Surf Road Nominees Pty Limited v Tass James - [2004] NSWSC 223

No judgment structure available for this case.

CITATION: Surf Road Nominees Pty Limited & Ors v Tass James & Ors [2004] NSWSC 223

HEARING DATE(S): 18/03/04

JUDGMENT DATE:
1 April 2004

JURISDICTION:
Equity Division
Commercial List

JUDGMENT OF: Einstein J

DECISION: Decision given on outstanding issues including costs as between certain parties.

CATCHWORDS: Guarantee - Release of security - When constituting discharge of guarantee - Calculation issues - Appropriate orders - Costs

LEGISLATION CITED: Supreme Court Rules
Supreme Court Act (1970) NSW

CASES CITED: ABB Engineering Construction Pty Limited v Abigroup Contractors Pty Limited [2003] NSWSC 867
Buckeridge v Mercantile Credits Limited (1981) 147 CLR 654
Mahoney v McManus (1981) 55 ALJR 673
Mobile Innovations Limited v Vodafone Pacific Limited [2003] NSWSC 423
Oshlack v Richmond River Council (1998) 193 CLR 72
Rushcutters Bay Smash Repairs Pty Ltd v H McKenna Netmakers Pty Ltd [2003] NSWSC 670
Smith v Wood [1929] 1 Ch 14
The Bank of Victoria v Smith (1894) 20 VLR 450
Thiess Watkins White Construction Limited (in liq) v Witan Nominees (1985) Pty Limited [1992] 2 Qd R 452
Todorovic v Moussa (2001) 53 NSWLR 463
Tringali v Stewardson Stubbs & Collett Ltd (1966) 66 SR (NSW) 335

PARTIES :

Surf Road Nominees Pty Ltd ACN 087 719 060 (First Plaintiff)
Chris Burke & Co Pty Ltd ACN 062 554 849 (Second Plaintiff)
IG Martyn Real Estate Pty Ltd ACN 001 210 304 (Third Plaintiff)
WIT Investments Pty Ltd ACN 087 762 856 (Fourth Plaintiff}
DJZ Construction Pty Limited ACN 087 784 601 (Fifth Plaintiff)
Tass Alexander James (First Defendant)
Janet Margaret James (Second Defendant)
New South Head Road Nominees Pty Ltd CAN 088 322 472 (Third Defendant)
First Cross Claim
Tass Alexander James (First Cross-Claimant)
Janet Margaret James (Second Cross-Claimant)
New South Head Road Nominees Pty Ltd (Third Cross-Claimant)
Surf Road Nominees Pty Ltd (First Cross-Defendant)
Chris Burke & Co Pty Ltd (Second Cross-Defendant)
I G Martyn Real Estate Pty Ltd (Third Cross-Defendant)
W I T Investments Pty Ltd (Fourth Cross-Defendant)
D J Z Construction Pty Ltd (Fifth Cross-Defendant)
Michael Christian (Sixth Cross Defendant)
Katherine Christian (Seventh Cross Defendant)
Cottenham Nominees Pty Ltd (Eighth Cross-Defendant)
Vincent Palmieri (Ninth Cross-Defendant)
Terry Ian Wilson (Tenth Cross-Defendant)
Andrew Peter Mortimer (Eleventh Cross-Defendant)
Second Cross Claim [Settled]
Michael Christian (First Cross-Claimant)
Katherine Christian (Second Cross-Claimant)
Cottenham Nominees Pty Limited (Third Cross-Claimant)
Tass Alexander James (First Cross-Defendant)
Janet Margaret James (Second Cross-Defendant)

FILE NUMBER(S): SC 50108/01

COUNSEL: Mr TA Alexis SC, Ms KP Sainsbury (Plaintiffs) (First to Fifth and Ninth to Eleventh Cross Defendants)
Mr CRC Newlinds SC, Mr AP Coleman (Defendants) (Cross Claimants on First Cross Claim)
Mr AJ Bulley (Sixth, Seventh and Eighth Cross Defendants to First Cross Claim) (First to Third Cross Claimants on Second Cross Claim)

SOLICITORS: Pritchard Law Group (Plaintiffs) (First to Fifth and Ninth to Eleventh Cross Defendants)
The Argyle Partnership Defendants) (Cross Claimants on First Cross Claim)
Dibbs Barker Gosling Sixth, Seventh and Eighth Cross Defendants to First Cross Claim) (First to Third Cross Claimants on Second Cross Claim)

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

Einstein J

Thursday 1 April 2004

50108/01 Surf Road Nominees Pty Limited & Ors v Tass James & Ors

JUDGMENT

Overview

1 A reserved judgment was delivered in these proceedings on 20 February 2004. The complexities of the proceedings was always common ground and from time to time during the hearing the parties made plain that following findings and if necessary they were likely to be in a position to further assist the court in terms of calculations and the like which may require attention. The reserved judgment gave the parties leave to address submissions on any claim not yet dealt with and invited the parties to endeavour to agree upon short minutes of order. The express intent, in terms of that leave, was to cover any matter which, in this complex litigation, may have been the subject of a claim inadvertently not dealt with in the judgment.

