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Balanced Securities Ltd v Thomas[2010] QDC 337

Balanced Securities Ltd v Thomas[2010] QDC 337

DISTRICT COURT OF QUEENSLAND

CITATION:

Balanced Securities v Thomas [2010] QDC 337

PARTIES:

BALANCED SECURITIES LIMITED

(ACN 083 514 685)

(Plaintiff)

v

DAVID LIONEL THOMAS

(Defendant)

FILE NO/S:

1453 of 2010

DIVISION:

Civil jurisdiction

PROCEEDING:

Application for summary judgment

ORIGINATING COURT:

Brisbane 

DELIVERED ON:

3 September 2010

DELIVERED AT:

Brisbane 

HEARING DATE:

27 August 2010

JUDGE:

Dorney QC, DCJ

ORDERS:

  1. The judgment of the court is that the defendant pay to the plaintiff the amount of $113,515.37.
  1. The plaintiff has liberty to apply to seek interest on the judgment sum by 4:00pm on 7 September 2010 and the defendant has liberty to respond by submissions filed by 4:00pm on 10 September 2010.
  1. The defendant’s application is dismissed.
  1. The parties have liberty to file submissions with respect to costs by 4pm on 10 September 2010.

CATCHWORDS:

SUMMARY JUDGEMENT – where both plaintiff and defendant seek summary judgement – whether “indemnifier’s exception” applies to guarantee – whether “third party” guarantor (as alter ego of company) bound by decision against company principal, even if exception does not apply – whether guarantee extends to default assessed costs of earlier decision – whether service of costs statement should be ordered anyway as a matter of fairness.

Uniform Civil Procedure Rules 1999 rr 292, 293, 371, 705

420093 BC Ltd v Bank of Montreal (1995) 128 DLR (4th) 488 (Alberta CA)

Abigroup Ltd v Sandtara Pty Ltd [2002] NSWCA 45

Belton v Carlow County Council (1987) 1 IR 172

Champerslife Pty Ltd v Manojlovski & Anor [2010] NSWCA 33

Chan v Cresdon Pty Ltd (1989) 168 CLR 242

Clambake Pty Ltd v Tipperary Projects Pty Ltd [No 5] [2009] WASC 141

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337

Darlington Futures Ltd v Dalco Australia Pty Ltd (1986) 161 CLR 500

Deen-Wilcox (as liquidator of SJP Formwork (NSW) Pty Ltd (in liq)) & Anor v Commissioner of Taxation (No 2) (2004) 49 ACSR 325

Duffield v Scott (1789) 3 Term Rep 374

Glenwood Homes Pty Ltd v Eberhard & Ors [2008] QSC 192

Hall v Commissioner of Taxation (2004) 51 ACSR 173

Harris v Commissioner for Taxation [2006] 2 Qd R 445

Jeans v Bruce [2004] NSWSC 539

National Bank of Nigeria Ltd v Awolesi [1964] 1 WLR 1131

National Bank of New Zealand v West [1978] 2 NZLR 451

Neumann Contractors Pty Ltd v Traspunt No 5 Pty Ltd [2010] QCA 119

Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589

Ramsay v Pigram (1968) 118 CLR 271

Re Clark’s Refrigerated Transport [1982] VR 989

Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45

Salomon v Salomon [1897] AC 22

Sunbird Plaza Pty Ltd v Moloney (1988) 166 CLR 245

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165

Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (1992) 36 FCR 406

COUNSEL:

P. Travis for the Plaintiff

M. Lyons for the Defendant

SOLICITORS:

Elliot May Lawyers for the Plaintiff

Piper Alderman Lawyers for the Defendant

Introduction

  1. [2]
    The Court has been asked to determine, concurrently, summarily, and obviously alternatively, that judgment be given for the plaintiff (by application filed 16 July 2010) and for the defendant (by application filed 10 August 2010), pursuant to rules 292 and 293, respectively, of the Uniform Civil Procedure Rules 1999. By an Amended Application for which the defendant sought leave, and was given such, on 27 August 2010, the defendant applied, in the alternative, for an order that a costs statement be served on the defendant in accordance with rule 705 of the UCPR.
  1. [3]
    Despite intimations from the court that applications such as this, heard simultaneously, where each relies upon the non-existence of “no real prospect”, should be the subject of other processes, both parties indicated a desire that I determine all relevant issues and take as the only facts relevant to the matter those admitted in the pleadings in the proceeding, and in the affidavits filed.
  1. [4]
    Despite the many complexities in the issues raised before me, although mindful of the admonition that I should not be “overly bold” in granting summary judgment in such circumstances, I have undertaken the task: see the observations by Muir JA in Neumann Contractors Pty Ltd v Traspunt No 5 Pty Ltd [2010] QCA 119 at [82].

Nature of Claim

  1. [5]
    As summarized in the Claim filed 17 May 2010, the plaintiff claims the sum of $113,515.37 as moneys due and owing under a written guarantee or, in the alternative, that sum as moneys due and owing under a contract to indemnify the plaintiff against loss (which loss has occurred) or, in the further alternative, damages for breach of the guarantee and indemnity. Despite anomalies in the pleadings as to relevant dates, it is common ground between the parties that the relevant document is a Facility Agreement dated as made on 22 December 2006 between the plaintiff, as lender, Joelco Pty Ltd, as borrower, and the defendant, as guarantor.
  1. [6]
    Although some $7.2 million was advanced by the plaintiff to Joelco, although Joelco paid approximately $7.9 million to the plaintiff on 24 October 2007 and although that payment has been asserted by the defendant to be of all moneys due to the plaintiff under the Facility Agreement (despite allegations to the contrary, by Joelco, in the proceedings discussed below), the issues in the present proceeding arise from a proceeding instituted some 12 months after the relevant facility was “paid out”. The trial of this other proceeding was heard on 13 August 2009 by de Jersey CJ. On 26 August 2009, it was ordered that Joelco’s claim be dismissed, that Joelco pay the present plaintiff’s costs of and incidental to the proceeding, including any reserved costs, to be assessed on the standard basis, and that liberty be reserved to the parties to make additional submissions in writing: see Joelco Pty Ltd v Balanced Securities Limited [2009] QSC 236.  As a result of that liberty, on 23 September 2009, it was ordered that indemnity costs, rather than standard basis costs, be paid: see Joelco Pty Ltd v Balanced Securities Limited [2009] QSC 304.  Costs were then assessed in the sum of $113, 515.37; and by court order of 6 May 2010 Joelco was ordered to pay the present plaintiff that sum.
  1. [7]
    The primary issue raised by the defendant in this proceeding is that the sum sought of $113,515.37, which is the amount of costs assessed pursuant to the orders made by de Jersey CJ, is not an amount that is payable by the defendant under the Facility Agreement. The subsidiary issue raised by the defendant is that if, on its true construction, the Facility Agreement obliges the defendant to pay that sum, then the court should make an order, pursuant to rule 371 of the UCPR, that the plaintiff serve a costs statement on the defendant pursuant to rule 705 of the UCPR

