Staples v Baker

[1996] QCA 519

IN THE COURT OF APPEAL	[1996] QCA 519
SUPREME COURT OF QUEENSLAND

Appeal No. 107 of 1995

Brisbane

Before Fitzgerald P.
Davies J.A.
Mackenzie J.

[Baker & anor. v. Staples]

BETWEEN:

PETER JAMES BAKER

(First Defendant) Appellant

AND:

NOELA MAY BAKER

(Second Defendant) Appellant

AND:

DOUGLAS REGINALD STAPLES

(Plaintiff) Respondent

REASONS FOR JUDGMENT - THE COURT

Judgment delivered 17 December 1996

This is an appeal against a judgment in favour of the respondent against the appellants which was

delivered in the District Court on 5 May 1995. Each of the appellants was required to pay the

respondent $108,204.12 ($86,425.02 together with interest of $21,779.10), their counterclaim was

dismissed, and they were required to pay the respondent’s costs of and incidental to the action,

including reserved costs, if any, to be taxed on a solicitor and client basis. The appellants seek to have the judgment set aside, the respondent’s claim against them dismissed with costs to be taxed, and

judgment on their counterclaim for either (a) $36,554.51, together with interest at the rate of 10 per cent

per annum as and from 27 January 1993, or (b) “a declaration that any right to contribution the

[respondent] might have had as against the [appellants] has been lost or is unenforceable against them”,

together with, in either event, their costs of the counterclaim to be taxed, plus the costs of the appeal

to be taxed.

From December 1985, the respondent’s son, Bryan Staples, his wife and the appellants were partners

in a wholesale flower business, “Sunburst Flowers”. Bryan Staples and the male appellant were also

the shareholders and directors of John Jones Florist Pty Ltd, which operated a number of florist shops

in Brisbane. The respondent, his wife and son (Bryan Staples) were also the owners of a flower-

growing business, which was conducted on land owned by the respondent and his son. On 3

September 1987, Fiore Investments Pty Ltd (“Fiore”) was incorporated, with Bryan Staples and the

male appellant again the sole shareholders and directors. On 18 September 1987, Fiore purchased the

flower-growing business for $108,390.00 (including $91,000.00 for goodwill). Fiore entered into

possession of the land on which the flowers were grown and paid rent ($50,000.00 up to June 1992),

although a proposed lease was never executed; the lease term was to be for three years from 1

September 1987, with two options to renew each for a further period of three years, subject to the

lessors’ right to determine the lease on two months’ notice, with a reasonable time to relocate and

payment of Fiore’s relocation expenses limited to the amount of rent paid to the date of termination.

Between September 1987 and February 1990, Fiore borrowed a total of $675,000.00 from the Queensland Industry Development Corporation (“QIDC”). The respondent and his son and the

appellants were guarantors of Fiore’s borrowings from QIDC, and mortgages to support the guarantees

were given by the respondent and his son on the one hand and the appellants on the other hand. On

12 December 1989, QIDC also obtained an assignment of the proceeds of sale of its flower crops from

Fiore.

By October 1991, bitter and complex differences had arisen between the partners in Sunburst Flowers,

and Bryan Staples and his wife gave the appellants notice of their intention to dissolve the partnership.

On 28 February 1992, the appellants wrote to Bryan Staples and his wife offering to sell the appellants’

interest in the flower-growing business (presumably as represented by the male appellant’s share in

Fiore) for $100,000.00. A valuation of Fiore’s business had been obtained from a Mr Gil Wright a little

over a month prior to making that offer, but the trial judge held that it provided little evidence that the

male appellant’s share in Fiore was worth the amount at which the appellants offered it for sale,

especially given the tenuous tenancy Fiore had in respect of the land where the flowers were grown,

which was owned by the respondent and his son. Nor does an application for finance dated 31 March

1992 by Bryan Staples and his wife, which estimated that Fiore’s gross proceeds from flower sales

would total $181,920.00 between July and October 1992.

