And, at 216:
"The cases to which I have referred demonstrate that the obligation to make restitution, which courts of equity have from very early times imposed on defaulting trustees and other fiduciaries is of a more absolute nature than the common law obligation to pay damages for tort or breach of contract. It is on this fundamental ground that I regard the principles in Re United Railways of Havana and Regla Warehouses Ltd (Tomkinson v First Pennsylvania Banking and Trust Co) [1960] 2 All ER 332; [1961] AC 1007 as distinguishable. Moreover, the distinction between common law damages and relief against a defaulting trustee is strikingly demonstrated by reference to the actual form of relief granted in equity in respect of breaches of trust. The form of relief is couched in terms appropriate to require the defaulting trustee to restore to the estate the assets of which he deprived it. Increases in market value between the date of breach and the date of recoupment are for the trustee's account: the effect of such increases would, at common law, be excluded from the computation of damages; but in equity a defaulting trustee must make good the loss by restoring to the estate the assets of which he deprived it notwithstanding that market values may have increased in the meantime. The obligation to restore to the estate the assets of which he deprived it necessarily connotes that, where a monetary compensation is to be paid in lieu of restoring assets, that compensation is to be assessed by reference to the value of the assets at the date of restoration and not at the date of deprivation. In this sense the obligation is a continuing one and ordinarily, if the assets are for some reason not restored in specie, it will fall for quantification at the date when recoupment is to be effected, and not before."
123 It will be seen that the reasoning of Street J in this case is closely tied to the particular breach of equitable duty which his Honour was there considering. The remedy which is appropriate for breach of one type of equitable duty is not necessarily the same as the remedy which is appropriate for a different type of equitable duty. Rather, the remedy which is appropriate will depend upon the rationale for the existence for the particular equitable duty in question. In the case of a trustee's duty to preserve the trust assets, the point of the duty is that the assets ought be available for performance of the trust obligations; hence, if any of the assets are wrongly disposed of, it is the trustee's responsibility to make sure that the trust fund is put in the same situation it would have been in if the wrongful disposition had not occurred. This is a remedy which is within the scope of the purpose which the equitable obligation is aiming to achieve. That is not the situation which exists in the present case.
124 (Even in connection with the breach of a fiduciary duty, there is room for argument about whether a Court of Equity will impose liability for absolutely all losses which would not have been sustained, but for a breach of equitable duty. There still may be a need to show that, in a real sense, a loss which follows on from a breach of fiduciary duty has actually been caused by that breach of fiduciary duty (Canson Enterprises Ltd v Boughtom and Company (1991) 85 DLR (4th) 129, applied by Burchett, Gummow and O'Loughlin JJ in Bailey v Namol Pty Ltd (1994) 125 ALR 228 at 235). See also the cases and extra judicial writings collected by Spigelman CJ in O'Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262, at 276.))
125 The equitable duty which a creditor owes to a guarantor is, by contrast, not a fiduciary duty. Rather, it is a duty which, like the equitable duties attaching to exercise of a mortgagee's power of sale, exists even though there is no fiduciary relationship between mortgagor and mortgagee.
126 All the cases to which I have been referred on this topic are ones where the amount by which the guarantor's liability was reduced, was ascertained by deducting from what would otherwise be the amount of the guarantor's liability, the value of the security which had been lost. Some are mentioned at paragraphs 95 to 98 above. In Capel v Butler (1825) 2 Sim. & St. 457 White had agreed to pay Butler an annuity, payment of which would be secured by, (amongst other things) an assignment of two ships belonging to White, and the proceeds and earnings of those ships. The plaintiff was a surety for payment of the annuity. Butler sued the plaintiff when the annuity fell into arrears. The plaintiff went to the Equity Court, seeking a common injunction to restrain that action. The deed which created the annuity, gave the plaintiff the right to repurchase the annuity, on payment to Butler of a particular sum of money. The plaintiff also sought from the Equity Court, a decree that he was entitled to repurchase the annuity on payment of that sum of money, minus the value of the two vessels. The two vessels had been sold by White, who applied the proceeds to his own use. White had been able to do so because certain formalities required by the Ship Register Act were not complied with when the vessels were assigned to Butler as security. Those formalities were not complied with as a result of a deliberate decision by Butler not to do so, having been advised by counsel that compliance with those formalities was unnecessary. Sir John Leach V-C held that:
"…the plaintiff, as surety, was entitled to take advantage of the proviso for redemption; and that the value of the two vessels being lost to him by the neglect of the defendant Butler, he was entitled to deduct that value from the stipulated price of redemption."
