Purdon v Purdon - [2007] NSWSC 141

No judgment structure available for this case.

CITATION: Purdon v Purdon & Anor [2007] NSWSC 141

HEARING DATE(S): 28/9/06, 20/11/06, 21/11/06, 6/12/06, 11/12/06, 13/12/06

JUDGMENT DATE :
28 February 2007

JUDGMENT OF: Smart AJ at 1

DECISION: See paras 223 & 224

CATCHWORDS: Action in essence one at law - assignment of legal chose in action - rights under guarantee - necessity to serve notice under s 12 Conveyancing Act for assignee to maintain action at law in his own name - Failed business venture - Fiduciary Duties - Unjust enrichment - Contribution - Transfer with intent to defraud creditors

LEGISLATION CITED: Civil Procedure Act 2005
Conveyancing Act 1919
Crimes (Sentencing Procedure) Act 1999
English Judicature Act 1873
Supreme Court Rules

CASES CITED: Baldry v Jackson (1976) 2 NSWLR 415
Biala Pty Ltd & Ors v Mallina Holdings & Ors (No 4) (1994) 13 WAR 11
Blomley v Ryan (1954-1956) 99 CLR 362
Comptroller of Stamps (Vic) v Howard-Smith (1936) 54 CLR 614
Concrete Pty Ltd v Parramatta Design & Developments Pty Ltd (2006) 81 ALJR 352
Dering v Earl of Winchelsa (1787) 29 ER 1184
Distronics Ltd v Edmond 2002 VSC 454
Loxton v Moir (1914) 18 CLR 360
Mahoney v McManus 180 CLR 370
McDonald v Lloyd (1931) 31 SR (NSW) 415
McIntosh v Shashou (1931) 46 CLR 494
Norman v Commissioner of Taxation (1963) 109
CLR 9
Phipps v Boardman [1967] 2 AC 46
Re Caratti Holding Co Pty Limited (1975) 1 ACLR 87
Talcott (James) Ltd v Lewis (John) Co Ltd 1940 3 All ER 592
Tanwar Enterprises Pty Limited v Cauchi (2003) 77 ALJR 1853
Torkington v McGee [1902] 2 KB 427
United Dominions Corporation Ltd ("UDC") v Brian Pty Ltd & Ors (1985) 157 CLR 10-11

PARTIES: John Wentworth Purdon v Steven Purdon & David Webb

FILE NUMBER(S): SC 3548/05

COUNSEL: (P) F Kalyk
(D1) G Segal

SOLICITORS: (P) Kemp Strang
(D1) Segal & Associates

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

SMART AJ

Wednesday, 28 February 2007

JUDGMENT

1 This case evolves out of a bitter dispute between two obstinate brothers relating to the conduct of a failed business. Neither of the brothers was entirely truthful or honest. This has complicated the findings of fact. Mr Daniel Webb was not an active party although he gave evidence. He was joined because the legal title to a property at 39A Raimonde Road, Eastwood, stands in his name. Formerly, SP was the registered proprietor. It was not in dispute that despite the transfer of the property into the name of David Webb, SP was the beneficial owner.

2 JP and SP decided to go into business together. Putting the form of the arrangements to one side, they decided to operate the business of a Burger King fast food outlet at 162 Burwood Road, Burwood. On 4 June 1999 SP and JP acquired a company now known as Span Management Pty Limited (Span). About 16 February 2000 Span entered into an agreement to lease the premises. A considerable amount of building and fit-out work had to be done to enable the outlet to be ready to operate. More work was required than anticipated by the lessor Span, JP and SP. This delayed the opening of the business. JP was in charge of and mainly supervised the construction and fit-out work. The costs of the works executed for Span substantially exceeded JP’s estimates. The business thus started with a significantly larger capital indebtedness than had been expected. This was to prove a drain on the business finances. From the outset with the much increased construction and fit-out costs the business was under capitalised.

3 About 23 March 2000 Span entered into a facility agreement with Citibank under which Citibank agreed to provide certain financial accommodation in respect of a Burger King outlet to be carried on at the Burwood premises. JP and SP were joint and several guarantors.

4 About 25 August 2000 Span commenced trading as a Burger King outlet. This was 3 months later than expected.

5 The business encountered difficulties and was slow in building up its sales. There was a shortage of funds and a need for more. Relations between the brothers deteriorated and they were unable to agree on how to resolve their differences, run the business and procure more funds.

6 By transfer bearing date 30 March 2001 SP transferred his house at Eastwood to David Webb and the transfer was registered that day It was JP’s case that SP had transferred his house to David Webb with the intention of defrauding his creditors.

7 In May 2001 Span defaulted in the payments required to be made to Burger King. An executive of Burger King advised SP to appoint an administrator to sell the business, otherwise Span would forfeit its franchise. The executive recommended that a particular accountant be appointed. About 22 May 2001 the recommended accountant was appointed. He advised that the company be placed in liquidation and Span was placed in liquidation on 19 June 2001. The liquidators of Span sold the business and applied the proceeds in reduction of the debt due by Span to Citibank.

8 The amount received was far less than SP expected. The liquidators applied the proceeds in partial reduction of the debt owed to Citibank. As at 21 May 2002 $426,606.20 remained owing. Citibank wrote off the debt and did not charge interest after 30 April 2002. See Citibank facsimile of 3 August 2004. Citibank pursued JP. It did not pursue SP. An LPI search revealed that the Eastwood property was in the name of David Webb. Apparently Citibank was reluctant to become involved in complex litigation with SP and Mr Webb.

9 During 2003 negotiations took place between Citibank and JP. By October 2003 Citibank and JP had reached an agreement whereby Citibank on receiving $75,000 from JP (inclusive of legal costs and expenses) agreed to release and discharge JP from all liabilities and obligations owed by him as guarantor to Citibank and all actions, costs, claims and expenses which may arise in connection with the Guarantee and Indemnity. See the letter of 6 October 2003 from Citibank to JP. The letter further states:

“Citibank agrees, in consideration for receipt of $10 from the Guarantor [JP] to assign all debts owed by [Span] to Citibank within 15 days of the Satisfaction Date.”

10 The “Satisfaction Date” was the date on which JP paid $75,000 into a nominated Citibank account. By its facsimile of 29 July 2004 Citibank stated that the recovery amount of $75,000 was received in October 2003.

11 About 4 March 2004 Citibank at the request of JP assigned to JP the Citibank rights under the guarantee to it (by JP and SP) to JP.

12 By his further amended statement of claim filed on 10 October 2006 and further amended as to the amount claimed during the concluding stages of the hearing JP claimed:

(a) Judgment against SP for $252,754.67 made up as follows:

(i) Half of $426,606.20 $213,303.10

(ii) Half of $75,000 $ 37,500.00

$ 1,951.57

$252,754.67

(b) Interest pursuant to the Facility Agreement and and in the alternative pursuant to s 100 of the Civil Procedure Act 2005

(c) A declaration that the transfer of the property, 39A Raimonde Road, Eastwood to David Webb is voidable under 37A of the Conveyancing Act 1919 at the instance of JP

(d) An order pursuant to s 37A that the property be transferred by David Webb to SP.

13 SP did not contest that he should pay $37,500 to JP but insisted that he was not liable to pay any more. SP disputed that he transferred 39A Raimonde Road with intent to defraud creditors. SP contended that at the time of the transfer he wanted to become a contractor with Coles, working in their stores, and that he transferred the property to avoid the risk of spurious claims succeeding against him either by members of the public (alleged falls or slips in Coles stores) or by subcontractors.

14 In his defence to the further amended statement of claim, in addition to disputing many of the facts pleaded, SP raised a number of matters:

(a) JP and SP in substance conducted the business of a Burger King outlet as a joint venture between them in which they were to share the profits and losses equally;

(b) JP represented to SP that the building works including fit out could be completed within 3 months at a cost of $300,000 to $400,000 and that SP accepted the representations of JP as being correct and agreed with JP that the affairs of Span would be budgeted on that basis;

(c) upon Citibank granting JP a release from all of his obligations SP ceased to be liable under the guarantee;

(d) further, or in the alternative that, if there had been an assignment by Citibank to JP, that assignment had not been effected as at the date of the commencement of the proceedings (20 June 2005) and thus JP was not entitled to the relief claimed. No notice of assignment had been given;

(e) it was a term of the Joint Venture Agreement that JP and SP each would bear equally the losses of the joint venture

(e) it was an implied term of the agreement that neither JP nor SP would, without the consent of the other, do any act or thing whereby the other may be required directly to bear more than one-half of the losses of their joint venture as actually incurred;

(f) further, or in the alternative, if the arrangement between JP and SP did not constitute a joint venture it was a term of their arrangement that they would each share equally the losses of the Burger King outlet business;

(g) further, or in the alternative, if their arrangement did not constitute a joint venture their arrangement was one whereby each relied upon the trust and confidence of the other and each agreed with the other that they would share equally in the losses of the joint venture;

(h) further, or in the alternative, if their arrangement did not constitute a joint venture it was their common understanding that they would share equally the losses of their arrangement of the Burger King outlet business. (paras 29 and 30 of the defence to the further amended statement of claim are not clear);

(i) in taking or purporting to take an assignment of the moneys owed to Citibank and bringing these proceedings JP is acting in breach of their agreement or understanding as SP would, if JP were entitled to the amount he claims, be obliged to pay more than one-half of the actual liabilities of the joint venture;

(j) further, or in the alternative, JP was under a fiduciary duty to SP not to pursue a gain which was obtained or received by reason of JP’s fiduciary position or continuing opportunity or knowledge resulting from it and that such fiduciary duty continued at least until the assignment

(k) further, the obtaining of the assignment by JP was in breach of his fiduciary duty to SP in that JP took advantage of the knowledge that he had acquired in and for the purposes of their joint venture or for the purposes of the Burger King outlet business concerning the amount of the indebtedness of Span to Citibank

(l) further, JP was under an obligation of perfect fairness and good faith towards SP and that by obtaining or purporting to obtain from a creditor of the joint venture or of the subject business the right to recover from SP a debt originally incurred for the joint venture or of the subject business a sum of money not actually claimed by the creditor, Citibank, JP acted and continues to act contrary to such obligation or the obligations (or any of them) pleaded in para 25-29 of the defence;

(m) about the date SP and JP executed the Deed of Guarantee and Indemnity they each agreed with the other to bear one-half of such amounts that may become payable to Citibank which were not otherwise paid by Span. This was said to be an implied term arising as a matter of law by reason of JP and SP being jointly and severally liable to Citibank pursuant to the Deed of Guarantee and Indemnity. SP alleged that the present proceedings were in substance a demand by JP that SP should pay an amount in excess of the debt incurred pursuant to the Deed of Guarantee and Indemnity;

(n) further, or in the alternative SP alleged that by his signing the Deed of Guarantee and Indemnity, JP represented to SP that he would not be required by JP to pay any sum of money in respect of the debt incurred by Span to Citibank greater than one-half of any moneys actually paid by JP to Citibank. SP alleged that he executed that Deed in reliance upon that representation and that the bringing of these proceedings would have the effect of JP having sought that SP pay more than one-half of the debt incurred by Span to Citibank than has actually been paid by JP to Citibank. Thus JP is estopped from bringing the present proceedings

15 In his reply JP, amongst other things, denied many of the assertions of SP including that there was a joint venture between JP and SP and alleged that SP did not come with clean hands and was not entitled to the benefit of the defences claimed.

