Ostabridge v Stafford

[2001] NSWSC 131

CITATION:	Ostabridge v Stafford [2001] NSWSC 131
CURRENT JURISDICTION:	Equity Division Commercial List
FILE NUMBER(S):	SC 50058/2000
HEARING DATE(S):	05/03/01, 06/03/01
JUDGMENT DATE:	12 March 2001
PARTIES :	Ostabridge Pty Limited (In Liquidation) (Receiver Appointed) - Plaintiff Wayne Albert Stafford - First Defendant Garry Leslie Stafford - Second Defendant Leslie Richard Stafford - Third Defendant Daphne Gwendoline Stafford - Fourth Defendant
JUDGMENT OF:	Rolfe J

COUNSEL :	Mr J.M. Ireland QC/Ms S.C. Dowling - Plaintiff Mr B.A.J. Coles QC/Mr M.A. Ashhurst - Defendants
SOLICITORS:	Smits Leslie - Plaintiff M.D. Nikolaidis & Co - Defendants
CATCHWORDS:	Legal Assignment of Securities. Defence of guarantor against a claim by the Assignor an equity binding on the Assignee, so that as the Assignor had covenanted not to sue the guarantor, the Assignee could not - Limitation Act: What amounts to a confirmation under s.54(2). held, in the circumstances of this case, no confirmation.
LEGISLATION CITED:	Limitation Act 1969 Supreme Court Act 1970 Conveyancing Act 1919 Evidence Act 1995
CASES CITED:	Concrete Constructions Pty Limited v Government Insurance Office of New South Wales (1966) 85 NSW WN 104 Redman v The Permanent Trustee Company of New South Wales Limited & Ors (1916) 22 CLR 84 The Southern British National Trust Limited (In Liquidation) v Pither & Anor (1937) 57 CLR 89 National Executors and Trustees Co of Tasmania Limited v Hurburgh [1959] Tas SR 25 Re Harry Simpson & Company Pty Limited and The Companies Act [1964-65] NSWR 603 Provident Finance Corporation Pty Limited v Hammond [1978] VR 312 Hepburn v McDonnell (1918) 25 CLR 199 Deane v The City Bank of Sydney (1918) 25 CLR 215 Surrendra Overseas Limited v Government of Sri Lanka [1977] 2 All ER 481 Bucknell v The Commercial Banking Company of Sydney Limited (1937) 58 CLR 155 Meagher, Gummow & Lehane, Equity Doctrines and Remedies (3rd Edition) Set-Off, Professor Derham, 2nd Edition
DECISION:	I order that:-; (a) the proceedings be dismissed; (b) the plaintiff pay the defendants’ costs of the proceedings; (c) the exhibits be returned at the expiration of twenty eight (28) days unless within that time an appeal against this decision has been brought.

I N D E X

PARA

Introduction 1

The Deed Of Release 17

The Deed Of Assignment 35

Notice Of The Assignment 39

Extent Of Indebtedness 46

The Effect Of The Assignment 48

What Passed On The Assignment 65

Confirmation Under The Limitation Act 83

Orders 102

THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

ROLFE J

MONDAY, 12 MARCH 2001

50058/2000 - OSTABRIDGE PTY LIMITED (IN LIQUIDATION) (RECEIVER APPOINTED) v STAFFORD & ORS

JUDGMENT

HIS HONOUR:

Introduction

1    The plaintiff, Ostabridge Pty Limited (In Liquidation) (Receiver Appointed), for which Mr J.M. Ireland of Queen’s Counsel and Ms S.C. Dowling of Counsel appeared, commenced these proceedings by a Summons filed on 15 May 2000. Its only present relevance is:-

(a) that it was conceded by the plaintiff that the proceedings were commenced beyond the period allowed by the Limitation Act 1969, so that unless there was a confirmation, pursuant to s.54(2) of that Act, the cause of action is statute barred; and
(b) whilst the Summons raised an issue of contribution, it has not been pursued in the Amended Summons by which the issues have been formulated. Further, on 28 February 2001, Mr Ireland made it clear that that issue would not be pressed.

2 By its Amended Summons the plaintiff sought judgment against each of the first three defendants named in the original Summons, for whom Mr B.A.J. Coles of Queen’s Counsel and Mr M.A. Ashhurst of Counsel appeared, in the sum of $2,141,080.94, interest thereon pursuant to s.94 of the Supreme Court Act 1970 and ancillary relief. The Summons had sought relief against a fourth defendant, but that claim was not pursued.

3    The Amended Summons stated, under the heading “Nature of the Dispute”, that the claim arose out of the assignment to the plaintiff on 10 November 1995 of certain debts owed to Westpac Banking Corporation, (“Westpac”), by Stafford Quarries Pty Limited, (“Stafford Quarries”), and of certain guarantees given by the defendants to Westpac in respect of those debts.

4    The issues stated as likely to arise are the effect of a Deed of Release executed by Westpac, the defendants and certain others on 3 November 1995; the extent of the indebtedness of Stafford Quarries to Westpac as at 10 November 1995; the effect of a Deed of Assignment executed by Westpac in favour of the plaintiff on 10 November 1995; and whether that Deed operated:-

“(a) as an effective assignment to the plaintiff of the debt owed by Stafford to Westpac on 10 November 1995; and
(b) as an effective assignment of the obligations of the defendants to Westpac pursuant to guarantees given by them on 5 April 1990.”

The final issue was whether the plaintiff’s claim was statute barred.

5    As the pleadings are short it is convenient to deal with them in detail.

6    In paragraph 1 of the plaintiff’s Contentions, it is pleaded that on 5 April 1990 each of the defendants guaranteed the obligations of Stafford Quarries to Westpac. The defendants admit that they did and assert that such guarantees were also provided by certain other persons and companies.

7    Paragraph 2, which is admitted, pleaded that on 3 November 1995, a Deed of Release was executed between Westpac, Stafford Quarries, the defendants and certain other parties.

8    Paragraph 3, which is denied, pleaded that as at 10 November 1995, the indebtedness of Stafford Quarries to Westpac was $2,141,080.94. The evidence satisfies me that Stafford Quarries was indebted for at least this amount and, indeed, for more. However, the claim is only for that amount. The defendants also assert that any indebtedness of Stafford Quarries to Westpac was reduced by the payment of $1.7m on behalf of Stafford Quarries.