Relevant terms of Facility Agreement

  1. [8]
    Recitals A and B state that the borrower and the guarantor have requested the lender to make financial accommodation available to the borrower and the guarantor, subject to the terms of the Facility Agreement, and that such financial accommodation has been requested from the lender to assist the borrower to re-finance “current debt” secured over “the property”.
  1. [9]
    Relevant definitions, in Clause 1.1 define:
  • “Guarantor” as meaning, relevantly, the guarantor referred to “who guarantees to the lender the payment” of the whole of the “Moneys Hereby Secured” to the Lender;
  • “Moneys Hereby Secured” as meaning and including:
  1. (a)
    …;
  1. (b)
    …;
  1. (c)
    “… all costs, charges, expenses and payments including legal costs and disbursements which the lender … may pay incur sustain become liable for or be put to in connection with the exercise or purported exercise of any right or remedy conferred upon the lender … and all costs, charges, expenses and payments including legal costs and disbursements which the lender … may suffer sustain, incur or become liable for or be put to … in exercising or defending any rights or powers under or pursuant to (the) Agreement …”;
  1. [10]
    Clause 1.2(f) states that, unless the context otherwise suggests, a provision of the Agreement must not be constructed to the disadvantage of a party merely because that party was responsible for the preparation of the Agreement or the inclusion of the provision in the Agreement.
  1. [11]
    Clause 2.1 states that, relevantly, the lender grants to the borrower a loan facility. Clause 2.2 states that the facility shall, subject to the terms of it, commence on a stated date and “shall expire” on the Repayment Date (defined as meaning the date of the expiry of the Accommodation Period or such other date as may be agreed expressly in writing between the parties). Clause 3.1, in turn, states, relevantly, that the borrower shall repay to the lender the Moneys Hereby Secured on that Repayment Date.
  1. [12]
    Clause 5 deals generally with fees, costs and expenses. Clause 5.2(a)(ii) states that “the borrower shall pay to the lender on demand the sum of all the costs, expenses and outgoings of the lender of and incidental to any actual or contemplated enforcement of (the) Agreement … or the actual or contemplated exercise, preservation, review or consideration of any rights, powers or remedies under (the) Agreement”, adding that this “includes legal costs and expenses on a full indemnity basis.”
  1. [13]
    Clause 15.1 states that the guarantor unconditionally guarantees to the lender the due and punctual payment of all principal, interest, damages and other moneys payable by or recoverable from the borrower under or pursuant to or in connection with the Agreement. Clause 15.2 states that, if any of the obligations “hereby guaranteed” shall not be enforceable against the borrower purported to be primarily liable, the guarantee shall be construed as an indemnity and the guarantor hereby indemnify(ies)” the lender in respect of any failure by the borrower to make any payment or perform or observe any covenant, obligation, term or condition. Clause 15.3(d) states that the guarantee shall be without prejudice to and shall not be affected, “nor shall” the rights and remedies be in any way prejudiced or affected, by irrecoverability or discharge “for any other reason than that payment has been made.” Clause 15.7 states that the guarantee shall be a continuing guarantee for the purpose of securing the payment of the whole of the moneys and damages “as aforesaid” and the performance of the whole of the covenants, obligations, terms and conditions “as aforesaid” notwithstanding any partial payment or performance “thereof”.
  1. [14]
    Clause 21.4 states that the Agreement “supersedes” all prior representations, arrangements, understandings and agreements between the parties “relating to the subject matter hereof” and sets forth the entire, complete and exclusive agreement and understanding “between the parties hereto” relating to the subject matter of the Agreement.
  1. [15]
    Clause 21.14 states that each indemnity under the Agreement is a continuing indemnity and shall constitute a separate and independent obligation of the party giving the indemnity from its other obligations under the Agreement and shall survive the termination of the Agreement and shall survive the completion of the Agreement.
  1. [16]
    Finally, Clause 21.17 states that the parties acknowledge and agree that no rule of construction applies to the disadvantage of a party because that party was responsible for the preparation of the Agreement or part of it.
  1. [17]
    It is clear from all the material filed that the Facility Agreement was drafted by the plaintiff’s solicitors – and therefore the plaintiff’s solicitors were “responsible for (its) preparation”.

Surrounding circumstances

  1. [18]
    To the extent that it is appropriate in this proceeding, the surrounding circumstances to be taken into account in accordance with the principles to be discussed below (it being noted that the defendant has deposed – without objection - to such in an affidavit filed 18 August 2010) include (stripping the deposition of merely subjective intentions):
  • in December of 2007 the defendant travelled to Melbourne on behalf of Joelco at the request of Mr Steven Hodges, the Senior Credit Manager of the plaintiff, for a meeting to discuss the possibility of the plaintiff advancing funds to Joelco;
  • at that meeting, and prior to the entering into of the Facility Agreement, the discussion entailed the nature and details of the project for which funding was required (being a 96 lot subdivision at Maleny in the State of Queensland), the amount of the funding required and the broad terms of that funding;
  • at that meeting, oral statements were made between the parties “being always” to the effect that the guarantee and indemnity contained in the Facility Agreement were limited to the loan that was contained in the Facility Agreement; and
  • the defendant had obtained and repaid numerous commercial loans in his career as a property developer and “any expansive interpretation” beyond that of the guarantee being discharged and coming to an end once the principal, interest and other charges had been paid “in full” was contrary to “accepted commercial practice”.
  1. [19]
    To the extent to which it may prove relevant on the issue of privity between the defendant and Joelco, it is clear from that affidavit of the defendant, who was the sole director and sole secretary and, inferentially in all the uncontested circumstances, sole shareholder in Joelco, that: the amount of $113,515.37 resulted from a default assessment entered as a result of Joelco failing to file objections to a costs statement served upon Joelco’s former lawyers; and that those lawyers did not ever provide him with a copy of the costs statement or advise him that a costs statement had been served on them on behalf of the company.