16 In SP’s amended first cross-claim he sought:

(a) a declaration that the bringing and continuance of the claim is a breach of JP’s fiduciary obligations to SP

(b) further, or in the alternative a declaration that the bringing and continuance of the claim is in breach of the joint venture agreement between JP and SP

(c) further, or in the alternative a declaration that the bringing and continuance of the claim is in breach of an agreement made between JP and SP about 23 March 2000 to enter into a Deed of Guarantee & Indemnity made about that day between JP and SP as guarantors and Citibank

(d) further, or in the alternative a declaration that the bringing and continuance of the claim is in breach of the equitable obligations of JP to SP to seek only contribution to the extent of any moneys actually paid to Citibank pursuant to the Deed of Guarantee and Indemnity

(e) further, or in the alternative, a declaration that the bringing and continuance of the claim is such as to effect an unjust enrichment in favour of JP at the expense of SP to the extent such claim seeks payment in excess of one-half of the amount of $75,000
(f) an order that JP be restrained from proceeding to recover the judgment he seeks

Costs were also sought.

17 In his defence to the Amended First Cross-Claim JP asserted that there was no joint venture, fiduciary duty, representations or agreement as alleged by SP. JP asserted that he claimed under contract and pursuant to s 37A of the ConveyancingAct. JP again asserted that SP did not come with clean hands and was not entitled to the relief sought in the exercise of the Court’s discretion.

18 SP’s defences and cross-claims were wide-ranging.

The History

19 In late 1997 JP and SP discussed going into business. By December 1997 they had in mind a joint business and explored potential food franchise opportunities. On 28 August 1998 they met with Burger King representatives. About December 1998 JP applied to borrow $40,000 from the Commonwealth Bank. This was done by increasing JP’s loan, secured over his home. The money was used by JP to pay moneys to Burger King for the “territory reservation deposit” of $7000 and to meet other requirements of JP.

20 Also about December 1998 at SP’s suggestion there began the building of an office at SP‘s home for the keeping of records the transaction of business and the holding of meetings for the new venture. This involved the conversion of a carport into a liveable room by enclosing the area with sliding glass doors, laying a polished timber floor, installing windows, ceilings and wall linings, power and lighting. SP said that he spent about $25,000 in having that office built. Later, Span caused some equipment to be installed in the office and paid for it.

21 Over the months JP and SP sought advice from JP’s accountant, Mr Charles Lassak, as to how the proposed business should be structured. They decided to operate through a company. It was agreed that on 4 June 1999 JP and SP acquired Span and at all material times -

(a) JP and SP were the directors of Span

(b) JP was the holder of 50 ordinary shares in Span

(c) SP was the holder of 50 ordinary shares and 2 “A” class shares in Span

(d) Each of the shares conferred an equal right to vote.

22 JP said that as a result of losing a lot of money in previous unhappy business experiences with Mr D McLean and unhappy experiences in his divorces he was anxious to limit his personal liability although he could expect to be asked to give a personal guarantee but Mr Lassak did not believe that JP related the method by which the Burger King franchise would be owned and operated to either his business relationship with Mr Douglas McLean or JP’s previous divorces during his discussions with JP. Mr Lassak said that to the best of his recall, there was no comment to the effect, whether made by himself or JP, that the structure of unit trusts was safe in the light of the previous business and personal history of JP. Mr Lassak said, and I accept, that he advised that a unit trust might be established so that the equity position of the owners may possibly be safeguarded and also that it would minimise the impact of Capital Gains Tax (CGT) in the event of the sale of the business.

23 Span was to be the trustee of the Span Unit Trust on behalf of which the Burger King outlet business was to be conducted. On 30 September 1999 the terms of the Span Unit Trust were settled.

24 In about July 1999 negotiations commenced between JP and Anthony Khoury, a real estate agent for the owner of 162 Burwood Road, Burwood, as to Span leasing these premises. About 16 February 2000 Span entered into an agreement for lease with JP and SP executing guarantees of Span’s obligations as lessee. The premises required substantial building and refurbishment works and fitting out to render them suitable for the business. Work commenced about 17 February 2000. SP agreed to JP managing the building and fit out work and its execution as JP was more experienced in these areas.

25 About 23 March 2000 Span entered a facility agreement with Citibank by which it agreed to provide certain financial accommodation for the business.

26 In April 2000 Span began the process of recruiting staff for the Burger King outlet. This was handled by SP.

27 During the execution of the works problems emerged which had not previously been foreseen by JP, including rising damp, stormwater from the street running into the building and the building’s foundations requiring reinforcement. Discussions were held with Mr Khoury resulting in the lessor undertaking rectification works which were not completed until 1 June 2000. Originally it had been planned to commence trading in May 2000. The other necessary works were not completed until August 2000 and the costs exceeded JP’s estimates and assessments.

28 JP said that by May 2000 it was apparent that the funding arranged with Citibank was insufficient to enable Span to fund its start of the business. Span was not in a financial position to pay many of its contractors and suppliers. JP endeavoured to arrange funds with Esanda, but SP declined to mortgage his house at Eastwood to provide the security required by Esanda.

29 In about June 2000 during a conversation with JP and SP Mr Lassak was asked by one of them if he (Lassak) would be prepared to be an investor in the project and told that they needed about $250,000. After some discussion with his wife, Mr Lassak and she agreed to provide such funding and did so. Mr Lassak said that about a week or two after the funding was provided JP said to Mr Lassak words to the effect, “The cost of building has skyrocketed.” Mr Lassak said to JP words to the effect, “Thanks for not being completely honest with me when you told me the shortfall would be in the order of approximately $250,000.” Mr Lassak said that over the next few weeks he saw bills come in via JP in respect of building works carried out on the Burger King Burwood site. Mr Lassak became aware that the building costs had risen by about a further $250,000. This was over and above the funding of $250,000 provided by Mr Lassak and his wife. I accept the evidence of Mr Lassak. JP, in his role of supervising the building and fit out work and what was being done, was aware of the appreciable rising building costs.

30 By FAX of 10 July 2000 to JP and SP, Mr Lassak advised that all equity holders settle on the form of ownership structure which would hold their equity in the Span Unit Trust. He mentioned that the equity of each could be owned by them as individuals, a company or discretionary trust with the latter being the desired option. By that time Mr Lassak and his wife had invested in the enterprise.

31 On 4 August 2000 the following discretionary trusts were settled:

(a) The John Purdon Trust of which Palmbrew Pty Ltd was the trustee and JP and any wife, child, parent, nephew or niece were potential beneficiaries
(b) The Satellite Trust of which Palmbrew Pty Ltd was the trustee and SP and any wife, child, nephew or niece were potential beneficiaries.

32 On 8 August 2000 following an agreement between Span as trustee of the Span Unit Trust and Thomlass Pty Ltd as trustee of the Norfolk Trust made on that day:

(a) Palmbrew Pty Ltd as trustee of the JP trust applied for the issue of 4,375 units in the trust

(b) Palmbrew Pty Ltd as trustee of the Satellite trust applied for the issue of 4,375 units in the trust

33 Units in the Span Trust were allocated to Palmbrew Pty Ltd and Thomlass Pty Ltd. Thomlass Pty Ltd and the Norfolk Trust were controlled by Mr Lassak and his wife for their benefit and the benefit of those associated with them. It was specifically provided that Mr Lassak and his wife would not be directors of Span.

34 About 25 August 2000 Span entered into a franchise agreement with Burger King Australia Pty Ltd (BKA) and commenced trading as a Burger King outlet. SP attached importance to being the Director of Operations and the managing owner specified in the Franchise Agreement and being described as having 51 per cent of the issued capital of Span and John Purdon being described as having 49 per cent of the issued capital of Span. SP has marginally more voting rights than JP. Under the Franchise Agreement the minimum percentage of all classes of shares to be held by the managing owner is 51 per cent.

35 Under cl 30 of the Span Unit Trust Deed unit holders holding not less than 51 per cent of issued units may remove a Trustee. Span undertook no business or activities other than as trustee conducting for the Span Unit Trust the business of the Burger King outlet at Burwood.

36 SP managed the day to day operations of the business and JP was not involved in these operations. JP ran his own business at Castle Hill and lived in the Windsor District.

37 About 22 March 2000 JP and SP established Span’s bank account with St George Bank Ltd and required both their signatures to all withdrawals.

38 A question arose as to the payment of the staff’s wages. SP stated that with the system adopted there were delays in paying the wages of the staff. Not only were there complaints from the staff but an executive of Burger King spoke to SP about the matter. JP asserted, probably incorrectly, that he was not aware of any delay in the payment of the wages to the staff and that SP never complained of or suggested that there was any such delay. JP said that he had a number of discussions with SP who was keen to set up electronic banking for wages. JP did not want to do so. After a discussion between JP and Mr Lassak, in which the latter advised that ”as far as time and work is required you would be better off doing wages electronically,” JP said he would agree. In para 47 of his affidavit of 14 March 2006 JP said that he did sign an application permitting electronic banking for wages. That application bears date 1 June 2000 and does not restrict electronic banking to wages.

39 JP agreed that he signed a form headed “St George Bank Activ Card And Connect II Agreement” and a form headed “Application To Become A User of The Direct Credit System.” Both bore the date “1/6/2000”. He denied that he signed another document of that date headed “Terms and Conditions”. The purported signature on that document of “John Purdon” was not his. It is not clear whether this is a separate page or the reverse side of the Application. SP’s evidence was to the effect that he had JP’s authority to sign the name John Purdon on the page headed “Terms and Conditions”. JP denied this.

40 There was a further document of two typed pages bearing date 1 September 2000. JP stated that the purported signatures of “John Purdon” appearing on that document were not his signature and SP admitted that he had signed not only his name but had written the purported signatures of “John Purdon”. JP said that he had never authorised SP to do this. The matter came to JP’s notice when he examined the bank statements of Span’s accounts and noticed that amounts had been paid without his approval. They were internet transactions. An officer of the bank told him that SP was authorised to undertake internet banking without JP’s further approval. JP said that except in respect of electronic wage payments he was not aware that the internet banking facility had been established in a way which permitted SP to authorise transactions without his authority.

41 JP said that when he asked SP why he had forged his signature, SP replied that it had to be done to pay creditors. On 20 October JP wrote to the bank requesting it to cease all direct credit systems and reiterated that Span’s account was a two signatory bank account.

42 SP said that JP had authorised him to sign his name. SP pointed out that in each instance the Application was in the same terms and that on their face the Applications were not restricted to electronic banking for wages. SP stated that the September 2000 documents were necessary because the June 2000 documents had expired.

43 SP agreed that about October/November 2000 relations between him and his brother were deteriorating. There were two major causes, the substantial cost over-run on the construction and fit-out works and the payment of creditors via the internet as a result of SP purporting to sign the St George Bank document on behalf of JP.

44 JP said that about 29 November 2000 he attended a meeting with SP and Mr Lassak at which he signed an authority to St George Bank to make any two of the three of them signatories to the Span documents. Mr Lawton from Westpac joined the meeting to discuss the facility which Westpac was proposing. JP said that after Mr Lawson had left he (JP) spoke to SP and Mr Lassak to the following effect:

“The only reason you keep me around is if something needs to be done or paid for. You won’t let me have any involvement in the business. I want the internet banking to stop. It’s only possible because Steven’s forged my signature. I don’t know what’s going on in the place. I don’t have any say in what happens. If the Westpac facility is to go ahead, Steven can’t have any financial control as he can’t be trusted.”