9    In paragraph 4, the plaintiff pleaded that on 10 November 1995, pursuant to the terms of the Deed of Release, Westpac received payments totalling $1,180,000. The defendants denied this, asserting that on or before that date Westpac received payments totalling $1.7m.

10    In paragraph 5, the plaintiff asserted that on 10 November 1995 Westpac assigned to it the debt of $2,141,080.94 owed by Stafford Quarries, and its right title and interest in the guarantees given by the defendants in 1990.

11    The defendant responded by admitting the assignment of the debt; denying the amount of it; and admitting that on that date Westpac assigned to the plaintiff its interest in the securities of the Stafford Quarries debt subject to the terms of the Deed of Release.

12    In paragraph 6, it was pleaded that on 25 November 1995, the plaintiff gave notice to Stafford Quarries and the defendants of the assignment. The defendants admitted the plaintiff gave notice to Stafford Quarries, but denied that any such notice was served on them.

13    In paragraph 7, it was pleaded that the defendants had failed and refused to pay to the plaintiff the amount of the Stafford Quarries debt pursuant to their guarantees. The defendants admitted a refusal to comply with the plaintiff’s claim, and otherwise denied the matters alleged.

14    The defendants then set forth their contentions:-

“(a) The plaintiff is an assignee of Westpac’s interest in the Guarantees (which are the subject of these proceedings) subject to any defences or equities that the Defendants may have against Westpac including those included in paragraph 5.1.3 of the Deed of Release.
(b) On 8 March 1993 Westpac’s action against the Defendants had accrued in the sum of $1,783,674.88. In the premises the cause of action herein claimed (to the extent of $1,783,674.88) became extinguished on 9 March 1999 pursuant to the provisions of Ss.14, 63 and 68A of the Limitation Act (1969).
(c) On 13 January 1994 Westpac’s action against the defendants had accrued in the sum of $1,936,568.47. In the premises the cause of action herein claimed (to the extent of $1,936,568.47) became extinguished on 14 January 2000 pursuant to the provisions of Ss.14, 63 and 68A of the Limitation Act (1969).”

15    By its Reply the plaintiff asserted that if, which it did not admit, time commenced to run against it in respect of its cause of action on either 8 March 1993 or 13 January 1994, then, on 3 November 1995 or, alternatively, 10 November 1995, the defendants confirmed their obligations pursuant to the Westpac guarantees, such that by virtue of s.54 the running of time prior to those dates “is not to be counted against the plaintiff for the purposes of the reckoning of the applicable limitation period” in respect of its cause of action.

16    The particulars were that by execution of the Deed of Release the defendants acknowledged to Westpac its right and title claimed against them pursuant to their 1990 Guarantees; that by their payment of $25,000 to Westpac on or about 10 November 1995, the defendants made a payment in respect of its right and title under their 1990 Guarantees; and that by the payment of $170,000 to Westpac on 10 November 1995, the defendants made a payment in respect of its right and title under those Guarantees.

The Deed Of Release

17    The Deed of Release brought about a resolution of Commercial Division proceedings 50236 of 1994, (“the Proceedings”), whereby Westpac, as plaintiff, sued Mr Eric Yeung, as first defendant; Mr Joseph Wong, as second defendant; Mr David Nagle, as third defendant; Mr Wayne Stafford, as fourth defendant; Mr Gary Stafford, as fifth defendant; Mr Leslie Stafford, as sixth defendant; and Mrs Daphne Gwendoline Stafford, as seventh defendant. By the time the Deed of Release was executed, Mr David Nagle was, apparently, no longer involved in the proceedings. The parties to the Deed were Westpac, the defendants to whom I have referred, other than Mr Nagle, (“the Sureties”), and Stafford Quarries and Kerstanne Pty Limited (In Liquidation), (“Kerstanne”), (“the Debtors”). It recited that Westpac had provided financial accommodation from time to time to the Debtors, which each had failed to repay on time, and that Westpac had commenced the Proceedings against the Sureties, seeking payment of $2,141,080.94 together with interest and costs “pursuant to various securities for the debts of Stafford Quarries to Westpac”.

18    The recitals continued that the Sureties denied their liability to pay any money to Westpac for the debts of Stafford Quarries; that Westpac had issued demands for payment on Mr W. Stafford, Mr G. Stafford and Mr Yeung seeking the repayment of moneys due pursuant to a guarantee for the debts of Kerstanne, but that they had denied any liability to pay any money to Westpac under the guarantee for Kerstanne’s debts; and:-

“G. The parties to this deed have agreed to settle the Proceedings and all issues between them relating to the provision of financial accommodation by the Bank to Stafford Quarries and Kerstanne on the terms of this deed.”

19    “Consent Orders” were defined as those in the Proceedings in the form of Schedule 1 to the Deed. That schedule provided:-

“1. That the first, second, fourth, fifth, sixth and seventh defendants pay the plaintiff the sum of $2,141,080.94 together with interest thereon from 7 October 1994 to date at the rate of 12.75% per annum;
2. That all cross-claims of the first, second, fourth, fifth, sixth and seventh defendants be dismissed;
3. That the first, second, fourth, fifth, sixth and seventh defendants pay to the plaintiff its costs of the proceedings, such costs to be taxed on a solicitor and own client basis.”

20    “Co-sureties” were defined as a number of companies, including the plaintiff, and “Deed of Assignment” was defined as the Deed so entitled in or substantially in the form of Schedule 2 to the Deed of Release. The plaintiff was “the Assignee”.

21    There were a number of other securities given by parties not joined in the Proceedings, as appears from the definitions of “Further Securities”, “Guarantees” and “Relevant Debts and Securities”, which were defined as the Stafford Quarries debt; the Kerstanne debt; the Guarantees; the Hanging Rock mortgages; and the Further Securities.

22    Clause 2 provided that the Sureties, i.e. the defendants in the Proceedings, other than Mr Nagle, agreed that they would have their respective solicitors execute and deliver to Westpac’s solicitors the Consent Orders on or before the date of the Deed of Release, and that Westpac must not file them before 5 pm on 24 November 1995, but may do so after that time if the Sureties or the Debtors, (Stafford Quarries and Kerstanne), did not comply on time with their obligations under clauses 3 and 4 of that Deed.