Relevant interpretation principles

  1. [20]
    Since it is not in dispute that the defendant, as guarantor, did not prepare the Facility Agreement containing the guarantee, the principles discussed by the High Court in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549, as confirmed in Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424, are, at least initially, applicable. 
  1. [21]
    Those principles state that the liability of the surety is strictissimi juris and that ambiguous contractual provisions should be construed in favour of the surety, since the doctrine of strictissimi juris provides a counterpoise to the law’s preference for a construction that reads a provision otherwise than as a condition, such that a doubt as to the status of a provision in a guarantee should therefore be resolved in favour of the surety.  As observed in Andar Transport, in Chan v Cresdon Pty Ltd (1989) 168 CLR 242, Mason CJ, Brennan, Deane and McHugh JJ described that statement – which was set out in Ankar at 561 – as evidencing a “settled principle governing the interpretation of contracts of guarantee”: at 433 [17].  Further, the High Court noted that the conclusions reached in both Ankar and Chan as to the principles to be applied in the construction of contracts of guarantee are “binding”: at 433 [18]. 
  1. [22]
    What effect, then, do provisions such as Clause 1.2(f) and 21.17 have in light of such principles?
  1. [23]
    Some guidance is obtained from the approach adopted by the High Court to the interpretation of both exclusion and limitation clauses. In Darlington Futures Ltd v Dalco Australia Pty Ltd (1986) 161 CLR 500, the High Court held that the interpretation of such a clause is to be determined by construing it according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears “including the nature and object of the contract” and, where appropriate, construing the clause contra proferentem in case of ambiguity.  The Court added that the principle in the form expressed does no more than express the general approach to the interpretation of contracts and is of sufficient generality to accommodate different considerations that may arise in the interpretation of a wide variety of exclusion and limitation clauses “in formal commercial contracts between business people where no question of the reasonableness or fairness of the clause arises”: at 510-511.  Given that clauses such as the ones in question bear upon the approach to correct interpretation, and given that it is important to consider the “nature and object of the contract”, it is appropriate in this case to apply the general principles that the High Court has dictated as “binding” in the interpretation of contracts of guarantee while noting that, should ambiguity arise, some additional principle of interpretation must be applied and that, therefore, the parties cannot be considered to have excluded such binding principles because that approach would not be to the “disadvantage” of a person but merely to permit an interpretation to be adopted by the court which was consistent with both Ankar and Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 (concerning the principle of objectivity by which the rights and liabilities of the parties to a contract are determined).
  1. [24]
    A further matter concerning interpretation in this case is the extent to which, if any, the plaintiff’s deposition as to the relevant surrounding circumstances plays a specific, rather than a merely general, role in determining the width of the guarantee.
  1. [25]
    As the written submissions on behalf of the defendant make clear, the contention is that the guarantee is “not directed to securing the obligations” of Joelco “outside the scope of (the) transaction originally contemplated by the parties” such that, once the financial accommodation had been provided and had been “repaid”, the Facility Agreement “cease(d) to have any operative meaning as between the parties”.
  1. [26]
    In seeking to ascertain, then, the scope of the Facility Agreement, and hence the guarantee, to what extent should the statements made by the defendant in his affidavit – to the extent to which they are admissible for this purpose – affect the proper interpretation?
  1. [27]
    In Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45, Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ approved the reference by Fitzgerald JA (below) to the well known passage of Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352 respecting the admissibility of evidence of surrounding circumstances to assist in the “interpretation” of a written contract “if a language be ambiguous or susceptible of more than one meaning”: at 52 [9].  In particular, approval was given to the statement by Mason J that an appreciation of the commercial purpose of a contract presupposes knowledge of the genesis of the transaction, the background, the context and the market in which the parties are operating and that that statement exemplifies the point that the meaning of a written contract may be illuminated by evidence of facts to which the writing refers, because the symbols of language convey meaning according to circumstances in which they are used: at 52-53 [10]. 
  1. [28]
    Hence, to the extent to which ambiguity arises here, and to the extent to which it is appropriate to survey objective statements (and not subjective intentions), it is appropriate to have resort to those relevant undisputed surrounding circumstances in an exercise beyond the application of the Toll approach.

