000 or any part thereof, and says she is under no obligation to do so at law or in equity.
In relation to the alternative claim for repayment of the $100,000 as a loan, the defendant relies on the pleaded agreements and associated facts and says, in essence, that any part of the amount of $100,000 which may have been lent by the plaintiff to the defendant before 6 December 2010, was a debt which was extinguished by the 6 December 2010 agreement "and thereafter constituted indebtedness of the company to the plaintiff".
The defendant's counterclaim
The counterclaim is for $15,000, or such other sum as may be appropriate, by way of contribution to the defendant. The asserted basis is that the plaintiff was a co-surety for the company's indebtedness to Southern Colour. I have already briefly outlined the circumstances giving rise to this claim, and there is no need for me to repeat them.
The plaintiff's evidence
There was no real challenge by the defendant to the plaintiff's evidence. The cross-examination proceeded more by way of clarification and eliciting further facts. What follows is a summary of the relevant parts of the plaintiff's evidence and represents my findings of fact unless otherwise expressly or impliedly made clear.
The plaintiff was living in South Australia when the defendant offered him a job as art director with Tasmanian Life Magazine. The defendant told him that she was the owner and director of the company. The plaintiff accepted the offer and started work on or about 8 August 2010 whilst still in Adelaide and making arrangements to move. He started work for the company in Tasmania on 27 September 2010.
The business was located in a house in Kingston. At that time, the defendant was in a relationship with Jonathon Mathys, who was also the editor of the magazine and responsible for marketing. The house was their home. Before the plaintiff arrived in Tasmania, the defendant told him that she intended to terminate the relationship with Mr Mathys.
The plaintiff said that he saw problems with the magazine, and with how Mr Mathys was doing his job, from "quite early on". The company has cost flow difficulties. There were delays in printing caused by problems in getting advertising copy, and at least one article for which advertising had been paid, had not been written.
At an early stage of the plaintiff's employment in Tasmania the defendant told him that the company owed money to its printer, Southern Colour, for it to publish the next edition which was due in October. At about this time, which was some time around 13 October 2010, the plaintiff and the defendant spoke about the plaintiff becoming "a part of the company". He realised the company needed money and was interested in investing in it. He wanted to "float the idea" that he "would like to be a part of the company". He found an opportunity to discuss the matter with the defendant. The two went to the beach at Kingston. This was in order to keep the discussions from Mr Mathys.
The plaintiff told the defendant he was interested in acquiring a one half share in the company. It was then, or a little later, that the figure of $100,000 was mooted. The plaintiff said he came up with this figure as the defendant had told him that she had paid $87,000 for the magazine business. His figure of $100,000 was based on that. His understanding was that he would have to pay $100,000 to whom and in whatever form the defendant directed. In cross-examination the plaintiff agreed that at this time, the defendant was not prepared to commit to his acquisition of a 50% interest, but as far as he was concerned he wanted a one half interest, and that was important to him.
As a result of this discussion the defendant saw her solicitors. Also at about that time, it was arranged that the plaintiff would pay to the defendant an amount of $5,000, a substantial part of which was to be paid to Southern Colour to enable the October edition of the magazine to be printed.
As a result of the consultation with the defendant's solicitors, a "Loan Agreement" was drafted and sent to the defendant, although the loan amount set out in the draft was $10,000. In evidence, the plaintiff explained that the defendant had received advice "that any money should be kept as a loan" because Mr Mathys had claimed an ownership interest in the company.
On 15 October 2010 the plaintiff and the defendant signed an agreement in the form of the draft sent by her solicitors, but with the amount reduced from $10,000 to $5,000 ("the first loan agreement"). It provides as follows:
"Matthew Ody agrees to loan Claire Andrews the interim sum of $5,000 repayable on terms to be agreed for investment in the business of Tasmanian Publishing Company Pty Ltd. Claire Andrews declares that it is her intent to negotiate with Matthew Ody for a share in the business, Tasmanian Publishing Company Pty Ltd, and that the sum of $5,000 can be taken into account in those negotiations.
Claire Andrews also declares that Jonathon Mathys will not play any role in the business nor have any control over the business, Tasmanian Publishing Company Pty Ltd."
The reasons for the payment of $5,000 were explained by the plaintiff as being mostly for the payment to Southern Colour but also for the defendant herself, who needed some money as she was in the process of moving house. She required money for a bond. Apparently, the business was also to be re-located to the defendant's new address. The plaintiff paid to the defendant $5,000 in cash on the day the first loan agreement was signed. In cross-examination the plaintiff denied that it was important to him that any money he provided be invested in the business. .
About a week later, the plaintiff and the defendant had further discussions about the company's need for money. More money was due to Southern Colour. The plaintiff and the defendant discussed the situation and the plaintiff was asked by the defendant to provide additional funding to the extent of $10,000. The plaintiff was told that the money was needed for company purposes. Working from the first loan agreement, the plaintiff produced a further loan agreement which was signed by the parties on 20 October 2010 ("the second loan agreement"). This reads as follows:
"Matthew Ody agrees to loan Claire Andrews the interim sum of $10,000 repayable on terms to be agreed for investment in the business of Tasmanian Publishing Company Pty Ltd. Claire Andrews declares that it is her intent to negotiate with Matthew Ody for a share in the business, Tasmanian Publishing Company Pty Ltd. This amount is to be added on to the previous loan agreement of $5,000, signed and dated 15/10/2010 for a total loan amount of $15,000. The total sum of $15,000 can be taken into account in those negotiations."
The $10,000 was paid by the plaintiff into the defendant's personal bank account. The plaintiff agreed that the total of $15,000 lent to that point had been paid into the defendant's account because she did not want Mr Mathys to know that the plaintiff was contributing that money. At this stage the plaintiff had not received any documents from the defendant in relation to negotiations for an acquisition of interest in the company, nor had she said anything to him about repayment of amounts which he had lent. However, the defendant requested the plaintiff to make further miscellaneous payments. He was told that these amounts were required for the company's purposes. The plaintiff made the payments at the defendant's direction.
On 11 November 2010, the plaintiff and the defendant signed a further loan agreement for $29,542.45 which showed the $15,000 together with the additional amounts which had been paid by the plaintiff on the company's behalf. These payments were made directly to the recipients from the plaintiff's personal account. This agreement ("the third loan agreement") reads as follows:
"As at 11/11/2010, Matthew Ody has loaned Claire Andrews the sum of $29,542.45 repayable on terms to be agreed for investment in the business of Tasmanian Publishing Company Pty Ltd. Claire Andrews declares that it is her intent to negotiate with Matthew Ody for a share in the business, Tasmanian Publishing Company Pty Ltd, and that the sum of $29,542.45 can be taken into account in those negotiations.