23    Clause 3 provided:-

“3. Payment and Return of the Banker’s Undertaking
3.1 The Sureties must pay to the Bank the sum of $170,000 on or before the date of execution of this document, time being of the essence. The Sureties acknowledge that the said sum of $170,000 will be applied by the Bank in reduction of the Kerstanne Debt and will not be refundable by the Bank in any circumstances.
3.2 The Sureties must procure that:
3.2.1 Stafford Quarries completes a sale of the Hanging Rock property for an amount greater than or equal to $350,000 and pays the purchase price to the Bank by bank cheque; and
3.2.2 the Assignee completes a purchase of the Relevant Debts and Securities (other than the Hanging Rock mortgages) from the Bank for the sum of $10,000 in accordance with the Deed of Assignment; and
3.2.3 the Assignee pays the sum of $1,170,000 to the Bank by bank cheque under the Third Stafford Quarries Guarantee,
on or before 5 pm on 24 November 1995, time being of the essence.
3.3 The Sureties must:
3.3.1 pay to the Bank by bank cheque the sum of $25,000; or
3.3.2 provide to the Bank written notice from Wingecarribee Shire Council that the sum which is the subject of the Banker’s Undertaking is no longer required by Wingecarribee Shire Council and that no claim or demand against the Bank has been or will be made pursuant to the Banker’s Undertaking; or
3.3.3 return the original of the Banker’s Undertaking to the Bank,
on or before 5 pm on 24 November 1995, time being of the essence.”

24    Clause 4 related to the release of and indemnity to the Westpac Group, which it is unnecessary to recite.

25    Clause 5 is headed “Covenants from the Bank”, and provided:-

“5.1 Subject to the Bank’s rights under clauses 10 and 11 and compliance by the Sureties and the Debtors on time with clauses 2, 3 and 4, the Bank covenants that it:-
5.1.1 will promptly return the Consent Orders to the solicitors for Mr Wong and Mr Yeung, on the payment of all moneys due to the Bank under this Deed and the Deed of Assignment;
5.1.2 will procure that its solicitors sign and file a Notice of Discontinuance of the Proceedings (with no order as to costs) such notice to be prepared and signed by the Sureties’ solicitors;
5.1.3 will not take any further steps whatsoever to enforce the Guarantees or the Mortgages or the Further Securities;
5.1.4 will provide the solicitors for Stafford Quarries with a discharge of the Hanging Rock Mortgages in registrable form, together with the certificates of title for the Hanging Rock property; and
5.1.5 will provide the solicitors for Mr L. Stafford and Mrs Stafford with a discharge of the Port Macquarie Mortgage in registrable form together with the certificate of title, folio identifier 43/708575; and
5.1.6 will provide the solicitors for Mr L. Stafford and Mrs Stafford with a discharge of the Mittagong Mortgage in registrable form together with certificates of title, folio identifiers 4/35/1374, 5/35/1374, 6/35/1374, 7/35/1374 and 8/35/1374.”

26    Clause 6, which was headed “Assignment of the Relevant Debts and Securities”, provided in clauses 6.1 and .2:-

“6.1 Subject to the Bank’s rights under clauses 10 and 11 and compliance by the Sureties and the Debtors on time with clauses 2, 3 and 4, the Bank agrees to transfer to the Assignee, the Bank’s right title and interest in the Relevant Debts and Securities (other than the Hanging Rock Mortgages).
6.2 The assignment under clause 6.1 will be effected by the Deed of Assignment or a document in or substantially in the form of this instrument.”

27    Certain releases and indemnities were given to Westpac and, in clause 6.5, it was provided:-

“6.5 The Bank warrants that it is the legal and beneficial owner of the Relevant Debts and Securities and has good title to the Relevant Debts and Securities free of any encumbrances.”

28    Clause 10, which is headed “Reinstatement of Rights”, provided:-

“10.1 If any payment, settlement, transaction, transfer or any other dealing made to or for the account of the Bank in connection with this document is avoided for any reason including, without limitation:
10.1.1 as a result of any law relating to insolvency or bankruptcy or the protection of creditors; or
10.1.2 any legal limitation, disability or incapacity of or affecting any person,
or there is a claim that any such payment, settlement, transaction, transfer or any other dealing is void or voidable and that claim is upheld, conceded or compromised then:
10.1.3 the Bank is entitled immediately as against the Sureties and the Debtors to the rights in respect of this document to which it would have been entitled if that payment, settlement, transaction, transfer or other dealing had not taken place (including, without limitation, lodging a proof of debt or similar claim if an Event of Insolvency occurs in respect of the Sureties);
10.1.4 the obligations of the Sureties and the Debtors under or in connection with this document are to continue as if that payment, settlement, transaction, transfer or other dealing had not taken place; and
10.1.5 the Sureties and the Debtors must immediately do any act and execute any document at the request of the Bank to restore to the Bank all of the rights which the Bank has under or in connection with this document immediately before that payment, settlement, transaction, transfer or other dealing.”

29    Clause 11 identified a number of Events of Default, and clause 11.2 provided:-

“Upon the occurrence of an Event of Default, the Bank may at any time by notice to the Sureties and the Debtors, terminate the Bank’s obligations under this document (including without limitation its obligations under clause 5), such termination to be effective immediately.”

30    The scheme of the Deed of Release, accordingly, was, firstly, that the Sureties would hand over Consent Orders, which Westpac was prohibited from filing until the date specified, but may file after that date if there was non-compliance with the obligations in clauses 3 and 4.

31    Clause 3 provided for an alternative mechanism whereby the Sureties may, by payment of part of the Kerstanne debt and procuring the performance of certain acts, satisfy Westpac’s claim against them. Westpac received the releases and indemnities set out in clause 4 and gave the covenants specified in clause 5 and, subject to its rights under clauses 10 and 11 and compliance by the relevant parties with clauses 2, 3 and 4, Westpac agreed to make the transfer to the Assignee conformably with clauses 6.1 and 6.2.

32    Westpac’s covenants only became operative subject to its rights under clauses 10 and 11 and to compliance by the Sureties and the Debtors on time with clauses 2, 3 and 4.

33    It was at that stage that Westpac was obliged to take the various steps in relation to the Consent Orders and the discontinuance of the proceedings and to provide the documents referred to in clauses 5.1.4, .5 and .6.