2 What followed may be properly described as the antithesis of agreement. Further Court time was given to receipt of submissions on a number of disparate and on occasion fairly complex issues.

3 One matter which it seems to me is fairly simple to be dealt with concerns obvious errors or inconsistencies in some of the calculations and figures dealt with in the judgment. Plainly enough typographic errors may be corrected in the usual way by way of corrigenda. Most of the corrections were of a typographical or arithmetic nature it being necessary to appreciate that there were volumes of experts’ reports almost always reworked, varied or supplemented, together with numerous schedules and appendixes. A number of such errors have been pointed out by the plaintiffs and in some cases the defendants accept the obvious need for these corrections. In other cases the defendants submit that corrections are inappropriate and cannot now be made.

4 To my mind the clear principled approach is that prior to final orders being handed down the court may correct typographic errors and further may correct obvious miscalculations as long as the substance of the reasons is not altered and no finding is interfered with. If authority for this proposition be required it is to be found in Todorovic v Moussa (2001) 53 NSWLR 463 at [46]-[48] per Beazley JA, with whose judgment Powell JA agreed and Sperling J substantially agreed. In each circumstance it is clearly necessary for the Court to make clear precisely what corrections are being made so that, should there be some aspect in respect of which the court may not have had power to make the corrections, any appellate rights of either party in that regard will be preserved. I intend to proceed accordingly.

5 The convenient course is to deal with typographic errors and corrections seriatim in an appendix to this judgment. That appendix explains each of the errors and corrections and the reasons therefore.

Matters of substance requiring attention

6 I turn them to deal with the matters of substance which require attention.

Additional basis for suggested discharge of the guarantee

7 This concerns a claim by the defendants which was not dealt with in the judgment. The claim asserted that the effect of the November 2003 dealings is that Mr Christian's units in the Trust were sold with the agreement, consent and acquiescence of the plaintiffs, which it was submitted was sufficient to discharge the subject guarantee. The matter received only brief attention in the defendants’ submissions [written submissions page 42-[159] (v); [transcript 235/251]. The same matter was referred to in some questions which I put to the defendants’ counsel. It is true to say that the submission was not the subject of response by the plaintiffs and was overlooked in the reserved judgment.

8 Following delivery of the reserved judgment and the matter being drawn to the attention of the Court the issue has received attention in the form of further submissions. It is now appropriate to deal with the issue and I proceed to do so.

9 It has now been made clear by the defendants that the basis upon which they rely is:

· that the position at law is that where an obligation to maintain security arises under contract (expressly or impliedly) then upon the release of the subject security, a complete discharge of the guarantee is seen to occur [this appears to be a correct statement of principle: Smith v Wood [1929] 1 Ch 14];

· that this throws up questions as to the proper construction of the contract and/or as to the propriety of implying the particular term into the contract;

· that the contract by one or other of these routes throws up a term requiring all of the units to be held and maintained as security for the obligations the subject of the guarantee [transcript 18 March 2004 page 14];

· that if there is no such contractual term, the position in equity is that the liability of co-surety is reduced by the value of the security.

10 In relation to the position in equity I accept that the principles are:

· that any breach of a creditor’s equitable duty to maintain a security for the benefit of a guarantor, will only reduce the guarantor’s liability to the extent that the value of the security has been impaired as a result of the breach: Buckeridge v Mercantile Credits Limited (1981) 147 CLR 654 at 675 per Brennan J;

· that the value of the security released or impaired is determined at the time of the surrender or release of the security: TheBank of Victoria v Smith (1894) 20 VLR 450 at 454;

· that it is necessary for the guarantor to demonstrate that loss of value and the onus of proof is on the guarantor: Buckeridge at 676 per Brennan J.

11 To my mind many of the plaintiffs’ submissions are of substance and with minor variation they are adopted in what follows:

· clearly one commences with an examination of the Deed;

· recital I and clause 6 of the Deed, provided that the unitholders (Cottenham and NSHR) charged their units in the SRUT to the investors (relevantly, WIT and DJZ), with the “due performance of the obligations”, that is the obligations of the guarantor, the indemnifying parties and the unitholders pursuant to clause 5;

· clause 8 of the Deed, provided for the sale of “the said units or any of them absolutely” and for the net proceeds of the sale to be applied in satisfaction of the obligations and for the balance (if any) to be paid to the unitholders, without interest.

· the NSHR units in the SRUT were “sold” on 22 October, 2002 (PX – Vol 1 – page 410), in the circumstances referred to in the letter from the plaintiffs’ solicitors to the defendants’ solicitors dated 24 October, 2002: PX – Vol 1 – page 411.

· The transfer of these units could not and did not operate to discharge the obligations of the guarantor, the indemnifying parties and the unitholders pursuant to clause 5 of the Deed, because the sale of the units “or any of them” was expressly authorised by clause 8 of the Deed.