A meeting between the respondent, his son and the appellants took place on 6 March 1992, at which

reference was made to the winding-up of Fiore and perhaps the other businesses in which the appellants

and the respondent’s son were involved, and it was recognised that the businesses would realise less than their full value if that occurred; evidence was given by a solicitor present at the meeting that the

respondent’s son spoke of a purchase from the liquidator(s) at “...a substantially lesser value, ... a third

or something like that ...”.

About a fortnight later, the respondent’s son applied to the Supreme Court for an order winding-up

Fiore, which was in financial difficulties, although the application was based on the differences which

existed between the respondent’s son and the male appellant, the sole shareholders and directors of

Fiore. On 27 April 1992, a deed of settlement of that dispute was signed, appointing an accountant,

Mr Ivor Worrell, to manage Fiore while selling off its assets.

On 29 May 1992, Fiore was valued by a different valuer from the man who had carried out the

valuation earlier that year; this time, it was valued at $85,645.00 as a going concern and $32,000.00

on a forced sale basis.

On 16 June 1992, the respondent and his son served Fiore with a notice to quit their land, where it was

growing flowers, but the notice was ignored by Mr Worrell.

On 26 June 1992, with the agreement of the first appellant, Mr Worrell was appointed provisional

liquidator of Fiore.

On 3 July 1992, QIDC demanded payment for Fiore's arrears from Fiore, the respondent, his son and

the appellants.
On 29 July 1992 Fiore was wound up and Mr Worrell appointed liquidator.

On 4 August 1992, Mr Worrell, as liquidator, sold Fiore's business for $50,000 to Bryan Staples and

his wife. The trial judge, who found that the sum paid included $4,000 for the flower crop, said:

"Counsel for the [appellants] submitted that the [respondent] did not take an interest in what the value of Fiore's business was and did not attempt to find out. There is evidence supporting that. Also, counsel for the [appellants] argued that the [respondent] and Mr Bryan Staples did not attempt to find a purchaser on the open market for Fiore's business. Again, it is true that the evidence supports that contention.

There is also evidence that the [respondent] and Mr Bryan Staples knew that if a lease was not offered to a prospective purchaser, Fiore's business would have to be sold on a 'forced sale' basis i.e. for much less than would otherwise be the case. In spite of this no lease was offered ... .

Fiore's assets were eventually sold ... on a forced sale basis. Mr Khatri of Worrell Whitehill who gave evidence said that the reason for this was the option under the lease had not been exercised which had resulted in a monthly tenancy and no new lease was being offered. This in my opinion was what actually happened.

... before the sale the [respondent] knew his son was proposing to purchase the

business."

On 18 August 1992, the liquidator of Fiore wrote to the respondent's son, demanding payment of

$131,978.00 "in settlement of your loan account with Fiore Investments Pty Ltd (In Liquidation) within

fourteen days of the date of this letter".

On 27 August 1992, to allow completion of the sale of Fiore’s business, QIDC released its security

from Fiore in respect of the flower crops. Bryan Staples (and his wife) as owners of the business then

occupied the land owned by the respondent and Bryan Staples without a formal lease and without any

payment of rent, and carried on the business previously owned by Fiore.
On 18 September 1992, the partners of Sunburst Flowers, the appellants and Bryan Staples and his

wife, executed a Deed of Settlement resulting in a sale of the Staples' interest in the partnership to the

appellants.

Another demand was made by QIDC on 2 November 1992.

On 11 November 1992, the liquidator of Fiore wrote to Bryan Staples' then solicitors, MacGillivrays:

"I advise that set off against monies owing by your client to the company will only be available if the monies are paid by your client to QIDC as guarantor and further those monies are paid as a result of demand made by QIDC on your client as guarantor."

