BOWESCO PTY LTD -v- READ [2012] WASC 340 (18 September 2012)

3 Westpoint Management Ltd (WML) also granted a facility to Lanepoint. The LanepointWML facility was secured by a second ranking charge over Lanepoint's assets and undertakings. Prior to this transaction, Suncorp had granted a $1.530 million facility to the plaintiff. This facility was secured by a charge over the plaintiff's assets and undertakings and a real property mortgage.

4 In March 2006 Suncorp appointed receivers and managers to Lanepoint. A few days later WML also appointed receivers and managers to Lanepoint. On 15 March 2006 Suncorp made a demand against the plaintiff pursuant to its guarantee as to the LanepointSuncorp facility. In late March 2006 the plaintiff entered into a contract to sell the property the subject of its real property mortgage - the Warnbro Liquor Store - for $2.5 million plus GST.

5 On 3 April 2006 Suncorp appointed receivers and managers to the plaintiff. The receivers and managers brought about the completion of the sale of the Warnbro Liquor Store. This occurred on 16 June 2006. The proceeds were applied to meeting the plaintiff's debt to Suncorp and part of the plaintiff's debt to Suncorp under its guarantee of the LanepointSuncorp facility. The amount paid under the LanepointSuncorp facility was $972,749.

6 On 27 March 2007 the receivers and managers appointed to Lanepoint brought about repayment in full of the remainder of Lanepoint's debt owed to Suncorp under the LanepointSuncorp facility. Before partially retiring, the receivers and managers suggested the plaintiff had become entitled to a subrogated claim against Lanepoint. On 4 April 2007 an amount of $985,535 was paid by Lanepoint to the plaintiff pursuant to the subrogated claim. For reasons not presently relevant, on 22 November 2006 there had been a payment of $20,524 by Lanepoint to the plaintiff pursuant to the subrogated claim. As a result then, just over $1,006,000 has been paid by Lanepoint to the plaintiff. But the plaintiff says it is entitled to further sums. The basis of its claim is set out in par 28 of the statement of claim under the subheading 'Loss suffered by the plaintiff'. The paragraph reads as follows:

By reason of the matters pleaded above the plaintiff incurred loss as follows:

28.1 a liability for additional interest to Suncorp on the plaintiff's debt of $1,500,000 over the 72 day period from 3 April to 16 June 2006 at 13.5% pa or $39,945;

28.2 from the assets of the plaintiff $1,072,511 was paid to Suncorp in payment of the liability of Lanepoint to Suncorp and of that amount $985,535 was repaid for a net loss of $86,976 as at 4 April 2007;

28.3 $550,000 was paid by the plaintiff to Lanepoint to complete the Development;

28.4 The Bowesco Receivers charged $453,000 to the plaintiff for their fees by reason of Lanepoint's default under the SuncorpLanepoint Charge; and

28.5 $132,000 in legal costs being expenditure incurred by the plaintiff arising from the acts of Lanepoint.

7 The defendant did not pursue any claim in relation to par 28.2. It is the defendant's position the plaintiff is entitled to an amount of $17,722.10 and not the amount claimed. But this is an argument for another day. It was the defendant's position the plaintiff could not maintain the other four parts of its claim and summary judgment should be entered in relation to these matters.

8 Each of these claimed amounts requires further explanation. The claim in par 28.1 relates to the delay in settling on the Warnbro Liquor Store. The plaintiff says the loss was caused by the actions of Suncorp as the secured creditor of Lanepoint and because the plaintiff being a surety for Suncorp's loan to Lanepoint. It is said this loss to the plaintiff was suffered because of Lanepoint's default. The plaintiff says it is subrogated to Suncorp's rights and entitlements and therefore can recover interest payments.

9 Much the same argument is raised with respect to the charges levied by the receivers appointed to the plaintiff. The plaintiff says the appointment of receivers was directly related to Lanepoint's default under the SuncorpLanepoint charge. Because the plaintiff stands in the shoes of Suncorp, it can now recover the fees charged. With respect to par 28.5 and the legal costs expended, no specific plea in relation to these costs is made. But once again the plaintiff alleges they can be recovered under the rights of subrogation.