12 Further:

· the Agreement for Sale of Business dated 5 November, 2003 – Exhibit DX - Vol 3 – page 14 (the “Sale Contract”) between Chris Burke & Co. Pty. Limited as the vendor and Cottenham as the purchaser, provided for the sale of the real estate business of Chris Burke & Co, that is the goodwill of the business and the Assets (as defined in clause 2.1 of the Sale Contract) for the sum of $300,000;

· clause 5.2 of the Sale Contract, provided that upon completion, Cottenham, amongst other things, “shall deliver to” the vendor “duly executed Transfer of Units” (defined, by reference to schedule 9 of the Sale Contract, as the units held by Cottenham in the SRUT);

· WIT is not a party to the Sale Contract. DJZ is named as a “vendor guarantor” and provides a guarantee to the purchaser with respect to “the due performance by the vendor of the vendors obligations”, pursuant to clause 27.2 of the Sale Contract;

· Cottenham transferred its units in the SRUT to a company known as Enzo Developments Pty. Limited for $1.00 on 5 November, 2003: DX – Vol 2 - page 2363. DJZ was not a party to that transaction.

· All that can be said is that DJZ must have been aware that Cottenham was transferring its units in the SRUT on 5 November, 2003, because that is the extent of the acknowledgment contained in clause 27.1 of the Sale Contract, with respect to the “terms and conditions of this Agreement”;

· the defendants’ submission therefore fails at a factual level, because WIT was not a party to the Sale Agreement and DJZ did not “release” Cottenham’s units in the SRUT and thereby (according to the defendants’ submission) prejudice the co-surety’s right of contribution.

13 Further:

· in any event, the principle relied upon by the defendants seems to be as follows: upon satisfaction of the guaranteed obligation, the guarantor is entitled to be subrogated to any securities held by the creditor for the enforcement of the principal contract: Mahoney v McManus (1981) 55 ALJR 673 at 680 per Brennan J; Buckeridge at 668-669 per Aickin J;

· it follows that the defendants are not presently entitled to any rights of subrogation to the security held by the investors from Cottenham, as they have not satisfied their guaranteed obligations to the investors.

14 It then becomes necessary to look at whether there is evidence of the value of the units as at November 2003.

15 Here the defendants rely upon the terms of the Deed to be found at Exhibit DX 2431, one provision of which provided for the transfer from Mr Sicuro to Enzo Developments Pty Ltd of 9 units in the SRUT together with any equitable interest he might hold in one other unit in the SRUT held by Cottenham Nominees Pty Ltd [clause 1].

16 The proposition put by the defendants is that the consideration for the sale of the 9 units was $70,000 which gives evidence as to value at the time.

17 To my mind this proposition is misconceived for the reason that, as the plaintiffs submitted, the subject deed is a very special type as is apparent from its detailed provisions. In this regard it is relevant to note the following:

· recital C records that the vendor, Mr Sicuro has over a period of time loaned considerable sums of money to Chris Burke & Co. Pty Limited, the amount of which at the date of the Deed cannot be easily ascertained;

· recital D records that the vendor acknowledges that the records of Surf Road Nominees, the Trust and Chris Burke & Co. are not up to date;

· the Deed then proceeds to recite and to deal with a number of aspects relating to these proceedings and financial adjustments that will be made between the parties, which to some extent, are clearly contingent on the result in these proceedings;

· the operative part of the deed, [paragraph 3] provides a detailed set of provisions in terms of a prospective financial adjustment to be made contingent upon the outcome of the case.

18 To my mind it is simply not possible to rely upon this Deed as reliable evidence of the value of the units at the time of transfer of the Cottenham units.

19 Nor is it appropriate to infer that the value of Cottenham’s units in the SRUT on 5 November 2003 was the same as the value of NSHR’s units as at October 2002.

20 Mr Potter did not seek to value Cottenham’s units as at 5 November 2003. Mr Weber, therefore, did not consider the value at that date.

21 There is otherwise no evidence that addressed the value of these units in November 2003. The rent rolls were sold on 28 February 2003 and the SRUT continued to trade through Chris Burke & Co. throughout 2003, until the real estate agency business was sold. There is no evidence as to whether the SRUT traded profitably during this period and there is no evidence as to its net assets or liabilities on 5 November 2003;

22 There is thus no evidence to demonstrate that the transfer of the Cottenham units on 5 November 2003 caused any prejudice to the defendants’ right of contribution from Cottenham.

23 Accordingly, the defendants’ determined liability to WIT and DJZ under the Deed, may not be reduced by the transfer of the Cottenham units in the SRUT.

24 In consequence the defendants’ submission on this issue is rejected.

Calculations, orders and general approach to relief/The “offset issue”

25 There has been much debate from the bar table on questions of calculations, interest and the like. Ultimately it seems that many of these questions have been or can be resolved but that the working out of what are the proper orders raises a central question of principle. The matter has been referred to as "the offset issue”. It arises as follows:

Proposed Declaration 1

· There is no doubt but that, as the parties are now agreed, a declaration in the following terms is called for by the judgment [149: 1.6]:

Proposed Declaration 2

· There is no doubt but that, as the parties are now agreed, a declaration in the following terms is called for by the judgment:

Declaration that the defendants are jointly and severally liable pursuant to clause 5(2) of the Deed, to indemnify the fourth plaintiff and the fifth plaintiff in relation to the loss and damage suffered by them in consequence of the defendants’ failure to ensure payment of the IGM bank debt, as that expression is defined in the Deed.