On 25 November 1992 QIDC made a further demand on the respondent and his son for payment of

the full amount of Fiore's debt and served a Notice of Exercise of Power of Sale under the mortgage

they had given.

On 16 December 1992, the liquidator of Fiore wrote again to MacGillivrays:

"... your client will be entitled to settle the full amount that he pays against the monies that are owing by him to Fiore Investments Pty Ltd (In Liquidation). This is worked out as follows:

Amount owing to QIDC (say)	$656,792.00
Less amount paid by Peter Baker (say)	$170,000.00
Balance due to QIDC which will be paid by Brian
(sic) Staples	$486,792.00
Less Setoff B.Staples loan account	$131,979.00
Setoff full amount of Sunburst Flowers loan account	$214,725.00
Balance Mr Staples can claim in the administration
of Fiore Investments Pty Ltd	__________ $140,088.00"

In cross-examination, Bryan Staples said that he paid the loan account “via a set off” and confirmed he

“(d)id ... in fact take the set off ultimately that appears here (i.e. in the letter dated 16 December 1992)”.

On 18 January 1993, the Commonwealth Bank advised the respondent and his son by letter that "the

Bank has approved a Term Loan of $505000- to pay out the QIDC".

On 27 January 1993, the appellants' residence at Broadbeach, Queensland was sold by QIDC pursuant

to their mortgage and the net proceeds of the sale, $173,109.03, were paid to QIDC in reduction of

Fiore's debt.

On 9 February 1993, MacGillivrays wrote to the Commonwealth Bank:

“... the purpose of the loan is to payout a debt to QIDC ....

... our client has explained to you that it is their intention as soon as the QIDC debt is repaid to immediately institute proceedings against Bryan Staples' former partners, Peter and Nola Baker, for recovery of the approximate sum of $170,000 being the amount which the Staples have overpaid towards payout of the QIDC debt over and above the amount which the Bakers should have paid. ...

... In respect of any legal action, Senior Counsel agrees with our opinion that the Bakers have a much better prospect of delaying an action by Bryan Staples for the sum of $170,000 than they have to an action commenced by Doug Staples for the same amount, as Doug Staples was never in partnership with the Bakers.

It is therefore our recommendation to our client that there be two term loans secured by identical securities being as follows:

a.          A term loan to Bryan Staples of approximately 25% of the QIDC debt being $170,000; and

b.          a Term loan to Doug Staples of $355,000.00 representing 25% of the QIDC debt plus the additional share which should be paid by the Bakers."

On 11 February 1993, MacGillivrays wrote to QIDC:

"As discussed, our clients will be seeking contribution from Mr and Mrs Baker for approximately $170,000.00 and it is imperative to the success of that action that the payment by our client to your Corporation be appropriately structured.

We have on 9th instant by correspondence ... with the Commonwealth Bank Branch Manager, discussed the structure of the loan which is most likely to enable our client to readily and quickly recover a contribution from Mr and Mrs Baker."

On 18 February 1993, the Commonwealth Bank advised the respondent and his son by letter:

“The Term Loan of $505,000 - as outlined in the Bank's letter dated 18/01/93 has

been withdrawn.

The Bank has now approved the following loans to assist with payout of QIDC debt:

Term Loan - $335000 - to Douglas Reginald Staples

Term Loan - $170000 - to Bryan Douglas Staples."

On the same day, the respondent and his son made written requests to the Commonwealth Bank to

credit the term loans of $335,000 and $170,000, respectively, to a joint account.

An agreement bearing date 22 February 1993[1] between the respondent and his son (attached to a

[1]             Other documents given dates 30 March were shown to have been backdated.

Proof of Debt dated 24 May 1994 and lodged by the respondent and his wife in relation to a Part X

arrangement entered into by Bryan Staples and his wife) stated:

"I, Bryan Staples hereby give to Douglas R Staples a charge over my 50% share of property jointly owned by DR & BD Staples. Situated at Lot 1 & Lot 2[2] Trundle Rd Thornlands.