SP allegedly said:

JP allegedly responded:

“Well, then I am not going to sign the Westpac facility to get further into debt. I’m not sticking my neck out to get screwed any more. If you want you can buy me out. And Charlie, I want you to tear up the authority to sign the cheque account.”

JP said that Mr Lassak said: “OK I’ll destroy it.”

45 On 4 December 2000 SP sent a FAX to JP seeking to meet some of the objections which JP had raised and suggesting a way forward including shift training and the collection of a set of keys to the premises. JP did not accept that what SP wrote was genuine. On 6 December 2000 Mr Lassak, who had acted for JP since about 1989, also wrote to JP referring to their past association and suggesting a way forward. Mr Lassak was worried that JP was going to ruin the business because of his personal battle with SP.

46 JP said that on 8 December 2000 he telephoned Mr Lassak, who confirmed that the St George Bank authority had been destroyed, that Mr Lassak expressed the opinion that without signing the Westpac agreement JP was not acting in the best interests of Span and that he (JP) queried what Mr Lassak was going to do about SP’s forgery, JP’s access to the company office in the Burwood premises and JP’s access to the business records. JP said that Mr Lassak replied that SP and JP were both getting the information from him, that he was not concerned about the forgery and that he thought SP was doing a good job.

47 JP said that about 4 January 2001 he telephoned Mr Lassak and stated that he had told Mr Lawton that he was not signing the Westpac agreement and that he (JP) had found out that Mr Lassak had not destroyed the signing authority. On Mr Lassak stating that he had to lodge it so that accounts could be paid, JP replied that he would not be using Mr Lassak as his accountant any more. JP said that Mr Lassak told him that SP and he (Lassak) would be paying all creditors from now on.

48 On 11 February 2001 JP made a detailed statement to the police with a view to having SP prosecuted.

49 SP said that he pleaded guilty to the charge brought against him but upon the circumstances being explained to a judge of the District Court (upon appeal against severity from the Local Court) an order was made pursuant to s 10 of the Crimes (Sentencing Procedure) Act 1999. JP complained that SP got off on a technicality. From JP’s tone of voice and manner JP conveyed his disappointment that SP had not gone to prison.

50 In January 2001 JP said that he raised with SP the payment of all contractors who had done work on the Burwood premises and had not been paid and that SP showed no interest in paying them. SP blamed JP for not signing the Westpac agreement and JP blamed SP for not mortgaging his house to Esanda. JP said that he telephoned Mr Stephen King, the Franchise Development Manager at Burger King, advised him that subcontractors had not been paid to the extent of about $290,000. Mr King told JP to send him the list and he would talk to SP. JP met with Mr Anderson and together they prepared the letter of 19 January for Mr King, setting out a list of subcontractors and the amounts owing to each for work done at 162 Burwood Road. The total said to be outstanding to that date was $289,477. The complaint was that SP was fobbing off the subcontractors. The letter concluded that if these accounts were not settled within 14 days legal action would be taken to close the shop, as it must be trading while insolvent. These latter matters probably represented the assertions of JP.

51 SP said that the first time he saw (or heard) the name J W Anderson & Co was when he saw JP’s affidavit of 2 June 2005. This was in the context of a builder/project manager. SP believed that JP was supervising the works. SP said that on many occasions he and Mr Lassak asked JP to supply tax compliant invoices in respect of works carried out and supplies provided for the works and that on many occasions such invoices were not supplied. SP said that he stated the need for GST tax compliant invoices from all subcontractors and highlighted the lack of invoices from Tileforce, Melvins and the bricklayer, probably Highlands. JP promised to send these to Mr Lassak, but they did not arrive.

52 SP said that he was not aware in January 2001 of the extent of moneys Span was said to be liable to pay for building costs. SP said that Mr S King of Burger King did not mention that he had received a letter from J W Anderson & Co.

53 In his later affidavit of 14 June 2006 SP agreed that he had a meeting with Mr Jim Anderson as to him investing in the Burger King outlet. Nothing was said about Mr Anderson carrying out or being involved in the building works. SP said that the only mention of building works was that by JP who said that the building works would cost $300,000 to $400,000. SP conceded that prior to the commencement of the building works JP mentioned that they needed to have a builder with a licence, that Jim Anderson had a licence and would charge a fee of $15,000. SP said that he replied that he would leave that matter to JP. JP disagreed that he gave an estimate of $300,000 to $400,000. Instead JP said that he told SP that they would not know what the building and fit-out costs would be until they received the quotes, but they should allow $300,000 to $400,000. It is probable that JP did say that the building and fit out costs for the Burwood outlet would be $300,000 to $400,000. The budget for the outlet was prepared on that basis and no provision was made for the building and fit out costs being much more.

54 During late 2000 and while the Westpac negotiations were still on foot. JP wanted $3-million for his share in the business if SP and Mr Lassak wanted to buy him out. In February 2001 JP told SP and Mr Lassak that if they wanted his share he would sell it for $1-million.

55 JP said that he could not recall being at the Burger King offices at North Sydney with some executives of Burger King (including Mr Stephen King) and SP in January 2001, when the troubles with the finances of the business were canvassed and Mr Stephen King stated that it would be sensible for the Westpac offer to be taken up. He could not remember a meeting where Mr Stephen King said that the business should be sold for $1.5-million.

56 SP agreed that if JP did not sign the Westpac documents that might require an urgent disposition of the business. He believed the business could be sold for more than that required to pay out all creditors.

57 SP said that in early January 2001 he and JP were summoned to a meeting at Burger King’s office at North Sydney to discuss the Westpac facility and methods that could be undertaken to pay their creditors. SP said that at that meeting Mr Stephen King indicated that if the business traded for 12 months and at a profit it could be sold for around $1.5-million. SP agreed that as at January 2001 the amount due to Citibank was in the order of $750,000. Burger King would probably have been troubled by the effect of the continuing differences between JP and SP.

58 SP appreciated that from at least October 2000 onwards JP felt that he had been put out of the business and was being shafted. JP felt that he was not obtaining all the information that he wanted, that the staff were not co-operating with him and that SP was directing the staff to report to him and not to give information to JP. There were difficulties about the training of JP in the Burger King program so he could act as a manager. JP required surgery to both shoulders and this was delaying any training in the Burger King program and raised queries as to his physical limits. JP took a very serious view of SP affixing JP’s purported signature to the banking forms, especially of 1 September 2000. This led him to believe that SP could not be trusted. JP believed that SP should have mortgaged his house at Eastwood to assist in raising the money to pay out the building subcontractors. JP made it plain that he was far from pleased with SP not going along with the Esanda transaction which JP proposed.

59 I think that the meeting deposed to by SP in early January 2001 at Burger King’s North Sydney office probably took place. Burger King was aware of the delay in opening the franchise at 162 Burwood Road and the difficulties with the building and fit-out works and the inevitable increases in costs. It was monitoring the level of sales and the supplies. It was aware of the differences between the brothers and that efforts were being made to obtain finance from Westpac. Burger King was not prepared to let matters drift. The meeting in early January 2001 took place before JP’s letter or FAX of 19 January was sent.

60 As might be expected with a new business, initial difficulties were experienced. Mr Lassak acted as the accountant for Span and for each month prepared accounts and a financial report. For the first quarter ended 30 September 2000 a loss of $30,975 was incurred. Mr Lassak reported that:

(a) the overall costs to set up the operation were in the order of $1,247,579. Of this amount Citibank had provided $740,000, C Lassak and wife $250,000 and JP $8000. This left a shortfall of $249.579 and the trade creditors of the business in effect made up this difference

(b) trade creditors stood at $320,134, which included balance building costs/non food items of $285,234

(c) an additional investor and/or further bank finance (loan/overdraft) was urgently required

(d) the net profit for the period 25 August-30 September was $8463

61 In his financial report for October 2000 Mr Lassak wrote:

(b) October sales were disappointing at $100,776. Average monthly sales of at least $120,000 must be achieved to earn a moderate profit.

(c) Trade creditors stand at $308,831.

62 In his financial report for November 2000 Mr Lassak states:

(a) there was a net loss of $46,428 for the 5 months ending 30 November 2000 and a net profit of $6503 for November 2000

(c) trade creditors stand at $288,369.

63 In his financial report for 18 December 2000 Mr Lassak advised of the results of a “breakeven cash flow analysis. Average daily net sales of $3900 must be achieved to reach a break-even position.”

64 In his financial report for December 2000 Mr Lassak states:

(a) there was a net loss of $38,665 for the 6 months ended 31 December 2000 and a net profit of $7763 for December 2000

(b) there had been a small rise in average daily sales - $3433 in November to $3649

(c) January 2001 will be a tough trading month with customers away on holidays

65 In his financial report for January 2001 Mr Lassak states:

(b) average daily sales in January 2001 were $2729

(c) costs were abnormally high

(d) the Westpac approved re-finance facility was needed

66 In his financial report for February 2001 Mr Lassak states:

(a) there was a net loss of $79,827 for the 6 months ending 28 February 2001 and a net loss of $14,965 for February

(b) average daily sales in February 2001 of $2734 were poor with sales in March showing no significant signs of improvement

(c) some $40,118 had been lost in two months and this was unsustainable if it continued and reinforces the need to settle the approved Westpac finance facility. January and February are generally tough months in fast food and sales tend to pick up in the cooler months

67 In his financial report for March 2001 Mr Lassak stated:

(a) there was a net loss of $79,680 for the 7 months ending 31 March 2001 and a tiny profit of $147 for March

(b) average daily sales in March 2001 of $2753 were poor

68 The report contains a request to JP to indicate when his consent to the Westpac facility will be forthcoming and a reminder to JP that he had delayed settlement since just after the Christmas break.

69 The report also stated that the issue of confirming input tax credits was important and that he (Lassak) was still waiting to sight all documentation noted in his last report from all major sub-contractors to ensure that all GST credits were properly claimed by the business. The report continued that to complete the outstanding BAS obligations he (Lassak) needed copies of all invoices and the tax invoices issued by Star York Pty Ltd, Tileforce Pty Limited, Greg Taylor and Melvin Pty Limited and requested JP to send these details to him (Lassak) “ASAP”.

70 It is apparent from the reports that the business had not done well over the holidays and warmer months and that a concerted effort would be needed over the colder months to build up the sales. The business needed more capital if it were to survive. JP failed to send in the invoices needed and requested by Mr Lassak.

71 On 17 May 2001 BKA served a Notice of Default by mail on Span. The Notice of Default recited that Span had defaulted in the following respects:

(a) it had failed to make payments of Advertising Contributions due 15 April and 15 May 2001 and Royalty due 15 May totalling $323.97.

(b) (i) at a meeting between Span and BKA on 15 May 2001

Span acknowledged that it was unable to pay its debts when they mature

(ii) Span was indebted to P & O Cold Logistics Ltd for an amount in excess of $50,000 in excess of the credit terms and had tendered a dishonoured cheque to P & O Cold Logistics Ltd resulting in that company requiring payment for stock by cash or by bank only cheque.

72 Span was required to cure the default within 10 days. The Notice stated that if Span failed to cure these defaults BKA may at its option terminate the franchise agreement.

73 A copy of the Notice of Default was sent to JP and SP. SP agreed that Span could not pay the money to make good the default.