26 Save for the Court’s determination on the offset issue there can be no doubt but that, as I understand it, the parties are generally agreed on a series of orders [I say generally because some of the figures may require adjustment ever so slightly to cope with some interest calculations raised by Mr Bulley and the need for the figures to reflect the point in time on which orders are actually made]. I refer here to the following orders which would seem to naturally flow from the reasons for judgment:

Orders for judgment in favour of the fourth and fifth plaintiffs against the defendants

Liability for preferential distributions - clause 5 (1) (b) of the Deed

· orders for the entry of judgment in favour of the fourth and fifth plaintiffs respectively [the fourth plaintiff being entitled to 10 percent of the relevant sum, the fifth plaintiff being entitled to 70 percent of the relevant sum] against the defendants in the appropriate amount with interest.

Liability for loss and damage - clause 5 (2) of the Deed

· orders for the entry of judgment in favour of the fourth and fifth plaintiffs [the fourth plaintiff being entitled to 1/36 of the relevant sum; the fifth plaintiff being entitled to 7/36 of the relevant sum] against the defendants in the appropriate amount with interest.

Orders for judgment in favour of the second plaintiff against the third defendant - Burke Unit Trust Overdraft interest

· orders for the entry of judgment in favour of the second plaintiff against the third defendant in the relevant sum plus s.94 interest. [the agreed sum up to 3 March 2004 was $22,907.00]

Orders for the entry of judgment in favour of the first, second and third plaintiffs against the first defendant - Unauthorised payments/loan account

· orders for the entry of judgment in favour of the First plaintiff, the second plaintiff and the third plaintiff against the First defendant in the relevant sum plus section 94 interest. [subject to the offset issue examined below, the agreed sum up to 28 February 2004 was $643,454.00]

Orders for the entry of judgment in favour of the third cross-claimant (New South Head Road Nominees Pty Limited) against the first cross-defendant (Surf Road Nominees Pty Limited)-Value of units in the Surf Road Unit Trust

· orders for the entry of judgment in favour of the third cross-claimant (New South Head Road Nominees Pty Limited) against the first cross-defendant (Surf Road Nominees Pty Limited) in the relevant sum.

The problems which arise

27 The problems which arise are examined below. The plaintiffs firstly submitted as follows:

“ 3.1 There can be no real issue that NSHR is the trustee of the Janet Margaret James Family Trust (refer to the definition of “unitholders” and the first schedule to the Deed) and that the calculation of the net assets of the SRUT included a loan from the SRUT [to] the unitholder in the sum of $34,051: Exhibit P 2.

3.2 Mr Weber offset this unitholder loan when determining the amount payable to the unitholder for the 13 units held by NSHR: paragraphs 8.17, 8.24 and schedule 5 (page 2) of his report on the valuation of the units dated 5 December, 2003. Mr Weber was not cross examined on this approach.

3.3 Offsetting the unitholder loan is entirely appropriate, because on the notional sale of these units, the Trustee would ordinarily require the unitholder to repay its liability to the SRUT, by way of an adjustment from the proceeds of sale and the Trustee would then account to the unitholder for the balance.

offset

· that the unitholder would derive the benefit of the value of the units, calculated in part on the basis of this liability that has not been satisfied and without repaying the loan; and

· that the Trustee will need to pursue the unitholder for repayment of the loan, with further inevitable litigation. Whereas NHSR accepted the loan as an asset of the SRUT for valuation purposes, it may seek to dispute liability for the loan, in a recovery action.

Section 63

Supreme Court Act

28 The Court has found (Judgment at [234]) that the date at which the valuation of units is to take place is October 2002.

29 The submission fails to recognise that the suggested set off was not pleaded there being no claim by SRUT that it was only $34,051.00.

30 It is inappropriate as a matter of principle to use the "fairness" suggested touchstone by holding in relation to this issue, that it is to be a condition if New South Head Road Nominees is to be paid for the value of its unit, that the subject unitholder loan be first repaid.

The offset issue

31 This issue ultimately resolves into a question concerning the approach taken by the plaintiffs in the course of the running of the final hearing. It is trite to say that a party is bound by the manner in which its case is run. The proceedings were always complex and indeed during the course of the hearing the plaintiffs were granted leave to amend.

32 The central proposition for which the defendants contend is that the plaintiffs proceeded to make quite clear both in opening the case and during the hearing that the liability of the third defendant pursuant to clause 5 would be calculated with reference to the value of the units: that is to say that the value of the units would be taken up when working out the liability of the third defendant pursuant to the Guarantee.

33 The defendants contend that in the circumstances it is plain that the judgments in favour of the fourth and fifth plaintiffs require to be reduced by the liability of the first plaintiff to account to the third defendant for the determined value of the units.

34 For its part the plaintiff contends that it would be grossly unfair and unjust to require the first cross defendant to pay NSHR the determined value of its units, calculated principally on the basis of the first defendant’s liability to the SRUT, in circumstances where the first defendant has not satisfied that liability. The matter is of very particular significance when one examines the ultimate amounts in question.

35 To cope with this suggested unfairness the plaintiff has put forward the proposition that it is appropriate for an order to be made staying the execution of the judgment in favour of NSHR and against the first cross defendant pending satisfaction of the judgment in favour of the first second and third plaintiffs against the first defendant on the cause of action relating to the unauthorised payments/loan account.

