Carr and Purves v Thomas

Court of Appeal (NSW)|2009-04-22|Before: Beazley JA, Ipp JA, McColl JA, Davies J, McDougall J, Coll JA

CITATION: Carr and Purves v Thomas [2009] NSWCA 208

JUDGMENT OF: Beazley JA at 1; Ipp JA at 1; McColl JA at 1

The following orders and directions are made in each matter: (1) Grant leave to appeal; (2) Appeal allowed; DECISION: (3) Set aside the orders made by the trial judge; (4) Order that the notice of motion for summary dismissal of the cross-claim be dismissed; (5) Order the respondent to pay the appellants' costs at first instance and on appeal. The respondent is to have a certificate under the Suitors' Fund Act 1951 in respect of the costs of the appeal, if otherwise entitled; (6) Direct the appellants to file a notice of appeal and pay any applicable filing fee thereon.

CATCHWORDS: EQUITY - deed - effect of release of one of several persons liable to the person granting the release in a deed - whether agreement was a covenant not to sue - whether it was a release of all obligations such that all parties were released from liability - EQUITY - deed - co-ordinate liability - covenant not to sue - whether the party with the benefit of the covenant could be made subject of a claim of contribution by others with co-ordinate liability to the "releasor".

Albion Insurance Co Ltd v Government Insurance Office (NSW) [1969] HCA 55; (1969) 121 CLR 342 Baxter v Obacelo Pty Ltd [2001] HCA 66; (2001) 205 CLR 635 Burke v Lfot Pty Ltd [2002] HCA 17; (2002) 209 CLR 282 Cluness v Official Trustee in Bankruptcy (Federal Court of Australia, Davies J, 17 April 1998, unreported) Commercial Bank of Tasmania v Jones [1893] AC 313 Deanplan Ltd v Mahmoud & Anor (1993) Ch 151; [1992] 3 All ER 942 Dorgal Holdings Pty Ltd v Buckley (1996) 22 ACSR 164 Duck v Mayeu [1892] 2 QB 511 Herskope v Perpetual Trustee (WA) Ltd [2002] NSWCA 153 James v Surf Road Nominees Pty Ltd [2004] NSWCA 475 CASES CITED: Jeans v Bruce [2004] NSWSC 539 Johnson v Davies [1999] Ch 117; [1998] 2 All ER 649 Murray-Oates v Jjadd Pty Ltd [1999] SASC 537; (1999) 76 SASR 38 National Australia Bank Limited v Pollak [2001] FCA 1408; (2001) 186 ALR 44 Perpetual Trustees (WA) Ltd v Equuscorp Pty Ltd [2000] NSWSC 1120 Pollak v National Australia Bank Limited [2002] FCAFC 55; [2002] FCA 237 Re EWA [1901] 2 KB 642 Resource Equities Limited v Leon Carr Resource Equities Limited v John Garrett [2008] NSWSC 977 Robinson v Tait [2002] 2 NZLR 30 Solly v Forbes (1820) 2 Brod & Bing 38; 129 ER 871 Thompson v Australian Capital Television Pty Ltd [1996] HCA 38; (1996) 186 CLR 574 Walker v Bowry [1924] HCA 28; (1924) 35 CLR 48

Leon Phillip Carr (First Appellant) PARTIES: Nigel Charles Purves (Second Appellant) Richard John Thomas (Respondent)

COUNSEL: A S Martin SC; S A Wells (Appellants) R D Marshall (Respondent)

SOLICITORS: NRG Legal Lawyers (Appellants) Piper Alderman (Respondent)

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT DATE OF DECISION: 14 August 2008

LOWER COURT MEDIUM NEUTRAL CITATION: Resource Equities Limited v Leon Carr Resource Equities Limited v John Garrett [2008] NSWSC 977