127 Likewise in Strange v Fooks (1863) 4 Giff 408; 66 ER 765 Sir John Stewart V-C said [at 768 of ER],
"It seems to me that this case comes within the general doctrine of the Court that a surety being entitled to the benefit of every security, where a security is lost through the negligence of the principal creditor, by his not having had it perfected in the proper way, the surety is released to that extent."
128 In Wulff & Billing v Jay (1872) LR 7 QB 756 the plaintiffs lent money to two traders, for which the defendant became surety. The traders assigned, to the plaintiffs, as security for the debt, the lease of their business premises, and plant, fixtures and stock in trade. The deed which made that assignment was not registered as a bill of sale. Though the plaintiffs had notice that the traders had failed to pay an instalment of interest, when it fell due, they did not enter into possession. Later, the plaintiffs received notice that the traders were insolvent, but they still allowed them to continue in possession. The traders subsequently became bankrupt, and the trustee of the bankruptcy seized and sold the goods and chattels which had been assigned by the deed. Cockburn CJ held that the defendants were entitled to set off, against their debt, the amount of the security which the plaintiffs, by their laches, caused to be lost. He said (at 762):
"Cases have been cited and authorities have been referred to in Storey's Equity Jurisprudence, which abundantly establish that which is a common and well known proposition, that where a debt is secured by a surety, it is the business of the creditor, when he has security available for the payment and satisfaction of the debt, to do whatever is necessary to make that security properly available. He is bound, if the surety voluntarily proposes to pay the debt, to make over to the surety what securities he holds in respect of that debt, so that, being satisfied himself, he shall enable the surety to realise the securities and recoup himself the amount of the debt which he has had to pay. That is now a well known proposition. Here, by registering the bill of sale, and by afterwards availing themselves of the power which they possessed to take possession, the plaintiffs might have secured the payment of the debt to themselves, or by protecting the securities and holding them in their hands they could have made them over to the surety when the surety was willing, or was called on, to pay; but by omitting to do what was necessary to place themselves in that position, and by allowing bankruptcy to supervene so as to enable the trustee under the bankruptcy to take possession of these goods adversely, it is clear they have placed the surety in a possession very detrimental and prejudicial to the surety; and for that the surety ought to have, according to the general doctrine, a remedy. …then it is said, granted that at the end of the time when the interest had accrued the surety was liable both for principal and interest, and the principal and interest together amounted to £307.10, although the surety is entitled to say to the creditors, "I am entitled to either have such security as you have made available for this debt, or I am entitled to set off the amount against what I owe you under my agreement to indemnify you against loss in respect of this debt", yet he can only say it to the extent of the value of the security itself."
129 Hannen & Quain JJ agreed in the result, and gave reasons not inconsistent with those I have just quoted.
130 As well as there being unanimity in the remedy which decided cases have allowed, when a creditor has prejudiced a security, there are reasons of principle why the appropriate remedy for equity to offer, when a guarantor is prejudiced through loss of a security which the creditor had, is to reduce the guarantor's liability by the value of the security which has been lost. It is a fundamental principle that (absent some contractual stipulation to the contrary) a guarantee is a secondary liability. While a creditor who has the benefit of a guarantee is free, if he chooses, to sue the guarantor rather than to sue the principal debtor, if the creditor takes that choice the guarantor will be given a remedy by equity, of subrogation to the rights which the creditor had against the principal debtor. What is driving equity here is that, while the creditor is free to choose which of the means of recovering his debt he will adopt, his choice ought not determine where the loss ultimately lies, as between the guarantor and the principal debtor. It is for this reason that the surety is entitled, upon payment of the guaranteed debt, to be subrogated to any securities which the creditor had for that payment.