15,000 — Original agreement
74.75 — Aust post 9/11
3,200 — Helen Cushing
1,100 — Sanet pay 11/11
3,441 — Kyron Johnson
1,100 — Claire pay + rent
507 — Desks
458.70 — Doodlelfish
547 — Laptop
814 — Matt pay 11/11
179.95 — Phone handset
114 — Dinner K Walters
814 — Matt pay (29/10)
470 — R Watson
90— Stamps
18 — Envelopes"
It can be seen that the total of all of the figures is not $29,542.45, but $27,928.40. Ignoring the $15,000 described as "Original Agreement", the total of the itemised amounts is $12,928.40. This was not explained in evidence, nor was it the subject of any comment by either party. The plaintiff was cross-examined on the fact that the third agreement stated that the defendant declared her intent to negotiate with him for a share in the business. It was put that this reflected the fact that as at 11 November 2010 he and the defendant had not come to an agreement about his 50% share for $100,000. The plaintiff said that as far as he was aware they had. He thought there had been an agreement, but accepted that he did not have anything in writing from the defendant to confirm that.
On 28 November 2010 the defendant sent an email to the plaintiff. Relevantly, it contains the following:
"I was looking for the authority form for the bank and realised you must realise that you must have it with you. I have decided to hold off on allowing anyone else to operate the bank for a while, … Whilst I am the Sole Director I would rather keep it simple and not sign you on just yet. Much has to be worked out, you have made a loan to the company and that is all it is at present, we must get ourselves worked out here and then move forward when we know how the business is going in the next couple of months. I will discuss your loan repayment with you tomorrow and how I can repay it quickly early next year. … I cannot feel like I am getting further and further into an arrangement which should take much planning and careful consideration on both sides, it just too stressful to operate that way …
I really appreciate your loan Matt, … We'll have to have a chat Matt, obviously I am very vulnerable but if I had not waited so long to move and just had some funds it would never have been an option to loan money to the business and I am sorry that you have had that complication to your life but as I said very grateful [sic] that you have done it, but I am at this time and for the foreseeable future Sole Director and I have a right to stay that way if I want to keep my company." [sic]
Shortly after receiving this email, the plaintiff and the defendant had a meeting with Mr Rodolphe Belin. Mr Belin was a director of the company which now owns the title of the magazine. In evidence-in-chief the plaintiff said his understanding of the meeting's purpose was that the defendant just wanted to discuss the business. He said that Mr Belin mentioned the plaintiff's expectation of buying a share in the company and said that the two of them (the plaintiff and the defendant) needed to work out management issues. According to the plaintiff, Mr Belin went on to say that the defendant "was for want of a better word, baulking on the percentage. 50 was too high, how about 30". In evidence, the plaintiff said he was horrified, and said that he stressed to the defendant that it was "50% from day one … there was no negotiation on percentage …".
In cross-examination the plaintiff did not agree that a 30% share was actually put to him as a proposition in the form of a negotiation. He denied that that was the way it was put, but he agreed that the discussion made him concerned that the defendant may be reconsidering the idea of 50%, or may not be willing to confirm an agreement on that basis.
Two things of significance happened on 6 December 2010. If it be relevant, it is not possible to decide which happened first. By 6 December 2010, the defendant had made further additional payments to and on the company's behalf in respect of a miscellany of goods and services. On the same day as the plaintiff and the defendant signed the deed of guarantee and indemnity, a further agreement was signed. This agreement is entitled "Partnership Agreement". The plaintiff drafted it, obviously basing it in the loan agreements. The plaintiff said that the defendant was not happy about signing it, but he "just stated that … all along it had been fifty [per cent]". The partnership agreement reads as follows:
"Matthew Ody has forwarded Claire Andrews the sum of $100,000 as agreed for a 50% investment in the business of Tasmanian Publishing Co Pty Ltd. Claire Andrews declares that it is her intent to officially partner with Matthew Ody for a 50% share in the business, Tasmanian Publishing Company Pty Ltd/ and Tasmanian Life Magazine. Drafting of appropriate contract will be attended to in the near future.
The above sum is the total purchase price, paid in full."
Next, also on 6 December 2010 the plaintiff and the defendant both signed an application for a credit account for the company, and a deed of guarantee and indemnity. The agreement to guarantee the company's debts was expressed to be in consideration of Southern Colour agreeing "to supply or continue to supply goods and services to the company, and provide credit to it or grant it an indulgence outside the agreed credit terms". Under the deed, both the plaintiff and defendant were each made liable to Southern Colour as "a principal and … primary debtor for the payment of the guaranteed money." The evidence about the surrounding circumstances is sparse. There is no evidence of any discussions between the plaintiff and the defendant.
The background is that at the end of November and in early December 2010, the company was having continuing problems meeting its obligations to Southern Colour. In particular, the sum of $20,000 needed to be paid for printing the December edition. The manager of Southern Colour, Mr Dawson, requested that the company make a further application for a credit account. The defendant had previously been the sole guarantor for the company's indebtedness to Southern Colour, and Mr Dawson told the plaintiff that he needed another application for credit and an additional guarantor to the defendant.
The plaintiff said that he signed the deed because "I felt it was imperative that the magazine was published. The previous one had run late. This one was on the borderline of being late and I felt it was the only way to keep going." The plaintiff acknowledged that on or about 6 December there were several conversations with Mr Dawson concerning the outstanding amount. The plaintiff agreed that the upshot of those conversations was that unless Mr Dawson's requirements were satisfied, the next edition of the magazine could not be printed, and that Mr Dawson wanted at least $20,000 immediately, together with fresh guarantees, including one from the plaintiff. Various documents in evidence combine to show that on 6 December 2010 the plaintiff paid Southern Colour the sum of $9,000.
The plaintiff does not know whether the partnership agreement was signed before or after the deed of guarantee and indemnity. He accepted that in relation to the partnership agreement, he was concerned that the defendant may be wavering in her intention to give him 50%, but denied that he wanted her "locked in" before providing the guarantee. He did not dispute that there was a connection between getting the defendant to sign the partnership agreement, and his dealings with Southern Colour, but denied that he secured the defendant's signature in order to secure her commitment before paying any more money. He said that he does not know whether he would have paid money to Southern Colour had the defendant refused to sign; he does not know which transaction came first.
