Gideon Rathner as trustee for Garland Lot 4 Unit Trust v Bartlett

Background

1. The Project Land was, at about the time of its acquisition, divided into four lots. Lot 1 was acquired by Garland 204 and Garland 204 Retail (both as trustees for their respective unit trusts). Lot 2 was acquired by Garland Lot 2 Pty Ltd (Garland Lot 2) as trustee for the Garland Lot 2 Unit Trust. Lot 3 was acquired by Garland Lot 3 and Lot 4 was acquired by Garland Lot 4 (again, in each case as trustee). The purpose of dividing the land into separate lots with different ownership was to permit the development to occur and be sold in stages. At least by 2010, the plan was to build a 22 storey tower consisting of 151 residential apartments on Lot 4 (known as the Ruby Tower Project), which was intended to be the last of the lots to be developed.
2. At about the same time as the Project Land was acquired, Mr Bartlett and Ms Pennington sought to purchase and to develop land adjacent to the Project Land (the Lot 2032 Land). For that purpose, they incorporated Lot 2032 Pty Ltd and established the Lot 2032 Unit Trust of which Lot 2032 was the trustee.
3. The purchase of some of the lots and the development of Lot 1 was financed by a loan from Suncorp of $19,846,000 provided under a facility agreement dated 21 May 2007 (the Original Suncorp Facility). The purpose of that facility was "[t]o assist with the staged acquisition and development of a mixed residential/retail project located at Gadigal Avenue, Victoria Park, Zetland". The Borrowers were named as the borrowers under that facility. The facility was secured by mortgages granted by the Borrowers, Garland Lot 2 and Garland Lot 4 over the Project Land. In addition, Mr Bartlett, Ms Pennington, P&J Projects, Garland Lot 2 and Garland Lot 4 agreed to guarantee the Borrowers' obligations under the facility.
4. On 24 May 2007, Garland 204 and Garland 204 Retail obtained additional financing from Bridge Property Investments Pty Limited (BPI) in the amount of $5,200,000.
5. A further subdivision occurred in January 2009 as a result of which Lot 1 was subdivided into Lot 100, which comprised retail space, and Lot 101 which comprised apartments, including visitor carparking that was to benefit all lots. Lot 2 became Lot 102 which was owned by Garland Lot 2, and Lot 3 became Lot 103 which was jointly owned by Garland Lot 2 and Garland Lot 3.
6. In June 2009, Suncorp agreed to increase its facility to $29,690,260 to fund the acquisition of Lot 2 and to fund other work. In connection with that increase, Garland Lot 4 granted to Suncorp a new mortgage dated 30 June 2009. The mortgage relevantly provided: In consideration of, among other things, the Mortgagee making available the Moneys Secured as defined in the Mortgage Memorandum filed in the Land and Property Information Office as Number AB366821 (the "Memorandum") the Mortgagor covenants with the Mortgagee to repay the Moneys Secured including without limitation the principal sum referred to in any Agreement as defined in the Memorandum and all interest and other charges in accordance with the provisions of any such Agreement as varied.
7. On 24 June 2009, National Australia Bank (NAB) provided Garland Lot 4 with a floating rate bill facility with a limit of $3,950,000 to finance the acquisition of Lot 4. Garland Lot 4 also granted NAB a mortgage to secure that loan.
8. In June 2010, the limit of the Original Suncorp Facility was reduced to $23,200,000 following the sale of loft apartments that had been constructed on Lot 101. The reduction was effected by a revised facility agreement dated 21 June 2010. The parties to that revised agreement were essentially the same as the parties to the Original Suncorp Facility except that Plenus Residential was added as a mortgagor and as a guarantor to the extent of its entitlement as a unitholder in the Lot 2032 Unit Trust.
9. On 23 August 2010, NAB provided a further facility of $27,336,200 to Garland Lot 3 to develop 71 residential apartments on Lot 103 (known as the Garland 77 Project). The owners of Lots 102 and 103 granted mortgages over those lots as security for that loan. In addition, NAB and Suncorp entered into a deed of priority under which NAB obtained priority over Suncorp.