Estoppel

  1. [29]
    This issue arises because the defendant was the sole shareholder and sole director of Joelco and Joelco was the party against whom the plaintiff obtained the judgment and orders (referred to earlier) which dismissed the claim brought by Joelco and which led to the order that Joelco pay the plaintiff’s costs of and incidental to that proceeding, including any reserved costs, to be assessed on the indemnity basis.
  1. [30]
    Any analysis in this area seems inevitably obliged to start with the leading text, The Doctrine of Res Judicata (3rd Edition) (Spencer Bower, Turner and Handley). In dealing with suretyship and indemnity, the text states that where judgment is recovered against a defendant who sues a third person for indemnity or contribution, the judgment is not binding upon the third person, that party being neither party nor privy: at [224].  But footnote 56 relevantly states that a principal debtor company owned and controlled by sureties was held to be a privy of the sureties in 420093 BC Ltd v Bank of Montreal (1995) 128 DLR (4th) 488 (Alberta CA).  In dealing, generally, with exceptions (which include those where a demand is made which the person indemnifying is bound to pay, and notice is given to that person who refuses to defend the action, in consequence of which the person indemnified is obliged to pay the demand) which are held to be equivalent to a judgment, the text continues that the other party is estopped from saying that the defendant in the first action was not bound to pay the money (within the terms of the indemnity), relying upon Duffield v Scott (1789) 3 Term Rep 374 at 377. For present purposes, the text states that this type of case involves “an estoppel by representation”, because the indemnifying party represents that that party is content to treat any judgment as binding on that party: also at [224]. 
  1. [31]
    Necessarily, a number of issues arise from that extract. First, is the decision in the Canadian case correct? Secondly, is the exception limited to indemnity and contribution, and not to guarantees? Thirdly, even if the exception does apply to a guarantee, does it only apply by reason of an estoppel by representation and not an estoppel because of privity?
  1. [32]
    In his usual monumental way, Einstein J in Jeans v Bruce [2004] NSWSC 539 undertook an analysis of what was described as the “indemnifier’s exception” to the general rule that only parties and their privies are bound by a res judicata.  Somewhat intriguingly, although it may have been a deliberate choice on his part, Einstein J canvassed no case that involved simply guarantee obligations.  While, on its face, that might seem an unusual distinction (i.e. between an indemnity and a guarantee), it is clear, as the consideration in Andar of Sunbird Plaza Pty Ltd v Moloney (1988) 166 CLR 245 at 254 shows, that guarantee provisions and indemnity clauses differ in form and effect: at 436-437 [22].  As analysed by Mason CJ in Sunbird Plaza, a contract of guarantee is, subject to any qualifications made by the particular instrument, a collateral contract to answer for the debt, default or miscarriage of another who is or is contemplated to be or to become liable to the person to whom the guarantee is given.  In contrast, an indemnity is a promise by the promisor that that person will keep the promisee harmless against loss as a result of entering into a transaction with the third party.  Nevertheless, as was pointed out in Andar, both are designed to satisfy a liability owed by someone other than the guarantor or indemnifier to a third party: at 437 [23]. That difference is important; and its overlay on the extract from the text gives a clearer understanding of the principle behind the exceptions.
  1. [33]
    The general conclusion reached in Jeans was that the indemnifier’s exception to the general rule was of dual provenance being, first, the contract of indemnity and, secondly, the words and conduct of the indemnifier, understood in the context of the general law relating to estoppel by representation of fact: at [369]. For present purposes, Einstein J held that if the estoppel identified has its legal basis in, and arises from, an implied term in the contract of indemnity, the doctrine developed can have no application to the situation of co-guarantors under separate instruments, unless an estoppel by representation basis is adopted: [370-371].  Also for present purposes, Einstein J, after reference to Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (1992) 36 FCR 406, and on appeal [at (1993) 43 FCR 510], held that, since the focus is on shared “legal interests”, rather than merely shared economic interests, the only means by which a non-party co-guarantor may be bound by a res judicata to which that person is not a party is by the operation of the estoppel by representation method: at [373].  He then stated that the following proposition could be accepted, namely:

“Accordingly, a non-party co-guarantor … may be bound by a res judicata to which the other guarantor … is directly subject on the basis that, by analogy with the above rule in respect of non-party indemnifiers acting with notice of a litigation, (the non-party co-guarantor) has set up an estoppel by representation to the effect that he/she is content to be bound by the outcome”:

at [374].  Subject to the reservation that it is not strictly res judicata that is the binding source, subject to its cover extending to a judgment against the person who is primarily liable, and subject to the following consideration of other authority, I accept the general conclusions reached by Einstein J. Hence, on the facts of this case, where the defendant is thereby Joelco’s alter ego, and vice versa, he is estopped by representation of fact. An inference to that effect is properly made from the limited, but cogent, evidence proffered; see, in particular, paragraphs 7.3 and 7.4 of the defendant’s affidavit, noting that the representation of fact flows from his actions in a case such as this, not his unexpressed subjective thoughts.