36 The plaintiff prays in aid the fact that the power to stay execution of a judgment, on terms, pursuant to Part 44 Rule 5 of the Supreme Court Rules is available where the interests of justice require: Tringali v Stewardson Stubbs & Collett Ltd (1966) 66 SR (NSW) 335 at 344;

37 The plaintiff submits that the effect of adding back the first defendant’s liability is to substantially increase the net assets of the SRUT and the value of NSHR units.

38 The plaintiff submits that there is nothing inconsistent in providing NSHR with a judgment for the determined value of its units against the first cross defendant. This is said to be the only fair way to bring the determined value of the units to account in the proceedings. Why, it is asked, should the judgments in favour of the fourth plaintiff and the fifth plaintiff be reduced by the liability of the Trustee to account to NSHR for the determined value of the units, when those investors did not receive the benefit of the NSHR units and the liability to them was not, in fact, satisfied or reduced by the “net proceeds of sale” of the NSHR units.

39 The convenient course is to commence by setting out the defendants detailed submissions:

· Once again, the plaintiffs say that it would not be fair for there to be a set-off.

· To the contrary, to accept the plaintiffs’ approach now would only not be unfair it would work an injustice.

· At TP 39, the following was said by the plaintiff’s counsel in opening with reference to the Pritchard Law Group letter of 24 October 2002 (Bundle Vol 1, page 411).

”It was subsequent to that that the Directors, or I might more helpfully describe as the investors, became fully aware of the extent of Mr James’ conduct which as I say occurred without any consent or any relevant authority which lead to the expenditure of money on private matters...

So perhaps to reiterate the point, the conduct of Mr James which is relevant to the plaintiff’s claim for repayments of loans repayable on demand and such other matters, appears to us to be intimately connected with the oppression claim that is advanced by the defendants although I hasten to say, your Honour, that in the events that have occurred the units which Mr James’ family company New South Head Road Nominees owned in the Surf Road Unit Trust, were acquired in October 2002 in circumstances which are detailed in a long letter from our instructing solicitors to the defendant’s solicitors and, insofar as oppression is raised and insofar as relief for oppression is sought in terms of the acquisition of units and shares at a fair price, that, without conceding oppression, is not a consequence which is resisted because the transfer has already occurred.

His Honour: “Yes, and the question of the value of the units.”

Mr Alexis: “Correct, and that position is made plain in the letter which our instructing solicitors which I adverted to a moment ago because it said we acknowledge without question that you are entitled to a fair price for these units. The letter even goes further and says, what do you think they are worth and we get no response.”
...

· Again at page 71 senior counsel for the plaintiffs took great pains to take the Court through the 24 October letter and it was read to the Court almost in its entirety.

· At transcript page 73 the following was said:

James and New South Head Nominees

New South Head Nominees

“But it needs to be noted that the first time any indication came from the defendants as to what they regarded as the fair value of these units, was when Mr Potter’s report was served.”

· The following matters are emphasized:

(i) there is no doubt that the plaintiffs ran the case upon the basis that the investors had received the benefit of the value of the units as at October 2002;

New South Head Nominees

(iv) there is no doubt that it was acknowledged that the investors would be obliged to repay any amount that they had been overpaid as a result of the dealings with the units.

“There has never been an issue but that a proper accounting for the value of the James Unit Trust is to take place.” (Reasons paragraph 234).

· The submissions are:

(i) the plaintiff is at pains to point out that the units were dealt with pursuant to the contractual arrangements;

(ii) those contractual arrangements provide that upon sale the value of the units be applied towards any debt due by the guarantor (New South Head Road Nominees) to the investors (Deed Cl 8: Bundle p.120);

(iv) the investors’ solicitors wrote a letter indicating that when the fair value was worked out, it would be applied against any liability of New South Head Road Nominees pursuant to Clause 5 of the Guarantee;

(v) when the case was opened, Senior Counsel for the plaintiff made the same concession and indicated that there were simply no issue but that the value of the units would be taken up when working out the liability of New South Head Road Nominees pursuant to the Guarantee.

· The plaintiff now seeks to resile from that position completely and asks that the liability of New South Head Road Nominees pursuant to Clause 5 be calculated without any reference to the value of the units. The plaintiff now says that New South Head Road Nominees is entitled to nothing more than a Judgment, which Judgment should be stayed. It is said that this follows as a matter of fairness. The plaintiff somehow impliedly criticizes the defendants for not raising the matter of set off in the pleadings. Why should they, in light of the concessions made by the plaintiffs?

· Not only is that result unprincipled and not in accordance with the legal arrangements between the parties, it is totally contrary to the way the case was conducted. It is unfair for the plaintiffs to now change their position. The Court should not allow it.

· The plaintiffs should be held to the clear concessions made when the case was commenced.

40 The plaintiff's response is that the fourth and fifth plaintiffs never received any money at all following the transfer of the units in October 2002 and that the party with the liability to bring the value of the units to account is SRUT: the proposition being that the only way in which the value of the units can now be brought to account is for judgment to be given in favour of the third defendant unitholder for the determined value of the units. The proposition is that this cannot be set off against the entitlement of the fourth and fifth investors under the guarantee for the reason that were this to happen the investors would be completely prejudiced in circumstances in which they never received any moneys at all in relation to the value of those units.