74 SP said that at a meeting with BKA, Mr Rudi Selles advised him that he must place the company in administration otherwise the franchise would be terminated. If that happened the business would be worth nought. The meeting probably took place on 15 May 2001. SP said that Mr Selles advised him to contact Mr N Singleton from Simms Lockwood. That may have occurred after SP received the Default Notice. It is not clear whether that remark was made at the meeting of 15 May 2001 or after the Notice of Default was received.

75 JP recalled a meeting in May 2001 at the offices of BKA attended by the CEO of BKA, Mr Rudi Sellers, Mr Stephen King, himself, his accountant, SP and possibly Mr Lassak. The subject matter of the meeting was the default under the franchise agreement and the debts of the business. JP blamed SP for not making payment to BKA. JP did not think that a sale price or value of a million and a half for the business was bought up at that meeting.

76 JP complained that in May 2001 he did not know the amount of the debts of the business. JP said that SP did not tell him, prior to the meeting on 22 May 2001 that the business was insolvent.

77 By a FAX notice of 18 May 2001 sent at 12.01pm SP purported to call a meeting of directors and investors at 4pm that day at the offices of Sims Lockwood. The purpose of the meeting was the appointment of Neil Singleton of Sims Lockwood as an administrator of Span.

78 At JP’s request the meeting was adjourned to 22 May 2001. A meeting occurred on that day. At that meeting SP said that it was his duty as a director to take steps to appoint an administrator because of Span’s insolvency. It is not necessary to rehearse the debate which took place at that meeting. Eventually SP purported to use his superior voting strength, which was disputed, to appoint an administrator. JP did not take action to have the Administrator’s appointment declared invalid although he threatened to do so.

79 On 12 June 2001 the Administrator reported at length to the creditors on the state of Span and convened a meeting of creditors for 19 June 2001. Attached to the report was a formal notice of meeting, the notice inter alia, raised the creditors resolving that Span be wound up. In his report the Administrator (Mr N Singleton) stated:

(a) No parties have proposed a Deed of Company Arrangement.

(b) He had continued to trade the Burger King business at Burwood with the co-operation of Citibank, Burger King Australia, the landlord and the major supplier of food products.

(c) He had advertised the business for sale and urgent expressions of interest were sought.

(d) An amount of about $260,000 in excess of budget was spent on equipment and leasehold improvements. About $170,000 of these costs remain unpaid.

(e) As at 22 May 2001 based on book value Span’s assets were $1,146,163 and its liabilities $1,392,710 leaving a deficiency of $246,547. As to the liabilities, particulars include:

Citibank – secured
- fixed and floating charge - $707,642
Priority Creditors – Employees - $ 32,013
Non Priority Unsecured Creditors - $653,055

(f) It was unlikely that sufficient funds would be realised from the sale of the business to repay Citibank in full. It was unlikely that the unsecured creditors would receive anything.

80 On 19 June 2001 it was resolved that the company be wound up. The Administrator’s forecast that the sale of the business would not provide sufficient funds to pay out Citibank in full proved to be correct.

81 Mr Robert McDonald commenced employment with Span about May 2000. He recalled an incident in about mid-2000 when interviews for staffing positions were taking place that SP said that none of them had to worry about JP and that none of them were answerable to JP.

82 Mr McDonald said that in late 2000 SP instructed him that he was to make sure that he and the other managers were to give JP no information as to the business. They should tell JP that they were too busy and that he should telephone SP. Mr McDonald never saw a spare set of keys in the safe as SP contended. Mr McDonald left the employment of Span in about March 2001.

83 I thought that Mr McDonald did his best to tell the truth. He was unhappy while he was with Span that the two brothers were in dispute. He thought the disputes became worse as the months passed. He did not think the disputes affected the overall performance of the business at the Burwood premises. Except for the managers no other staff at the Burwood premises were aware of the dispute between the brothers.

84 There are a number of further matters from Mr Lassak’s evidence which I should note:

(a) JP, SP and Mr Lassak when discussing the operation referred to it as Burger King Burwood or Span. None of them referred to the trust or trusts. Mr Lassak, putting aside his role as the business’ accountant, described his role as one of passive investment.

(b) SP wanted to attend to the payment of all genuine unsecured creditors of Span. SP negotiated the facility with Westpac (with some assistance from Mr Lassak).

(c) JP did sign an authorisation to St George Bank for any two of JP, SP and himself to operate Span’s bank account. He (Lassak) could not find that authority or a copy. He did not recall whether he destroyed that authority or not. He may have done so. He could not recall whether he told JP that the authority had been destroyed, but he may well have done so.

(d) He (Lassak) did tell JP that he was not acting in the best interests of Span by refusing to sign the documents to enable the Westpac facility to be obtained.

(e) He (Lassak) denied that he said, “I am not concerned about the forgery”. Mr Lassak said, correctly, that he did not know whether there was any such forgery.

(f) He (Lassak) thought that the business needed the Westpac loan to survive; this was because there was a substantial over-run on building costs which came to light after the business commenced trading.

85 Mr Lassak said that he and SP consulted with a firm of solicitors as to the courses open to them in view of the attitude of JP. SP did not have the money to buy JP out, especially with the purchase price that JP had foreshadowed.

86 Mr Lassak said that JP was in charge of the building process and all negotiations with the builders and that he (Lassak) had nothing to do with the builders. He (Lassak) did not know what arrangements had been made by JP. Mr Lassak was aware that there were outstanding creditors but he did know the details. Mr Anderson did not speak to him (Lassak). Mr Lassak said that towards the end, prior to administration, he became aware that P&O (food suppliers) were complaining that they had not been paid.

87 Mr Lassak agreed that at the meeting of 22 May 2001 appointing an administrator JP asked SP about the transfer of SP’s home. This was the first time he became aware of the transfer. Lassak was not SP’s accountant and did not recall the reason SP gave for the transfer.

88 Mr Lassak expressed the view that the business did not fail because of any misconduct on the part of SP. The difficulty arose because of the very significant increase in building costs. That difficulty would have been overcome if JP had agreed to the proposed Westpac finance facility. Mr Lassak did not regard the performance of the business as unsatisfactory in that he would not have expected that it would achieve profitability in the period of time in which it operated. New businesses, in his (substantial) experience often take some time to achieve profitability. Based upon his training, knowledge and experience and his acquaintance with the records of the business, Mr Lassak thought that its prospects of being profitable

were very good. He and his wife invested $250,000.

89 Mr Lassak stated that as at May 2001 the business was in a distressed state. Had it been allowed to operate in a normal environment it would have been worth a substantial sum. Mr Lassak advised both JP and SP that to achieve a reasonable sale price for the business would require some time. The appointment of an administrator normally has a significant adverse effect on the sale price of a business.

90 Mr Lassak, in establishing the structure of the business, recorded what he understood to be the intentions of the parties. He did not understand that he was implementing an arrangement, undertaking or agreement for the contribution personally to the losses of the business. The business was a unit trust which incurred revenue losses up to the point of administration. Those losses remain in the trust. The personal contributions of the parties were recorded in the books as loans to the company. Mr Lassak did not recall any discussion as to evening up the loan accounts.

91 Mr Lassak impressed me as a witness of truth. There was an absence of bitterness despite the loss of $250,000 and he tried to be objective.

JP’s standing to sue

92 It was common ground that on or about 4 March 2004 Citibank executed in favour of JP an Assignment of the Citibank debt and its rights against the guarantors in respect of that debt.

93 In his opening speech on 28 September 2006 counsel for JP told the Court that no notice under s 12 of the Conveyancing Act 1919 had been served until the last couple of days. The plaintiff contended that this sufficed and that in any event the assignment was effective in equity.

94 The proceedings commenced on 20 June 2005 when a judge sitting in the Equity Division gave JP leave to file in Court his statement of claim. That set out much of the history of the Burger King venture, its financial problems and its deteriorating financial position, the appointment of an administrator on 22 May 2001, the transfer of SP’s Eastwood property on 30 March 2001 to David Webb for $1 – and the registration of that transfer on that day. It was alleged that SP alienated property with intent to defraud creditors (within s 37A of the Conveyancing Act).

95 The statement of claim further alleged that by deed, undated, made on or about 4 March 2004 Citibank assigned to JP the whole of its interest in the debt then in the amount of $426,606.20 due to it by Span and guaranteed by SP. JP sought judgment against SP for $491,606.12. It does not appear from the statement of claim how the sum of $491,606.12 was calculated. Perhaps it included interest from 30 April 2002 or 21 May 2002. Relief was also sought pursuant to s 37A of the Conveyancing Act in respect of the transfer of the Eastwood property.

96 The amended statement of claim filed 14 November 2005 contained some significant amendments. It did not claim judgment of $491,606.12 but judgment against SP for $218,374. This sum included half of the sum due under a guarantee to Coca Cola in respect of a guarantee and half of some legal costs, that is in total about $5,071.82, JP acknowledging that he was liable to contribute equally. The balance was made up of $213,303.10, JP acknowledging that he was liable to contribute one half of the amount due by Span to Citibank of $426,608.20 as at 21 May 2002. JP again sought relief under s 37A of the Conveyancing Act in respect of the transfer of the Eastwood property.

97 In his initial outline submissions JP, as assignee of Citibank claimed against SP payment of the amount guaranteed by him (JP), but in his amended statement of claim has admitted an obligation to contribute one half of the assigned debt. JP also contended that the authorities established that an assignment of the rights under a guarantee may be made, that such a transaction does not adversely affect the guarantor’s interests, in that the guarantor remains liable and that the subject guarantee specifically permitted such an assignment.

98 In the further amended statement of claim filed 10 November 2006 JP maintained his claim for $218,374. That sum was amended during the concluding stages of the hearing to $252,754.67. The further amended statement of claim closely followed the amended statement of claim, the main amendment bearing upon the issue whether there was a joint venture between JP and SP.

99 In all versions of the statement of claim and the amendments JP referred to the Facility Agreement between Span and Citibank for the financing of the building works, the guarantee by JP and SP to Citibank of Span’s obligations, the delays in the building works and the added costs, the day-to-day management of the Burwood Burger King business by SP including keeping the records, the receipt of its income and the payment of creditors, the establishment in about September 2000 by SP of an internet banking account in the name of Span which was operated solely by SP without the knowledge or approval of JP. He also referred to Span not being able to pay for the costs of the building works, its cash flow difficulties from about September 2000 onwards, Span’s deteriorating financial position and that by March 2001 Span was unable to meet its obligations to Burger King under the franchise agreement and to its trade creditors. The substance of JP’s contentions was that the business was in financial difficulties, that SP had misconducted himself and had excluded JP from the management of its affairs. Reference was made to the circumstances in which and the purpose (intent to defraud creditors) with which the Eastwood property was transferred. It was stated that by deed made about 4 March 2004 Citibank assigned to JP the whole of its interest in the debt then in the amount of $426,606.20 due to it by Span and guaranteed by SP.

100 Some of the paragraphs in the statement of claim (including the amended versions) were mainly relevant in rebutting SP’s anticipated defences.

101 I should interpolate that with the business not prospering, JP feeling excluded from the conduct of its affairs and being disturbed by what he regarded as SP’s untrustworthiness it is understandable that JP did not want to guarantee Span’s performance of its obligations under the proposed Westpac finance facility.

102 I return to the letter of 6 October 2003 from Citibank relating to “Guarantee and indemnity provided by [SP] and [JP] for the benefit of Citibank N.A.” It relevantly reads:

“Following satisfaction of the Condition Precedent (defined below) … Citibank releases and discharges [JP] (‘Guarantor’) from all liabilities and obligations owed by the Guarantor to Citibank and all actions, costs, claims and expenses which may arise in connection with the Guarantee and Indemnity (‘Release and Discharge’)

Citibank’s obligation to provide the Release and Discharge is subject to receipt of A$75,000 (inclusive of legal costs and expenses from the Guarantor into the following nominated account in immediately available funds (‘Condition Precedent’).”