As it turns out, the plaintiff had not actually paid the sum of $100,000 by 6 December 2010, but it is common ground that an amount slightly in excess of the of $100,000 was paid by further separate payments between 6 December and 24 December 2010. The plaintiff paid an amount of $5,000 on 10 December 2010 direct to the company because he was "getting close to the $100,000, that was sort of, the end of it". He tallied up the figures and estimated there was $5,000 left. However later payments were made.
The plaintiff tendered a list of all payments made by him from 15 October 2010 to 24 December 2010 inclusive. The total amount is $100,497.94. There was some debate about whether some of these payments were made wholly or in part for the defendant's personal benefit, or for the benefit of the company. Documents from Southern Colour tendered by the defendant show that it is likely the sum of $9,693 was paid to that business from the cash payments of $15,000 made to the defendant at the outset.
A further item of note is the amount of $6,652.72 paid on 18 November 2010 to Kyron Johnson of a business called Snap Printing. The plaintiff's evidence was that he understood that Mr Johnson said the amount was a loan to the company, not a bill for work done. For that reason he was dubious about paying it; he was not sure that it was an expense of the company. However, Mr Johnson threatened to wind-up the company if the amount were not paid, and the plaintiff decided to pay in order to protect the company's interests.
Further, an amount of $1,184.88 paid to the defendant on 25 November 2010 was said to be for her personal share of the rent (the company paid the other half) and for a car payment for her. Additionally, as to an amount of $1,000 paid to Telstra on 10 December 2010, the plaintiff said that he was not sure whether it was the company's debt or one of the defendant's and Mr Mathys, because it related to the previous Kingston residence.
To the extent that it might be necessary to make findings about this, with the exceptions I have just noted, I am satisfied that the balance of the total amount paid was paid to or on behalf of the company.
Returning to the narrative, on 24 February 2011, the plaintiff sent an email to the defendant's solicitors asking whether they needed anything from him "regarding Tasmanian Life?" He added, "Claire said you may need something". At this time he had been made aware that some documents were being prepared, but he seems to have become concerned at the delay. On the same day on which he sent his email, he received a reply asking for some personal details. In an email on the same day he sent those details, and added the following:
"could i ask a question? Do Dobson Mitchell & Allport work in my best interest or Claire's or both? It's just because everyone from there was saying previously that I shouldn't be listed as a Director which the Jonathon thing is still happening. There is still debt and i have put in $100,000 and really don't want to be liable for any previous debt. Shouldn't we all have a meeting or would that happen when something is drawn up? I don't really know the process." [sic]
At no stage was the plaintiff given any draft contract for the sale of the shares, or a share transfer form for his signature. He was not at any stage made a signatory to the company's bank account. By letter of 21 March 2011 the plaintiff tendered his resignation. The prelude to this emerged in cross-examination. In the few days beforehand, the plaintiff had received text messages and emails from the defendant "basically saying that from the word go, I had bullied her into … this deal". The defendant also said some unwarranted things about the plaintiff's wife; "she implied that we were somehow in cohorts, or something … I don't know – to do damage – I don't know". The genesis and context of the exchange was that the plaintiff and the defendant had discussed the fact that the company needed more money. Both said to the other that neither was able to provide any more money at that stage, and on 19 March jointly saw a financial institution and submitted an application for funds.
Later on the afternoon of 19 March the plaintiff learnt from the defendant that their application was unsuccessful. The plaintiff was advised that one of the reasons was that the defendant was single. In one of her messages to the plaintiff, the defendant raised the proposition of "going back with Jonathon" or paying someone to marry her. The plaintiff's response to the defendant was "You've got to be kidding. I'm out". At this time the defendant's mother was seriously ill and the plaintiff knew that her death was imminent. As it turned out, the defendant's mother died on the day the plaintiff resigned, but he did not know that at the time he sent the letter.
The relevant parts of the letter of resignation are as follows:
"Please accept this letter as notice of my resignation as Creative Director at Tasmanian Publishing Co Pty Ltd. As per my employment, I am giving two weeks' notice and will be leaving on 4 April. As yet, I haven't been paid for the week 14 – 18 March 2011 and will not work my notice until last week's pay has been deposited into my account. I can also finish immediately if three weeks' salary is deposited into my account. Or I will commit to getting the April 2011 issue of Tasmanian Life to print as soon as possible (probably two weeks from today). I will also be forwarding in due course a claim for unpaid tax, superannuation and holiday pay that has been accrued.
After this time, I would be open to the option of re-employment as your Designer/Creative Director as an employee only or freelance designer. … I would work full time from home and be available for meetings etc when the need arise. This would be an option for you to run the company and keep any profits yourself to reduce your debt as you see fit. I would still get to work sales etc with no commission and work as hard as I could to help your company.
I also wish to retract my loan offer of in view to becoming a Director in the business Tasmanian Publishing Co Pty Ltd and require the $100,000 I gave you as a personal loan to be returned to me. All parties, including several solicitors at Dobson Mitchell & Allport as well as your Barrister agree that we were to keep the money as a loan until such time as the case against Jonathon Mathys was finished then we could look at a partnership. This has all been negated with your actions over the last few days as listed below. I cannot and will not become a Director of Tasmanian Publishing Co Pty Ltd.
…
I have personally loaned $100,000 for your business and in that time Claire, you have put in $6,000, I did everything I could to help you save your company.
…
As I wish to conduct myself properly and have no desire to treat your unfairly, I have sent a copy of this letter to Dobson Mitchell & Allport and am happy for suggestions in changes to my plans, should they identify any illegalities in them. I would appreciate if your solicitors would contact me regarding the said loan and its repayment options.
…". [sic]
Having sent his letter of resignation, later on the same day the plaintiff sent a copy to Dobson Mitchell & Allport. In the email which attached the letter the plaintiff said:
"i have sent this letter to Claire and want to keep you guys in the loop. I'm very worried especially since I have learned that her mother passed away this morning. We cannot have a partnership after what has been said to me and my wife over the last few days. I have many text messages and emails that have me very worried.
I am not abandoning her, I have stated that i could work for her and will get the next issue to print so that she can continue." [sic]
In cross-examination the plaintiff agreed that there were two essential things he wished to say in his resignation letter. The first was that he wanted formally to resign his employment, the second thing was that he wanted to say that he was no longer interested in being a shareholder or director. He maintained that attitude thereafter and did not later agree to become an employee or work for the company. He agreed that he did not alter his position and asserted that he did want to become a shareholder after all.