34    It was also, and this is important in the context of the submissions made in this case, at that time and in those events, that Westpac covenanted that it would not take any further steps whatsoever to enforce the Guarantees or the Mortgages or the Further Securities.

The Deed Of Assignment

35    The Deed of Assignment, which is Exhibit E, is not dated. However, the parties agreed that it was entered into on 10 November 1995.

36    It recited the Deed of Release and that it set out the terms on which Westpac and the Assignee had agreed to assign “those debts and securities”.

37    Many of the definitions were in the same terms as in the Deed of Release and, by clause 2, which was headed “Assignment of the Relevant Debts and Securities”, it was provided:-

“2.1 In consideration of the payment of the sum of $10,000 the receipt of which is hereby acknowledged, the Bank hereby assigns to the Assignee its right title and interest in the Relevant Debts and Securities (other than the Hanging Rock Mortgages).
2.2 The Bank and the Assignee must each do and perform all such other acts, matters and things as may be necessary or convenient to complete the transfer of the Relevant Debts and Securities (other than the Hanging Rock Mortgages) to the Assignee, as contemplated by the provisions of this document.
2.3 The Bank warrants that it is the legal and beneficial owner of the Relevant Debts and Securities (other than the Hanging Rock Mortgages) and has good title to the Relevant Debts and Securities (other than the Hanging Rock Mortgages) free of any encumbrances.
2.4 The Assignee must give written notice of the assignment under this Deed to each debtor forthwith upon its execution of this Deed.”

38    The Deed then provided substantial protection to Westpac in certain events, including releases, indemnities and the reinstatement of its rights.

Notice Of The Assignment

39    By a letter dated 23 November 1995 addressed to the Directors of Stafford Quarries at its registered office, the solicitors for the Assignee wrote:-

“With reference to Clause 2.4 of the Deed of Assignment, we forward herewith Notice of Assignment of Certain Debts and Securities by the Bank to Ostabridge.
Please acknowledge your receipt thereof in due course.”

The purpose of this letter and the Notice was to comply with the requirements of s.12 of the Conveyancing Act 1919 and thus bring about a legal as opposed to an equitable assignment.

40    The annexed Notice was addressed to both Stafford Quarries and Kerstanne and gave notice of the assignment of certain debts and securities including the Guarantees and Indemnities given by the present defendants. It was submitted that as each of the present defendants was, at the relevant time, a director of Stafford Quarries, the letter and the Notice together constituted sufficient notice pursuant to that section, so that the assignment was deemed to have been effectual in law to pass and transfer the legal right to such debt or chose in action and all legal and other remedies.

41 In his affidavit of 5 March 2001, Mr L.G. Smits, the solicitor for the plaintiff, deposed that the letter and the Notice had been sent by pre-paid registered post on 23 November 1995. This evidence was not challenged. On this basis Mr Ireland submitted that s.160(1) of the Evidence Act 1995 presumed that the letter was received at the address to which it was sent on the fourth working day after being posted. The presumption arises unless evidence sufficient to raise doubt about it is adduced. None was. In these circumstances, including that the letter was addressed to the directors who included the defendants, I am satisfied that the necessary notice under s.12 was given.

42    Mr Ireland also relied upon an admission by the defendants on the pleadings that notice of the assignment had been given to Stafford Quarries and the defendants. This submission, with respect, is not fully reflective of the pleadings. As I have noted, paragraph 6(ii) denied that any such notice was served on the defendants.

43    He further relied on what had been said by Mr Ashhurst on 28 February 2001, when the matter was mentioned before me. At Tp.3, I asked whether there was a question as to the effectiveness of the assignment, to which Mr Ashhurst replied:-

“We do not take a point on the fact we were not given notice of assignment. We do say, however, that has some relevance when it comes to the question of the present plaintiff being in no better position than Westpac but we do not take a formal s.12 point.”

44    Notwithstanding the denial in the Defence, which was undoubtedly made or repeated after the concession made by Mr Ashhurst on 28 February 2001, it seems to me, if it had been necessary, that Mr Ireland was entitled to rely on that concession. No leave to withdraw it was sought.

45 However, in the end, I am satisfied that notice was in fact given to the defendants and, accordingly, that that requirement of s.12 was met.

Extent Of Indebtedness

46    It is also convenient, at this stage, to dispose of the question of the indebtedness of Westpac, which was put in issue. I am satisfied by the evidence of Mr Surtees, a senior officer of Westpac, who was obviously well familiar with its relevant business records, and by those records, which I admitted, that the debt to Westpac exceeded $2,141,080.94 at all material times.

47    I can now come to the principal issues raised.

The Effect Of The Assignment

48 The first main question debated was what rights of Westpac were assigned to the plaintiff, as Assignee. The competition was said to be between all rights which Westpac had against the defendants pursuant to the Guarantees and Indemnities given by them to Westpac, on the one hand, and such rights as Westpac had against the defendants after one had regard to the provisions of the Deed of Release, and particularly clause 5.1.3, on the other. The issue was whether the assignment was subject to an equity, to which s.12 required effect to be given, precluding the plaintiff, as Assignee, by virtue of clause 5.1.3, from taking any further steps whatsoever to enforce the Guarantees against the defendants, as Westpac was precluded from doing in the circumstances.

49    Another way of considering the point is that if Westpac had taken any steps in breach of clause 5.1.3, the defendants could in various ways have defended such proceedings by e.g. claiming damages for breach of the covenant in any amount to which Westpac was entitled, or by having the proceedings struck out because of circuity of action. If, therefore, Westpac’s action against the defendants could be defeated, why should the plaintiff, as assignee, be in any better position.

50    The submissions in this regard, if I may say so with respect, tended to be diverted from the principal issue by a consideration of the effect of a covenant not to sue, which Mr Coles submitted was the effect of clause 5.1.3, on the one hand, and a discharge or release of a guarantor from indebtedness under the guarantees, which would also have the effect, at least in many cases, of discharging and releasing all other guarantors, on the other.

51    Mr Coles agreed that the Guarantee constituted a chose in action, but his short submission was that it was one which, by dint of the equity created by the covenant not to sue, precluded Westpac, and hence, Ostabridge as its Assignee, from suing the defendants. Mr Ireland did not submit that the operation and effect of such a chose in action could not be diminished by a contract entered into between Westpac and the defendants, as appears in clause 5.1.3, such that the assignment of the chose in action did not carry with it whatever equities were created by that clause.