(The account is nominated). The letter continues:

“Citibank agrees in consideration for receipt of $10 – from the Guarantor, to assign all debts owed by [Span] to Citibank within 15 days of the Satisfaction Date. The form of such assignment is set out in the Schedule to this letter or such other form as may be agreed between Citibank and the Guarantor. This letter is solely for the benefit of the Guarantor and does no[t] prejudice or affect the liabilities or obligations of any other party to the Guarantee and Indemnity.”

103 Attached to the letter is a form of Assignment. Clause 1 provides:

“1. Assignment of Citibank rights

1.1 In consideration for receipt of $10 from the Assignee (receipt of which is acknowledged by execution of this document), on the Effective date the Citibank Rights will be transferred and assigned absolutely to the Assignee, without the need for any further act by Citibank.
1.2 The parties agree that as and from the Effective Date:

1.2.1 Citibank is released from any obligations it may have under the Facility Agreements and the Guarantee and Indemnity;

1.2.2 Citibank will have no claims or rights against the Company or the Continuing Guarantor under the Facility Agreements or the Guarantee and Indemnity; and

1.2.3 the Assignee:

(a) will have no claims or rights against Citibank in respect of any matters arising under the Facility Agreements or the Guarantee and Indemnity; and

(b) will not at any time after the Effective Date bring or institute proceedings in law or in equity against Citibank in respect of any matters arising from the Facility Agreements or the Guarantee and Indemnity.

1.3 On the Effective Date Citibank will:

1.3.1 provide to the Assignee the original Facility Agreements and Guarantee and Indemnity executed by the Company, the Assignee and the Continuing Guarantor or any one or more of them as the case may be; and
1.3.2 if requested by the Assignee, provide a statement of the amounts owing by the Company and the Continuing Guarantor under the Facility Agreement and the Guarantee and Indemnity.

1.4 On the Effective Date the Assignee will deliver the Assignment Notice to the Company and the Continuing Guarantor.”

In the form of assignment the Effective Date was a date within 15 days of the Satisfaction Date (the date of payment of $75,000 in October 2003) but the Effective Date was changed in the executed Assignment to 4 March 2004.

104 The form of Assignment contained an indemnity by the Assignee, and an assertion that Citibank gave no representations and warranties. The continuing guarantor is SP.

105 The form of assignment actually executed contained many of the above provisions. However cl 1.2.2 in the executed form of assignment was amended to read: “Citibank’s claims or rights against [Span] and [SP] under the Facility Agreements or the Guarantee and Indemnity will be assigned to the Assignee.” It also contained an additional clause which relevantly provides:

“2.1 … Citibank agrees that, in accordance with the Release it will not take or continue any enforcement action against the Assignee [JP] with respect to the Facility Agreements or the Guarantee and Indemnity.
…
2.3 Citibank represents and warrants that it does not have any agreement with the Continuing Guarantor [SP] not to take or continue any enforcement action against the Continuing Guarantor with respect to the Facility Agreements or the Guarantee and Indemnity.”

The amendments mentioned were important and were designed to assist JP in suing SP. The original clause 1.2.2 would have made it very difficult if not impossible for JP to sue SP.

106 By definition (cl 6.1) “Release” means the release and discharge of the guarantee and Indemnity given by Citibank by letter dated 6 October 2003.

107 The release and discharge and the assignment were mentioned in the letter of 6 October 2003. Despite the attempts to keep them separate, the two considerations mentioned and the assignment taking place about five months after the letter and the payment, the release and discharge and the assignment were linked. Without the assignment being agreed JP would probably not have offered to pay and paid $75,000 to Citibank.

108 Upon payment of $75,000 to Citibank by JP, he no longer owed Citibank $426,606. One aspect of this release and discharge was encapsulated in Citibank’s covenant not to sue JP in cl 2.1 of the Assignment.

109 By virtue of the terms of the Release and discharge (which were confirmed by the Assignment) Citibank released and discharged JP from all liabilities and obligations owed by JP to Citibank. The letter recorded that it did not prejudice or affect the liabilities or obligations of any other party to the Guarantee.

110 JP’s point was that under the Guarantee and Indemnity, the liability of JP and SP was joint and several and that the letter and assignment did not relieve SP of his several liability to Citibank and that Citibank was entitled to assign its rights under the Guarantee and Indemnity – see cl 10.1. JP submitted that if he or his nominee had not purchased Citibank’s rights someone else would. In theory, someone else could have purchased those rights but in practical terms no one else would have done so. Nor, despite the theoretical position is anyone likely to take an assignment from JP. JP possessed detailed knowledge of all the circumstances which put him in a unique position. He was able to discharge the onus of proving that the transfer to Mr Webb was made with intent to defraud creditors. Further, he was entitled to contribution from SP at least in respect of $75,000 which he (JP) had paid. As earlier mentioned JP wanted the assignment and probably would not have paid those moneys without an assignment. He negotiated with Citibank for an alteration to the terms of the assignment which facilitated his suing of SP.

111 SP submitted that the assignment, even if effective in equity was not effective in law when the action commenced. SP submitted that JP’s claim is an action at law for a debt otherwise due to Citibank. That submission relates to the claim for $213,303. SP submitted that the principle in Baldry v Jackson (1976) 2 NSWLR 415 still applied. That was a decision on Pt 15, r 16 of the Supreme Court Rules. That provided, "A party may plead any matter notwithstanding that the matter has arisen after the commencement of the proceedings.” Samuels JA, with whom Moffitt P and Glass JA agreed, held that “matter” in Pt 15 r 16 did not include cause of action. Adopting an alternative approach Samuels JA further held that it was impossible to permit an amendment to the statement of claim which would have the effect of introducing into it a cause of action based upon facts which had not arisen when the statement of claim was filed.

112 SP further submitted that UCPR 14.17 did not assist JP because that provision only relates to pleading a “matter” and a “matter” does not include a cause of action. Further this was not a question of amendment. UCPR 14.17 is in substantially the same terms as Pt 15 r 16, the differences being of no consequence. UCPR 14 deals with pleadings. Sections 64 and 65 of the UCP Act deal with amendments. No application was made to further amend the statement of claim. The authorities establish the following propositions:

(a) “The general law of New South Wales still recognises the distinction between legal and equitable choses in action, and will not allow a legal chose in action to be assigned by any instrument inter vivos, or otherwise than by operation of law.” (per Griffiths CJ in Loxton v Moir (1914) 18 CLR 360 at 368).

(b) “Legal choses in action are those which can be recovered or enforced by action at law, as for instance, a debt, a bill of exchange, a policy of insurance and the benefit of a guarantee”: Starke, Assignments of Choses in Action In Australia, 1973, Butterworths, p.5, para 7.

(c) There were important exceptions to the common law doctrine. For example, it never applied to the assignment of Crown debts or bills of exchange or promissory notes: Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 at 26.

(d) The common law doctrine was never accepted in Equity and was circumvented in various ways: Norman at 26. Amongst other ways, a court of equity would come to the assistance of the assignee if the assignor refused to do whatever was necessary to enable the assignee to get the benefit of the assignment. Norman at 27.

(e) The common law courts recognised that an assignee might sue in the assignor’s name. Norman at 27.

(f) The original doctrine survived, to this extent that until the various statutory provisions (now s 12 of the Conveyancing Act in NSW) came into effect an assignee of a legal debt could not in his own name bring an action against the debtor to recover the debt. The original creditor must be the plaintiff on the record: Norman at 27.

(g) With the advent of the statutory provisions, debts and other legal choses in action were made directly assignable by the statutory method.

(h) As between the assignor and the assignee, an equitable assignment, if valid and effective is absolute and complete without notice having been given to the debtor or fundholder for such notice is not a condition precedent to the operation of a duly expressed intention to assign: Comptroller of Stamps (Vic) v Howard-Smith (1936) 54 CLR 614 at 622.

(i) The statutory provisions require express notice in writing of the assignment to be given to the debtor, trustee or other person liable. This is not merely for the protection of the assignee or to ensure priority but as an essential element in the vesting of title in the assignee under the statutory provisions: Starke at pp43-44 , para 63.

(j) In the absence of contrary statutory provisions it is unnecessary that formal notice of an equitable assignment of a chose in action should be given. Any informal notice is sufficient, provided that the fact of the assignment is definitely brought to the attention of the debtor or fundholder, that is, the notice should expressly or unambiguously record the fact of the assignment and plainly indicate to the debtor or fundholder that by virtue of the assignment the assignee is entitled to receive the benefit thereof: Talcott (James) Ltd v Lewis (John) Co Ltd 1940 3 All ER 592.

(k) An equitable assignment, whether absolute or not, of the whole of a legal chose in action does not entitle the assignee to sue in his own name but the assignor must be a party to the suit either as plaintiff or defendant.

Norman

113 Section 12 of the Conveyancing Act relevantly provides:

“12 Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal chose in action, of which express notice in writing has been given to the debtor, trustee, or other person from whom the assignor would have been entitled to receive or claim such debt or chose in action, shall be, and be deemed to have been effectual in law (subject to all equities which would have been entitled to priority over the right of the assignee if this Act had not passed) to pass and transfer the legal right to such debt or chose in action from the date of such notice, and all legal and other remedies for the same, and the power to give a good discharge for the same without the concurrence of the assignor: …”

114 The expression “legal chose in action” does not signify a legal chose in action in the strict sense but embraces all legal rights which before this litigation were lawfully assignable. In Torkington v McGee [1902] 2 KB 427 at 430-431 the Divisional Court held:

“… the words ‘debt or other legal chose in action mean ‘debt or right which the common law looks on as not assignable by reason of its being a chose in action but which a Court of Equity deals with as being assignable.’ That is the point of difference or variance between the rules of equity and common law it is intended to deal with …”

and :

“the assignment is to be effectual in law …”

The report records that notice of the assignment was duly given.

115 Channell J, who delivered the judgment of the Court, held at 432 that s 25(6) of the Judicature Act 1873 (English) permitted only the benefit of the contract to be transferred and not the liability under it and that s 25(6) said that the assignment shall be sufficient to transfer the legal right to such debt or chose in action. Any difficulty as to the liability of the assignor is met by the clause as to the assignment being subject to equities. His Lordship continued at 432-433:

“…assuming the breach which has been found … the plaintiff might before the Judicature Act , by going first to the Court of Equity and then going, in the name of the assignor to the Court of Common Law have got his damages; and I think, under these circumstances, the sub-section applies and the plaintiff may now go to the High Court of Justice … direct for his damages.”
and at 435:

“I … have held that this sub-section is merely machinery; that it enables an action to be brought by the assignee in his own name in cases where previously he would have sued in the assignor’s name, but only where he could so sue.”

116 In Starke at para 53 it is stated that under s 12 (based upon s 25 of the English Judicature Act 1873) three principal conditions must be complied with:

“(1) The assignment must be in writing under the hand of the assignor; and

(2) The assignment must be absolute, not purporting to be by way of charge only, and
(3) Express notice in writing of the assignment must be given to the debtor, trustee or other person liable.”