The plaintiff did not at any time get back any part of the $100,000 or so which he had paid. A letter of demand for $100,000 was sent on 6 April 2011 containing, in addition to the demand for repayment of $100,000, a notification that the sum would accrue and continue to accrue interest under the Supreme Court Civil Procedure Act 1932, s34, from and including 6 April 2011. Nothing was paid.
The evidence for the defendant
The defendant did not give evidence. Documents from the printer Southern Colour were tendered. The first document is a list of transactions relating to Tasmanian Publishing Co Pty Ltd between 10 August 2010 and 27 October 2011. Four invoices are shown for that period. The invoices, copies of which are also in evidence, are dated 10 August 2010, 27 October 2010, 22 December 2010 and 28 February 2011. They are respectively for the amounts of $39,832.10, $36,829.10, $24,640 and $23,155. On the transaction list the first two invoices are listed under the name of Jonathon Mathys, with the second two being under the plaintiff's name. The invoices are addressed to the company, but under the invoice date on the first two there is a reference to "PO number: Jonathon Mathys", with "PO number: Matt Ody" appearing on the second two. In evidence the plaintiff said that he did not see any of the invoices and he had no access to the company's accounts. He suggested that his name on the invoice was that of contact person. He agreed that in his time, he was the person who generally dealt with the printer.
The total amount represented by the invoices is $124,456.20. The transaction list shows payments of $82,981.20. A further document in evidence is a deed of settlement between Southern Colour and the defendant dated "August 2011". The deed recites the total amount of the invoices and the total amount paid, together with the fact that the company has failed to pay the outstanding amount of $41,475, and that Southern Colour seeks payment of that amount from the defendant pursuant to the deed of guarantee and indemnity. The operative part of the deed of settlement is that Southern Colour accepts from the defendant the sum of $30,000 in full and final settlement of the total debt, with payments to be made by specified instalments. In evidence are trust account receipts from Southern Colour's solicitors evidencing the payment by the defendant of the $30,000. Those payments are reflected in the transaction list.
Unjust enrichment
The availability of the remedy
The plaintiff claims the sum of $100,000 by way of restitution based on the concept of unjust enrichment. The plaintiff submits that the claim falls within an established category of restitutionary claims, that of recovery of money repaid under a contract where there has been a total failure of consideration. There is no doubt that as a matter of fact, the plaintiff did not get 50% of the shares in the company, at least in the sense of acquiring the legal interest in the shares.[3] I note that the plaintiff commenced these proceedings on 4 May 2011.
[3] Later in these reasons I will deal with the question of whether the plaintiff acquired a beneficial interest.
I should say that there may have been some doubt about the proposition that the partnership agreement constituted an enforceable contract for sale by the defendant to the plaintiff of one half of the shares held by her for the sum of $100,000. On the one hand, the document shows that the parties contemplate that an "appropriate contract" would be drafted to give effect to the intention "to officially partner [the plaintiff] for a 50% share in the business". As such, the document might be seen as a statement of intention only and one not having contractual force.[4] On the other hand, the evidence of the communications between the plaintiff and the defendant's solicitors, and the implied communication between the defendant and those solicitors, may be evidence of post "contractual" conduct evidencing a contractual relationship.[5]
[4] Sinclair, Scott & Co Ltd v Norton (1929) 43 CLR 310 at 333; Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309.
[5] See for instance Australian Broadcasting Corporation v XIV Commonwealth Games Ltd (1988) 18 NSWLR 540; Seven Cable Television Pty Ltd v Telstra Corp Ltd (2000) 171 ALR 89, and on appeal, 175 ALR 433.
However, it is expressly the case of both the plaintiff and the defendant that the partnership agreement constituted an enforceable contract for sale by the defendant to the plaintiff of one half of the shares held by her. The plaintiff's pleading is contained in par1 of the statement of claim set out above. In her defence, the defendant responds to par1 of the statement of claim by saying that the "memorandum" of 6 December 2010 was a contract between the plaintiff and the defendant which (amongst other things) "bound the defendant to transfer to the plaintiff a 50% shareholding in [the company] ('the Equity') for no additional payment; bound the defendant to accept the transfer of the Equity; and provided that the terms of the said contract would be stated in a document that would be full or more precise but not different in effect".
As to the claim in restitution, it is clear that in general terms, a payment made for consideration which has not been provided in full, or which has totally failed is ostensibly at least, recoverable in restitution: Baltic Shipping Co v Dillon (1993) 176 CLR 344 per Deane and Dawson JJ at 375; Fibrosa Spolka Ackyjina v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32. Broadly speaking a failure of consideration occurs when the performance of one party's obligations does not eventuate; "consideration" in this context meaning actual performance as distinct from the promise to perform. What the agreed return was needs to be considered.
More particularly, "failure of the consideration for a payment … means the state of affairs contemplated as the basis or reason for the payment has failed to materialise or, if it did exist, has failed to sustain itself": Baltic Shipping per McHugh J at 393; David Securities Pty Ltd v Commonwealth Bank of Australia Ltd (1992) 175 CLR 353 at 382; Equuscorp Pty Ltd v Haxton (2012) 86 ALJR per French CJ, Crennan and Kiefel JJ at [31].
It is equally clear that restitution on the basis of a total failure of consideration will only be made where the contract has been brought to an end. In Baltic Shipping (above) Mason CJ at 355 – 356 said (omitting references) that the remedy "is available only if the contract has been discharged, either for breach or following frustration, and if there has been a total, and not merely partial, failure of consideration". At 385 (again omitting references) Gaudron J said:
"Of course, the right to recover depends on the contract being brought to an end, for, otherwise, the other party might still perform his or her part of the bargain."
See also the Fibrosa case (above) per Lord Wright at 64, Lord MacMillan at 60 and the discussions in Haxton v Equuscorp Pty Ltd (2010) 28 VR 499 and in Restitution Law in Australia, 2nd ed, Mason, Carter & Tolhurst, 2008 at [908] 316 – 317 and [2912] 1003 – 1004.
In Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 at 256, Deane J put it this way:
"The quasi-contractual obligation to pay fair and just compensation for a benefit which has been accepted will only arise in a case where there is no applicable genuine agreement or where such an agreement is frustrated, avoided or unenforceable. In such a case, it is the very fact that there is no genuine agreement or that the genuine agreement is frustrated, avoided or unenforceable that provides the occasion for (and part of the circumstances giving rise to) the imposition by the law of the obligation to make restitution."
In Pavey & Matthews it was of course made clear that claims formerly categorised as claims in quasi-contract and rationalised on the basis of an implied promise were to be properly treated as claims for restitution based on unjust enrichment.