  1. [34]
    In 2010, the New South Wales Court of Appeal, although only in an obiter way, considered estoppel and privity in the context of shareholding and directorships.  It is of interest to note that Handley AJA, one of the authors of the above text, gave separate reasons in which he expressed the view that he would have preferred to leave the relevant questions until they arose for decision in some other case but that, since dicta had already been offered, felt compelled to add his own observations: see Champerslife Pty Ltd v Manojlovski & Anor [2010] NSWCA 33 at [102]-[103].  It must also be remarked that what was under consideration was not any issue of indemnifier’s exception but rather what was called the application of the Anshun doctrine, derived from the reasons of Gibbs CJ, Mason and Aickin JJ in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589.  Allsop P made brief observations on the topic, limiting them to the proposition that, in an appropriate case (which might be thought to be unusual), it might be that X, which was not a party to litigation to which Y was a party, could, by the operation of the Anshun doctrine, be prevented from bringing a case that Y, if it controlled X, could have caused X to bring in earlier proceedings: at [5].  Giles JA was more expansive.  In particular, he observed that the fact that a person was the sole director and shareholder of a company did not give rise to privity of interest in the sense considered by the High Court in Ramsay v Pigram (1968) 118 CLR 271: at [64].  He further observed that while a person could be sole director and shareholder and the relevant company could be described as an alter ego, the company had its separate identity, relying upon the way the matter was put by Keane J, with the agreement of O'Flaherty and Murphy JJ, in Belton v Carlow County Council (1987) 1 IR 172 at 181: at [68].  The reasons of Keane J referred to the settled law since the decision in Salomon v Salomon [1897] AC 22 that the company on the one hand and its shareholders on the other hand are separate and distinct legal entities, and that while the interests of the company and its controlling shareholders may often coincide, that is not always the case.  Yet Giles JA noted that this did not deny that the fact that a person controls a company and can cause it to act in a particular way may be a consideration as to whether the company is Anshun estopped:  at [69].
  1. [35]
    Handley AJA undertook a careful and qualified approach to the questions raised. He initially expressed the view that, since the proceedings in the Local Court did not create any relevant res judicata estoppel or Anshun estoppel, there was strictly no occasion to consider any question of privity, observing that questions of privity as between a controlling shareholder and the company, and vice versa, are “complex and potentially of considerable practical importance”: at [101]-[102]. He concluded that he could see no reason in principle why an issue estoppel binding on a company should not bind its controlling shareholder/director, and vice versa, where, as will generally be the case, the shareholder has a real financial “interest” in proceedings brought by the company; and he did not see any reason why the converse should not also apply, although ordinarily a company would have no equivalent interest in proceedings by or against its controlling shareholder/director: at [131].  He added that an alternative ground for reaching such a result may be the principle that identity of parties is a matter of substance and not of form: at [132].  With respect to Trawl, he noted that Gummow J left the question open by noting that none of the applicants controlled Trawl: at [136].  Furthermore, he stated that he was not persuaded that the decision in Belton is the last word on the topic, writing that there does not appear to have been any conflict of interest which would justify treating the company suing for the benefit of insurers and the company in its own right as different parties, concluding that he could not accept without the benefit of further argument that the converse situation is irrelevant when considering whether an issue estoppel binding on a company is binding on its controlling directors/shareholders: at [140].
  1. [36]
    I turn then to the question of the correctness of 420093 BC. The facts of the case were that a judgment was obtained by the bank against the guarantors and, although the company was a party to the debt action, no judgment was obtained against it.  In the action being considered, the bank was the defendant and the plaintiff/appellant was in the same position as the company.  It was stated that the foundation of the bank’s estoppel argument was that privity existed between the guarantors and the company (owned and controlled by them), with the bank dealing with the company exclusively through one of the guarantors who was its president and a director.  The company was described by the court as the alter ego of the guarantors, with the male guarantor being the company’s operating mind: at 495. It was in such circumstances that it came to be decided whether it was fair to apply estoppel by res judicata.  The conclusion reached was that there was a sufficient degree of identification to make it just to hold that the judgment in the debt action to which the guarantors were parties should be binding on the appellant in the new action.  With respect, such an outcome is not supported by binding decisions of Australian authorities, even Trawl.  The court then turned to the specific matter of issue estoppel.  With respect to that, it held that the appellant was estopped from asserting that the bank breached the relevant loan agreement and that the branch of res judicata known as issue estoppel applied.  This was justified on the basis that the issue of the bank’s breach of the loan agreement was decided in the debt action adverse to the position there pleaded and argued by the guarantors and that the appellant standing in the place of the company (and “thus” a “privy” of the guarantors) was estopped from asserting in this action that the bank breached the loan agreement: at 498. Again, the privity analysis appears flawed on present Australian authority.
  1. [37]
    Nevertheless, there is a reasonably strong argument that either an estoppel by representation – which I prefer - or a binding issue estoppel based on the reasoning of Handley AJA in Champerslife would have been sustained in an Australian context.  Hence, although the reasoning in the Alberta court might be rejected, the outcome, on particular facts, may well be held to be consonant. 
  1. [38]
    The plaintiff’s counsel, in his oral argument, relied upon the Western Australian Supreme Court decision of Clambake Pty Ltd v Tipperary Projects Pty Ltd [No 5] [2009] WASC 141.  There, EM Heenan J considered the issues of res judicata, issue estoppel, abuse of process and privity of interest. With respect to privity of interest, he held that, since the person was not sued on the guarantee under or through the person to whom he was said to be a privy, while his liability as guarantor may be ancillary, it was not identical: at [71]. EM Heenan J then turned to what he was to make of the fact that the person, who was the controlling and directing mind of the company, who gave instructions on behalf of the company in relation to the original claim, and who himself gave evidence, was, for all practical purposes, therefore aware of the claims advanced and participated in the original action without seeking to raise any point which may have excluded or diminished any potential liability which he personally might have had as the company’s guarantor: at [72].  In the end, it was held that there was simply no reason for the person to attempt to resort to remedies under s 87 of the Trade Practices Act 1974 (Cth) in defence of what was called the “rent action”; and the court was satisfied that the absence of any such defence by that person in those proceedings could not amount to any form of Anshun estoppel or other preclusion preventing him from having resort to a defence or cross-claim in the new amended action against him in what was called the “fire claim”: at [74]. 
  1. [39]
    Thus, there is nothing in those decisions which in any way gainsays the conclusions that I have reached on my analysis conducted above.