131 If the creditor has, through neglect, caused a security to be lost or impaired, the value of the guarantor's right of subrogation is correspondingly diminished. In other words, equity's capacity to ensure that the arbitrary choice of the creditor about from whom he seeks recovery, does not decide where the loss ultimately falls, is diminished. There then arises an equity between the creditor and the guarantor - because, as a result of the creditor's neglect, in losing or impairing a security, equity's ability to ensure that the arbitrary choice of the creditor about whom to sue does not decide where the loss ultimately falls has been diminished, equity decides that the ability of the creditor to enforce the guarantee must be correspondingly diminished. When all that is driving equity in this area is ensuring that a guarantor does not suffer in consequence of the arbitrary decision of a creditor about who to sue first, the area of equity's concern, the scope of the purpose which the equitable obligation is aiming to achieve, is fully satisfied if a remedy is provided which reduces the guarantor's liability by the value of the security which has been lost. Equity does not, in this situation, adopt an approach analogous to that of the common law of negligence, of saying, "has there been a breach of duty, and if so what (subject to questions of remoteness of damages) are its consequences?" Rather, equity gives a remedy which will fulfil the purpose for which the equitable duty was held to exist in the first place.
132 The equitable duty comes to be enforced at the time that the guarantee is sued on. It is at that time that the equity court enquires whether the creditor once had a security from which it could have satisfied the debtor's obligation (in whole or part) and whether that security has been lost through the negligence of the creditor. If that situation exists, that is enough to give rise to the equitable defence.
133 It may be that, once it is shown that a security has been lost through the creditor's negligence, the creditor is able to show that this loss of security has not prejudiced the guarantor. This would be the case if the creditor showed that, notwithstanding the loss of one security, there remained ample security, that the guarantor could be subrogated to, which would discharge the entire debt, or if the creditor showed that the debtor had ample means to meet a judgment on the implied right of indemnity which the debtor owes to the guarantor, and that no practical obstacle lay in the path of enforcing that right of indemnity. In that situation the loss of the security does not call for a reduction in the liability of the guarantor. However, in the present case, Mr Brueckner has not undertaken the task of showing that the Brosters have not been prejudiced by the loss of the security.
134 Applying those principles in the present case, Mr and Ms Broster are entitled to have their liability under the guarantee reduced by $275,000.
135 As this is Mr Broster's only defence, it follows that judgment will be entered against Mr Broster for the amount of damages I have found appropriate to Satellite Ultimo ($579,000), minus $275,000. Thus there will be a judgment against Mr Broster in the sum of $304,000. Section 94 interest will also be allowed on that judgment from the end of April 2000 to the date of making orders pursuant to this judgment.
136 Ms Broster has additional defences, and to these I now turn.
Ms Broster's Defences - Failure to Disclose Unusual Features of Transaction
137 This is a transaction which was unusual in several important ways. The full purchase price was paid as a deposit, not the usual 10% of the purchase price. That deposit was released to the vendor, not held by a stakeholder and invested. Mr Brueckner understood that Satellite Ultimo was free to use the money "for whatever purpose". He was told that it was to be used for marketing the units, but did not make any enquiries as to how it was to be used in that way, and did not have the benefit of any legal obligation that it would be used in that way. The time between exchange and completion was likely to be a very long one - see paragraph 12 above. The restriction on the right to caveat contained in special condition 5, while it might not have been unusual for units being purchased off the plan, was unusual for property sales generally. The list price of the two units was, in total, $544,000, yet Mr Brueckner was being sold the units for $275,000 - that is, the units were being sold to him for, in round terms, half the listed price. This was done at a time when contracts were being exchanged for other units in the development at prices equal to, or close to, the list price.