The plaintiff does not assert that the agreement was ineffective, and could not identify any basis on which the agreement had been terminated or otherwise brought to an end. No doubt the agreement would be treated as having ended at some point, but the plaintiff needs to show that this happened before he brought the action: Wigan v Edwards (1973) 47 ALJR 586 per Gibbs J at 592, Mason J at 596. In fact, no termination or discharge of the agreement at any time is pleaded. When pressed, counsel for the plaintiff submitted that the defendant had evinced an intention not to proceed. However, he was not able to point to any evidence as to this, other than the email from the defendant to the plaintiff of 28 November 2010. In that email the defendant said that she was the sole director for the foreseeable future, with "the right to stay that way if I want to keep my company".
There are several fundamental difficulties with this. They are immediately apparent. The first is that the email pre-dated the signing of the partnership agreement. The second is that even if the defendant's intention not to be bound to the partnership agreement emerged at a subsequent time, repudiation by the defendant has not been pleaded and particularised, nor has the fact of an acceptance of that repudiation. In the end, the plaintiff fell back to an assertion that there was a bargain; the plaintiff had paid the full amount; and he had not received that for which he had paid.
That issue of whether the contract was brought to an end, raises the question of the existence of the plaintiff's right to terminate for the failure by the defendant to perform her obligations. I will need to later deal with this question in the context of an alternative claim made by the plaintiff. For now, I simply note that in the partnership agreement the parties set no time for the performance of the defendant's obligations, and that the plaintiff did not at any time serve a notice to complete, making time of the essence. Returning to the present discussion, I hold that as the contract had not been brought to an end at any relevant time, and is not otherwise pleaded as being ineffective, the plaintiff's claim in restitution must fail.
A beneficial interest in the shares?
I should however deal with an alternative argument put forward by the defendant. The submission is that if I were against the defendant on the ineffective contract argument, there was in any event no total failure of consideration. That is because, it is said, that upon payment of the agreed purchase price, a constructive trust arose under which the defendant held one half of the shares in the company upon trust for the plaintiff.
Two questions arise. The first is the underlying premise that the plaintiff obtained beneficial ownership of the shares upon paying the sum of $100,000. The second question is whether that acquisition means that there has not been a total failure of consideration. For reasons which I will shortly explain, it is neither necessary nor appropriate to decide the second question, but for reasons which will also become clear, I need to decide the first question in relation to the defendant's counterclaim. It is convenient that I deal with that question now.
I think it is an inevitable conclusion from an application of the authorities that, upon payment of the $100,000, the plaintiff became the beneficial owner of 50% of the shares owned by the defendant. This is by virtue of an institutional constructive trust. In Rose v Watson (1864) 10 HLC 672, Lord Cranworth said at 683 – 684:
"There can be no doubt, I apprehend, that when a purchaser has paid his purchase-money, though he has got no conveyance, the vendor becomes a trustee for him of the legal estate, and he is, in equity, considered as the owner of the estate. When, instead of paying the whole of his purchase-money, he pays a part of it, it would seem to follow, as a necessary corollary, that, to the extent to which he has paid his purchase-money, to that extent the vendor is a trustee for him; in other words, that he acquires a lien, exactly in the same way as if upon the payment of part of the purchase-money the vendor had executed a mortgage to him of the estate to that extent."
This passage was referred to by Wilson and Dawson JJ in Hewett v Court (1983) 149 CLR 639. At 654 their Honours said that the underlying principle of that and other cases is that "in respect of that part of the purchase price which has been paid, the purchaser is regarded by equity as a secured creditor, the security being a lien over the property purchased". Their Honours continued:
"Such a lien extends, of course, beyond the beneficial ownership of the purchaser under a contract for the sale of land where the contract is enforceable by a decree of specific performance."
The situation concerning a fully paid vendor in relation to a contract for sale of land was made particularly clear by Mason J in Chang v Registrar of Titles (1976) 137 CLR at 185:
"It is enough to say that it has been accepted in decisions in England and Australia that at least when the purchaser has paid the purchase money the vendor becomes a constructive trustee of the property sold …".
In Hewett v Court (above), after the passage quoted, their Honours went on to note that there is authority for the proposition that a purchaser's equitable land is not confined to land but may also apply to personal property in the same way as it applies to land. Their Honours referred to Levy v Stogdon [1898] 1 Ch 478 in which case the principles applied personally in the form of stock.
Further, in relation to shares, in R v Australian Broadcasting Tribunal; ex parte Hardiman (1980) 144 CLR 13 at 31, the court said:
"In those cases in which the vendor has been paid the purchase price and has delivered executed and registrable transfers of the shares to the purchaser, clearly the purchaser is the beneficial owner of the shares. Moreover, a purchaser who can by way of specific performance compel a transfer of shares under a contract is a beneficial owner of the shares."
See also Gillespie v Novara Furniture (Aust) Pty Ltd (In liq) [2010] VSC 103 at [214].
After 24 December 2010 when the full amount of $100,000 had been paid, the plaintiff had to do nothing further under the agreement. The evidence shows that the defendant had taken it upon herself to give instructions to her solicitors in relation to the contract contemplated by the partnership agreement.
In response to the defendant's argument about the beneficial interest vesting in the plaintiff, the plaintiff argued that the subject-matter of the putative trust was not certain, and hence no trust would arise. The reasoning advanced is obscure. It need not be detailed, save to say that some of it seems contrary to the plaintiff's principal and pleaded premise, that there was a binding contract. The submission must be rejected. There was no evidence of the actual number of shares held by the defendant, but it is common ground that she was the sole shareholder.
Although not disclosed by the evidence, the number of shares she held must have been certain and finite and I infer, was most likely known to the parties at the time of entering into the partnership agreement. At the very least, it was capable of easy ascertainment. There is nothing to suggest any uncertainty of subject-matter so as to prevent the defendant being regarded as the constructive trustee: see generally Fortex Group Ltd v MacIntosh [1998] 3 NZLR 171 at 172 – 173.
The plaintiff's further submissions as to this point include the following:
· the ability for the defendant to transfer any shares to the plaintiff had been lost because of the liquidation of the company;
· the defendant "allowed a situation to arise where the company was liquidated", which meant she was not capable of transferring the shares to the plaintiff;
· the defendant was in breach of trust because "she allowed the trust property to be destroyed";
· in the circumstances the sum of $100,000 was held on trust by the defendant for the plaintiff.