10 The position with respect to par 28.3 and the amount advanced by the plaintiff to Lanepoint to complete the development is slightly different. The circumstances are explained in the affidavit of Norman Phillip Carey sworn 17 August 2012 and filed in opposition to this application. On 9 February 2006 Suncorp wrote to Lanepoint alleging that Lanepoint was in default. Mr Carey, who was at that time a director of Lanepoint, contacted the State Manager of Suncorp. It was agreed between the two Lanepoint was not in default with Suncorp. It was further agreed the plaintiff would fund the completion of the development over which Suncorp held a mortgage and which was the security for the SuncorpLanepoint facility. That agreement is evidenced by correspondence which appears as annexure NPC3 to Mr Carey's affidavit.

11 The plaintiff's argument in relation to the $550,000 which was advanced to allow completion of the development can be summarised in this way. Because Lanepoint was not in default, Suncorp would have been obliged if called upon to do so to advance a further $550,000 to allow for completion of the development. That would have increased Lanepoint's indebtedness to Suncorp. Because the money was advanced by the plaintiff and was not added to Lanepoint's debt to Suncorp, the plaintiff should now be regarded as subrogated so that it can claim the $550,000. As I understand the argument put by the plaintiff, if subrogation is not available then it can recover the amount advanced on the basis of unjust enrichment.

12 Both the written and oral submissions of the defendant make it plain the defendant takes the view subrogation is only available when a party has actually made payment. In particular, the defendant relies upon the following passage from the decision of the High Court in Bofinger v Kingsway Group Ltd [2009] HCA 44; (2009) 239 CLR 269. The court said:

The right of subrogation in favour of a surety recently was described by Sir Andrew Morritt VC as follows:

'The right operates so as to confer on the surety who has paid the debt in full the rights against the debtor formerly enjoyed by the creditor or by imposing on the creditor the obligation to account to the surety for any recovery in excess of the full amount of his debt.'

That statement is important for this case because the indebtedness to the first mortgagee had been paid in full and the securities held by the first mortgagee discharged. The remedies equity provides must, as will appear, found upon the obligation of the first mortgagee to account [4].

13 In this case we are concerned with subrogation as it applies to guarantees. In Meagher RP, Heydon JD and Leeming MJ, Meagher, Gummow & Lehane's Equity: Doctrines & Remedies (4th ed), the learned authors put the position in this way at [9215]:

In Craythorne v Swinbourne [1807] EngR 343; (1807) 33 ER 482 at 485 Lord Eldon LC accepted the following formulation by Sir Samuel Romilly of the right of subrogation enjoyed by sureties, secured or unsecured:

... a surety will be entitled to every remedy, which the creditor has against the principal debtor; to enforce every security on all means of payment; to stand in the place of the creditor; not only through the medium of contract, but even by means of securities entered into without the knowledge of the surety; having a right to have those securities transferred to him; though there was no stipulation for that; and to avail himself of all those securities against the debtor.

It is the debtor's obligation to indemnify the surety against any loss he incurs upon the guarantee and therefore it is against conscience for the debtor to go free from the rights of the creditor against him upon payment by the surety; in this sense the subrogation of the surety to the rights of the creditor is based upon 'natural justice': Yonge v Reynell [1852] EngR 655; (1852) 68 ER 744.

14 In this case it is in my view arguable that the plaintiff as surety has incurred loss above and beyond what it has paid out under the guarantee. In RegistrarGeneral v Gill (Unreported, NSWCA, 16 August 1994) (Gleeson CJ, Mahoney & Priestley JJA). Gleeson CJ and Priestley JA said that:

The equitable principles relating to subrogation aim to adjust the interests of three parties, such as a creditor, a debtor and an insurer or surety, in such a way as to avoid the unconscionable result of double recovery by the creditor or inequitable discharge of the liability of the debtor.

15 To enter judgment for the defendant I would have to be satisfied the plaintiff's position is not arguable. There are no cases, it would seem, where a similar argument has been raised. It may be equity will adapt remedies to cover losses such as those allegedly sustained by the plaintiff. In any event, I am not satisfied the position is so clear as to allow judgment to be entered for the defendant on the plaintiff's claim.

16 I would dismiss the defendant's application. The costs of the application including reserved costs should be costs in the cause.