15 - IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

CA 40389/08 CA 40390/08

BEAZLEY JA IPP JA McCOLL JA

23 July 2009 Leon Phillip Carr and Nigel Charles Purves v Richard John Thomas Headnote The appellants and the respondent were directors of Resource Equities Limited (REL). In two sets of proceedings commenced in the Supreme Court of Western Australia and subsequently transferred to the Supreme Court of New South Wales, REL asserted that the appellants and respondent breached duties they owed to it in their capacity as directors of REL. The appellants cross-claimed against the respondent claiming equitable contribution on the basis that the respondent owed the same duties to REL as were alleged in the proceedings against the appellants. The respondent applied summarily to strike out the cross-claims on the grounds that a Settlement Deed he had entered into with REL released him from any liability that he might have to REL in relation to the subject matter of the proceedings. The basis of the respondent's claim was that, given the provisions of the Settlement Deed, he and the appellants' had no co-ordinate liability to REL, which might otherwise make him liable to the appellants' claims for equitable contribution. McDougall J summarily struck out the cross-claims.

On the appeal Held (per the Court): (1) Where a creditor releases one or some of a number of debtors jointly and severally liable for the same debt, then all debtors are released: [14]. Walker v Bowry [1924] HCA 28; (1924) 35 CLR 48 (referred to) Duck v Mayeu [1892] 2 QB 511 (referred to) Thompson v Australian Capital Television Pty Ltd [1996] HCA 38; (1996) 186 CLR 574 (referred to) Baxter v Obacelo Pty Ltd [2001] HCA 66; (2001) 205 CLR 635 (referred to) James v Surf Road Nominees Pty Ltd [2004] NSWCA 475 (referred to) Dorgal Holdings Pty Ltd v Buckley (1996) 22 ACSR 164 (followed) Re EWA [1901] 2 KB 642 (followed) Commercial Bank of Tasmania v Jones [1893] AC 313 (referred to) (2) If, on the true construction of the instrument there is a reservation of liability against others jointly or jointly and severally liable the agreement is a covenant not to sue the debtor purportedly released: [15]-[19]. Dorgal Holdings Pty Ltd v Buckley (1996) 22 ACSR 164 (followed) Re EWA [1901] 2 KB 642 (followed) Commercial Bank of Tasmania v Jones [1893] AC 313 (referred to) Walker v Bowry [1924] HCA 28; (1924) 35 CLR 48 (referred to) Cluness v Official Trustee in Bankruptcy (Federal Court of Australia, Davies J, 17 April 1998, unreported) (referred to) Perpetual Trustees (WA) Ltd v Equuscorp Pty Ltd [2000] NSWSC 1120 (referred to) National Australia Bank Limited v Pollak [2001] FCA 1408; (2001) 186 ALR 44 (referred to) Pollak v National Australia Bank Limited [2002] FCAFC 55; [2002] FCA 237 (referred to) Herskope v Perpetual Trustee (WA) Ltd [2002] NSWCA 153 (referred to) Jeans v Bruce [2004] NSWSC 539 (referred to) (3) If a particular agreement contains a reservation of liability of others who are so liable, then notwithstanding the language of the release, there is no room for the principle of construction that as between two mutually repugnant provisions in a deed, the earlier prevails over the latter. Rather, the qualification provides the basis for the proper construction of the deed: [18]. Dorgal Holdings Pty Ltd v Buckley (1996) 22 ACSR 164 (followed) (4) Applying the relevant principles of construction, the agreement in the Settlement Deed in this case was a covenant not to sue: [22]-[24]. (5) A covenant not to sue does not act as a release of the obligation owed to the other party. Rather, it is a contract between two parties that one will not sue the other: [34]. Solly v Forbes (1820) 2 Brod & Bing 38; 129 ER 871 (followed) Deanplan Ltd v Mahmoud & Anor (1993) Ch 151; [1992] 3 All ER 942 (referred to) Commercial Bank of Tasmania v Jones [1893] AC 313 (referred to) (6) The respondent's liability to REL was not released or in any way extinguished by the Settlement Deed. As that liability (if established) still subsists, then, provided it is also established that the liability is a co-ordinate liability, the appellants are still entitled to claim contribution from the respondent: [38]. Deanplan Ltd v Mahmoud & Anor (1993) Ch 151; [1992] 3 All ER 942 (referred to) Murray-Oates v Jjadd Pty Ltd [1999] SASC 537; (1999) 76 SASR 38 (referred to) Johnson v Davies [1999] Ch 117; [1998] 2 All ER 649 (referred to) Robinson v Tait [2002] 2 NZLR 30 (referred to) IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40389/08 CA 40390/08