117 The assignment provides that on the Effective Date (4 March 2004) JP will deliver the Assignment Notice to Span and SP (cl 1.4). The Assignment Notice means a notice substantially in the form of the Annexure. The evidence suggests that no Assignment Notice was delivered by JP to Span or SP on the Effective Date or any date close to 4 March 2004. In his affidavit of 1 February 2006 JP stated in para 12 that in or about June 2005 he caused to be served upon Span and SP a Notice of Assignment. This statement lacks specificity. The form used suggests that JP believes someone attended to this matter. The method of service is not stated. No objection was raised to para 12 nor the Assignment Notice. The Assignment Notice is undated. It is addressed to Span and SP and reads:

“Re: Assignment of Debts Owed to Citibank NA

I refer to the Guarantee and Indemnity dated 23 March 2000 given by both Steven Purdon and John Purdon in favour of Citibank NA (Guarantee and Indemnity) and the Facility (as defined in the Guarantee and Indemnity).
I now give notice that pursuant to an agreement for assignment of debt between Citibank NA (Citibank) and John Purdon (‘Assignee’) dated 4 March 2004, Citibank have assigned absolutely to the Assignee all its rights, title and interest in the Guarantee and Indemnity and the Facility Agreement (as defined in the Guarantee and Indemnity).”

118 The Assignment Notice purports to be and is signed by John Purdon, with a copy to Bruce Wassell, Citibank. It follows the form set out in the Instrument of Assignment made about 4 March 2004.

119 It has not been established that the undated Notice of Assignment was served (received) prior to the institution of proceedings on 20 June 2005. Nor was it pleaded in any of the Statement of Claim, Amended Statement of Claim and Further Amended Statement of Claim that notice of the assignment had been given to SP.

120 It has been established that the assignment was in writing under the hand of Citibank and that it was absolute. There is no explanation why the terms of the Assignment (cl 1.4) requiring JP (the Assignee) to deliver the assignment Notice to Span and SP were not complied with and as to the lack of specificity as to the date and manner of the alleged service. Section 12 prescribes no specific time limit within which notice may be given by any particular person. In Anning v Anning (1907) 4 CLR 1049 at 1059 Griffith CJ held that the notice of assignment may be given either by the assignor or assignee (a decision on s 5(6) of the Queensland Judicature Act). See also Norman at 29.

121 In McIntosh v Shashou (1931) 46 CLR 494 at 514 Evatt J said:

“If express notice in writing of an absolute assignment of a debt is given to the debtor, then, but not till then the assignee obtains the legal right and the legal remedy to the debt.”

122 This passage is contained in a dissenting judgment. The other Justices decided the case on other grounds. However, the observations of Evatt J follow closely the words of s 12 and I propose to follow the passage just quoted.

123 As it has not been established that the statutory notice was given prior to the institution of these proceedings and counsel for JP stated on 28 September 2006 in his opening speech that the notice under s 12 of the Conveyancing Act had only been served in the last couple of days JP cannot sue SP at law in respect of $213,303.10. It is in essence an action at law. I have proceeded on the basis of what counsel for JP said in opening and the exchange which took place at T313-314. Counsel for SP was advancing the point that no notice had been given under s 12 prior to the commencement of the proceedings. I remarked that counsel for JP said that this does not matter, as there was an assignment in equity. Counsel for JP commented “There’s also been notice given subsequently …” Counsel for SP replied, “We accept that …”.

124 In the absence of evidence of notice being duly given by a permissible mode of service prior to the institution of the proceedings an action brought by the assignee in his own name by virtue of the statutory provisions must fail: see McDonald v Lloyd (1931) 31 SR (NSW) 415. The assignment is of course effective in equity as between the assignor and the assignee and the assignor could be compelled in equity to allow proceedings to be brought in its name. This would be subject to an acceptable indemnity as to costs and any argument that this should not occur because of JP not complying with cl 1.4 of the Assignment and serving the requisite notice prior to the institution of proceedings against SP.

125 No application to amend was made; it would be incorrect for me to embark upon a discussion of the terms of the Civil Procedure Act 2005, when this has not been made the subject of submissions from counsel.

126 My previous observations do not apply to JP’s claim for contribution in the amount of $37,500 and his other claim for contribution.

JP’s Approach

127 JP submitted that his case was established on the documents and that as assignee at law from Citibank of the debt and rights against SP as guarantor, he (JP) was entitled to recover the full amount of the agreed debt and contribution for the amounts paid to Citibank. I have indicated my view that as matters stand JP has not established his claim to sue at law in his own name for $213,303.10.

128 JP submitted that while SP’s defences and cross-claims were variously expressed they each depended upon the assertion that there was a joint venture or joint venture agreement between JP and SP. JP contended that SP’s claims resolved themselves into one of two propositions, namely:

(i) it was an implied term of the joint venture agreement that JP and SP should share losses equally, or

(ii) the guarantee was part of the subject matter of that joint venture and that JP owed fiduciary duties to SP in respect of that subject matter, which prohibit JP from enforcing the guarantee in its terms.

129 As will become apparent later I think that the guarantee was part of the subject matter of the joint venture. JP submitted that if the Court found that the rights of Citibank were “property or information”, the subject of a joint venture, SP must establish that JP breached a fiduciary duty owed to SP and that there was no fiduciary duty owed between go-guarantors. There was only an entitlement to contribution in respect of moneys paid under a guarantee.

130 With a guarantee, and as between co-guarantors, and without more, the usual rule is that each co-guarantor has an entitlement to contribution in respect of the moneys paid under the guarantee but is not under a fiduciary duty to his co-guarantor. The question is whether when the guarantee is taken in the context of all the circumstances JP was under a fiduciary duty towards SP. This will be examined subsequently One important circumstance is the text of the guarantee and indemnity.

131 JP submitted that the parties structured their affairs on a basis inconsistent with a 50/50 joint venture as suggested by SP because:

(a) SP held the majority of the voting shares in Span

(b) SP managed the business to the exclusion of JP

(c) JP was excluded from the business premises

(d) JP mortgaged his home to provide $40,000 for the business, which remains unpaid and JP, like Mr Lassak has not claimed against any other party. (There was debate whether $40,000 or a much lesser sum was provided for the business).

(e) SP was paid wages in the business and has not offered to account for these.

(f) Loan accounts were established and it was not suggested that these should be equalised.

132 JP submitted that unless there was a joint venture between JP and SP there was no basis to hold that the guarantees and obligations associated with Citibank were part of the joint venture subject matter. JP pointed to the evidence of Mr Lassak that on the taking of the accounts of the losses of the business the obligations between the guarantors were to be treated separately (T236) and that the parties treated these obligations as being the obligations of the two guarantors. They did not seek contribution from each other nor from Mr Lassak or his wife on the basis of alleged obligations under a joint venture. JP contended that there was firstly a liability of Span to Citibank as principal debtor and secondly, a liability of the individual guarantors that neither of these were assets (or liabilities or part) of any joint venture and that neither of these were “property or information” of the joint venture.

167 Under the joint and several Guarantee and Indemnity executed by SP and JP in favour of Citibank as to payment of all moneys by Span under each Facility Agreement and Span’s observance and performance of all obligations under each Facility Agreement, Citibank was entitled to assign or otherwise deal with that Guarantee and Indemnity or any of its rights under it without giving SP and JP notice (cl 10.1). Under cl 3.1(i) the Guarantee and Indemnity continues in full force even if “Citibank enforces or does not enforce this Guarantee and Indemnity (either strictly or at all) or Citibank releases (either partly or completely) the Guarantors or any of them from any obligation or Citibank gives an indulgence or concession to the Guarantors or any of them.”

168 There was a change in the arrangements when Mr Lassak and his wife became investors and Thomlass on behalf of the Norfolk Unit Trust became unit holders to the extent of 12½ per cent in the Span Unit Trust. Up to that stage JP and SP had treated the preparations for, the opening and conduct of the Burger King outlet as their own joint venture business. JP and SP were the principals. As between the guarantors and Citibank the former had jointly and severally guaranteed that Span would “pay Citibank on time all moneys which from time to time becomes payable to Citibank under the Facility Agreement.” There was no dispute as to the moneys owed to Citibank. That was unaffected by the change of arrangements involving JP, SP, Mr Lassak and his wife on 8 August 2000.

169 In my opinion JP and SP were joint venturers until about 8 August 2000 and the relationship between them was a fiduciary one. It was more than a simple contractual relationship. They were both working towards the preparation of the premises for opening and operation as a Burger King fast food outlet and relying on each other to discharge differing functions. The correspondence reveals that SP had some involvement in some of the building work and some of the fitting out of the Burwood premises. SP relied on JP to supervise the building and fit out works to the Burwood premises and to give instructions as to what should be done and to deal with the problems which arose. JP relied on SP to engage and train staff and undergo any training by Burger King so he could ensure that BKA’s requirements were met.

170 However, once Mr Lassak and his wife agreed to become investors both JP and SP accepted the business structures recommended by Mr Lassak and these took effect from 8 August 2000 when the unit holdings in the Span Unit Trust were settled.

171 Neither of the parties advocated the approach which I have taken. They tended to take an all or nothing approach. The financial ramifications of the view I have taken require consideration. As mentioned, in his report of 19 October 2000 Mr Lassak states that of the overall costs of about $1,247,579 to set up the operation to 30 September 2000, Citibank had provided $740,000. The report of 12 June 2001 of Mr N Singleton of Sims Lockwood to creditors of Span states that Citibank NA, a secured creditor “is currently owed in excess of $707,642 in respect of a lease and loan facilities provided to the company.”

172 It is not clear to me how much Citibank NA had advanced to Span as at 8 August 2000 and what amounts were covered by the guarantee and indemnity. It seems that there were several drawn downs and that some of the moneys were advanced to buy equipment which was leased to Span.

173 There was no joint venture between JP and SP after 8 August 2000 and no fiduciary duties arose in respect of their dealings after that date. JP and SP were no longer the sole parties to the Burger King outlet business, albeit that they could control what happened through the trust each had created if they acted together.

174 JP did not dispute that he had to allow SP credit for half of the debt of Span to Citibank under the principles of contribution. The fiduciary duties JP and SP owed each other in respect of the joint business venture up to 8 August 2000 continued past that date.

175 However, the terms of the guarantee and indemnity create a major hurdle for SP. I have already referred to the joint and several liability of JP and SP as guarantors (cl 1 ) and the width of their obligations. The indemnity provisions are also of importance (cl 2). Amongst other provisions, the indemnity may be enforced against each guarantor as principal debtor.

176 Clause 3 sets out the continuing obligations of JP and SP. It provides that the Guarantee and Indemnity continues in full force even if:

(b) any of the Guarantors makes a payment to Citibank, any of the guarantors is discharged or released from obligations to pay moneys to Citibank except by payment of those moneys to Citibank

(i) Citibank releases (either partly or completely) any of the Guarantors from any obligation or Citibank gives an indulgence or concession to any of the guarantors

(j) Citibank grants time, credit or any forbearance to any of the Guarantors or there is neglect on the part of Citibank in enforcing any obligation to pay or other obligation against any of the Guarantors
(l) Citibank makes an arrangement with any of the Guarantors.

177 I have earlier referred to cl 10.1 confirming Citibank’s right to assign or otherwise deal with the guarantee and indemnity.

178 It has long been open to one guarantor, or one indemnifier, to enter into arrangements with a creditor to reach a settlement of the creditor’s claim against that guarantor. Frequently this involves the creditor or indemnifier making a payment of less than the sum claimed or due and obtaining a release or discharge. That is what happened in the present case.

