Clark v Matton Developments Pty Ltd & Anor [2016] QSC 251

SUPREME COURT OF QUEENSLAND CITATION: Clark v Matton Developments Pty Ltd & Anor [2016] QSC 251 PARTIES: STEPHEN ROSS CLARK (applicant) v MATTON DEVELOPMENTS PTY LTD ACN 100 028 340 (first respondent) GALLOP RESERVE PTY LTD ACN 010 759 421 (second respondent) FILE NO: BS No 10079 of 2016 DIVISION: Trial Division PROCEEDING: Application ORIGINATING COURT: Supreme Court at Brisbane DELIVERED EX TEMPORE ON: 24 October 2016 DELIVERED AT: Brisbane HEARING DATE: 24 October 2016 JUDGE: Douglas J ORDER: 1. The Court declares that the applicant is entitled to be discharged and exonerated from all liability under the guarantee he executed in favour of Westpac Banking Corporation in or about December 2007 (and the judgment entered against him on 23 August 2011) by payment by the first respondent to the second respondent of the amount owing by the first respondent to the second respondent under a loan agreement entered into between the first respondent and Westpac Banking Corporation in or about December 2007. 2. No order as to costs CATCHWORDS: GUARANTEE AND INDEMNITY – RIGHTS OF SURETY – AGAINST PRINCIPAL DEBTOR – where the first respondent purchased a mobile crane – where the purchase was financed by Westpac Banking Corporation – where the first respondent was principal debtor – where Westpac Banking Corporation had a registered charge over all the assets and undertaking of the first respondent, including the proceeds of its insurance policies and debts owed to it – where the -- 1 of 5 -- 2 applicant, among others, executed a guarantee in favour of Westpac Banking Corporation to guarantee the performance of the first respondent’s obligations – where the mobile crane collapsed and was damaged beyond repair – where the first respondent was refused indemnity by its insurer, CGU Insurance Ltd – where Westpac Banking Corporation obtained default judgment against the applicant for the debt payable under the guarantee – where Westpac Banking Corporation assigned to the second respondent, by deed of transfer, its interests in the debt and guarantees – where the first respondent commenced proceedings in the Queensland Supreme Court against CGU Insurance Ltd seeking indemnity under the insurance policy – where the first respondent was unsuccessful at first instance but successful on appeal in the Queensland Court of Appeal – where special leave has been applied for in the High Court to appeal that decision – where CGU Insurance Ltd was ordered by the Queensland Court of Appeal to pay the first respondent the sum owing under the insurance policy – where it seems likely that the first respondent will not be in possession of funds to meet its obligation as a principal debtor – whether the applicant is entitled to a declaration that he is entitled to be discharged and exonerated from all liability under the guarantee he executed in favour of Westpac Banking Corporation by payment by the first respondent to the second respondent of the amount it owes the second respondent Rankin v Palmer (1912) 16 CLR 285; [1912] HCA 95, cited Salcedo v Mawarie Mining Co Pty Ltd (1991) 6 ACSR 197, cited Watt v Mortlock [1964] Ch 84, applied Woolmington v Bronze Lamp Restaurant Pty Ltd [1984] 2 NSWLR 242, cited COUNSEL: C A Wilkins for the applicant A Messina for the first respondent M T de Waard for the second respondent SOLICITORS: Broadley Rees Hogan for the applicant Redchip Lawyers for the first respondent Rostron Carlyle Lawyers for the second respondent [1] This is an application for a declaration that the applicant is entitled to be discharged and exonerated from all liability under a guarantee he executed in favour of Westpac Banking Corporation in December 2007. A judgment was entered against him in favour of Westpac Banking Corporation on 23 August 2011 pursuant to the guarantee, but Westpac Banking Corporation subsequently assigned to the second respondent to these proceedings, Gallop Reserve Proprietary Limited, its interests in its debt and the guarantees by deed of transfer made 10 April 2013. -- 2 of 5 -- 3 [2] The declaration sought goes on to seek an order that the applicant is entitled to be discharged by payment by the first respondent to the second respondent of the amount owing by the first respondent to the second respondent under the loan agreement to which I’ve referred which gave rise to the guarantee. The first respondent is Matton Developments Proprietary Limited, which was the owner of a mobile crane which was damaged beyond economical repair in February 2009. It was insured but the insurer refused indemnity under that policy of insurance. It succeeded in its refusal of that indemnity in a trial in this Court when Matton’s claim for indemnity was dismissed on 15 April 2015. Matton took that matter on appeal and it succeeded by majority in the Court of Appeal, but that decision is currently itself the subject of a special leave application to the High Court where it seems likely that the judgment will be stayed pending resolution of the proceedings in the High Court. [3] At present it seems likely that, absent success in obtaining an indemnity from CGU, Matton will not be in possession of sufficient funds to meet its obligation as a principal debtor. It presently does not have the ability to pay the debt on the evidence of Mr Kenwood, a director of Matton. Another complicating factor is that there is a resolution deed in existence between Matton, Mr Kenwood as director, and Mr Clark, the plaintiff in these proceedings. Clause 7.1 of that agreement recognises an agreement between Mr Clark and Mr Kenwood that the payment of any settlement or award from the CGU litigation will be banked to a solicitor’s trust account and distributed in a particular order of priority commencing with Westpac then a litigation funder, as may have been agreed between Mr Kenwood and Mr Clark, pursuant to clause 5.3 of that agreement, and then to an expert and then only to Mr Clark and Kenwood of any excess. [4] I understand there is a dispute as to whether any litigation funder was ever agreed between Mr Clark and Mr Kenwood pursuant to clause 5.3, and there is also a potential dispute about a later attempt to reverse priorities as between Westpac and Gallop Reserve in respect of the distribution of funds. Those matters are not before me for determination. What is before me is whether I should make a declaration of the nature sought. Declarations of that nature have been made before, notably by Mr Justice Wilberforce, as his Lordship was then, in Watt v Mortlock [1964] Ch 84. His Lordship discussed the issues particularly at pages 87 to 88. He was concerned whether the Court was justified in granting a quia timet declaration