Leaving to one side any question of sustainability in law, these matters were not pleaded, nor raised until the very last. No reasons were advanced as to why they properly could be considered. It follows that the submissions should be disregarded. In any event, as I have noted, it is common ground that the company is now in liquidation. When counsel for the plaintiff opened the case, I was told of the date of liquidation, but it was not led in evidence. The evidence, as it is, might suggest that the company had not been wound up when the writ was issued. Any cause of action which hinges on the company's liquidation did not exist at that time and, as I have shown, cannot be pursued.
The question remains as to whether there was a total failure of consideration, notwithstanding that the plaintiff became the beneficial owner of the shares. There is some flexibility in the notion of a total failure of consideration, and the proposition that before restitution is ordered there needs to be a total failure has been questioned by some. In Haxton v Equuscorp Pty Ltd (above) Dodds–Streeton JA said at 525 [129]:
"While the traditional requirement that the consideration for the payment must have totally failed is frequently, if not universally restated, where the contract is ineffective, the payer's only remedy may be in restitution. In such a case, courts have tended to adopt a more liberal approach to total failure of consideration. Where the payer has received some benefits, the expected consideration or bargain may be so construed that the received benefits do not constitute even a partial satisfaction. Alternatively, the transaction and the consideration may be held to be divisible ...".
No total failure of consideration?
It has been authoritatively suggested that the requirement for a total failure of consideration should not apply where the payor has no satisfactory remedy for breach of contract in respect of the part left unperformed by the payee, or where there is in fact no difficulty in apportioning that part to the whole in respect of which the payor's advance payment has been made: Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 per Gummow J at 588 [107]; Equuscorp Pty Ltd v Haxton (above) per Heydon J at [136] – [137]. The scope of the principle in cases of failure is discussed in Restitution Law in Australia (above) at [1112] 497 – 499.
In this case the defendant submitted that all that was left to be done on her part was to ensure that the bare legal title to the shares was passed to the plaintiff. The restitution point has been decided against the plaintiff on all other grounds. In strict terms it is not necessary to decide the present point. Ordinarily I might express a view in case the matter were to go further, but in this case I do not think I should. That part of the agreed return to the plaintiff, made up of the beneficial interest in the shares, was not given to the plaintiff by any acts on the part of the defendant. The plaintiff had a beneficial interest in the shares by operation of the principles of equity in the form of the institutional constructive trust. Whether in those circumstances what the plaintiff received meant that there was no total failure of the consideration required to be given by the defendant, was not the subject of any argument or discussion. I decline to deal further with the point.
A loan?
The plaintiff argued that in the alternative to an agreement for the sale of 50% of the shares in the company, the contractual arrangements between the plaintiff and the defendant amounted to a loan. Rather curiously, the argument was that if there had not been a total failure of consideration so as to warrant restitution, then the defendant intended the plaintiff's payments to be loans to her. Quite how the partnership agreement was to be interpreted as merely a further loan agreement in the same essential terms as the previous ones, was not explained.
The partnership agreement which was signed by the parties on 6 December 2010, interpreted against the background of the preceding loan agreements, can be only sensibly read as an agreement by which all payments previously made by the plaintiff, and to be made by the plaintiff up to the sum of $100,000, were to be taken as the purchase price for the shares. Although the $100,000 had not in fact been fully paid by 6 December 2010, the parties seemed to take the view that it was near enough. The sum of $100,000 is referred to in the partnership agreement as "the total purchase price, paid in full". The only reasonable interpretation of the agreement is that the moneys which had been paid before 6 December 2010, and referred to as loans, were converted into part payments of the purchase price. The plaintiff must fail on this alternative argument.
It is convenient if I now deal with a shadow of a suggestion that alternatively to the restitution argument, the plaintiff was entitled to damages for breach of contract. This was not really pursued in closing submissions, but a breach of the agreement by failing to provide the 50% shareholding is pleaded, and the relief sought in the statement of claim was amended at the commencement of the trial, to include "in the alternative damages". As I earlier alluded to, the partnership agreement did not set a time for the performance of the defendant's obligations. The relevant principles are well established: Cheshire and Fifoot Law of Contract, 10th Aust ed at [21.19] – [21.20] 1070 – 1075.
The law implies a term allowing a reasonable time for performance and such a term will not ordinarily be an essential one. Where there is only an implied term allowing a reasonable time, termination cannot occur without notice having been given requiring performance within a specified time, which period must be reasonable and the notice indicating that termination may be the result of non-compliance: Canning v Temby (1905) 3 CLR 419 at 424, 430 and 431, Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 554 – 555, 641 – 645; and Laurinda Pty Ltd v Capalaba Shopping Centre Pty Ltd (1989) 166 CLR 623.
As I have noted, the plaintiff did not give any notice to the defendant requiring performance of her obligations within any specified time. Nothing happened after the provision by him of his personal details, up until his letter of resignation of 21 March 2011. That included his "retraction of [the] loan offer" and the demand of the return of $100,000. I note in passing that it is self-evident that, as the defendant submitted, the plaintiff cannot rely on his own refusal to accept a transfer of the shares to prove a breach of the defendant's obligations. No breach of any agreement has been shown.
The plaintiff's liability for contribution as co-surety
The defendant claims from the plaintiff the sum of $15,000, or alternatively an amount of contribution to be assessed. It will be recalled that the plaintiff's liability is said to arise in his capacity as co-surety under the deed of guarantee entered into with Southern Colour. It will also be recalled that the sum of $15,000 is one half of the compromised amount of $30,000 paid by the defendant to Southern Colour. In August 2011 the company owed Southern Colour the sum of $41,475. By a deed of settlement Southern Colour agreed to accept from the defendant the sum of $30,000 to be paid in instalments. Between 16 August 2011 and 25 October 2011, the defendant paid four instalments totalling $30,000
There are further relevant facts. Southern Colour documents show that on 22 December 2010, Southern Colour invoiced the company $24,640 for the magazine "DEC 2010/JAN 2011". The plaintiff's name is on the invoice apparently as a contact for the company. Further, on 28 February 2011, Southern Colour invoiced the company for an amount of $23,155 for the magazine "FEB 2011". Again, the plaintiff's name appears on the invoice in a similar way. Southern Colour's customer transactions record shows various payments made between February 2011 and October 2011, with a balance of $11,475 being written off on 14 June 2012, that of course being the difference between the amount claimed and the compromise of $30,000. As detailed above, on 21 March 2011, the plaintiff said that he did not wish to proceed with the purchase of the shares, and resigned his employment.