BEAZLEY JA IPP JA McCOLL JA

23 July 2009 Leon Phillip Carr and Nigel Charles Purves v Richard John Thomas Judgment 1 THE COURT: The appellants and the respondent were directors of Resource Equities Limited (REL). In two sets of proceedings commenced in the Supreme Court of Western Australia, REL asserted that the appellants and respondent breached duties they owed to it in their capacity as directors of REL. Those proceedings were subsequently transferred to the Supreme Court of New South Wales. 2 The appellants have cross-claimed against the respondent in each proceeding seeking equitable contribution, alleging that the respondent owed the same duties to REL as were alleged in the proceedings against the appellants and that he had breached those duties in the same manner as REL alleged against the appellants. 3 The respondent applied summarily to strike out the cross-claims on the basis that he had entered into a Settlement Deed with REL which released him from any liability that he might have to REL in relation to the subject matter of the proceedings. Accordingly, the respondent contended that he and the appellants had no co-ordinate liability to REL, such that would make him liable to the appellants' claims for equitable contribution. 4 McDougall J acceded to the respondent's motions and summarily struck out the cross-claims. The appellants have sought leave to appeal from his Honour's orders. 5 The matters have proceeded in this Court by way of a concurrent hearing of the application for leave to appeal and the appeal. The evidence in both matters was the same and his Honour delivered a single judgment: Resource Equities Limited v Leon Carr Resource Equities Limited v John Garrett [2008] NSWSC 977. The applications to this Court for leave to appeal are in the same terms and the appellants have drafted identical proposed notices of appeal in each matter.

The Settlement Deed 6 The Settlement Deed was entered into in May 2007, relevantly, between REL and the respondent. The Settlement Deed recited by way of background the proceedings brought by REL against, amongst others, the respondent, claiming breach of director's duties. The Settlement Deed further recited: "H REL and [the respondent] have agreed to resolve the REL Proceedings only as between REL and [the respondent], on the terms set out in this Deed." 7 The operative provisions of the Settlement Deed provided, relevantly, as follows: " 1 Settlement

1.2 In full and final settlement of the REL Proceedings (including interest, costs and any existing cost orders) but only as between REL and [the respondent], REL and [the respondent] have agreed to move for orders by consent that the REL Proceedings as against [the respondent] only be dismissed with no order as to costs in accordance with clause 2.2.

1.3 The respective parties in the REL Proceedings … make no admissions as to liability by entering into this Deed.

1.5 Nothing in this Deed is intended to affect or compromise in any way the REL Proceedings as against any defendant to the REL Proceedings other than [the respondent]." 8 Clause 2.2 provided: "2.2 REL and [the respondent] each agree to sign consent orders in the REL Proceedings in the form annexed hereto and marked 'B' and 'C'." 9 Clause 3 provided for release and discharge as follows: "3.3 [The respondent] agrees to forever release and discharge REL, Brown and Johnson and each of them from any and all Claims arising directly or indirectly in relation to any circumstance or event pertaining to the subject matter of the REL Proceedings.

3.4 REL, Brown and Johnson and each of them agree to release and discharge [the respondent] from any and all Claims arising directly or indirectly in relation to any circumstance or event pertaining to the REL Proceedings …

3.5 The Parties, nor anyone acting in the name of or on behalf of the Parties nor a Related Entity of the Parties, shall not bring or continue any other claim or proceeding against any other Party or against an officer, agent or employee of any other Party that is in any way connected with the REL Proceedings … or Settlement Deed.

3.6 This Deed may be pleaded as a bar to any claim, cause of action, demands, damages, losses, costs or expenses or action which is the subject of legal proceedings brought by or on behalf of the Parties and any Related Entities of those entities in relation to any claims, cause of action, demands, damages, losses, costs or expenses released by this clause 3." 10 Clause 7.7 contained a jurisdiction clause specifying that the Settlement Deed was governed by the law of Western Australia. It has not been contended, however, that the law of Western Australia, as it relates to the issues on the appeal, is different from the law of New South Wales.