Dealing with the issue

41 The basal proposition for which the defendants now contend amounts to a claim that the legal rights of the respective groups of parties are altered by what is said to have been their conventional basis of dealing with one another and the Court through the forensic approaches taken during the hearing. Whilst as a matter of fundamental fairness there is much to be said for the defendants above described complaints, at the end of the day the Court can only deal with the parties’ legal rights. And it is certainly true to say that by reference to the movement in the plaintiffs pleadings following the leave to amend given during the course of the final hearing, the forensic battleground did change. It is also true to say that the particular complexities concerning what ultimate orders may be made always depended upon a number of possibilities and could not necessarily clearly be forecast prior to delivery of the judgment.

42 Further there was always well known to the parties as a given, the fact that the first, second and third defendants were entities which may ultimately have differing legal entitlements or liabilities. Hence the concession that the value of the 13 ordinary units in the SRUT would need to be brought to account in the proceedings when the extent of the liability of the defendants pursuant to clause 5 was quantified:

· on some occasions did not differentiate as between the defendants but simply treated with them as a group;

· was made in a context where the plaintiffs’ claims pursuant to clause 5 moved as the pleadings were amended by leave.

43 The defendants’ submissions on the issue require to be rejected. I cannot see a principled way in which the submissions may be acceded to where parties to proceedings must establish that they have rights whether at law or in equity. The third defendant’s clause 5 liability to the fourth and fifth plaintiffs has nothing to do with the liability of the first plaintiff to the third defendant for the value of the units in the SRUT.

The plaintiffs stay of execution submission

44 Insofar as the plaintiffs have sought to have the execution of the judgment in favour of the third defendant and against the first cross defendant stayed pending satisfaction of the judgment in favour of the first three plaintiffs against the first defendant on the cause of action relating to the unauthorised payments/loan account this course is clearly contrary to principle. The matter was litigated as summarised in the judgment (at [234]). The value of the units was litigated as at October 2002. There is no evidence as to the first defendants’ incapacity, if such there be, in relation to being able to discharge the judgment debt to be entered against him. In any event It is now too late for the plaintiffs by a stay of order to outflank the third cross claimant's entitlement to its judgment against the first cross-defendant for the value of the units in the SRUT.

Costs

45 The proper exercise of the Court's discretion requires the differentiation as between:

· the position as to costs as between the plaintiffs [also being the first five cross-defendants to the first cross-claim] and the defendants /cross-claimants against the first five cross-defendants on the first cross-claim;

· the position as to costs as between the first cross-claimants and the sixth, seventh and eighth cross-defendants to the first cross-claim.

46 This judgment only deals with the first of these positions. It seems to me that following the handing down of this judgment it will be appropriate for submissions to be addressed as to the second of these positions [which submissions may be affected by the matters here dealt with].

47 In my view the following may be said:

· the plaintiffs were successful on 2 of the 3 issues of construction arising from the Deed and were successful on the proper construction of later agreements that were relied upon by the defendants for a discharge of the guarantee;

· the evidence going to the background factual matrix of the Deed was not, ultimately, the subject of any controversy and was relevant to all of the other factual issues raised by the defendants/cross-claimants;

· the plaintiffs/cross-defendants were successful on the vast bulk of the other issues raised by the defendants, which occupied the bulk of the documentary evidence and was the focus of the cross examination which occupied most of the hearing time;

· the plaintiffs/cross-defendants were also in large measure successful on the issues that divided the accounting experts on the valuation of the units;

· the proper construction of clause 5 (1) (a) of the Deed, was not clearly a dominant or separable issue that warrants a departure from the general rule concerning costs following the event: Mobile Innovations Limited v Vodafone Pacific Limited [2003] NSWSC 423 at [4]-[7]; ABB Engineering Construction Pty Limited vAbigroup Contractors Pty Limited [2003] NSWSC 867 at [14];

· the second defendant and the third defendant, as cross-claimants were parties to the claim for oppression. The factual matrix of that claim, which included a consideration of the first defendant’s conduct with respect to the unauthorised payments/loan accounts, were inextricably mixed with that and other claims, such as that the wrongful termination of employment. The oppression claim also involved the transfer of the NSHR units and the appropriate value of them;

· the second defendant and the third defendant did not conduct a separate and distinct defence that incurred costs that could not be attributed to the joint conduct of the defendants in the defence of the action [see Thiess Watkins White Construction Limited (in liq) v Witan Nominees (1985) Pty Limited [1992] 2 Qd R 452 at 454]. The same can be said with respect to the cross-claim;

· the third defendant succeeded in its cross-claim against the first defendant in respect of the cause of action for the value of units in the SRUT.