[2]             Lot 2 was the land on which the respondent’s son and his wife carried on the flower-growing business which they had purchased from the liquidator of Fiore.

The charge is security to guarantee repayment of certain loans made to me by Douglas
Reginald Staples listed below.
...

11 ) $340,000 bank guarantee re QIDC loan DRS had to pay under his guarantee

for the QIDC loan...."

On 24 March 1993, the Commonwealth Bank informed the respondent and Bryan Staples by letter as

follows:

"Settlement with the QIDC was effected today and $518809-09 was handed over in exchange for the Title Deed to Lot 2 and the QIDC released mortgage number J269494F.

The respective loans of $170000 - and $335000 - were credited to the joint account

4129 1002-1071 and QIDC was paid out from this account."

On 24 March 1993, the Commonwealth Bank debited $170,000 to the “Term Loan” account of the

respondent, and debited $335,000 to the Term Loan account of his son. The appellants' counsel

conceded that this was a mistake and that the entries should have been reversed, as had occurred on

3 June 1993.

By a Deed of Loan bearing date 30 March 1993[3] (but not prepared or signed until after August 1993),

[3]             The Deed of Loan and the Bill of Mortgage were prepared by Baker Johnson, Solicitors, whom the trial judge found “did not commence to act as the solicitor for the [respondent] and/or Bryan Staples until August/September 1993". According to a diary note, dated 20 August 1993, of the solicitor who prepared the Deed of Loan and the Bill of Mortgage, his instructions from Bryan Staples were "... to prepare a second bill of mortgage which is to be collateral to a deed of loan which is to be prepared". There was no evidence which established when the documents were actually signed.

the respondent agreed to lend $500,000 to his son, and his son's wife Susan Staples.
Under a Bill of Mortgage bearing the same date (also not prepared or signed until after August 1993),

the respondent's son mortgaged to the respondent a half share of freehold land owned jointly by the

respondent and his son:

“... (i) in consideration of the loans, advances, discounts or other financial accommodation which have been or may hereafter be made at the request of the Mortgagor [Bryan Staples] by the Mortgagee named in Item (4) [the respondent] ..."

On 25 October 1993, Bryan Staples (and his wife) sold the flower growing business acquired from

Fiore for $30,000 to Goody's Pty Ltd which was controlled by the respondent and his wife. Payment

was made by way of an assignment of debt.

The appellants challenged the following findings made by the trial judge:

· "None of the evidence in my opinion supports the conclusion that Mr Bryan Staples borrowed $505,000 from the [respondent] and paid the QIDC, nor that the [respondent] borrowed the money and lent it to Mr Bryan Staples for that purpose. On the contrary, in my opinion, the relevant evidence (oral and documentary) leads to the conclusion that the [respondent] borrowed $335,000 from the Commonwealth Bank, which sum was paid by him to the QIDC."

· "... I am firmly of the view that the [appellants] have not proved any breach of
duty (fiduciary or otherwise) by the [respondent]. Nor, in my opinion, have the
[appellants] proved that the [respondent] and Mr Bryan Staples conspired with
each other.
...The events about which complaint is made evolved, in my view, out of the
dispute and the [respondent], in my opinion, did not act unlawfully in failing to,
in some way, alter the course of events which had developed, nor in failing to
take steps to ameliorate the impact of the liquidation of Fiore. In particular,
there was no obligation in my opinion, to arrange for a sale of Fiore's business
in or about April 1992, as suggested by counsel for the [appellants]. And there
was in my opinion, no obligation at any time to grant a lease. Furthermore, l am
not satisfied that any conspiracy existed between the [respondent] and Mr
Bryan Staples to bring about the situation in respect of which the [appellants]
complain."