Costs Statement

  1. [40]
    This issue can arise only if, first, the plaintiff succeeds in obtaining a judgment subject to assessment and, secondly, if there is no relevant estoppel concerning the sum of $113,515.37.
  1. [41]
    Since, for the reasons stated here, I have concluded that the defendant is estopped by representation from contesting the order for costs, it remains to consider the relevant legal principles that would apply to the determination of the actual sum of those costs.
  1. [42]
    While it is obvious that the relevant costs order was made in the Court’s discretionary jurisdiction as to costs, it appears to be irrelevant that the order itself, as contended for by the defendant, is “independent of any contractual right to costs”. The proposition itself is undeniable (see Abigroup Ltd v Sandtara Pty Ltd [2002] NSWCA 45 at [9] and [12] per Stein JA, with whom Giles JA and Young CJ in Eq agreed): what is in contest is its relevance.
  1. [43]
    While it is also undeniable that the reason that de Jersey CJ ordered costs on the indemnity basis was because of Clause 5.2(a) of the Facility Agreement, what needs to be determined is the mechanism by which the estoppel applies not only to the process but also to the outcome.
  1. [44]
    Since I have concluded below that the guarantee has been engaged and above that an estoppel by representation binds the defendant, and since there is no legally identified irregularity in the way the assessment of costs has been made, it seems inevitable that the amount of the costs assessment is also a matter covered by the estoppel. After all, it is the failure of the defendant who had total executive and administrative control of Joelco who elected, as its controlling mind, not to contest, by way of filing objections to the costs statement, the assessment of costs, such that it was determined as a default assessment.
  1. [45]
    Any deficiency on the part of the solicitors for Joelco in not seeking instructions from the person presumably authorized to give instructions on Joelco’s behalf is not a relevant matter here, especially where it was obvious from the original judgment (and liberty reserved) that costs were awarded and needed to be assessed.
  1. [46]
    Additionally, it is irrelevant that in Harris v Commissioner for Taxation [2006] 2 Qd R 445 orders were made which permitted former directors of the company in liquidation to contest an indemnity on the basis that procedural fairness was breached by an order being made in their absence.  The principles upon which Harris was decided were principles derived from the fact that third parties had been denied a right to make submissions at a time a consent order was made [see the reference to Hall v Commissioner of Taxation (2004) 51 ACSR 173]: at 451 [26].  As the following paragraph ([27]) shows, the conclusion was reached because there was “an implicit statutory direction that directors against whom the Commissioner proceeds under (the relevant statutory provision) be accepted as parties to the proceedings brought by the liquidator against the Commissioner”: at 451.  Furthermore,  Barrett J in Hall, as noted by Mackenzie J, went on to say that the decision by the Commissioner to pursue a remedy pursuant to that statutory provision in seeking to enforce the relevant statutory indemnity “carries with it a decision that the relevant directors should be afforded the position of third parties in the proceedings brought by the liquidator against the Commissioner … (and), as a corollary, it must be intended that the directors in question should be able to defend the liquidator’s claim against the Commissioner, that being a generally accepted incident of third party status”: at 451 [27].  Perhaps most importantly, Mackenzie J noted two further things: first, that Austin J in Deen-Wilcox (as liquidator of SJP Formwork (NSW) Pty Ltd (in liq)) & Anor v Commissioner of Taxation (No 2) (2004) 49 ACSR 325 observed that “direct statutory liability was of a kind that would normally provide a basis for the application of the rules of natural justice”; and, secondly, apart from the propriety of adopting a coherent approach by applying decisions in other jurisdictions under national legislation, there was no authority drawn to his attention, or which searches revealed, that suggested that the thrust of such authorities was wrong: at 451 [28] – [29]. 
  1. [47]
    The issue in this present case does not depend upon statutory indemnities or statutory rights (whether express or implied). Rather, as already canvassed, the issue is simply one of whether a contest can now be had about an issue that has been determined where a relevant estoppel provides the preclusion.
  1. [48]
    While it is accepted that the order for costs made by de Jersey CJ is not a direct holding as to the liability of the defendant under the Facility Agreement, if the guarantee under the Facility Agreement is engaged and the relevant estoppel applies, while it is not a bar to the defendant making submissions in this proceeding, the liability of the defendant, determined by the proper construction of the Facility Agreement, will show that such liability to the stated extent does so arise.
  1. [49]
    Rule 705 of the UCPR, contained in Chapter 17A, provides that the party entitled to be paid costs must serve a costs statement in the approved form on the party liable to pay the costs.  The definition of a “party” in Chapter 17A is contained in Rule 679 which, relevantly, includes, as a party, a person not a party to a proceeding by or to whom assessed costs of a proceeding are payable. 
  1. [50]
    Since the UCPR are a set of self-contained rules dealing with proceedings in the various designated Queensland courts, it is unlikely that their interpretation would permit such an expansive view that any person liable to pay costs pursuant to a guarantee, or even an indemnity, would come within the definition of a “party”.  The purpose of the “party rules” is to embrace those persons to whom the court extends the obligation in a particular proceeding because of the particular circumstances of that proceeding itself.  The decision of Dutney J in Glenwood Homes Pty Ltd v Eberhard & Ors [2008] QSC 192 illustrates this point.  Dutney J held that the better view seemed to him to be to construe “a party” -  there for the purposes of Rule 708(1)(a) - as applying “to each of however many parties are ordered to pay the costs” (emphasis added): at [15].  That is not the position here.  As for the contention that s 335 of the Legal Profession Act shows a consistency of approach between the submissions made as to the proper interpretation of the UCPR concerning the defendant, it is just irrelevant in this proceeding that a person who is not a client of a law practice but is under a legal obligation to pay the legal costs of the client has a right to apply for an assessment.  There is no doubt that in this case if the defendant had not taken the position he did and thereby subject himself to an estoppel by way of representation, consistently with everything that has generally been submitted on behalf of the defendant, he would have had a right to a separate assessment of the costs sought to be recovered from him. 
  1. [51]
    In consequence, while noting the many authorities that recognize that liabilities may be different even though they arise from similar, if not the same, circumstances, the problem for the defendant here is that he has not bought himself within the relevant principles that permit him to contest costs in this proceeding. Thus, it is not open to me to make an order pursuant to rule 371 of the UCPR that the plaintiff serve a costs statement on the defendant under rule 705. 

Indemnity

  1. [52]
    I accept the defendant’s submissions that, properly interpreted, Clauses 15.1 and 15.2 have the legal effect that in the circumstances of this particular proceeding the plaintiff’s ability to recover must depend upon the guarantee alone.
  1. [53]
    This follows because the indemnity provision applies only “if” the guarantee obligations are not enforceable against the defendant. There is nothing that has been presented to this court which would show that those obligations are “not … enforceable against the borrower”.