48 In Oshlack v Richmond River Council (1998) 193 CLR 72, McHugh J, with whose reasons for judgment Brennan CJ was in general agreement, after dealing with the statutory discretion conferring on the Court a broad discretion as to award costs, said [at 96-97]:

“The discretion must be exercised judicially

Although the statutory discretion is broadly stated, it is not unqualified. It clearly cannot be exercised capriciously. Importantly, the discretion must be exercised judicially in accordance with established principle and factors directly connected with the litigation…In this manner, the law has gradually developed principles to guide the proper exercise of the discretion and, in some cases, to highlight extraneous considerations which, if taken into account, will cause the exercise of the discretion to miscarry. Consistent with the aim of justice, the law could not have developed otherwise…By far the most important factor which courts have viewed as guiding the exercise of the costs discretion is the result of the litigation. A successful litigant is generally entitled to an award of costs…The combined force of the sentiments recognised above by Mason CJ, regarding the need for consistency in order to avoid injustice, and by Devlin J, regarding the most significant factor affecting the costs discretion, provides the jurisprudential basis for the important principle commonly referred to as the “usual order as to costs”.

The usual order as to costs

49 The proper exercise of the Court's discretion is that the defendants/cross-claimants should be ordered to pay the Plaintiffs/Cross Defendants costs of the proceedings, “jointly and severally “ and without differentiation between the defendants/cross-claimants: Rushcutters Bay Smash Repairs Pty Ltd v H McKenna Netmakers Pty Ltd [2003] NSWSC 670 at [2]-[15].

50 If the position as to costs as between the first cross-claimants and the sixth, seventh and eighth cross-defendants to the first cross-claim is not consensual than written submissions from those parties are invited.

51 Short minutes of order will require to be brought in.

I certify that paragraphs 1 - 51
and the Appendix hereto
comprise a true copy of the reasons
for judgment herein
of the Hon. Justice Einstein
given on 1 April 2004

Susan Piggott

Associate

1 April 2004

APPENDIX

Paragraph 78

1. The word "not" in paragraph 78 should be deleted. This is an obvious typographic error accepted as such by all parties.

Paragraph 79

2. The reference in the last sentence of paragraph 79 to the period of time in respect of which the second plaintiff is entitled to judgment against the third defendant for interest on the sum in question was clearly incorrect and should have identified the period from 1 October 2001 through to the date of judgment [cf judgment page 12; First report of Mr Weber paragraph 10.3 schedule 3] That correction is made. The correction is to substitute in place of the words "from the date of discharge of that debt, namely 28th February 2003, through to the date of judgment", the words "from 1 October 2001 through to the date of judgment".

Paragraph 114

3. The words "Mr Anderson" appearing in paragraph 114 were an obvious typographic error and the correction, which will be made, will substitute "Mr Addison".

Paragraph 127

4. The question of the proper construction of the 5 November 2003 Agreement for sale was the subject of careful analysis and detailed findings ([162]-[168]. The finding was that the release to be found in clause 25.3 was properly construed as a covenant not to sue the releasees [165].

5. Earlier in the judgment in the course of a chronology and before the heading "Dealing with the case" the judgment includes (at [127]) the following:

and as a part of that contract, released him from any claim that they had pursuant to the guarantee

6. It is quite clear to me that I had no intention of handing down a finding of any such release in paragraph 127, which was relevantly only introductory, and I must have overlooked this when finally checking the judgment. The fact that the guarantee discharge issue was still to be examined in sections of the judgment which were to follow is also made plain in paragraph 144 and in paragraph 151-first bullet point. With the benefit of hindsight I can now see that in the place of the words emphasised above I should have said:

7. This clear error can be corrected upon a principled approach to dealing with obvious errors in a judgment. That correction is made.

Paragraph 132

8. Another as it seems to me very obvious typographic error appears in the parenthesis in last line of paragraph 132. The reference to "Declaration 4 (c)" should have been a reference to "Order 4 (c)". That correction is made.

Paragraphs 147, 151

9. The next issue concerns in the main correction of calculations. Here I referred to the third bullet point of paragraph 147 and to the first bullet point of paragraph 151.

10. The convenient course is to set out the text of paragraph 147 noting in parenthesis the figures which ought to have been included. An explanation will then follow.

11. Paragraph 147 relevantly included:

· the principal of the Surf Road bank debt, namely the sum of $300,000, was reduced by the sum of $83,431 [$98,629] to $216,569 [$201,371], before its discharge, and the interest paid to Macquarie Bank on the Surf Road bank debt to 30 September 2002 totalled the sum of $71,410. The value of the preferential distribution to 30 September 2002[28 February 2003], therefore, was $154,841 [$172,698]. ”

12. The figure relating to the amount that the Surf Road bank debt was reduced is derived from the letter from Macquarie Bank containing discharge figures at the time the facility was discharged on the sale of the rent rolls [Exhibit PX 444].

13. The correction to the date is obvious as it was the date when the debt was discharged. This is made apparent from the judgment ([15] - first bullet point).

14. The further need for a consequential correction to paragraph 151 in terms of the insertion of the amount $172,698 in the place of the incorrect figure [$170,083 .86] is obvious. That correction is made.

Page 111

15. The next matter concerns a missing subheading. It is clear that there should have been a subheading in the middle of page 111 reading as follows:

Page 110

16. An obvious topographic error is to be found at the commencement of the second bullet point on page 110. The sentence should commence " Chris Burke & Co" instead of "Mr Burke". That correction is made.