· "... the [appellants] must prove that any wrongful conduct engaged in by the
[respondent] and Mr Bryan Staples or one of the other of them was productive
of loss to them. This, in my opinion, they have failed to do.
Essentially, the [appellants] complain about a failure by the [respondent] to
grant a lease in relation to the property where Fiore conducted its business.
However, any lease which could be granted could only be a continuation of the
lease prepared in 1987 by Mr Harvey and that lease contained, as I have
noted previously, a clause enabling the lessor to terminate the lease on two
months' notice together with a reasonable time for the lessee to relocate its
business and the payment of relocation expenses limited to the amount of rent
paid to the date of termination. The issue should in my opinion be approached
as though, contrary to my earlier findings, the option was in fact exercised (or
that the [respondent] is in fact estopped from relying on the [appellants’] failure
to exercise it) and thus Fiore at the relevant time was entitled to occupy the
leased premises pursuant to the terms of the lease prepared by Mr Harvey
containing as it did the clause about termination and relocation expenses. The
question then is what was the likelihood of selling Fiore's business in about June
1992, the time of provisional liquidation, for more than what Mr Bryan Staples
paid for it?
I am satisfied on the evidence that the Liquidator could not have obtained more
than the sum of $50,000 paid by Mr Bryan Staples, which sum included
$4,000 for the flower crop. This conclusion requires explanation. I was
impressed by the evidence of Mr Chaplin (see also Exhibit 167) who said it
would cost about $230,000 to relocate the business. Further, both he and Mr
Edmiston, whose evidence I also accept, said that the clause about relocation
of the business would make it difficult to market the business as a going
concern. Mr Wright whose report (Exhibit 59) was tendered by the
[appellants] did not consider the issue involving the termination clause in the
lease and he was not available for cross-examination. Counsel for the
[appellants] submitted that I should nevertheless rely on his evidence. He also
said the cost of removal was not relevant. I am unable to accept these
submissions. Ms Armstrong another expert valuer upon whose evidence the
[appellants] also rely said in cross-examination that the sale of Fiore's business
would not have been a viable option if it would cost $200,000 to move it.
Moreover, there is no evidence before the court that there was in fact an
interested buyer in the marketplace prepared to pay (say) $300,000 but failed
to do so because there was no lease. Ms Armstrong admitted that she did not
conduct any surveys or have regard to comparative sales when assessing the
value of the business. Ms Armstrong simply valued the business and she did
not give any evidence as to what a Liquidator might have received for the
business in June 1992. Then there was the evidence of the first [appellant]
himself. The first [appellant] it will be recalled is a chartered accountant and
also said he was a financial adviser. In cross- examination he said it was
doubtful that $250,000 would have been received for the business having
regard to the termination clause in the lease and he said that he could not
honestly advise a client to invest in such a business.
The inescapable conclusion in my opinion is that Fiore's business could not
have been purchased for anything more than what Mr Bryan Staples paid for
it. Similar reasoning in my opinion applies to the flower crop. The argument
was advanced by the [appellants] that the flower crop was worth much more
than the $4,000 which was stipulated for it in Mr Bryan Staples' contract with
the Liquidator. It was said that I should proceed on the basis of Mr Bryan
Staples' evidence and conclude that over a four month period $182,000 could
be realized for the sale of flowers. In this regard there is merit in my opinion
in counsel for the [respondent's] argument that the officers of the QIDC
apparently did not think the flower crop was worth $182,000. Those officers,
it was submitted, did not apparently think it was worthwhile to refrain from
proceeding on their security, i.e. to wait for four months in the hope of receiving
$182,000 or some figure like that for the flower crop. Again, the conclusion
must be in my opinion that the flower crop was worth what the Liquidator sold
it for."