138 The guarantee came to be included in the contract because Mr Brueckner insisted on having a guarantee from the directors and from Mr Broster. On 23 July 1997, Mr Dockrill sent to Mr Pappas a draft of a guarantee agreement. That guarantee was in the form of the guarantee agreement ultimately signed, save only that it made provision for being executed by Mr Fisher and Ms Broster alone. Mr Fisher and Ms Broster were the only directors of Satellite Ultimo.
139 On 24 July 1997 Mr Brueckner instructed Mr Pappas that he also required a guarantee from Mr Broster (who was the company secretary, and actively involved in the development). This was so notwithstanding that on 15 July Mr Brueckner had told Mr Pappas that Mr Broster, "owns nothing".
140 On 25 July 1997, Mr Dockrill sent to Mr Pappas a fax which enclosed a copy of a signed guarantee agreement. That signed guarantee agreement was executed by Mr Fisher and Mr Broster. The provision, in the draft guarantee, for Ms Broster to sign had been crossed out, and Mr Broster's name had been inserted in handwriting. A fax transmission header shows that copy of the signed guarantee agreement to have been sent at 3.15pm. However, I am not prepared to place any reliance on this timing. Exhibit 4D5 is a fax sent by Day Dockrill on 23 July, the fax transmission heading of which shows it as being sent at 3.49pm, while a "facsimile sent" stamp, which has been completed in handwriting, shows it as having been sent at 10.30. If the timer on Day Dockrill's fax was inaccurately set on 23 July, it might have been inaccurately set on 25 July also.
141 On 25 July 1997 Mr Brueckner sent a fax to Mr Pappas saying:
"Talked with J Broster this morning and he agreed to add his guarantee to the existing two in order to go ahead with the deal. Please release my cheque to the Satellite Group, once you have J Broster's original personal (or directors) guarantee on hand."
142 Ms Broster's signature on the original of the guarantee appears to be witnessed by Martin Keene.
143 The original of the two guarantees which Ms Broster signed, was in evidence before me. At least three different pens were used in the execution of that document. The signatures of Mr Fisher and Mr Broster appear to be in one pen. An attestation clause reading, "signed by Suzanna Mary Broster in the presence of" appears to be in a darkish blue pen. The signature of Mr Keene, the words "Martin Keene witness", underneath Mr Keene's signature, and the words "Suzanna Mary Broster" underneath Ms Broster's signature appear to be in a lighter blue pen. Ms Broster's signature is in a black pen which (judging just by visual observation) might possibly be the same pen as Mr Fisher and Mr Broster used. However, from the fact that at some stage on 25 July 1997 Mr Dockrill had sent to Mr Pappas a copy of the guarantee executed only by Mr Fisher and Mr Broster, it is clear that the signature of Ms Broster was placed on the document at a different time to that when Mr Fisher and Mr Broster signed.
144 Ms Broster has not only placed her signature on each guarantee, she has also initialled it in three different places, where there had been crossing out of some of the typewritten text, and handwritten insertions into the text.
145 Mr Keene is a man who had introduced Mr Brueckner to the property, and was entitled to a commission on a successful sale of the units which Mr Brueckner purchased. Mr Brueckner gave this evidence about Mr Keene:
"Q. Is this the only property with which you have dealt with Martin Keen?
A. No, we have afterwards become - I can't say friends, but definitely met on a regular - fairly regular basis, perhaps once a month, every two months where we discuss various other opportunities, business opportunities.
Q. And you continue to have those dealings with him, do you?
A. Not anymore, no.
Q. But so far as you know, he is alive and well?
A. Yes, definitely.
Q. Living in Sydney?
A. Yes."
146 Ms Broster gives evidence:
"I cannot recall having executed the Guarantees, nor do I recall having done so in the presence of a person called Martin Keene. I do not recall ever having met a Martin Keene. I do not recall being given an explanation about the nature of the transaction that was being guaranteed. Nor do I recall being given a copy of the Guarantees after signing them."