52 It is necessary to concentrate on the subject matter of the assignment in the events which have happened. Mr Coles submitted that in relation to the guarantees given by the defendants, the assignment included Westpac’s covenant not to sue those guarantors, which was an equity within s.12, subject to which the plaintiff took, thereby precluding it from suing them. In the end, Mr Ireland said that he did not contest that the plaintiff took subject to the equities, which included the covenant not to sue, which was consistent with his position to which I have referred in paragraph 50. In my opinion, that concession was properly made.

53    Mr Ireland submitted that clause 5.1.3, on the basis he accepted, deprived the Deed of Release of any operation, because the words of that clause meant that the plaintiff could not sue on any of the securities, whether given by the defendants or parties who had given securities, but were not parties to the Deed. Mr Coles submitted that the Deed of Release and the Deed of Assignment did not have this effect. He founded upon the fact that only some of the guarantors were parties to that Deed, and that it was those guarantors, who had subjected themselves to the Consent Orders, covenanted to carry out the requirements of clause 3 and subjected themselves to the release and indemnity in clause 4. In those circumstances, he submitted, Westpac’s covenant in clause 5.1.3 was confined to its not taking any further steps whatsoever to enforce the Guarantees against the parties to the Deed of Release and, of course, they were the only parties at risk, the Proceedings not having been taken against any others. It seems to me that this must be the proper construction of the Deed of Release. Other matters point to this.

54    Mr Ireland submitted, initially, that clause 5.1.3 only “engaged” if the assignment had not occurred, because if that did not happen Westpac could then enforce the debt. I doubt whether that submission, thus stated, is correct, because the assignment followed compliance by the defendants, Stafford Quarries and Kerstanne with the terms of clauses 2, 3 and 4 and was subject to Westpac’s rights under clauses 10 and 11. Even if Westpac had not made the assignment, the defendants would have been entitled to rely upon clause 5.1.3. That entitlement was not subject to an assignment being made, although in the view I take, it affected that which would be assigned if one took place.

55    Mr Ireland submitted nextly and, in my view correctly, that if there was not compliance with clauses 2, 3 and 4, or if Westpac’s rights under clauses 10 and 11 were activated, Westpac could enter judgment. However, I do not consider, on a proper construction of the Deed, that the assignment or, as Mr Ireland put it, the absence of the assignment, would have absolved Westpac from complying with its covenants in clause 5 if there was compliance with clauses 2, 3 and 4 and clauses 10 and 11 were not activated.

56    Mr Ireland continued that it was “pivotal” to the whole arrangement that Westpac would make the assignment to the plaintiff and that all parties must have been aware of that. He noted, in particular, that two of the defendants’ obligations were to procure the Assignee to complete the purchase of the assignment pursuant to clause 3.2.2, and to procure the payment pursuant to clause 3.2.3.

57    There is no doubt, in my opinion, that the plaintiff’s involvement in the transaction was necessary, although in so far as clauses 3.2.2 and 3.2.3 are concerned the defendants were left to procure its compliance with them. However, that all having been said, it does not seem to me that it answers the short question as to what, as against the defendants, Westpac had to assign to the plaintiff. The determination of that must depend upon a proper construction of the contractual rights as between all parties.

58    Further submissions, essentially in reply, which were put by Mr Ireland, involved several additional propositions. He submitted that one construction of clause 5.1.3 was that Westpac had agreed not to take any further steps whatsoever against any of the guarantors or mortgagors or pursuant to the Further Securities, including those who were not parties to the Deed. A literal reading of the words taken out of context may support that construction. But it seems to me that it is one which should be rejected. First, prima facie the Deed only bound the parties to it. Secondly, no other guarantors or mortgagors or indemnifiers were at risk by dint of the Proceedings, and no others had joined in the Consent Orders. Thirdly, compliance with clauses 2, 3 and 4 was a matter for the defendants. Fourthly, the rights under clause 10 were confined to the Sureties and the Debtors, who and which were parties to the Deed, and the first event of default related solely to them.

59    In my opinion, a proper construction of the Deed of Release leads to the conclusion that the only parties being released were the parties to it. Thus, the plaintiff would be able to proceed against the other p;arties who and which had given securities and the principal debtors, who and which in turn may well be able to claim contribution from the defendants.

60 Mr Ireland submitted that s.36C of the Conveyancing Act assisted the conclusion that persons not parties to the Deed of Release could none-the-less take the benefit of it. Mr Coles submitted that that section did not have the wide effect of avoiding the requirement of privity as the plaintiff submitted, and that the section did not effect the creation of rights, but only assisted the protection of those shown to exist: Concrete Constructions Pty Limited v Government Insurance Office of New South Wales (1966) 85 NSW WN 104, in which Macfarlan J said, at p.118:-

“In my opinion, having regard to these authorities I am obliged to decide that s.36C does not alter the conclusion I have reached from a consideration of the common law principles. Although there are plainly doubts as to what is the affirmative meaning of the section, it is, in my opinion, clear that it does not, in any respect that is material to this case affect or alter what has been called the rule in Tweddle v Atkinson ; cf Green v Russell and Commissioner for Probate Duties (Vic) v Mitchell .”

61 For these reasons I do not consider that s.36C assists the plaintiff.

62 In the present case the parties to the Deed of Release and Ostabridge were clearly aware of the existence of other guarantors, mortgagors and indemnifiers. They were not joined as parties to the Deed and, in my opinion, they have not been shown as having any rights which the application of s.36C would assist in protecting. Rather, the application of the section in the circumstances of this case, contrary to accepted principle, would have the effect of creating rights they were not given.

63    Finally, Mr Ireland submitted that clause 5.1.3 was only intended to protect the position between the date of the Deed of Release and the assignment. Not only was this at variance with his original submissions, but, as Mr Coles submitted, that could not be correct because clause 5.1.3 did not take effect until there was compliance with clauses 2, 3 and 4 and clauses 10 and 11 were not activated. Clause 6.1 provides for precisely the same requirements before an assignment would be effected. Therefore, so the submission ran and, in my opinion correctly, clause 5.1.3 did not become operative until the position had been reached that an assignment could be obtained and, thereafter, it continued to operate. It represented an essential part of that for which the defendants had bargained, viz that if they fulfilled their obligations under the Deed, Westpac would not take any action against them. Consequently, it could not have been effective to protect the position between 3 and 10 November 1995.