The final paragraph quoted is related to evidence given by Bryan Staples concerning the proceeds of

sale of flowers in 1992 and 1993. In cross-examination, he seems to have accepted that, in the 1992-

1993 financial year, gross takings from chrysanthemums were about $180,000.00. However, bank

statements from August to December 1992, as interpreted by him, show little income from flowers. The

most useful evidence is that which showed that for the period from 1 January 1993 to 31 July 1993,

gross revenue on the sale of the chrysanthemum crop was $93,098.00 and profit on that crop was

$34,293.60, and gross revenue from the rose crop was $30,679.30 and net profit on that crop was

$14,888.84.

The appellants submitted that Fiore’s business was sold at an undervalue, with an accompanying

complaint that the sale caused QIDC to release its security from Fiore over the proceeds of sale of its flower crops, which would otherwise have been available to the appellants, as guarantors, when QIDC

was paid out. However, all other considerations aside, the fundamental premise is flawed. The

respondent was not a party to the sale of Fiore’s business; the purchaser was Bryan Staples and his

wife, and although they on-sold the business to Goody’s, a company controlled by the respondent and

his wife, 14 to 15 months later, there is no sufficient basis for a conclusion that the second sale was

intended when Bryan Staples and his wife purchased the business from Fiore’s liquidator. The sale to

Goody’s bears the appearance of a device to defeat creditors of Bryan Staples and his wife (like the

back-dated documents) but that does not assist the appellants in their present dispute with the

respondent. If the sale to Bryan Staples and his wife, which was made by the liquidator of Fiore was

at an undervalue, or if QIDC should have blocked the sale by refusing to accept the proceeds of sale

in discharge of its security from Fiore over the proceeds of sale of its flowers, the respondent, like the

appellants, was disadvantaged in his position as a co-guarantor of Fiore’s debt to QIDC. The

appellants’ argument depends upon a theory that, as a co-guarantor, the respondent was under a duty

to the appellants to grant a lease, in his capacity as owner, of the land which he and his son owned to

Fiore, on terms which would have enhanced the value of Fiore’s business to prospective purchasers.

No authority was cited for such a proposition, which has implicit in it the unacceptable notion that a co-

guarantor is bound to act against his own interests if the other guarantors will thereby be benefited.

Irrespective of the potential profitability of Fiore’s business, its value was always weakened irretrievably

by the imprudent lease arrangement under which its flower-growing operation on the land owned by the

respondent and his son depended on their consent, an arrangement to which the male appellant was

party, as a director of Fiore, at the time when it was established and there were no disputes in existence

between the parties.
While what has been said to this point obviously also calls for the rejection of the second aspect of the

appellants’ argument on this part of the case, it should be added that there is no basis on any view for

a conclusion that Fiore’s business would not have been sold in its liquidation and/or by QIDC under its

security from Fiore, but that QIDC’s security would have remained intact and relating to an ongoing

business, for the benefit of the guarantors of Fiore’s debt to QIDC. The only possible issue on this

aspect of the matter is whether more might have been obtained by QIDC from Fiore upon the sale of

its business, thereby reducing the guarantors’ liability to QIDC, and, as stated, the appellants failed to

prove such a case. Their counterclaim against the respondent was accordingly correctly dismissed.

Further, the points thus far discussed do not provide in themselves a basis for reducing the amount

recoverable by the respondent from the appellants.

The respondent’s claim against the appellants was based on the proposition that, as one of the

guarantors of Fiore’s debt to QIDC, he paid $345,000.00 to QIDC whereas, as two of the other three

guarantors, the appellants paid only $173,109.03 between them; hence, they were each obliged to

contribute to him half of the overpayment of his proportion of QIDC’s total debt, plus interest. The

appellants’ submission was that, in the circumstances which had occurred, the respondent had no further

claim upon them; alternatively, it was submitted that the respondent had paid QIDC only $255,000.00,

i.e., half of the total amount borrowed from the Commonwealth Bank by the respondent and his son,

so that the appellants were only obliged to pay the respondent a lesser amount than he claimed,

identified by counsel for the appellants in his oral argument as $42,500.00 each, plus interest, which we

think it was accepted had to be added.
Reference has earlier been made to the rearrangement of the Commonwealth Bank loan (or loans) to

the respondent and his son, which was (or were) made on 24 March 1993, the agreement bearing date