Width of guarantee obligations

  1. [54]
    Consideration of those cases dealing with specific provisions different from the ones under present consideration, such as occurred in Re Clark’s Refrigerated Transport [1982] VR 989 and National Bank of Nigeria Ltd v Awolesi [1964] 1 WLR 1131, are of little specific assistance in a case such as this. In so far as they are of general assistance, they merely focus attention on what is the objectively determined intention of the parties as expressed in the Facility Agreement, as interpreted in accordance with the principles already canvassed. 
  1. [55]
    Similarly, the decision of the New Zealand Court of Appeal in National Bank of New Zealand v West [1978] 2 NZLR 451 merely shows a court determining what in fact the parties agreed with respect to the guarantee in question.
  1. [56]
    Turning to the Facility Agreement itself (read as a whole), any ambiguity that might be thought to exist - because the recitals and the actual terms of the Facility Agreement (strictly construed) refer to the refinancing of a “current debt” secured over identified real property thereby indicating that, once the moneys advanced, together with accrued interest, were repaid, the obligations came to an end - must be rejected. The rejection occurs because there is no ambiguity arising from the words themselves, at least insofar as what is characterized as principal, interest, damages and other moneys under the Facility Agreement. Thus, should it be found that the liability determined against Joelco in the two decisions relevant here concerned recoverable principal, interest, damages or other moneys payable by the borrower under the Facility Agreement, it is difficult to escape the conclusion that that was an essential consequence of refinancing by way of the financial accommodation described. After all, that was the purpose and object of the Facility Agreement.
  1. [57]
    A careful reading of Joelco, in its initial decision making, reveals that, despite the statutory, or general law, basis for the arguments advanced, the legal arguments were directed towards what sums arose as obligations under the Facility Agreement which were then payable by the borrower.  If express reference in the reasons of de Jersey CJ were to be necessary, it appears first in the introduction to those reasons.  In paragraph [1], he states that the claim “rises from the provisions of a ‘facility agreement’ between the parties (with Mr David Thomas, as guarantor), dated 22 December 2006”.  The provisions in question included the present plaintiff exercising “its right pursuant to the agreement, following upon default by (Joelco), claiming to be entitled to interest payments at the rates of 19.2 per cent and 19.45 per cent from time to time, which (Joelco) contends were penal rates”: at [4].  That paragraph also refers to the present plaintiff charging a “rollover fee” disputed by Joelco and levying additional fees “because of early repayment of principal”. 
  1. [58]
    Secondly, the rest of the reasons given by de Jersey CJ illustrates that the issues involved the contractual regime imposed by the Facility Agreement concerning amounts owed by the borrower (Joelco) to the present plaintiff. The unconscionability was alleged to have followed from the exercise of rights pursuant to the Facility Agreement.
  1. [59]
    In the end, it is difficult to escape the conclusion that the claim for damages for breach of contract, for unconscionable conduct, under sections 12GF and 12GN of the Australian Securities and Investments Commission Act 2001 (Commonwealth) for breach of section 12A of that Act, and pursuant to the provisions of section 991A of the Corporations Act 2001 (Commonwealth) were all concerned with the ascertainment of the actual amount owed by way of principal, interest, damages and other moneys under the Facility Agreement, even though an amount had been “repaid” as earlier stated in these reasons. Consequently, no ambiguity arises.
  1. [60]
    Although some of the claims in question were undeniably with respect to “damages”, such damages as determined by the decision made by de Jersey J, if awarded, would have been damages consequent upon losses resulting from alleged overpayments of repaid moneys under the Facility Agreement or other breaches of it. The pleadings as tendered to this court illustrates this point: see paragraphs 41 to 45 of the (copy) Statement of Claim. See also, paragraph 10 of the plaintiff’s Outline of Argument.
  1. [61]
    Hence, on the conclusion that the surrounding circumstances set out in paragraphs [18] and [19] of these reasons are not directed to resolving ambiguity, they indicate that, applying the principles from both Ankar and Toll, the ambit ascribed still would not satisfy the assertion that what occurred in the proceeding before de Jersey CJ was outside what the guarantee covered. I do not accept that “accepted commercial practice” deposed to is in any way inconsistent with an ambit so determined, especially where the meaning and extent of “in full” remained in issue between the lender and borrower. Ironically, the lender has always maintained that the October 2007 payment did discharge all obligations: Joelco was, in fact, the disputer.
  1. [62]
    But to make things clear, I do not accept that, applying the proper interpretation principles that apply to guarantees, taking into account the interpretation clauses in the Facility Agreement itself and then applying both those generally to the objective theory of contract, the guarantee would be limited to the fixed time when principal, interest, damages and other moneys were asserted to have been first paid, especially where there existed later disputation about whether that payment of principal, interest, damages and other moneys was “in full”, and especially where the present plaintiff has always alleged that it was “in full”.
  1. [63]
    Reference to clauses such as Clauses 10, 11, 12, 13, 14, 15.3(d), 15.7, 16.6. and 17 does not show that the objective intention of the parties was to govern only their relationship with respect to the advance of the facility and the tendering of a sum of money as “full” repayment on 24 October 2007, although factually it might have (but for Joelco’s continuing disputation).
  1. [64]
    In particular, Clause 10, which deals with warranties and representations, while they might well be limited to the period before 24 October 2007, does not mean that the guarantee itself was so limited. As for Clause 11, while the present plaintiff obtained repayment of what it sought, Joelco contended that that repayment was capable of readjustment. Turning to Clause 12, the “general undertakings” mentioned there may well have terminated on 24 October 2007 but, again, it does not deal with the issue of why the guarantee does not have the width that I have determined. The power of attorney referred to in Clause 13 could well be justified as continuing until such time as no moneys legally remained outstanding under the Facility Agreement. And as for the remaining clauses referred to by the defendant in its written submissions, apart from Clause 15, there is nothing in them that is inconsistent with the guarantee clause being read in the way that I have concluded.
  1. [65]
    In particular, Clause 15.7 needs to be given some effect, particularly where it was only Joelco which alleged “breaches” having an ongoing effect. Otherwise, contentions of the defendant as to Clause 15 (the guarantee clause), relying on the fact that parts of it refer to payment being made or performance occurring, do not demonstrate that the payment on 24 October 2007 by itself discharged all continuing liabilities of the guarantor. The alternative construction would not require the guarantee to continue forever: simply to continue until all issues between the borrower and the lender concerning “payment” and “performance” were at an end.

Are the indemnity basis costs within the terms of the guarantee?