of the nature sought and an order for payment of the nature sought. [5] He was satisfied on the authorities that such an action can be brought, referring to Ascherson v Tredegar Dry Dock & Wharf Co Ltd [1909] 2 Ch 401, where at the instance of a surety a declaration was granted that the plaintiff was entitled to be discharged and exonerated from liability under the guarantee by payment by the defendant company of the amount owing by it as principal debtor. An order was also made for payment of the amount necessary so to do. His Lordship said that it seemed that the company must have been regarded as in possession of assets sufficient to enable it to pay the debt if it wished to do so, but no specific reliance was placed on that point in the judgment or in the argument. [6] In a later case called Tate v Crewdson [1938] Ch 869, there was no indication in the facts that the defendant was in possession of funds sufficient to discharge the principal indebtedness, and in a third case discussed by his Lordship, In re Anderson-Berry. Harris -- 3 of 5 -- 4 v Griffith [1928] Ch 290, the Court granted similar relief. Although the action was clearly on a quia timet basis, his Lordship said that case was, however, an easier one than the one before him because there there was a definite fund which the Court could protect in order that it might be used to pay off the indebtedness instead of being distributed by the administrator. His Lordship went on, however, to guard himself against any suggestion that the order to pay can be enforced in any specific manner and decided that it was right to add to the relief claimed a direction that in the event of the defendant failing to make the payment which was ordered, the plaintiff would be at liberty to apply. [7] The approach of recognising the possibility of relief such as this has been recognised in Rankin v Palmer in the High Court in (1912) 16 CLR 285 at 289-290. In 1984 Heydon J in Woolmington v Bronze Lamp Restaurant Pty Ltd [1984] 2 NSWLR 242 at 243 paragraph G considered that a guarantor was plainly entitled to the declaration, that he was entitled to be exonerated by the principal debtor, and his Honour went on to make a payment order there as well with liberty to apply in the event that the principal debtor failed to comply with the payment order. [8] The relevance of potential or actual insolvency of the debtor company was referred to also in Salcedo v Mawarie Mining Co Pty Ltd by McClelland J in the New South Wales Supreme Court in (1991) 6 ACSR 197 at 202 where his Honour was concerned that an order that funds be paid to a bank may well have the effect of giving the bank and indirectly the plaintiffs a preference over other creditors. His Honour then also considered the substantial risk in that case that if the funds were returned to the control of the directors of Mawarie they would be dissipated and that the plaintiffs were entitled to be protected against any such risk. His Honour referred to a statement by Justice Holland in an unreported decision, National Commercial Bank v Wimborne, 28 April 1978, again in the New South Wales Supreme Court, that the form of the relief will be moulded according to the circumstances of the case to give effect to the particular equity, the equity here being the right to an order preventing the guarantor from being required to pay. And his Honour went on to make orders, the intention of which was that the moneys in the hands of a receiver be paid to a bank on behalf of Mawarie, putting the bank on notice that those funds may be recoverable as a preference. [9] It seems to me appropriate to make the declaration sought in these proceedings as it is, essentially, simply a recognition of what the law is in respect of the obligations of a principal debtor to a guarantor, and is not one that requires the immediate payment of the debt, but a recognition of the applicant’s entitlement to be discharged and exonerated. I am concerned, however, about the making of the order for payment at this stage, having regard to the existence of the agreement, called a resolution deed, and the potential that it may apply to alter the priority for payment of amounts arising in these proceedings. The fact that the current judgment in favour of Matton may or may not survive seems to me to be less relevant to the equities here than the alleged agreement to re-order the priority of payment. It does seem to me to have some significance as to whether I should make an order now for payment forthwith of the amount said to be owing by the first respondent, Matton, to the second respondent – in this case, Gallop Reserve, the assignee of the loan and the litigation funder in respect of the litigation against CGU, the insurer. [10] The protection afforded by the liberty to apply provision may have been sufficient to allay my concerns, but it did seem to me that there was something in the argument by Mr -- 4 of 5 -- 5 Messina that in circumstances like this it would not be appropriate that his client be ordered to make payment, where the potential for it to be in breach of a court order existed before the resolution of the issues about whether the money would come into its possession and whether there had been a determination of the priorities for payment in respect of the matter. [11] What I propose to do, then, with the draft order is to make the declaration sought and to hear submissions about costs. I don’t see any point in ordering liberty to apply without the order for payment. Do you have any submission about that? [12] MR WILKINS: No, I don’t see any point in that either, your Honour. [13] HIS HONOUR: So I’ll delete 1 and 2. The issue is really about costs, then, isn’t it? I should add to my previous reasons that one of the reasons why the application was brought on the applicant’s point-of-view was its potential utility in a possible bankruptcy application by Gallop Reserve against him and as being relevant to whether the debtor had satisfied the Federal Circuit Court or Federal Court that for other sufficient cause a sequestration order ought not to be made under section 52(2)(b) of the Bankruptcy Act 1966 (Commonwealth), and there is therefore some utility in the seeking of the declaration where both parties have succeeded to some extent. [14] However, I was urged, at least on behalf of the respondents, to make no order as to costs, something which the appellant was also willing to concede to. So it seems to me that I should make an order in terms of the declaration sought and otherwise make no order as to costs. I might as well annotate the order with that. So I’ve changed it to say otherwise, and the order of the court is that there be no order as to costs. Thanks for your help. -- 5 of 5 --