22 February 1993 between the respondent and his son, and the backdated Deed of Loan and Bill of

Mortgage between the respondent and his son and his son’s wife (which bear date 30 March 1993, but

were executed after 20 August 1993). The appellants’ argument that the respondent had no further

claim upon them had two limbs; firstly, that the respondent made no payment to QIDC, but lent the

money which he borrowed from the Commonwealth Bank to his son, who paid the entire sum lent by

the Bank to QIDC, and secondly that it would be inequitable to make the appellants make payments

to the respondent in all the circumstances.

Reliance was placed by the appellants upon the terms of a letter written by the respondent’s son to a

creditor on 3 January 1993, and the terms of the agreement bearing date 22 February 1993 between

the respondent and his son. So far as presently material, the letter dated 3 January 1993 stated:

"... Unfortunately, as I am not receiving any assistance to payout the QIDC debt, I am now in a position where I have to borrow over $500,000 to payout the balance of the QIDC debt. To save my home and the home for my wife and three children, will result in me paying out to QIDC more than $170,000.00 of Peter Baker's share of the debt."

The terms of the agreement bearing date 22 February 1993 between the respondent and his son have

already been set out. The appellants’ points with respect to that agreement appear from the following

passages in the cross-examination of the respondent and his son.

(a) the respondent:

“Mr Varley: The last item is $340,000?
Mr D.R. Staples: That's right.

Mr Varley: You loaned it to your son?

Mr D.R. Staples: No.

Mr Varley: That is what the document says?

Mr D.R. Staples: I am telling you this is what it is like. I borrow the money because I had to pay the loan and my son told me, 'If we lose this case I will give you the money after we sell our property. I will make sure that you are actually covered.', but I was responsible for that loan."

(b) the respondent’s son:

“Mr Varley: 'The charge is security to guarantee repayment of certain loans made to me by Douglas Reginald Staples listed below.' Now, 'made' is used in the past tense. You hadn't even paid the QIDC out as at February 1993?

Mr B.D. Staples: Thats' why I explained to you before, Mr Varley, that this document was done up before we actually paid the money. It was done up when we were demanded by the QIDC to pay up, 'or we are going to take the farm.'

Mr Varley: You see, that word having been used in the past tense might lead one to suspect that it had already occurred?

Mr B.D. Staples: No. This document was done up so Dad would go ahead with his borrowings.

...

Mr Varley: Number 11 is one of the loans made to you by your father. ...

Mr B.D. Staples: Yes, yes.

Mr Varley: Thank you. Can I go in fact to Item 11 now?

Mr B.D. Staples: Yes.

Mr Varley: That reads, and I quote, '$340,000 bank guarantee re QIDC loan DRS had to pay under his guarantee for the QIDC loan.' The word 'had' is again in the past tense. He hadn't had to do anything at all, had he, at that stage?

Mr B.D. Staples: Probably that should have been 'has to pay'. There was nothing subversive. This was a document between Dad and myself. He was called upon by the QIDC to cough up or lose the farm. This was before we got the loan and I said to Dad, 'Look, I'm sorry that you have been caught up in this mess between Peter (Baker) and I. I will keep you covered.' I said, 'You are going to have to borrow this money. If you want to here's a letter admitting to you what I owe you. Let's sign it and you have got something.’ ”

Extraordinarily, in our view, the trial judge accepted that evidence.

Even so, a claim to contribution from a co-guarantor is equitable in nature, related as it is to coordinate

liabilities: see, for example, Mahoney v. McManus (1981) 180 C.L.R. 370; Bond v. Larobi Pty Ltd

(1992) 6 W.A.R. 489; Street v. Retravision (NSW) Pty Ltd (1995) 56 F.C.R. 588; Brookes v.