  1. [66]
    An alternative argument advanced by the defendant is that, if the width of the guarantee were to be found to apply to costs incurred as determined by de Jersey CJ in the second Joelco decision, such costs are still not recoverable under the Facility Agreement because they do not fall within Clause 5.2(a)(ii).  The premise is that otherwise a surprising result would occur because any alternative interpretation, particularly a literal one, would result in the present plaintiff having a contractual right to recover its costs from Joelco in circumstances “where it had been in breach of the agreement”.  The argument continues by contending that Clause 5 in general was directed to costs incurred by the present plaintiff, not in response to any action of Joelco, but rather “in its own right”, stated as finding support from Clauses 3.1, 9, and 14.2. 
  1. [67]
    The next plank in this argument is to contend that the claim for damages (canvassed earlier) was not a claim “to recover moneys” under the Facility Agreement but a claim that a party, by its conduct, had breached an obligation under the Finance Agreement, thereby forfeiting an entitlement of characterisation as a “right, power, or remedy under” the Facility Agreement.
  1. [68]
    But Clause 15.1 obliges the guarantor to guarantee, for the benefit of the present plaintiff, payment of all moneys “recoverable from” Joelco under or pursuant to or “in connection with” the Facility Agreement. That wording incorporates the effect of Clause 3.1 and its reference to “moneys hereby secured” [particularly paragraph (c)]. Although the plaintiff’s pleading did not develop this incorporation, since the Defence has left open the issue of the exact basis of the alleged liability (see paragraph 11), this Court, asked to finally determine all issues, is free to determine that the plaintiff’s reliance on Clause 15.1 [see paragraph 4(a) of the Statement of Claim] raises all relevant terms of the Facility Agreement for consideration, particularly given the defendant’s response to paragraph 14 of the Statement of Claim. See also, the definition of “Guarantor” in Clause 1.1 of the Facility Agreement. Plus, the definition of “Moneys Hereby Secured” covers “costs” incurred in “defending” any “rights or powers” under or “pursuant to” the Facility Agreement. It is therefore not simply a matter of limiting the guarantee to moneys payable as a result of rights arising “under” the Facility Agreement. If “moneys” is sufficiently wide to cover “costs” – and there is no particular reason why it should be so limited in this particular guarantee under this particular Facility Agreement – then it is open to conclude that the guarantee applies to costs recoverable from Joelco at least in connection with the Facility Agreement, once it is determined that the proceeding brought by Joelco and heard before de Jersey CJ otherwise engaged the guarantee. Besides, an interpretation that permitted the lender to recover costs it improvidently incurred would be rejected (if not on the basis of Ankar strictness, then perhaps as leading to an absurdity).
  1. [69]
    But even if I should be in error in that interpretation and am limited to the words used in Clause 5.2(a)(ii) – which refers expressly to “costs” – then consistently with the determination by de Jersey CJ in Joelco (concerning costs), the “preservation” of the plaintiff’s rights, if not a review or consideration of its rights, powers, and remedies under the Facility Agreement, occurred because, as found by de Jersey CJ, such was “required to be undertaken by (the present plaintiff) in defence of this proceeding”:  at [3].  With respect to the enforcement of the Facility Agreement, de Jersey CJ held that such enforcement covered enforcement by the present plaintiff, as lender, and therefore that part of Clause 5.2(a)(ii) was also applicable.  While I have some reservations as to whether “actual or contemplated enforcement” extends to enforcement by the borrower, if only because of the principles enunciated earlier concerning the strict interpretation of the guarantee, particularly in circumstances of ambiguity, I am content to accept that it has the required width.  After all, the taking of steps, as the present plaintiff did in the Joelco proceedings, was within an action in which it sought – even though as a defensive measure -  to enforce the agreement according to its full terms, true meaning, and effect, contending that it was unaffected by statutory and general law rights which could potentially degrade its express contractual rights.

Conclusion

  1. [70]
    This has not, by any means, been an easy set of conclusions to reach. It certainly is not a case in which either the plaintiff or the defendant could have seriously asserted that there was “no real prospect” of the other succeeding. Nevertheless, the task has been undertaken, perhaps because of the requirements of rule 5 of the UCPR, as well as the general need to allow parties to determine disputes in a lawful, timely and cost efficient way.
  1. [71]
    From all of the considerations undertaken, the plaintiff is entitled to recover, summarily, the sum of $113,515.37 as moneys due and owing under a written guarantee. The defendant’s application is unsuccessful, in its entirety.
  1. [72]
    Accordingly, judgment should be given to the plaintiff against the defendant in that sum; and no order should be made that the plaintiff serve a costs statement on the defendant.

Orders

  1. [73]
    In accordance with Form 58 of the approved forms under the UCPR, there should be an order made in the following terms:
  1. The judgment of the court is that the defendant pay to the plaintiff the amount of $113,515.37.

 

  1. [74]
    Although the Claim filed 17 May 2010 seeks interest pursuant to s 47 of the Supreme Court Act 1995, the plaintiff’s application for summary judgment does not.  Nevertheless, I have assumed that it may still be sought.  For that reason, there will be liberty to apply in the following form:
  1. The plaintiff has liberty to apply to seek interest on the judgment sum by 4:00pm on 7 September 2010 and the defendant has liberty to respond by submissions filed by 4:00pm on 10 September 2010.
  1. [75]
    There should be an order made that:
  1. The defendant’s application is dismissed.
  1. [76]
    With respect to costs, while the usual case would be that costs follow the event both with respect to the plaintiff’s application and the defendant’s application, the plaintiff seeks costs on the indemnity basis. Therefore, again, I will give liberty to apply in the following terms:
  1. The parties have liberty to file submissions with respect to costs by 4pm on 10 September 2010.
Close

Editorial Notes

  • Published Case Name:

    Balanced Securities Ltd v David Lionel Thomas

  • Shortened Case Name:

    Balanced Securities Ltd v Thomas

  • MNC:

    [2010] QDC 337

  • Court:

    QDC

  • Judge(s):

    Dorney DCJ

  • Date:

    03 Sep 2010

Litigation History

EventCitation or FileDateNotes
Primary Judgment[2009] QSC 23626 Aug 2009Plaintiff claimed damages for breach of contract, unconscionable conduct and contraventions of the Australian Securities and Investments Commission Act 2001 (Cth) relating to a facility agreement guaranteed by David Thomas; claim dismissed with costs assessed on the standard basis: de Jersey CJ
Primary Judgment[2009] QSC 30423 Sep 2009Application for order that plaintiff pay defendant's costs of [2009] QSC 236 on the indemnity basis; application granted: de Jersey CJ
Primary Judgment[2010] QDC 33703 Sep 2010Application for summary judgment in the amount of $113,515.37, being the defendant's costs incurred in [2009] QSC 236, against David Thomas as guarantor under the facility agreement; summary judgment granted: Dorney QC DCJ
Primary Judgment[2010] QDC 35522 Sep 2010Mr Thomas ordered to pay interest in the sum of $1,772.70 and costs of the summary judgment proceeding on the standard basis: Dorney QC DCJ
Appeal Determined (QCA)[2011] QCA 258 [2012] 2 Qd R 48227 Sep 2011Mr Thomas appealed against decision in [2010] QDC 337; appeal dismissed: White JA, M Wilson AJA and Martin J
Appeal Determined (QCA)[2011] QCA 27507 Oct 2011Mr Thomas ordered to pay the defendant's costs of the appeal assessed on the standard basis: White JA, M Wilson AJA and Martin J

Appeal Status

Appeal Determined (QCA)

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