64    Mr Coles submitted that by clause 5 Westpac engrafted on its right, title and interest, a qualification, namely that at the time of the assignment and thereafter it would take no further steps to enforce the Guarantees against the defendants. He agreed that clause 5.1.3 was a covenant not to sue and not a release. He further submitted that it did not contain a covenant by Westpac not to sue the principal debtors nor the other guarantors not parties to the Deed of Release, and he noted that when the right under clause 6.1 arose, so also did the obligation of Westpac under clause 5.1.3. In my opinion, these submissions should be accepted.

What Passed On The Assignment?

65    The next question was what passed on the assignment. Mr Coles’ basic submission, which, as I have said, did not ultimately seem to be in dispute, was that the covenant not to sue did pass, thus precluding the plaintiff from maintaining those proceedings. I said that if that concession was made, I agreed with it. I shall now explain my reasons.

66 The matter was considered by the High Court in Redman v The Permanent Trustee Company of New South Wales Limited & Ors (1916) 22 CLR 84. At p.91 Griffith CJ and Barton J said:-

“The assignee of an equitable interest, even for valuable consideration, takes subject to all the equities and infirmities of his assignor’s title. It is one of the infirmities of the title of the assignor of an equitable interest that his right to it may be disputed and defeated by litigation in a competent Court between competent parties.”

At p.92 their Honours said:-

“It has never, so far as we know, been suggested that in a suit to impeach the title of a defendant who has attempted to assign an equitable interest a plaintiff who succeeds in establishing his case as against the assignor by admissible evidence may nevertheless fail as against the assignee. If it were otherwise the assignee would be in a better position than his assignor. There is no rule of evidence with which we are acquainted that can exclude the operation of the paramount rule that the assignee takes subject to the infirmities of his assignor’s title. If any ordinary rule of evidence comes into conflict with it we think it must give way. In our opinion the sole right of the equitable assignee is to support his assignor’s title, on the strength or weakness of which his own depends, unless he can set up the defence that he is a bona fide purchaser for value without notice, a defence which is not available to a purchaser of an equitable interest.”

67 In The Southern British National Trust Limited (In Liquidation) v Pither & Anor (1937) 57 CLR 89, Dixon J said, at p.108:-

“The subject matter is a chose in action and the ordinary rule applies. The equitable interest, if any, created by the debentures in the chose in action is no better than an assignment in equity of a chose in action and such an assignment is subject to all equities affecting the title of the assignor.
….
Confusion sometimes arises between the two very different applications of the statement that the assignee of a chose in action takes subject to all equities affecting the assignor. When this statement is made in relation to the rights and liabilities of the debtor or obligor, it means that every assignee takes subject to all defences available as between the original parties to the obligation up till the completion of the first assignment by notice. The debtor’s liabilities may be discharged in whole or in part by some transaction with the immediate assignee, as, for instance, by payment to him. In that case an assign of an assignee would take subject to that defence also. But it is not every defence open to the debtor against such an intermediate assignee that is available against a subsequent assignee. Set off is an instance. As between the original parties to a transaction resulting in a common law debt, set off is by statute a legal defence to the cause of action, wholly or pro tanto . Every assignee must take subject to the defence. But, before the fusion of the jurisdictions, if the debtor was entitled to a liquidated demand against the assignee of the debt, who before the Judicature Act was necessarily an assignee in equity only, it was not available to him as a legal defence to an action to enforce the debt, which was of course brought in the name of the assignor.”

68 A similar conclusion was reached by the Full Court of the Supreme Court of Tasmania in National Executors and Trustees Co of Tasmania Limited v Hurburgh [1959] Tas SR 25.

69 In Re Harry Simpson & Company Pty Limited and The Companies Act 1936 [1964-5] NSWR 603, Jacobs J was considering an objection against the liquidator’s rejection of the appellant’s proof of debt in the winding-up of a company. His Honour found there had been a legal assignment of the debt from the trustees to the beneficiary. He considered that the assignment was, in accordance with s.12, subject to the equities attaching to the original debt and, at p.605, said:-

“In the context of s.12 I think that the word ‘equities’ has to be given a wide meaning and it has been said that the assignee can be in no better position than the assignor was, prior to the assignment. I think that this broad principle is applicable in the present case and that consequently the present appellant .. can be in no better position in regard to her claim for these moneys than were the trustees in whose place she stands.”

70 In Provident Finance Corporation Pty Limited v Hammond [1978] VR 312, Lush J was considering submissions as to whether an assignee took subject to any right of set-off which the debtor has against the assignor, which cancels or diminishes the debt; whether the assignee cannot get a better title to the debt than the assignor had at the date when notice of the assignment was given; claims by way of set-off or counter claim sounding in unliquidated damages being relied on where those claims flowed from and were inseparably connected with the dealings or transactions which gave rise to the debt; and that the relevant concept of an equity was wider than that of an equitable set-off.

71    At p.319, his Honour said:-

“The essential concept of an equity in this context is that it is a transaction or event or circumstance which entitles the debtor to say that it is unjust that the debt should be enforced against him without bringing into account his cross-claim arising from the transaction, event or circumstance.”

72    His Honour recognised that the mere existence of the cross-claim did not necessarily create such an equity, and continued:-

“There must be some nexus between the debt and the cross-claim, but the limits within which the nexus may be found have not been defined.”

73    After considering a number of authorities, he said, at p.321:-

“The conclusion which I draw from the authorities is that it is not open to a debtor to set up against an assignee as an equity a claim for damages under a contract other than that assigned. I think that that is so even if the contracts are part of one transaction.”

74    In Meagher, Gummow & Lehane, Equity Doctrines and Remedies, (3rd Edition) at paragraph 699, the authors state:-

“A chose in action is, after all, the benefit of an obligation; and ‘equity’ means in this context a defence, set-off or counter claim which the person subject to the obligation is entitled to oppose to the claim of the person entitled to the benefit. The effect of the rule is that the defence, set-off or counter claim is equally available against the assignee.”