Issues 11 The following two issues have arisen on the appeal:

(1) Was the effect of the agreement contained in the Settlement Deed a covenant by REL not to sue the respondent, or did it effect a release of all obligations such that all parties were released from any liability to REL?

(2) Assuming that the agreement was a covenant not to sue, did it have the effect that the respondent thereby had no co-ordinate liability to REL, such that he could not be made subject of a claim of contribution by the appellants?

(Although REL's claims against the appellants and the respondent were not brought in debt, it is convenient to refer to the relevant principles that arise from these two issues by reference to the position as between creditor and joint, or joint and several, debtors. As is clear on the authorities, the same principles apply to a range of co-ordinate liabilities: see Burke v Lfot Pty Ltd [2002] HCA 17; (2002) 209 CLR 282.) 12 The appellants' primary contention was that the Settlement Deed was not a release, but was a covenant by REL not to sue the respondent. They contended that the covenant not to sue did not affect their right to claim contribution from the respondent in respect of any damages for which they might be found liable to REL. 13 The principles governing the consequences that flow from a release of one or some of a number of debtors, but not all, or from an agreement between a creditor covenanting not to sue one or some only of a number of debtors, are not in dispute. The area of contention is always as to the proper construction of the agreement between the creditor and the debtor(s). 14 The general rule is that where a creditor releases one or some of a number of debtors jointly and severally liable for the same debt, then all debtors are released: see Walker v Bowry [1924] HCA 28; (1924) 35 CLR 48. The rationale for the rule was explained by A L Smith LJ in Duck v Mayeu [1892] 2 QB 511 at 513, as follows: "It is, we all think, clear law, that a release granted to one joint tortfeasor, or to one joint debtor, operates as a discharge of the other joint tortfeasor, or the other joint debtor, the reason being that the cause of action, which is one and indivisible, having been released, all persons otherwise liable thereto are consequently released. The case of Cocke v Jennor is distinct upon the point, and there are many subsequent cases to the same effect.

It has also been held that a covenant not to sue one of two joint debtors does not operate as a release to the other joint debtor, Hutton v Eyre , the reason being that the joint action is still alive. We have found no case in which it has been held that a covenant not to sue releases a joint tortfeasor; and in our judgment the principle upon which it has been held that such a covenant does not release a joint debtor applies to the case of a joint tortfeasor." (Citations omitted)