10. Also in August 2010, the Project Companies and a number of other entities entered into a deed with BPI (the BPI Deed). The parties to that deed were: 1. Garland Lot 2 in its personal capacity and in its capacity as trustee for the Garland Lot 2 Unit Trust; 2. Garland Lot 3 in its personal capacity and in its capacity as trustee for the Garland Lot 3 Unit Trust; 3. Garland Lot 4 in its personal capacity and in its capacity as trustee for the Garland Lot 4 Unit Trust; 4. Lot 2032 in its personal capacity and in its capacity as trustee for the Lot 2032 Unit Trust; 5. Garland 204 in its personal capacity and in its capacity as trustee for the Garland 204 Lofts Unit Trust; 6. Garland 204 Retail in its personal capacity and in its capacity as trustee for the Garland 204 Retail Unit Trust; 7. Plenus Residential in its personal capacity and in its capacity as trustee for the Plenus Residential Discretionary Trust; 8. Plenus Retail in its personal capacity and in its capacity as trustee for the Plenus Retail Discretionary Trust; 9. Mr Bartlett; and 10. P&J Projects. The purpose of the deed was to restructure the BPI loan.
11. Clause 8 of the BPI Deed relevantly provides: The Project Entities must ensure all Net Project Proceeds are paid, applied and distributed in accordance with this clause 8. 8.1 Lot 2 … 8.2 Lot 3 … 8.3 Lot 4 (a) firstly, (1) in payment of the Sale Costs in respect of or directly attributable to any relevant sale; (2) to hold in the Project Account and to remit that part of the Net Project Proceeds as represents the GST liability in respect of or directly attributable to any relevant sale to the Australian Taxation Office when due for payment; (b) secondly, subject to any Priority Agreement, in repayment and payment to NAB of all amounts outstanding under the NAB Facilities; (c) thirdly, in payment of: (1) the affordable housing levy in respect of the development of Lot 4 if the same has not been paid at the time; or (2) if the affordable housing levy in respect of the development of Lot 4 has been paid at the time and the payment was financed pursuant to a financing arrangement, towards repayment and payment of all amounts outstanding under that financing arrangement; (d) fourthly, in repayment and payment to Suncorp of all amounts outstanding under the Suncorp Facilities; then, in accordance with clause 8.6. …
12. Clause 8.6 then provides for what the parties describe as a waterfall of payments ending with: (k) eleventhly, the balance to be shared between the Project Entities, P & J Projects, Bartlett and Pennington in the manner and proportions agreed between them from time to time.
13. "Net Project Proceeds" is defined to include "Gross Project Proceeds" less reasonable "Costs". "Gross Project Proceeds" is essentially defined to mean the aggregate gross proceeds from the disposal, use or operation of the Project Land. "Project Entities" is defined in the deed to mean: (a) Plenus Residential; (b) Plenus Retail; (c) Garland Lofts; (d) Garland Retail; (e) Garland Lot 2; (f) Garland Lot 3; (g) Garland Lot 4; and (h) Lot 2032.
14. Under the terms of the BPI Deed, Plenus Residential and Plenus Retail granted fixed and floating charges over their assets, which included the units in the Garland Lot 4 Unit Trust.
15. Following further subdivisions of Lots 102 and 103, on 27 October 2011, Garland Lot 3 replaced Garland Lot 2 as the trustee of Garland Lot 2 Unit Trust.
16. On or about 21 November 2011, Suncorp provided the Term Loan Agreement to replace the existing loan agreement. The parties to the Term Loan Agreement (including mortgagors and guarantors) were the same as the parties to the previous agreement except that Garland Lot 3 was added as a mortgagor and a guarantor in its capacity as trustee for the Garland Lot 2 Unit Trust. The purpose of the loan was described as "[t]o assist with the development costs of Stage 3, known as "Stella" and amend limits and extend expiry date of existing Term Loan facilities to 30 April 2013". It will be convenient in this judgment to refer to the Borrowers, the mortgagors and the guarantors together as "the Borrowing Parties".
17. On 24 April 2012, each of the guarantors executed a new guarantee in favour of Suncorp. The guarantees were in substantially the same terms. Each contained the following clause: Part 3 - Guarantee and Indemnity 3.1 The Guarantor unconditionally and irrevocably guarantees payment of the Maximum Liability to the Bank when this is due. 3.2 The Guarantor as a separate liability indemnifies and saves harmless the Bank against any Losses the Bank may suffer by reason of: (a) the liability of the Borrower to pay the Maximum Liability being unenforceable for any reason; or (b) the Maximum Liability not being recoverable from the Borrower or not being recoverable from the Guarantor for any reason, up to the amount of the Maximum Liability. 3.3 Subject to any notice requirements at law, the Guarantor shall pay the Maximum Liability to the Bank on demand. 3.4 The Bank may retain this Guarantee for 7 months after the date the Maximum Liability is paid in full.