75    Professor Derham in Set-Off, (2nd Edition), at paragraph 13.2.1, in dealing with statutory assignments said:-

“Where the section is complied with the assignee obtains the legal title to the debt, and may sue in his own name without joining the assignor. However, the principle that an assignee takes subject to equities has been expressly preserved, so that the debtor can still rely on a right of set-off against the assignee that would have prevailed against an equitable assignee before the Judicature Act . On the other hand, because the assignor is not a party to the action, the debtor cannot counter-claim in that action for the excess of the assignor’s indebtedness to him over and above the amount of the assigned debt.”

76    In his submissions in reply Mr Ireland contended that, properly understood, the Deed of Release required a clear and unconditional acknowledgment of liability on the part of the guarantors of a debt of $2,141,080.94; that it then provided a mechanism by which the guarantors could take steps to acquit themselves of that acknowledged liability at a lesser sum and in a different manner; and that this involved acceptance by Westpac of the reduced figure of $1.7m.

77    Pausing there, I think that the requirement for the acknowledgment of liability could only apply to those who were parties to the giving of the acknowledgment. The giving of the acknowledgment could not bind persons who were not parties to the agreement. This tends to support the construction of the Deed of Release I favour.

78    The submission continued that if the guarantors utilised that mechanism they would not suffer judgment for the admitted amount of their liability, and there would be an assignment to the plaintiff of the Stafford Quarries debt and of the benefit of all the Guarantees held by Westpac in respect thereof. It was said that it was part of this mechanism that called for clause 5.1.3, which only operated where there was compliance by the sureties and the debtors on time with their “new” obligations under clauses 2, 3 and 4 and the receipt by Westpac of $1.7m. In that event, so the submission went, Westpac covenanted not to take any “further” steps to enforce the Guarantees or the Mortgages. I agree with that submission. However the submission continued that on one view clause 5.1.3 merely protected the guarantors in the period between the Deed of Release and the Deed of Assignment. For the reasons I have given, I reject that submission.

79    So far as the main point argued is concerned, it would be surprising, to say the least, if the basic rule was not as I have stated it. An assignor may, as happened in the present case, settle with some guarantors. That settlement, in order to avoid any discharge of the obligations of the other guarantors, may be effected by a covenant not to sue. If the principles I have applied are not correct, the assignor could then assign to, perhaps, a party related to it, which would be entitled to recover the balance of the debt. Thus the assignee would have a greater right than the assignor. That cannot be the correct situation.

80    Another pointer to the construction of the Deed I favour is that the parties found it necessary to insert a covenant not to sue. If that was intended to apply to all guarantors, there would have been no need for such a covenant, because there would have been a total settlement between Westpac, on the one hand, and all the guarantors. In those circumstances the matter could have been dealt with by releasing and discharging them all on the payment of the necessary amount. The fact that the covenant to sue clause was inserted indicates to me that rights were being preserved against other guarantors, namely those who were not parties to the Deed of Release.

81    Mr Coles submitted, and there was no submission to the contrary, that the covenant not to sue would entitle the defendants, if sued by Westpac, to defend the proceedings on the basis of breach of contract and to recover an amount equivalent to that to which Westpac was entitled if the proceedings were not dismissed as involving circuity of action.

82 In the result I am of the opinion that the plaintiff, as assignee, took no greater right than Westpac had as against the defendants and that, accordingly, they are not entitled to recover under the guarantees. This conclusion is sufficient to justify my entering judgment for the defendants with costs. However, lest others are of the opinion that it is wrong, I propose to deal with the Limitation Act point.

Confirmation Under The Limitation Act

83 As I have noted, it is not in issue that if there was no confirmation the Limitation Act provides a defence. Section 54(2) provides:-

“(2) For the purposes of this section:
(a) a person confirms a cause of action if, but only if, he:
(i) acknowledges, to a person having (either solely or with other persons) a cause of action, the right or title of the person to whom the acknowledgment is made; or
(ii) makes, to a person having (either solely or with other persons) the cause of action, a payment in respect of the right or title of the person to whom the payment is made;
……”

84    The particulars given were the acknowledgment to Westpac; the payment of $25,000 to Westpac and the payment of $170,000 to Westpac.

85    Mr Coles submitted, firstly, that there was no acknowledgment to Westpac of the right or title in the Deed of Release. He submitted that in Recitals D and F the defendants had denied their liability to pay to Westpac either the Stafford Quarries or Kerstanne debts. Recital G made it clear that it was, inter alia, in those circumstances that the parties had agreed to settle the proceedings. That was done at a quite substantial discount. Further, he submitted, clause 2 could not amount to a confirmation of the cause of action, because although the Consent Orders were signed Westpac was contractually precluded from relying upon them in the event of other matters involving the substantial reduction in the amount to be paid happening. Accordingly, far from the defendants acknowledging in clause 2 the right or title of Westpac, they denied it and set up the alternative right or title, which Westpac had under the Deed. That was not a right or title to recover $2,141.080.94, but an entitlement to have the defendants do other things, which did not amount to a payment of that sum. In these circumstances I do not consider that there was an acknowledgment arising from those terms of the Deed.

86    Mr Coles, no doubt for an abundance of caution, stated that the requirements of clause 3.2 could not constitute an acknowledgment of any liability of the defendants to pay. The particulars did not assert that they did. Nor were any separate submissions put in that regard. However, I agree with Mr Coles that there is nothing in clause 3.2 which could be characterised as a relevant payment to constitute a confirmation.

87 In Hepburn v McDonnell (1918) 25 CLR 199, at p.204, Barton J was considering whether a letter, taken in conjunction with that to which it was replying, constituted a new cause of action and removed the bar of the statute of limitations. His Honour said that there was no later authority which questioned the law laid down in Green v Humphreys (1884) 26 ChD 474, and continued that Cotton LJ had said in that case that what was necessary was that there be “an absolute acknowledgment uncontrolled by anything else, an acknowledgment in such terms that the Court may properly infer from it an intention by the writer to pay the debt”. His Lordship continued:-

“What I think we must find from the writing is not merely an acknowledgment of such a state of circumstances as will throw a duty upon the writer to pay, but words of such a character that you may reasonably infer from the words a promise to pay. It may be put in this way, that on a fair construction of the language there must be an acknowledgment of the claim as one which is to be paid by the writer.”