Paragraph 244

17. An obvious typographic correction is required to the extract from paragraph 7.14 of the report of Mr Weber - the sentence should read:

Paragraph 245

18. Another typographic correction is required to the extract from Mr Potter's report appearing in the judgment [at 245]. In each case the reference to "a 9-controlling interest" will be replaced by a reference to "a non-controlling interest".

Last Modified: 04/08/2004

Citations

Surf Road Nominees Pty Limited v Tass James [2004] NSWSC 223

Most Recent Citation

Cases Citing This Decision

5

DJZ Constructions Pty Ltd v Paul Pritchard trading as Pritchard Law Group [2010] NSWSC 1024

Michael Wilson and Partners Ltd v Nicholls [2009] NSWSC 1377

Idoport Pty Ltd v National Australia Bank Ltd [2006] NSWSC 895

Cases Cited

10

Statutory Material Cited

2

Spencer v Bamber [2012] NSWCA 274

Williams v Frayne [1937] HCA 16

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CITATION:	Surf Road Nominees Pty Limited & Ors v Tass James & Ors [2004] NSWSC 223
HEARING DATE(S):	18/03/04
JUDGMENT DATE:	1 April 2004
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Einstein J
DECISION:	Decision given on outstanding issues including costs as between certain parties.
CATCHWORDS:	Guarantee - Release of security - When constituting discharge of guarantee - Calculation issues - Appropriate orders - Costs
LEGISLATION CITED:	Supreme Court Rules Supreme Court Act (1970) NSW
CASES CITED:	ABB Engineering Construction Pty Limited v Abigroup Contractors Pty Limited [2003] NSWSC 867 Buckeridge v Mercantile Credits Limited (1981) 147 CLR 654 Mahoney v McManus (1981) 55 ALJR 673 Mobile Innovations Limited v Vodafone Pacific Limited [2003] NSWSC 423 Oshlack v Richmond River Council (1998) 193 CLR 72 Rushcutters Bay Smash Repairs Pty Ltd v H McKenna Netmakers Pty Ltd [2003] NSWSC 670 Smith v Wood [1929] 1 Ch 14 The Bank of Victoria v Smith (1894) 20 VLR 450 Thiess Watkins White Construction Limited (in liq) v Witan Nominees (1985) Pty Limited [1992] 2 Qd R 452 Todorovic v Moussa (2001) 53 NSWLR 463 Tringali v Stewardson Stubbs & Collett Ltd (1966) 66 SR (NSW) 335
PARTIES :	Surf Road Nominees Pty Ltd ACN 087 719 060 (First Plaintiff) Chris Burke & Co Pty Ltd ACN 062 554 849 (Second Plaintiff) IG Martyn Real Estate Pty Ltd ACN 001 210 304 (Third Plaintiff) WIT Investments Pty Ltd ACN 087 762 856 (Fourth Plaintiff} DJZ Construction Pty Limited ACN 087 784 601 (Fifth Plaintiff) Tass Alexander James (First Defendant) Janet Margaret James (Second Defendant) New South Head Road Nominees Pty Ltd CAN 088 322 472 (Third Defendant) First Cross Claim Tass Alexander James (First Cross-Claimant) Janet Margaret James (Second Cross-Claimant) New South Head Road Nominees Pty Ltd (Third Cross-Claimant) Surf Road Nominees Pty Ltd (First Cross-Defendant) Chris Burke & Co Pty Ltd (Second Cross-Defendant) I G Martyn Real Estate Pty Ltd (Third Cross-Defendant) W I T Investments Pty Ltd (Fourth Cross-Defendant) D J Z Construction Pty Ltd (Fifth Cross-Defendant) Michael Christian (Sixth Cross Defendant) Katherine Christian (Seventh Cross Defendant) Cottenham Nominees Pty Ltd (Eighth Cross-Defendant) Vincent Palmieri (Ninth Cross-Defendant) Terry Ian Wilson (Tenth Cross-Defendant) Andrew Peter Mortimer (Eleventh Cross-Defendant) Second Cross Claim [Settled] Michael Christian (First Cross-Claimant) Katherine Christian (Second Cross-Claimant) Cottenham Nominees Pty Limited (Third Cross-Claimant) Tass Alexander James (First Cross-Defendant) Janet Margaret James (Second Cross-Defendant)
FILE NUMBER(S):	SC 50108/01
COUNSEL:	Mr TA Alexis SC, Ms KP Sainsbury (Plaintiffs) (First to Fifth and Ninth to Eleventh Cross Defendants) Mr CRC Newlinds SC, Mr AP Coleman (Defendants) (Cross Claimants on First Cross Claim) Mr AJ Bulley (Sixth, Seventh and Eighth Cross Defendants to First Cross Claim) (First to Third Cross Claimants on Second Cross Claim)
SOLICITORS:	Pritchard Law Group (Plaintiffs) (First to Fifth and Ninth to Eleventh Cross Defendants) The Argyle Partnership Defendants) (Cross Claimants on First Cross Claim) Dibbs Barker Gosling Sixth, Seventh and Eighth Cross Defendants to First Cross Claim) (First to Third Cross Claimants on Second Cross Claim)