18. In January 2013, the parties to the Term Loan Agreement agreed to an extension to 30 October 2013.
19. On 4 July 2013, Lots 302 and 4 were subdivided so that Lot 302 and a portion of Lot 4 became Lot 401, which was the Lot on which the Stella Project was constructed. The owners of that lot were Garland Lot 3 as trustee for the Garland Lot 2 Unit Trust and Garland Lot 4 as trustee for the Garland Lot 4 Unit Trust. The remainder of Lot 4 and stratum lots that formed part of Lot 302, which comprised car parks, storage cages and access ways beneath Lot 302, became Lot 402, on which the Ruby Tower Project was to be constructed. The owners of that lot were Garland Lot 3 as trustee for the Garland Lot 2 Unit Trust and Garland Lot 4 as trustee for the Garland Lot 4 Unit Trust.
20. In July or August 2013, the parties to the Term Loan Agreement and Goldman Sachs executed the Novation Deed.
21. Between July 2013 and February 2014, an amount of $37,233,883 was repaid under the Term Loan Agreement from the sale of units in the Stella Project (constructed on Lot 401). As I have said, by 14 April 2014 the balance of the loan stood at $7,922,184.76
22. The loan was due to expire on 30 October 2013. On 16 October 2013, Goldman Sachs indicated that it may be willing to extend the loan to 30 April 2014 in accordance with the terms of a deed of forbearance which provided for interest at the rate of 25 percent per annum, a risk fee of $250,000 and security over personal assets of Mr Bartlett and Ms Pennington.
23. On 25 October 2013, Mr Bartlett and Ms Pennington wrote to Goldman Sachs requesting a one month extension to the Term Loan Agreement. The letter stated that the loan would be repaid by either: 1. Finalising the finance for the development of the Lot 4 site; or 2. Exchange and settlement of the sale of the Lot 4 site. At the time, it appears that Mr Bartlett and Ms Pennington were still conducting negotiations that had commenced in about May 2013 to obtain a loan from ANZ Bank for the development of the Ruby Tower Project on what had become Lot 402.
24. Following a meeting between Mr Bartlett and Ms Pennington and Goldman Sachs on 30 October 2013, Ms Pennington sent an email to Goldman Sachs on 31 October 2013 proposing a four month extension to the facility and a repayment plan which included the sale of four lots that were part of the Stella Project, the sale of a retail lot that formed part of Lot 100, the payment of part of the proceeds arising from the sale units in Lot 2032 and the sale of Lot 402.
25. It appears that there were further discussions concerning a deed of forbearance, the drafting of which was left to Goldman Sachs's lawyers, HWL Ebsworth. In the meantime, Mr Bartlett and Ms Pennington negotiated a contract to sell Lot 402 for $17,875,000. Ms Pennington sent a copy of that contract to Goldman Sachs under cover of an email dated 27 November 2013, although it appears that the contract itself was not exchanged until 24 December 2013 and contained a slightly lower purchase price of $17,415,000.
26. On 12 December 2013, HWL Ebsworth sent Mr Bartlett and Ms Pennington an email enclosing a draft of the deed of forbearance. The email relevantly said: We are instructed that the securities are enforceable and that there have been discussion as to whether there might be terms upon which [Goldman Sachs] would be prepared to forbear from enforcing its securities.
27. The terms of the deed were unacceptable to Mr Bartlett and Ms Pennington and, in view of the imminent sale of Lot 402, negotiations on its terms came to an end.
28. The settlement of the sale of Lot 402 occurred on 29 April 2014. The balance of the loans owing to Goldman Sachs and NAB, which held a first registered mortgage, were paid out of the proceeds of sale.
29. On 9 January 2014, BPI appointed receivers over the property of Plenus Residential, including all the units in the Garland Lot 4 Unit Trust. Subsequently, on 24 March 2014, Garland Lot 2 was placed into voluntary liquidation. The other project companies were placed into voluntary liquidation on 19 May 2014.
30. In November 2014, Ms Muller replaced the liquidators of Garland Lot 4 as the trustee of the Garland Lot 4 Unit Trust. Following her appointment, on 20 May 2015, Ms Muller made a demand for contribution. The Remaining Guarantors denied any liability to pay contribution. For reasons which are not explained in the evidence, nothing further happened until these proceedings were commenced on 30 April 2020. The proceedings are funded by Keybridge Capital Ltd.

The appointment of Mr Rathner

1. On the first day of the hearing, Ms Muller made an application to be replaced by Mr Rathner as the trustee of the Garland No 4 Unit Trust and for an order that the trust property vest in Mr Rathner. That application was opposed. At the time of granting the application, I indicated that I would give my reasons for making the orders I did in this judgment.