179 Sometimes such a settlement is reached without reference to the other guarantor. The guarantee and indemnity envisages and permits settlement between Citibank and one of the guarantors. This should have been appreciated by both JP and SP and it is hard to hold that JP has acted in breach of his fiduciary duty when he takes a course envisaged and permitted by the guarantee and indemnity signed by both of them.

180 Citibank’s letter of 6 October 2003 makes it plain that while it is releasing and discharging JP from all liabilities and obligations the letter was solely for JP’s benefit and did not affect the liabilities or obligations of any other party to the guarantee and indemnity.

181 In my opinion the terms of the guarantee and indemnity signed by JP and SP do not permit SP to advance the proposition that JP was under a fiduciary duty not to enter into the arrangements reflected in Citibank’s letter of 6 October 2003 and the assignment of about 4 March 2004. Alternatively, there has been no breach of any fiduciary duty on the part of JP. In my further opinion those terms preclude the implication of provisions that JP would not enter into such arrangements and assignment.

182 SP submitted that JP’s fiduciary duties precluded JP from bringing about a situation where JP would be able to gain a windfall at SP’s expense arising out of an arrangement with an outside creditor (Citibank) and the party seeking the windfall. For payments to Citibank totalling $75,010 ($75,000 for the release and discharge and $10 for the assignment) JP now seeks to recover $252,754 from SP or perhaps the lesser sum of $213,303. That sum would come from the proceeds of sale of SP’s house at Eastwood. That constitutes a windfall. The difficulty lies in the terms of the guarantee and indemnity signed by JP and SP and the Advance Facility Agreement again signed by JP and SP.

Contribution

183 SP submitted that the basis of the doctrine of contribution as between guarantors is that it would be inequitable for one guarantor as between himself and his co-surety to pay more than his due share. Reliance was placed on the statement that this concept “was firmly founded on natural justice.” (The Modern Contract of Guarantee, Phillips & O’Donovan, 2nd ed 526 and the cases there cited; Goff & Jones base this proposition upon principles of unjust enrichment).

184 SP relied on this general statement of principle in Mahoney v McManus 180 CLR 370 at 376 by Gibbs CJ:

“…the doctrine of contribution is based on the principle of natural justice that if several persons have a common obligation they should as between themselves contribute proportionally in satisfaction of that obligation.”

(Murphy and Aicken JJ agreed with the Chief Justice but that case was decided on a point which differs from the one presently at issue)

185 SP also relied on this statement in Dering v Earl of Winchelsa of Lord Chief Baron Eyre (1787) 29 ER 1184 at 1185 [321].

“…contribution is bottomed and fixed on general principles of justice, and does not spring from contract through contract may qualify it …”

186 His Lordship stressed that the law requires equality and stated that the law is grounded in great equity. He observed that the doctrine of equality operates more effectually in the Exchequer than in a Court of law. He gave a number of examples of contribution. That case involved sureties.

187 SP submitted that JP’s claim offended against the principles of equality and the principles of equity and natural justice and that JP should be restrained from relying upon the purported assignment which he took for no effective consideration. SP submitted that JP should not be allowed to bring about a situation where the ultimate debt was not borne equally but JP obtained a windfall at the expense of SP and ended up in a financially advantaged situation.

188 After JP had paid $75,000 to Citibank, it could still have sued SP for the balance due. Instead Citibank assigned the debt to JP and left it to him to pursue SP. Probably JP would not have offered to pay and paid $75,000 to Citibank in the absence of a promised assignment for $10.

Unjust Enrichment

189 This is covered by paras 42-47 of SP’s defence. The effect of those paras (and also paras 40 and 41) is summarised in para 14(n) and (o) of these reasons.

190 In JP’s reply he denied the matters alleged in paras 43-47 of the Defence. Paragraph 43 pleaded that JP was estopped from bringing these proceedings. I do not agree. JP further pleaded that the conduct of SP as alleged in the Further Amended Statement of Claim was such that SP did not come with clean hands so as to entitle him to the relief sought or to the Defence claimed in the exercise of the Court’s discretion. The reference to the relief sought may be a reference to the relief claimed in the Amended First Cross-Claim.

191 SP emphasised that JP was seeking to recover against him more than he had paid and that a co-guarantor, which was in essence the position of JP, is not entitled to recover more than proper contribution, that is, half of what he had paid to Citibank. JP had taken advantage of his special knowledge when he purchased the debt from Citibank and took an assignment. JP did have a knowledge that no other person had but he did not equip himself with that knowledge other than legitimately. He had caused searches of public registers to be made and relied on the reports of Mr Lassack and the Administrator. He also entered into negotiations with Citibank, settling upon figures it would accept.

192 In his defence SP supplied the following Particulars of Injustice:

“(i) the present claim seeks moneys contrary to the understanding of the parties when they entered into the subject Guarantee to the effect that they would share equally the burden of any moneys that might fall due pursuant to the terms of the Guarantee;

(ii) the payment by the first defendant to the plaintiff of any moneys claimed in excess of the sum of $37,500.00 would constitute a windfall by the plaintiff at the expense of the first defendant;

(iii) the payment by the first defendant to the plaintiff of any moneys claimed in excess of $37,500.00 would give rise to a payment in excess of the equitable obligation of the first defendant to bear equally with the plaintiff contribution towards moneys paid by the plaintiff to Citibank.”

193 When JP and SP initially entered into the Guarantee and Indemnity and before the building and fit out costs sky-rocketed they understood that they would share equally the burden of any moneys that might fall due pursuant to the terms of the guarantee. That was never varied. JP sought to have additional moneys provided by means of the Esanda loan which he negotiated and involved SP mortgaging his house, which SP was not prepared to do. SP attempted to arrange the Westpac facility which involved each of JP, SP and the Lassaks giving guarantees. That was not acceptable to JP.

194 There is a windfall aspect of the money JP claims. JP, of course submits that he is suing on the assignment in respect of $213,303 and that contribution principles only apply in respect of $37,500.

195 SP submitted that if the Court found that there was no relevant fiduciary duty the Court must still consider whether the reliance by JP upon the assignment was a legal right which equity would permit to be enforced against SP. SP relied upon Blomley v Ryan (1954-1956) 99 CLR 362. There the plaintiff sought specific performance of a contract for the sale of a valuable rural property. The trial judge found that at the time of making the contract the faculties of the aged defendant (78) were gravely impaired by prolonged and excessive consumption of alcohol, that it must have been apparent that he was in no fit state to transact business and that the sale was at a substantial under-value. Fullagar J, when speaking generally at 401 held that relief could only be obtained by the defendant in equity. It was not a case of non est factum as it could not be said that he did not really know what he was doing. Fullagar J continued at 401-402:

“And, when we look for the principle on which equity did grant relief in such cases, we find as so often in equity, only very wide general expressions to guide us. There was, I think, a typical difference in approach between equity and the common law. To the common law the transaction in question might be void or voidable, but the primary question was as to the reality of the assent of the person resisting enforcement of the contract. Equity traditionally looked at the matter rather from the point of view of the party seeking to enforce the contract and was minded to inquire whether, having regard to all the circumstances, it was consistent with equity and good conscience that he should be allowed to enforce it. “

196 This last stated principle was applied by Burt J in Re Caratti Holding Co Pty Limited (1975) 1 ACLR 87. That case involved an article of association of a company which, in substance, amounted to the grant to the founder of a company of a power of compulsory acquisition of shares. The judge held that the founder attempted to exercise that power so as to compulsorily acquire certain shares at a gross undervalue and contrary to a clear understanding between the founder and the shareholder and that equity would not assist the founder to become the owner of such shares at equity. Burt J remarked “It would seem … inconsistent with equity and good conscience that [the founder] should be allowed to enforce [the compulsory acquisition].”

197 In Phipps v Boardman [1967] 2 AC 46 at 123 and albeit in a different context and in dissent as to the appeal’s outcome Lord Upjohn made this general observation, “Rules of Equity have to be applied to such a great diversity of circumstances that they can be stated only in the most general terms and applied with particular attention to the exact circumstances of each case.”

198 SP sought to apply the principle stated by Fullagar J in the present case. The principle of equality and that stated by Fullagar J as to non-enforcement where enforcement was unconscionable are important. The terms of the Guarantee and Indemnity and the circumstances in which the assignment took place also have to be taken into account. SP had previously transferred his Eastwood property out of his name into that of Mr Webb, but held a transfer of the property back to him from Mr Webb. A search of the property showed the property standing in the name of Mr Webb, but subject to a mortgage. That mortgage had been discharged but the discharge had not been registered. That is not uncommon especially if SP envisaged requiring overdraft accommodation in the future. As the land titles register stood it would discourage any creditor taking action. If a search had been made of the transfer to Mr Webb with its stated consideration of $1, further investigation was likely. SP’s actions had the probable result of Citibank pursuing JP rather than SP.

199 Citibank did not release SP from his indebtedness and extinguish the debt. Citibank only released and discharged JP after he had paid it $75,000. JP was entitled to negotiate a settlement with Citibank. The letter of 6 October 2003 from Citibank supports the conclusion that the assignment of the debt for $10 was an integral part of the settlement. This was intended to take place and placed JP in the position where proceedings could be instituted against SP and JP could make a windfall profit out of the arrangements; JP had to take the risk of the proceedings being successful. The amendments to the form of assignment sought and obtained by JP underline the preparations being made by JP to minimise any obstacles in suing SP. They followed on from payment of $75,000 by JP. He would not have paid $75,000 to Citibank if it had not agreed to an assignment of the debt and its rights to JP so he could sue SP.

200 There are limits to the principle of equality as between co-guarantors. There was nothing to stop both JP and SP separately entering into settlement negotiations with Citibank with differing sums being paid by JP and SP to Citibank and it granting each a release and discharge. Thereafter questions of contribution may arise as between the co-guarantors if they each had paid differing sums to Citibank. JP seeks contribution as to $75,000 he paid to Citibank and SP has not disputed his liability to half this sum.

201 During his submissions counsel for JP relied on Tanwar Enterprises Pty Limited v Cauchi (2003) 77 ALJR 1853. While acknowledging that this decision dealt with a markedly different factual situation counsel submitted that it contained a principle of general application, namely, that in considering factual situations the Court does not apply general considerations of fairness but the application of equitable principles. Consequently, it was not permissible to approach the present case asking what might be a fair result – SP has to point to some equitable remedy (or defence) which warrants such a course being taken. At [20] the joint judgment of five of the Justices pointed out that the terms “unconscientious” and “unconscionable” are:

“ … used across a broad range of the equity jurisdiction. They describe in their various applications the formation and instruction of conscience by reference to well developed principles. Thus, it may be said that breaches of trust and abuses of fiduciary position manifest unconscientious conduct; but whether a particular case amounts to a breach of trust or abuse of fiduciary duty is determined by reference to well developed principles, both specific and flexible in character. It is to those principles that the court has first regard rather than entering into the case at that higher level of abstraction involved in notions of unconscientious conduct in some loose sense where all principles are at large. “

202 At [24] the joint judgment pointed out that there was no distinct cause of action, akin to an equitable tort wherever a plaintiff points to conduct that merits the epithet “unconscionable” and it is erroneous to suggest that there is an equitable defence to the assertion of any legal right, whether by action to recover a debt or damages in tort or for breach of contract, where in the circumstances it has become unconscionable for the plaintiff to rely on that legal right. It was also pointed out that it was erroneous to suggest that sufficient foundation for the existence of the necessary “equity” to interfere in relationships established by, for example, the law of contract, is supplied by an element of hardship or unfairness in the terms of the transaction in question or in the manner of performance (at [26]).