In this case, it is not so much the existence of the defendant's right to claim contribution which is in dispute, but whether the plaintiff has any defence to it. There was no discussion about the basis of the right but it might pay to say a little about it. Its origins lie in both the common law and in equity. The underlying doctrine is one of equality in that those with a common obligation should contribute proportionally in satisfaction of that obligation. The availability of contribution recognises that guarantors have a common interest and a common burden. For a right of contribution to arise the parties need to have a shared co-ordinate liability. The rights and obligations of contribution are generally now said to be governed by equitable principles based on the notion of equality. See Burke v LFOT Pty Ltd (2002) 209 CLR 282 per McHugh J at [38] – [39], 298 – 300, Mahoney v McManus (1981) 36 ALR 545 per Gibbs CJ at 551, Wilson J at 557, Brennan J at 559, and McLean v Discounted Finance Ltd (1939) 64 CLR 312 per Starke J at 347. Generally see Restitution Law in Australia, 2nd ed (above) at [610], 228 – 229 and The Modern Contract of Guarantee, Phillips and O'Donovan, Westlaw AU (on-line) at [12.1100], [12.1150].
I will briefly examine the pleadings. The plaintiff's response to the facts pleaded in support of the claim for contribution raises four issues, only one of which was mentioned in argument in this context, and then only faintly pursued. It was that the defendant had entered into the deed of settlement with Southern Colour without recourse to the plaintiff. However, there is nothing to suggest that the debt was not due and payable, or that the settlement otherwise adversely affected the plaintiff's interests. The plaintiff's only real and substantial argument was one which was not pleaded. It is that the defendant enjoyed the whole benefit of the guarantee as the sole shareholder in the company, and that no benefit was derived by the plaintiff. He relies on the Canadian case, Bater v Kare [1964] SCR 260, a case which has received limited consideration in Australia.
The facts of Bater v Kare (above) were as follows. By way of an agreement between them, B and K set up a company to carry on business. K advanced money to the company, whilst B deposited life insurance policies with the bank to be held as against borrowings by the company up to the same amount as that advanced by K. Additionally, each man provided a guarantee as to that same amount. Both later gave further guarantees in respect of a greater amount when the company's line of credit was increased to that figure. K subsequently withdrew from the company, the necessary financial adjustments between him and B having been made. B continued to operate the company until his death, at which time the company owed the bank some $60,000.
B's personal representatives brought proceedings against K, one of the claims in which was for contribution from him. B's estate had paid an amount in excess of what B's personal liability had been under the guarantee given by him. That additional amount was sought from K. At 211, Cartwright J (delivering the judgment of the court)[6] said at 211 – 212:
[6] Cartwright, Martland, Judson, Ritchie and Hall JJ
"It remains to consider the final argument of Mr Dewar that, at all events, the appellants are entitled to contribution as to the $9,034.21 paid by Bater and his estate in excess of the $50,000.
In my opinion, this argument is not entitled to prevail. In this case the benefit derived from Bater and Kare continuing as sureties for the company's running account with the bank after Kare had made his settlement with Bater and withdrawn from the company was in the first instance that of the company but Bater alone was then interested in the company and alone stood to gain from its continued operations. From the date of Kare's withdrawal, as between Bater and Kare, the whole benefit resulting from the suretyship was Bater's. The principle here applicable is accurately stated in the notes to Lampleigh v Brathwait (1616) 1 SmLC (13th ed) 148 Hobart 10680 ER 255 in Smith's Leading Cases, 13th ed, vol 1, at 163, as follows:
'The right to contribution exists even though the co-sureties became bound by separate instruments and without the knowledge the one of the other; in such a case the right of contribution, although it may have originated in equity upon the principle equality is equity (see per Parke B, in Davies v Humphreys 6 M & W 168) nevertheless is more properly put at law upon the principle that "where two persons are under an obligation to the same performance, though by different instruments, if both share the benefit which forms the consideration, they must divide the burden; if one only gets the benefit he must bear the whole".'
The rule that the one who gets the whole benefit must bear the whole burden is equally applicable in equity; indeed it has been said that the maxim, qui sentit commodum sentire debet et onus, is but one aspect of the comprehensive rule 'Equality is Equity': see Broom's Legal Maxims, 10th ed (1939) at 484. In my opinion, on the facts of this case, the maxim referred to is applicable to and decisive against the appellants' claim for contribution in regard to the sum of $9,034.21."
In The Modern Contract of Guarantee (above), at [12.1890], the authors cite Bater v Kare as authority for the proposition that "where one guarantor enjoys the whole benefit of the guarantee through that guarantor's shareholding in a company from which the co-surety has withdrawn, the co-surety is not liable to contribute. Since the guarantor enjoys all the benefits of the guarantee, he or she alone must bear its burden and the co-surety ha[s] a sound defence to an action for contribution". The authors go on to observe that:
"There is, however, no direct Australian authority for this proposition that would allow one guarantor to escape liability to contribute on the basis that he or she received no benefit from the guarantee even though the guarantor is jointly and severally liable according to its terms. On the other hand, the proposition is consistent with the equitable genesis of the right of contribution".
The equivalent statements of the authors which appeared in the 1992 2nd edition of The Modern Contract of Guarantee, were set out and discussed by Bryson J in Official Trustee in Bankruptcy v Citibank (1995) 38 NSWLR 116 at 125 – 126. His Honour also set out the passage from Bater v Kare which appears above. Although making no direct comment on the proposition, it seems to accord with what his Honour ultimately concluded was the proper outcome of the case before him, based on equitable principles. In Official Trustee v Citibank a husband and wife guaranteed lending to a company owned and operated by their son and his wife. The son and the wife became bankrupt, and the Official Trustee sought contribution from the parents as co-sureties. Bryson J at 127 – 128 characterised the parents as sureties as distinct from principals in respect of what was a common liability, and said that the parents "achieved no tangible advantage, apart from the satisfaction of assisting family members". His Honour was "confident that this conclusion represents the justice of the situation as it would be viewed by the community at large".[7]
[7] The case was in fact decided in favour of the parents on the basis that they were persons who gave a guarantee without consideration at the request and for the benefit of the other co-sureties (the son and the wife) by way of the provision of credit to a company which the co-sureties wholly owned and controlled. As such they had a right at law to be indemnified against any liability arising under the guarantee, the existence of which negated any asserted right to contribution. Bryson J applied Israel v Foreshore Properties Pty Ltd (1980) 54 ALJR 421 and, at 119, said that on a whole view of the parties' rights at law, consideration of of an equitable remedy on the basis that all were co-sureties could not even begin. However, his Honour noted that the plaintiff's case was presented and argued as if equity were the sole source of applicable principles, and addressed that case. The basis on which Official Trustee v Citibank was actually decided was neither pleaded nor argued in the case before me.