88    Barton J quoted from Bowen LJ, who said that the acknowledgment must be clear to raise the implication of a promise to pay. His Lordship continued:-

“Secondly, supposing there is an acknowledgment of a debt which would if it stood by itself be clear enough, still, if words are found combined with it which prevent the possibility of the implication of the promise to pay arising, then the acknowledgment is not clear within the meaning of the definition …”

His Honour also referred to the statement by Fry LJ that in order to take the case out of the statute there must be, on a fair construction of the letter read in the light of the surrounding circumstances, an admission that the writer owes the debt.

89    At p.210, Isaacs J said:-

“That admission” (as to the debt) “.. need not mention the amount of the debt and need not even be an unconditional admission of a debt, but it must be an admission of a debt conditionally or unconditionally. And it must, of course, be an admission of the debt sued for. And in order to raise the implication of promise an admission must be made as an acknowledgment. That is, it must be made so as to stand on its own footing, and to be made as an admission.”

90 A similar matter was raised in Deane v The City Bank of Sydney (1918) 25 CLR 215. At p.227, Isaacs and Rich JJ said:-

“As to acknowledgment in writing, it is clear the correspondence relied on refers only to the account current. As to payment, it is equally clear, and is not really denied, that the payments were made in respect of the account current. On what principle can they be attributed to the bond? … We have considered the special circumstances of this case, and having regard to the terms of the communications asking for reduction of the current account, to the method of payment, the way in which the £665 was obtained, and the distinct and relative natures of the two debts (particularly the third condition of the bond), and the documents and accounts in evidence, we are unable to conclude or to find as a fact that any of these payments are intended by either of the parties as made under the bond.”

91 Mr Coles referred nextly to Surrendra Overseas Limited v Government of Sri Linka [1977] 2 All ER 481. At p.487, Kerr J considered an acknowledgment. His Lordship said:-

“To acknowledge a claim, as a matter of ordinary English, signifies an admission that it is due. The word ‘acknowledgment’ was equated with ‘admission’ by all three members of the Court of Appeal in Good v Parry , to which I come in a moment.”

92    At p.489, after examining a number of authorities, his Lordship said that what he drew from them and the ordinary meaning of “acknowledges the claim” was:-

“.. that the debtor must acknowledge his indebtedness and legal liability to pay the claim in question. There is now no need to go further to seek for any implied promise to pay. That artificiality has been swept away. But, taking the debtor’s statement as a whole, as it must be, he can only be held to have acknowledged the claim if he has in effect admitted his legal liability to pay that which the plaintiff seeks to recover. If he has denied liability, whether on the ground of what in pleader’s language is called ‘avoidance’, or on the ground of an alleged set-off or cross-claim, then his statement does not amount to an acknowledgment of the creditor’s claim.”

93    At p.490, his Lordship turned to the question of part payment. He said:-

“A part payment, like an acknowledgment, can only revive the cause of action and start time running afresh if it provides evidence in the form of an admission by the debtor that the debt remains due despite the passage of time.”

94    Nextly, reliance was placed on the payments of $25,000 and $170,000. However, the $170,000 was to be applied to the Kerstanne debt and not the Stafford Quarries debt, which was the one in issue in the present proceedings. Mr Ireland submitted that this was merely a matter of adjusting accounts between debtors, but Recital C makes it clear that what was being sought in the proceedings was the payment of $2,141,080.94 “for the debts of Stafford Quarries”. The payment of the Kerstanne debt, however it may have been achieved, did not meet the requirement of a payment in respect of the right or title to the Stafford Quarries debt.

95    Mr Ireland submitted that the Guarantees covered both debts and, therefore, the fact that some of the money was applied to the Kerstanne debt was immaterial. When one has to regard to the authorities, I do not think that this submission can be accepted. The part payment must be in respect of the debt sought to be revived.

96    Mr Coles submitted that the principles to which I have referred precluded there being an acknowledgment either as such or by way of a part payment, and that there was a payment in relation to the Stafford Quarries debt by the paying of $170,000 off the Kerstanne debt. In my view, his submissions are correct. I should also add that there is no evidence that the defendants paid Westpac $25,000. In any event, the payment of that sum would not constitute an admission of a liability to pay $2,141,080.94. I am not aware what steps were taken in relation to clause 3.3.

97    Finally, Mr Ireland relied on the Consent Orders. He submitted these were an unequivocal admission of the indebtedness.

98 In Bucknell v The Commercial Banking Company of Sydney Limited (1937) 58 CLR 155, the Court was concerned with the construction of a letter, which led to some dissent as to the final result. However, at pp.163 and following, Dixon J said, in stating principles I do not understand to have been in issue:-

“An express promise in writing by the debtor to pay revives his liability. But the liability is revived only according to the tenor of the promise. If it is so expressed as to be conditional or subject to limitations, the conditions must be fulfilled before the liability becomes enforceable and the limitations must be observed. The letter upon which the plaintiff depends contains no express promise either conditional or unconditional, restricted or unrestricted. But, although a document relied upon as an acknowledgment contains no express promise, it may effect a revival of the debtor’s liability if there is found in it a distinct admission of the debt.”

99    His Honour continued, at p.164:-

“If the admission is accompanied by an express promise to which the writer has attached conditions or limitations in point of time or otherwise, an absolute promise cannot be implied from the acknowledgment of liability, because to imply it would involve inconsistency, and the creditor obtains no more than a conditional or limited revival of the debt.”

100    Mr Coles relied upon this by submitting that whilst the Consent Orders referred to the debt of $2,141,080.94, they were not provided unconditionally, but in heavily conditioned circumstances. They were to be returned if the alternative mechanism, which provided for the payment of a lesser figure before the Consent Orders could have become operative, was paid to Westpac by the utilisation of the other mechanism. In these circumstances, he submitted, there was no unconditional promise to pay that amount. In my view that must be correct.

101    For all these reasons I do not consider that the plaintiff has established a confirmation pursuant to s.54.

Orders

102    I order that:-

(a) the proceedings be dismissed;
(b) the plaintiff pay the defendants’ costs of the proceedings;
(c) the exhibits be returned at the expiration of twenty eight (28) days unless within that time an appeal against this decision has been brought.

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Last Modified: 03/13/2001