203 At [37] the joint judgment approved as correct that equity was not authorised “to reshape contractual relations into a form the Court thinks more reasonable or fair where subsequent events have rendered one side’s situation more favourable.”

204 These statements of principle indicate the caution which must be employed when a party seeks to have a court apply the principle formulated by Fullagar J in Blomley v Ryan, supra.

205 While I have held that at the time they entered into the Citibank guarantee and indemnity JP and SP understood that they would share equally the burden of any moneys that might fall due pursuant to the terms of the guarantee indemnity this was before the building and fit out costs incurred by Span rose substantially and well above the estimates of JP. This rise was the reason why Span got into financial difficulties and Span could not meet its liabilities in the months when it was trying to establish its fast food outlet business. Ultimately, this led to the failure of Span and the Span Unit Trust and Span not being able to pay Citibank. JP and SP took a business risk as to the level of the building and fit out costs. As the months passed and the business commenced to trade in late August 2000 they hoped that they could cover the increased liabilities of Span due to the rise in the building costs and that proved not to be the case in the absence of further agreed financial accommodation additional to that provided by Mr Lassak and his wife.

206 As mentioned, JP and SP guaranteed the payments by Span of the amount borrowed from Citibank. The guarantee and indemnity expressly permitted the assignment of the guarantee and indemnity, provided for joint and several liability and for Citibank to compromise its claim with one guarantor without affecting the liability of the co-guarantor.

207 In the circumstances, I do not think that SP can invoke the aid of equity pursuant to the principle referred to by Fullagar J in Blomley v Ryan and rely on unjust enrichment.

208 Accordingly it is unnecessary to consider the issue of “unclean hands”.

Coca Cola Guarantee

209 JP claimed $6500 for moneys paid to Coca Cola and costs (and possibly interest) paid in respect of that claim of $3643.64 being a total of $10,143.64. SP paid $6240.50 to Coca Cola about 11 April 2003. JP contended that after deducting the last mentioned figure from $10,143.64 there was a balance of $3903.14, half of which was $1951.57. JP and SP did not tell each other of the payments they were making or had made. An examination of the bankruptcy documents shows an indebtedness to Coca Cola of $12,329.59. JP sought contribution of $1951.57. That figure was not challenged.

S37A Conveyancing Act Claim

210 The sole issue was whether the transfer of 30 March 2001 to Mr Webb of the Eastwood property by SP was made with intent to defraud creditors.

211 SP realised by February 2001 that he and JP had irreconcilable differences and that they were not going to be able to obtain the additional financial accommodation which the Burwood Burger King outlet business needed. This meant that the business may not, or would not survive. He had signed personal guarantees and the Citibank guarantee was for a large amount. SP had been and was adamant that he would not mortgage his Eastwood home to provide security for further financial accommodation. SP was anxious to prevent any creditor causing his home to be sold and the proceeds applied to extinguish his indebtedness.

212 SP said that at the time he executed the transfer of his Eastwood home to Mr Webb he was of the view than Span would continue to trade, that within a reasonably short time it would be able to sell the Burgher King franchise for an amount that would enable all of its debts to be paid and Mr Lassak and his wife to be repaid. That was SP’s hope based on a remark made by Mr Stephen King of BKA in early 2001 that the sale of a franchise such as the Burwood one could achieve a figure in the order of $1.5 million. However, such a figure was based on the business trading for 12 months. It was implicit that the business traded profitably. Despite some gloomy figures from the business because of outstanding building and fit out costs and some poor trading in the summer months, SP relied on Mr Lassak’s reports that the business was meeting normal, regular outgoings. SP said that he believed that the business could continue to trade until the sale of the business occurred. SP must have realised that his rosy view of likely events may not occur and that he could end up having to pay a large sum of money to Citibank.

213 SP said that at the meeting with BKA in January 2001 which JP attended it was suggested by BKA that if JP and he could not resolve their difficulties the best alternative was to sell the business.

214 SP said that in January or February 2001 he considered going into business as a sub-contractor to Coles, supervising building work. SP said that he was looking for employment after the Burger King franchise and was making some preliminary investigations. He had discussed with Mr Lassak and JP continuing the business trading with a view to selling it because of the difficulties experienced.

215 SP said that at the time he transferred the Eastwood property to Mr Webb he had made the decision that he was going to start setting himself up for employment with Coles. A little later he said that he decided to work for Coles about the time of the appointment of the administrator.

216 Mr Graham Marles, a Project Manager, whose company undertook work for Coles gave evidence that in January or February 2001 he spoke with SP, warned SP about bogus claims and told him that he should remove assets in his name so that people could not take everything. Mr Marles said that SP commenced working for Coles within about three or four or six weeks after he met him. It could have been a little longer.

217 Mr Roddy Sharpe was a director of a company which carried on business as a building contractor or sub-contractor for Coles. He first met SP in early 2001. He was not sure of the exact month. Mr Sharpe was in the process of transferring his house to his wife’s name so that he would not lose his house if he were sued. He told SP of this.

218 Mr David Webb was called by JP. Mr Webb and SP had been friends but have now fallen out. Mr Webb no longer trusted SP. Mr Webb said that SP told him that he (SP) was in a bit of business trouble and that if things went badly he could lose his house. He asked if he could sign it over to Mr Webb for six months and Mr Webb agreed. In fact SP and Mr Webb signed the transfer and SP had Mr Webb sign a transfer of the property back to him, which SP held.

219 Mr Webb’s evidence was challenged by SP who pointed to some alleged verbal inconsistencies. While Mr Webb was a truculent and difficult witness, I thought that it was probable that SP gave Mr Webb, then a friend, some explanation for the transfers and made reference to the possible business difficulties he was facing with the fast food outlet business.

220 I find that the dominant motive of SP in transferring the Eastwood property to Mr Webb was to defraud his creditors and make it difficult for them, especially Citibank to pursue him for effective payment. Another, but lesser motive, was to ensure that when he started working with Coles as a contractor or sub-contractor, his house was beyond the reach of any claimant.

221 In my opinion JP has established that in making the transfer of his Eastwood property to Mr David Webb about 30 March 2001, SP did so with intent to defraud creditors within s 37A of the Conveyancing Act 1919.

222 During the hearing counsel for SP directed attention to his written undertaking to the Court. The proceedings were conducted on the basis that SP owned the Eastwood property beneficially and outright. However, the undertaking refers to the transfer to SP of “the one-half interest in the property subject to the transfer from Steven Purdon to David Webb made” about 30 March 2001. I may have misunderstood the position or there may have been a clerical slip. The position needs to be clarified.

223 I envisage orders along the following lines being made:

1. Judgment for SP on JP’s claim for $213,303.10 based on the assignment of the debt of $426,606.20 from Citibank to JP.
2. Declare that SP is liable to pay the sum of $39,451.57 to JP by way of contribution (being $37,500, one-half of the amount paid by JP to Citibank and $1951.57 being half of the balance paid to Coca Cola) together with interest at per centum per annum from to 2007

making a total of $ . Judgment for JP for the total sum of $ . (The parties will need to agree on the interest calculations or make submissions based on these reasons and complete the blanks).

3. Declare that the transfer of the property known as 39A Raimonde Road, Eastwood (Folio Identifier 2/531646) from SP to David Webb about 30 March 2001 is voidable under s 37A of the Conveyancing Act 1919 at the instance of JP.

4. Note the undertaking to the Court of SP to lodge the transfer to him signed by David Webb of the said property with the Land Titles Office within 21 days and take all necessary steps to procure the registration of such transfer including the payment of any duties expeditiously and the lodging of the certificate of title.
5. In the event of the transfer from David Webb to SP not being registered within 42 days SP, within a further 14 days submit to David Webb a transfer in registrable form of the said property and that David Webb within 14 days of receipt of such transfer execute and deliver it to Segal & Associates, Suite 14, The Mews Professional Centre, 201 New South Head Road, Edgecliff, NSW 2027. Such transfer is to be in favour of SP with a witness attesting to Mr Webb’s signature. The transfer should also be signed by SP and his signature should be attested to by a witness. Order that SP bear the costs of all duties and registration fees and cause such transfer to be lodged within 14 days of its receipt by Segal & Associates with the Land Titles Office, Sydney along with the Certificate of Title and take all necessary steps to procure its registration.

6. Liberty to apply to either party on 3 days notice.

224 I stand this matter over to 20 March 2007 at 10.00am or such other date as may mutually be arranged by counsel with my associate to hear any submissions as to interest and costs and to settle the terms of the Short Minutes of Order. I direct JP to serve draft Short Minutes of the orders he seeks consequent upon this judgment on or before 9 March 2007 (with a copy to my associate) and SP to serve draft Short Minutes of the orders he seeks on or before 16 March 2007 with a copy to my associate to the extent that they differ from those proposed by JP.

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Citations

Purdon v Purdon [2007] NSWSC 141

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CITATION:	Purdon v Purdon & Anor [2007] NSWSC 141
HEARING DATE(S):	28/9/06, 20/11/06, 21/11/06, 6/12/06, 11/12/06, 13/12/06
JUDGMENT DATE :	28 February 2007
JUDGMENT OF:	Smart AJ at 1
DECISION:	See paras 223 & 224
CATCHWORDS:	Action in essence one at law - assignment of legal chose in action - rights under guarantee - necessity to serve notice under s 12 Conveyancing Act for assignee to maintain action at law in his own name - Failed business venture - Fiduciary Duties - Unjust enrichment - Contribution - Transfer with intent to defraud creditors
LEGISLATION CITED:	Civil Procedure Act 2005 Conveyancing Act 1919 Crimes (Sentencing Procedure) Act 1999 English Judicature Act 1873 Supreme Court Rules
CASES CITED:	Baldry v Jackson (1976) 2 NSWLR 415 Biala Pty Ltd & Ors v Mallina Holdings & Ors (No 4) (1994) 13 WAR 11 Blomley v Ryan (1954-1956) 99 CLR 362 Comptroller of Stamps (Vic) v Howard-Smith (1936) 54 CLR 614 Concrete Pty Ltd v Parramatta Design & Developments Pty Ltd (2006) 81 ALJR 352 Dering v Earl of Winchelsa (1787) 29 ER 1184 Distronics Ltd v Edmond 2002 VSC 454 Loxton v Moir (1914) 18 CLR 360 Mahoney v McManus 180 CLR 370 McDonald v Lloyd (1931) 31 SR (NSW) 415 McIntosh v Shashou (1931) 46 CLR 494 Norman v Commissioner of Taxation (1963) 109 CLR 9 Phipps v Boardman [1967] 2 AC 46 Re Caratti Holding Co Pty Limited (1975) 1 ACLR 87 Talcott (James) Ltd v Lewis (John) Co Ltd 1940 3 All ER 592 Tanwar Enterprises Pty Limited v Cauchi (2003) 77 ALJR 1853 Torkington v McGee [1902] 2 KB 427 United Dominions Corporation Ltd ("UDC") v Brian Pty Ltd & Ors (1985) 157 CLR 10-11
PARTIES:	John Wentworth Purdon v Steven Purdon & David Webb
FILE NUMBER(S):	SC 3548/05
COUNSEL:	(P) F Kalyk (D1) G Segal
SOLICITORS:	(P) Kemp Strang (D1) Segal & Associates