See also Thompson v Australian Capital Television Pty Ltd [1996] HCA 38; (1996) 186 CLR 574 where these principles are restated; Baxter v Obacelo Pty Ltd [2001] HCA 66; (2001) 205 CLR 635 at [32] per Gleeson CJ and Callinan J and James v Surf Road Nominees Pty Ltd [2004] NSWCA 475 at [38]-[44]. 15 In Dorgal Holdings Pty Ltd v Buckley (1996) 22 ACSR 164, McClelland CJ in Eq, whilst noting that there was an underlying flaw in the principle that debtors who were severally as well as jointly liable were thereby released, observed at 167, that the rule was binding, as it was expressly applied by the High Court in Walker v Bowry. His Honour added: "The rule is subject to a qualification, namely that if, on the true construction of the instrument in which it appears, that which purports to be a release of one of several joint (or joint and several) debtors was intended not to operate as a release of the whole obligation by reason that other debtors jointly (or jointly and severally) liable with the debtor purportedly released were intended to remain liable, then it will be treated not as a release in the strict sense, but as a covenant not to sue the debtor purportedly released …" (Citations omitted) 16 His Honour accepted that the scope of the qualification was correctly stated by Collins LJ in Re EWA [1901] 2 KB 642 at 648-9, in the following terms: "It is clear that, although a document in terms purports to release one of two joint debtors, yet it may contain in terms a reservation of rights against the other joint debtor. Where you find those two provisions, you construe the document, not as a release, but merely as an undertaking not to sue a particular individual; and the result is that the right to proceed against the co-debtor is reserved and can be put in force against him." 17 McClelland CJ in Eq noted the statement to similar effect by the Privy Council in Commercial Bank of Tasmania v Jones [1893] AC 313 at 316, that: "Language importing an absolute release may be construed as a covenant by the creditor not to sue the principal debtor, where that intention appears, leaving such debtor open to any claims of relief at the instance of his sureties." 18 His Honour observed that if a particular agreement falls within the qualification referred to above, there is no room for the principle of construction that as between two mutually repugnant provisions in a deed, the earlier prevails over the latter. Rather, the qualification provides the basis for the proper construction of the deed. 19 This principle of construction has been consistently applied in the New South Wales Supreme Court, the New South Wales Court of Appeal and the Federal Court of Australia: see Cluness v Official Trustee in Bankruptcy (Federal Court of Australia, Davies J, 17 April 1998, unreported); Perpetual Trustees (WA) Ltd v Equuscorp Pty Ltd [2000] NSWSC 1120; National Australia Bank Limited v Pollak [2001] FCA 1408; (2001) 186 ALR 44; Pollak v National Australia Bank Limited [2002] FCAFC 55; [2002] FCA 237; Herskope v Perpetual Trustee (WA) Ltd [2002] NSWCA 153; and Jeans v Bruce [2004] NSWSC 539. 20 The facts of Dorgal v Buckley, which may be stated simply, provide assistance in the construction of the Settlement Deed. Dorgal had commenced proceedings against Davis, Buckley and Scotton, claiming payment for debts incurred by a company of which Davis, Buckley and Scotton were directors. The liability of the directors for the debt arose under the provisions of the relevant company legislation. Pursuant to a deed entered into between Dorgal and Davis, Davis agreed to pay Dorgal a portion of the debt allegedly owing by the company. The deed of settlement contained the following relevant provisions: "(2) Davis agrees to pay Dorgal the amount of $38,530.00 in full and final settlement of all monies owing by [the company] to Dorgal and in respect of the proceedings.

(5) Davis and Dorgal agree that they will sign Terms of Settlement in the form attached to this Deed and marked 'A' ('Terms of Settlement') and those Terms of Settlement be filed as soon as practicable after execution of this Deed.

(6) Davis and Dorgal agree that nothing in this Deed shall extinguish or limit in any ways the rights, remedies and claims of Dorgal against any other person -

(i) in the proceedings; (ii) in respect of monies owing by [the company] to Dorgal; or (iii) generally." 21 McClelland CJ in Eq, having referred to the principles of law and the principles of construction referred to above, stated, at 167: "In my opinion, applying the qualification, on the true construction of the deed ... , by reason of the provisions of cl 6 the provisions of cll 2 and 3 should not be construed as a release by Dorgal of Davis in the strict sense, but only as a covenant by Dorgal not to sue Davis." 22 In the present case, pursuant to cl 1.2, the Settlement Deed was in "full and final settlement of the REL Proceedings". Clause 1.2 expressly provided that the full and final settlement was only as between REL and the respondent. That qualification in itself was an indicator that the settlement was not a release of the claims against other parties. Should there have been any doubt, that matter was put to rest by the provisions of cl 1.5, which stated that the Settlement Deed was not intended to affect or compromise the REL proceedings against any other persons. Clause 1.5 was to the same effect as cl 6 in Dorgal v Buckley. Further, cl 3.6 in the Settlement Deed used language apposite to a covenant not to sue and not the language used where there has been a release of a total obligation. Clause 3.4 of the Settlement Deed stated that REL agreed "to release and discharge" the respondent from any claims. In Dorgal v Buckley, cl 3 released Davis from all relevant liability, but the agreement was construed as a covenant not to sue. 23 Notwithstanding the terms of cl 3.4 of the Settlement Deed, the clause has to be read in context of the Deed as a whole. As the Settlement Deed included the reservation of the right to continue proceedings against the appellants, cl 3.4 fell within the qualification to which McClelland CJ in Eq referred to in Dorgal v Buckley, namely, that where there is a reservation of rights against other joint debtors, the document is to be construed as a covenant not to sue and not as a release. 24 The Settlement Deed was clearly a covenant not to sue. 25 McDougall J did not determine whether the Settlement Deed, properly construed, was a release or a covenant not to sue. In the way his Honour approached the matter, it was unnecessary for him to decide that question. Rather, his Honour considered, at [34], that the real issue to be determined on the application for summary dismissal of the cross-claims was: "… whether, on the proper construction of the deed of release … [the respondent] can have any liability to REL in respect of which he might be liable in equity to contribute to any payment made by [the appellants] to REL."