Marshall (N.S.W. C.A.40051/94, unreported, 1 February 1996). As the latter case illustrates, a right

to contribution will be lost or reduced where it would be inequitable to enforce it; such a proposition

exemplifies the general equitable doctrine that a party “ ‘seeking the assistance of a court of equity ...

must do equity’ (Cheese v. Thomas [1994] 1 W.L.R. 129 at 136). The Court must look at what is

practically just for both parties”: Vadasz v. Pioneer Concrete (S.A.) Pty Ltd (1995) 184 C.L.R. 102,

115.

From the point at which disputes emerged between the appellants and the respondent’s son (and his

wife), the respondent and his son engaged in sharp practice, manoeuvring to maximise their own position

and/or minimise their losses, while passing as much as possible of the disadvantages associated with the

mutual business transactions onto the appellants. Not satisfied with the advantage which they had

through their ownership of the land on which Fiore conducted its business and the imprudent terms of

its lease which significantly devalued Fiore’s business to all except the respondent and/or his son, they

renegotiated the terms of their borrowings from the Commonwealth Bank with the express purpose of omitting the respondent’s son from any contribution dispute in relation to Fiore’s debt to QIDC, which

had provided funds used in Fiore’s business, a business which the respondent’s son and his wife and

later the respondent’s company acquired with benefits in excess of the sale price paid and thus in excess

of the amount by which the debt to QIDC, owed by Fiore and guaranteed by the appellants and the

respondent and his son, was diminished, and even falsified documents in furtherance of their purpose.

We refrain from expressing views on the veracity of their evidence at the trial or the legitimacy of their

various transactions relative to the creditors of the respondent’s son and his wife because it seems to

us unnecessary to do so and there might be other proceedings in which such issues are material. Our

conclusion, shortly stated, is that the respondent has no entitlement to the equitable relief which he has

claimed against the appellants.

We would accordingly allow the appeal, set aside the judgments in favour of the respondent against the

appellants, order the respondent to pay the appellants’ taxed costs, including reserved costs, of the

appeal and the action other than costs associated with the appellants’ unsuccessful counterclaim, which

as we have indicated we consider was correctly dismissed.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 107 of 1995

Brisbane

[Baker & anor. v. Staples]

BETWEEN:

PETER JAMES BAKER

(First Defendant) Appellant

AND:

NOELA MAY BAKER

(Second Defendant) Appellant

AND:

DOUGLAS REGINALD STAPLES

(Plaintiff)	Respondent
Fitzgerald P. Davies J.A. Mackenzie J.

Judgment delivered 17 December 1996

Judgment of the Court

Appeal allowed.
Judgments in favour of the respondent against the appellants set aside.
Order the respondent to pay the appellants’ taxed costs, including reserved costs, of the
appeal and the action other than costs associated with the appellants’ unsuccessful
counterclaim.

obligation on the respondent to take steps to ameliorate the impact of
the liquidation and whether there was an obligation to grant a lease and
arrange for a sale of business - whether there was conspiracy between
the respondent and others.

GUARANTEE - claim to contribution from a co-guarantor.

Bond v. Larobi Pty Ltd (1992) 6 W.A.R. 489
Brookes v. Marshall ((N.S.W. C.A. 40051/94, unreported, 1 February
1996)
Cheese v. Thomas [1994] 1 W.L.R. 129
Mahoney v. McManus (1981) 180 C.L.R. 370
Street v. Retravision (N.S.W.) Pty Ltd (1995) 56 F.C.R. 588

Vadasz v. Pioneer Concrete (S.A.) Pty Ltd (1995) 130 A.L.R. 579

Counsel:	Mr K. Varley for the appellants. Mr W. Sofronoff Q.C. with him Mr M. Martin for the respondent.
Solicitors:	Barwicks for the appellants. Baker Johnson for the respondent.
Hearing Date:	15 February 1996