At 128 his Honour continued:
"The facts in the present case are in a very simple form, as [the parents] had no involvement in the company's affairs at all, whether as shareholders, as employees or as persons doing business with it. Their only connection with it was their natural readiness to assist it because of the interest in it of their son and daughter-in-law. Otherwise they had nothing to gain from their advance to it. They had no opportunity to control its affairs and the outcome of its borrowing or to influence them. It would be much more difficult to distinguish among guarantors who had commercial involvements of various kinds with the borrower company."
This case of course raises the difficulty alluded to by Bryson J. The plaintiff had a commercial involvement with the borrower company. The plaintiff was, at the very least, in one of the relationships referred to by Bryson J; he was an employee. Further, as I have held to be the case, at the time the company incurred the substantial debts represented in the two invoices totalling $47,795, he was the beneficial owner of one half of the company's shares.
Returning to the status of Bater v Kare in Australia, in Ogilvie v Ferry [2010] NSWSC 379 Hamilton AJ dealt with some complex arrangements involving a number of companies concerned in a unit development. Issues arose as to whether the plaintiffs were entitled to be subjugated to the rights of a mortgagor in respect of a property, and as to their rights in relation to other guarantors of the mortgage debt. The question arose as to the impact of the plaintiffs' position as a co-surety, on the right of subrogation.
His Honour referred to the passages in the judgment of Bryson J in Official Trustee v Citibank referring to The Modern Contract of Guarantee, 2nd ed, and to Bater v Kare. Hamilton AJ noted that the relevant passages from TheModern Contract of Guarantee appeared in the then current edition[8]. His Honour then said that "this represents the law in New South Wales" holding that the plaintiffs in that case who had not received any of the moneys were entitled to be paid by the other guarantors who had received the benefit.
[8] Which was then the 4th ed, 2004 (looseleaf) at pars[12-200] – [12-350].
I think that I can safely assume the correctness of the proposition that where one guarantor enjoys the whole benefit of the guarantee through that guarantor's shareholding in a company from which the co-surety has withdrawn, the co-surety is not liable to contribute. However, the proposition as stated by the authors of the text is concerned with where one guarantor enjoys the whole of the benefit. That was in fact what was said in Bater v Kare in the passage set out above. The application of the principle to the facts in Bater v Kare itself might, with respect, attract a little curiosity. It was not that Mr Kare received no benefit from the provision of the guarantee. Through the company, he received the benefit of it for the whole time in which he was involved in the company. The company had an ongoing line of credit and its indebtedness fluctuated throughout his time, and thereafter. It was only after he departed, that it could be said he ceased to gain any benefit from the guarantee from which he had not been released.
The ostensible position is that the common burden of the surety should be borne equally: "Equity is Equality". In Trotter v Franklin [1991] 2 NZLR 92 at 98, Tipping J said:
"Ordinarily the justice of the matter will require equality of sharing. Obviously if the parties have expressly provided to the contrary then justice will require such contrary arrangement to be enforced. It seems to me however that equity may well require unequal sharing if the Court can discern by clear implication either that this is what the parties must have intended or that such unequal sharing is necessary to do justice in the particular case."
Bryson J quoted this passage in Official Trustee v Citibank at 129, saying the conclusion was substantially the same as his own. His Honour continued:
"Tipping J did not cite authority but spoke from the standpoint of the application of principle. Further, his observations were obiter as he awarded contribution on a basis of equality."
In Parker v Alessi [2011] NSWSC 947, Bergin CJ in Eq reviewed the two cases of Citibank and Trotter (along with others), concluding at [119]:
"I am not sure that the observations in Trotter v Franklin and/or Official Trustee in Bankruptcy v Citibank Savings Ltd equate to the proposition that there is a general discretion to depart from equality of contribution. Rather they seem to me to be consistent with what was said in Mahoney v McManus and McLean v Discount and Finance Ltd that if a party has provided more than their just proportion (to be gleaned from the intention of the parties that may or may not amount to an express or implied agreement) then they are entitled to contribution."
Plainly enough, the equitable rule requires all solvent sureties to divide the burden rateably, and contribute in proportion to the amounts for which they are respectively liable under the terms of their guarantees. To the extent that it may be taken further, in this case, I do not need to determine whether or not there is a general discretion to depart from equality of contribution, and whether that discretion may involve an assessment of a proportionate liability to contribute, based on broad notions of the justice of the case. See generally The Modern Contract of Guarantee, Westlaw AU (online) at [12.1950] – "The amount of contribution".
There is no evidence at all of any discussions between the plaintiff and the defendant surrounding the application for credit and the signing of the guarantee. The evidence allows no finding other than that the plaintiff himself dealt with Southern Colour, and it was he who reached the understanding with Mr Dawson of that company, that a further application was to be made in the joint names of the plaintiff and the defendant, with both to provide guarantees. Either shortly before or shortly after those documents were signed, the plaintiff and the defendant signed the partnership agreement, which had been prepared by the plaintiff. By that agreement he was to acquire 50% of the shares. A little over two weeks later he had fully paid the purchase price and as a consequence, acquired a beneficial interest in that shareholding.
In his capacity as an employee, but against that background, it was he who entered into the arrangements on behalf of the company with Southern Colour, resulting in the company's indebtedness of nearly $48,000. The company did not incur any further debt to Southern Colour before the plaintiff indicated he did not want to proceed with the acquisition of interest in the company, and he resigned.
The plaintiff has neither pleaded nor argued any conduct by the company or the defendant which would disentitle the defendant to contribution. The plaintiff's guarantee enabled funds to be provided to the company in order to publish two editions of the magazine in respect of which publications the plaintiff was art director. At the time the debts were incurred he saw his future with the company and its product, and as I have held, he was a beneficial owner of half the shares in the company. I am not satisfied that the plaintiff did not receive a benefit in the relevant sense, albeit that it was relatively short in duration, lasting until he sought to withdraw from the partnership agreement and tendered his resignation.
There is no evidence of any intention that the plaintiff would not be ultimately called upon to meet his obligations, if the need arose. The application of the relevant principles compels the result that the plaintiff should contribute one half of the principal debt paid by the defendant.
Outcome of the action
It follows from what I have written that there should be judgment for the defendant against the plaintiff on the claim, and judgment for the defendant against the plaintiff on the counterclaim for $15,000.
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