His Honour approached the determination of that question on the assumption that the Settlement Deed may have been no more than a covenant not to sue. 26 Nor was his Honour concerned with determining whether the alleged liability of the appellants and the respondent to REL was joint, joint and several, or several. His Honour noted that that matter had not been addressed and that its resolution required findings of fact. His Honour merely recorded his doubt that there would be a joint liability. That question does not arise on the appeal and we make no comment upon it. 27 His Honour, at [35], resolved the central question he considered arose for determination in the following way: "The basis on which equitable contribution is ordered, as the cases to which I have referred make clear, is that a payment by one person under a common obligation with others, which has the effect of benefiting those others by diminishing the common obligation, ought be shared among them. It is fundamental to the existence of a right to equitable contribution that there be a common obligation to meet the one burden, or make good the one loss. If there is no common obligation then there is nothing on which the principle of equitable contribution can operate." 28 His Honour observed at [36] that it did not matter whether such obligation was joint, joint and several or several: see Albion Insurance Co Ltd v Government Insurance Office (NSW) [1969] HCA 55; (1969) 121 CLR 342. His Honour continued: "[37] In those circumstances, it seems to me to be inevitable that the effect of the deed of release, even reading it as no more than a covenant not to sue, is that since the deed was executed or since the joint orders were made (and I repeat that it does not matter which date is chosen) [the respondent] had no liability to REL which could be enforced against him by REL in respect of the subject matter of the proceedings.

[38] It follows that if REL succeeds against [the appellants], and they pay REL, [the respondent] will receive no benefit. He will receive no benefit because no contingent or for that matter crystallised liability that he has to REL will have been satisfied, either completely or pro tanto, by the payment. That is because he has no such liability.

[39] Thus, I think, the effect of the deed of release is to take away a fundamental and essential element that [the appellants] must prove if they are to make good their claim for equitable contribution. They cannot recover equitable contribution from [the respondent] because he has no common obligation with them to REL. I am not sure that it matters that the date of the deed preceded the date on which the cross-claim was brought; certainly this cannot detract from the strength of [the respondent's] position." 29 The core of his Honour's reasoning was that, as a result of the agreement reached between REL and the respondent in the Settlement Deed, the respondent had no liability to REL. As he had no liability he would receive no benefit from any success by REL in its claim against the appellants: see judgment at [38]. His Honour reiterated that the respondent had no common obligation with the appellants vis à vis REL: see judgment at [39]. 30 This Court has not been made privy to the pleadings between REL and the appellants. However, the proposed amended Commercial List cross-claims reveals that there are allegations of: the overpayment of directors' fees; breaches of duty relating to payments made to an entity called Fox Technology, which appears to be a company that REL purchased, or was proposing to purchase; breaches of duty relating to the issue of shares and the sale and distribution of shares; and breaches relating to the appointment of administrators of REL. None of those matters enables the Court to determine whether, within the principles referred to by Gaudron ACJ and Hayne J in Burke v Lfot, there was a liability "of the same nature and to the same extent" as that concept is properly understood: see also McHugh J at [38] ff. 31 If the appeal succeeds, these questions may become relevant in the cross-claims proceedings. However, they were not the matters upon which the respondent relied in seeking to uphold McDougall J's orders. Rather, his position was quite simple. He contended that: "… the basis upon which coordinate liability to contribute to the one loss is imposed is that there are several persons liable to make good the one loss". (Judgment at [17]).