147 I accept that evidence.
148 Mr Broster gives evidence that on 25 July he and Mr Fisher went to the office of Mr Dockrill. Mr Dockrill told him that the purchaser wanted his wife's signature as well, and handed him the contract. Mr Broster gives evidence that Ms Broster had no involvement with the company, or with the Ultimo project. He knew that a special discount offer had been made to Mr Brueckner in relation to the two units, but so far as he was aware Ms Broster had not been consulted about it.
149 Mr Broster calls his wife "Soo". He gives evidence:
"I then telephoned my wife on the walk back to our offices, using my mobile telephone and we had a conversation to the following effect:
I said: "I have a sales contract for you to sign - it's for our Ultimo development. We have one buyer who wants to buy two units". I remember her sounding very busy and agitated on the telephone.
Soo said: "I'm stressed and I'm busy, I'm late in picking up the children from day care - can't you sign it for me or bring it home for me to sign tonight".
I said: "No I can not - they want your signature as well as mine - can't you not help, we need the pre-sale, you know that. The buyer is going overseas tonight and wants to exchange before going away. I'm getting hassled by Greg for not getting enough pre-sales and we need a certain amount sold before construction can start. What if I jump in a car right now".
Soo said: "But I'm already late for the children".
I said: "Look, there aren't that many purchasers out there who are willing to buy two units, my job is hard enough as it is in marketing these units - can you just wait ten minutes please".
Soo said: "I will wait ten minutes only, then I'm going to collect the children and not a second longer".
I got into a car and took the page she just had to sign and rushed from North Sydney to Beauty Point where we lived. I cannot remember if Martin Keene came with me and cannot remember if I brought the rest of the contract with me. I believe that the page, which Soo signed, was at the time not affixed to the bulk of the contract.
I remember meeting Soo just as she was getting ready to leave the house with her car keys in her hand. She seemed impatient and angry. We had a conversation to the following effect:
Soo said: "You're lucky to catch me because I was just about to leave to collect the children, can't this wait? I just do not have time for this now, Jonathan."
I said: "No, we need to pre-sell as many units as we can in Ultimo and we have a purchaser who is buying two apartments - so please don't be difficult, just sign and I will get out of your hair".
Soo said: "Fine - now I'm going to be late for the kids, I just hope it was worth it. Next time give me some more warning".
I said: "I'll try but these things are never up to me".
Soo said: "Well that's your problem, don't make it mine".
Soo then signed at the places I pointed out to her and she then jumped into her car and drove off to collect the children from day care in Mosman. I remember that she did not read the document she signed and I do not believe I showed her the remaining bulk of the contract.
I do not remember if Martin Keene was with me when Soo signed the piece of paper. He may have been in the car with me when I drove to the house.
I then got back into the car and returned to the office. I have not seen or spoken to Martin Keene for several years.
I do not remember having any further discussions with Soo about the guarantee prior to the service of a demand in relation to that guarantee in about October 2001.
I do not recall having a discussion at any time with Soo about the commercial viability of this project or any of the commercial matters concerning this project at any time."
150 I accept that Ms Broster did not have any of the unusual features of the contract, which I have earlier listed in paragraph 137 above, explained to her before she signed. Nor did she know about any of those unusual features through some means other than being provided with an explanation.
151 In Westpac Banking Corporation v Robinson (1993) 30 NSWLR 668 Clarke JA (with whom Handley JA agreed) said, at 688:
"…a duty to disclose would arise only where there existed facts the non disclosure of which would effectively misrepresent material aspects of the transaction which the guarantor was undertaking to guarantee. Thus, in Goodwin , Barwick CJ spoke of the duty to disclose anything which has taken place between the creditor and the debtor "which was not naturally to be expected in the transaction".
The failure to disclose circumstances which would not naturally be expected in the transaction would represent to the guarantor that no such circumstances existed."