He said that he had no such co-ordinate liability because, pursuant to the terms of the Settlement Deed he no longer had any liability to REL. The trial judge accepted this proposition. 32 In support of his position, the respondent relied upon the statement of Kitto J at 349-350 in Albion Insurance Company that: "… persons who are under co-ordinate liabilities to make good the one loss (e.g. sureties liable to make good a failure to pay the one debt) must share the burden pro rata …"

and further contended that the origin of the principle is in " reason, justice and law ": see Kitto J at 351. The respondent conceded that prior to entry into the Settlement Deed, there was an available argument that the appellants and the respondent had a co-ordinate liability to REL, and there was thus an arguable right to contribution amongst them. 33 The question for determination thrown up by this argument, which is the second issue on the appeal, is whether the agreement between REL and the respondent abrogated such right of contribution (on the assumption that there was a co-ordinate liability). The principles stated in Albion Insurance Company do not deal with that question. See also Burke v Lfot. It is thus necessary to return to the effect of a covenant not to sue. 34 A covenant not to sue does not act as a release of the obligation owed to the other party. Rather, it is a contract between two parties that one will not sue the other. Any attempt to do so constitutes a breach of contract. Parties usually make provision in their agreement that the covenant can be pleaded in bar as was done in this case. This saves the party with the benefit of the covenant from bringing a separate action for breach of contract. The covenant acts as a bar to avoid circuity of action: Solly v Forbes (1820) 2 Brod & Bing 38 at 47; 129 ER 871 at 875. 35 A plea in bar is a well known device. An example is found in some Limitation Statutes, where the expiry of the limitation period renders a claim unenforceable but does not extinguish the claim. In such cases, it is incumbent upon the party sued to plead the statute so as to take the benefit of the statutory unenforceability of the claim. If a claim is extinguished, it cannot be brought. An omission to plead the statute does not revive the claim. 36 In Deanplan Ltd v Mahmoud & Anor (1993) Ch 151; [1992] 3 All ER 942 Judge Paul Baker QC, sitting as a judge of the High Court, explained, at 170, 959-960: "A covenant not to sue is not a release. It is merely a contract between the creditor and the joint debtor which does not affect the liabilities of the other joint contractors or their rights of contribution or indemnity against their co-contractor."

There can be no doubt about this proposition, which is long established: see Commercial Bank of Tasmania v Jones . 37 In Murray-Oates v Jjadd Pty Ltd [1999] SASC 537; (1999) 76 SASR 38, Wicks J (Doyle CJ and Mullighan J agreeing) noted, at [82], that the release of one of several joint or joint and several promisors operates as a discharge of all. In that case, his Honour noted that such a release was inconsistent with the other promisors being entitled to contribution from the promisor who has been released. That is correct. If the other promisors have also been released from the obligation, there is nothing in respect of which contribution may be claimed. Relevantly, in relation to the present issue, his Honour went on to say, at [83]: "As an alternative to the giving of a release, a promisee may enter into a covenant with one or more joint promisors not to sue. Such a covenant will not affect the right of the promisee to recover from promisors who do not have the benefit of the covenant not to sue. Of course, such a covenant is not as effective as a release as the right of contribution between joint promisors remains unaffected. The promisee could sue a promisor who does not have the benefit of the covenant not to sue. That person, having paid the debt would be entitled to recover contribution from the other promisors notwithstanding the fact that the promisee may have given them covenants not to sue. " (Emphasis added)

The same position has been taken in other jurisdictions: see Johnson v Davies [1999] Ch 117 at 127; [1998] 2 All ER 649, per Chadwick LJ; Robinson v Tait [2002] 2 NZLR 30 at [75]. 38 In our opinion, McDougall J erred in concluding that as a result of the respondent entering into the Settlement Deed, he had no common obligation with the appellants to REL. The respondent's liability to REL was not released or in any way extinguished by the Settlement Deed. As that liability (if established) still subsists, then, provided it is also established that the liability is a co-ordinate liability, the appellants are still entitled to claim contribution from the respondent. 39 We make the following orders and directions in each matter:

(4) Order that the notice of motion for summary dismissal of the cross-claim be dismissed;

(5) Order the respondent to pay the appellants' costs at first instance and on appeal. The respondent is to have a certificate under the Suitors' Fund Act 1951 in respect of the costs of the appeal, if otherwise entitled;

(6) Direct the appellants to file a notice of appeal and pay any applicable filing fee thereon.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

At a glance

Court

Decision date

Before

Source

Judgment (45 paragraphs)

Parties

Cases Cited (21)