2. The reasons can be brief. The Court has power under s 70 of the Trustee Act 1925 (NSW) to appoint a new trustee in substitution for an existing trustee whenever it is expedient to do so and it is inexpedient, difficult or impracticable to do so without the assistance of the Court. Under s 71, the Court may make an order vesting the trust property in the new trustee.
3. At the time Ms Muller was appointed, she was a registered liquidator. It seems clear that she was appointed in her professional capacity in circumstances where there was a possible conflict between the liquidators of Garland Lot 4 and the beneficiary of the Garland Lot 4 Unit Trust. Ms Muller has since retired and no longer wishes to remain the trustee of the trust.
4. The only remaining asset of the trust is the claim in these proceedings. The claim is brought for the benefit of the unitholder and Keybridge Capital. Both consented to Mr Rathner replacing Ms Muller. As the Remaining Guarantors pointed out, the claim is also brought for the benefit of unsecured creditors of the former trustee (Garland Lot 4), who are subrogated to the former trustee's right of exoneration out of the trust assets. However, Mr Rathner has agreed to consent to the orders sought in the cross-claim, which will ensure that the interests of those creditors are protected. In circumstances where Ms Muller no longer wished to continue as trustee and has retired and where all those who have an interest in the trust fund consent to the replacement or whose interests are protected by the undertaking given by the incoming trustee, it was in my opinion expedient to appoint Mr Rathner in place of Ms Muller. There was no obvious way of achieving that outcome except with the assistance of the Court.

Principles relating to contribution

1. For a right of contribution to arise between two parties in respect of a liability discharged by one, their liabilities must be "co-ordinate": Burke v LFOT Pty Ltd (2002) [2002] HCA 17; 209 CLR 282 at 299 [38] per McHugh J; as approved in Friend v Brooker [2009] HCA 21; (2009) 239 CLR 129 at 149 [41] per French CJ, Gummow, Hayne and Bell JJ. Liabilities are "co-ordinate" if they are "of the same nature and to the same extent": Cockburn v GIO Finance Ltd (No 2) (2001) 51 NSWLR 624; [2001] NSWCA 177 at [28] per Mason P (with whom Davies and Ipp AJJA agreed); Burke v LFOT Pty Ltd at [15] per Gaudron ACJ and Hayne J; at [50] per McHugh J; at [138] per Callinan J; Friend v Brooker at [40]. Rights of contribution will not arise "merely because [their liabilities] are owed to the same party and related to the same transaction or [are] otherwise connected in time or circumstance": Friend v Brooker at [48], approving Re La Rosa; Ex parte Norgard v Rodpat Nominees Pty Ltd (1991) 31 FCR 83 at 91; 104 ALR 237 at 245 per French J.
2. Co-sureties are a paradigm case of co-ordinate liabilities. But there are exceptions. One well established exception is where the parties have by agreement contracted out of their rights of contribution. A second is where there is a contrary common intention falling short of an enforceable agreement: Global Consulting Services Pty Ltd v Gresham Property Investments Ltd (2018) 365 ALR 143; [2018] NSWCA 255 (Global Consulting) at [64]-[65] per Leeming JA (with whom Bathurst CJ and McColl JA agreed). The relevant intention is to be imputed having regard to the transaction in its context: Global Consulting at [66].
3. There is a question concerning the scope of this second exception, particularly where some of the guarantors receive a benefit from the loan and others receive none.
4. It appears to be accepted that guarantors who receive the benefit of a loan are not entitled to obtain contribution from those who receive none. For example, in Official Trustee in Bankruptcy v Citibank Savings Ltd (1995) 38 NSWLR 116 (Citibank), Ralph and Rosa Panebianco owned and controlled a company. The couple, as well as Ralph's parents, were guarantors of a company loan. The lender obtained judgment against Ralph and Rosa and, following their bankruptcy, recovered the full amount of the loan. The trustee in bankruptcy then sought contribution from the parents. Bryson J held that he was not entitled to do so. His Honour reached that conclusion on the basis that the parents had a right of indemnity from Ralph and Rosa which negated any right to contribution.
5. In Global Consulting, Leeming JA suggested that the decision in Citibank may be better explained on the basis of the imputed intention of the parties: Bearing in mind that understanding of "intention", it may be that the proposition derived from Citibank on which the appellants relied, as to a case where one co-obligor receives all the benefit and others receive none, is best regarded as no more than an instance of the more general proposition relating to the intention to be imputed to the parties, having regard to the substance of the transaction. If one co-obligor receives all the benefit, and the other none, then absent some other factor pointing to a different result, an intention that the first co-obligor ranked ahead of the second might readily be imputed. It is neither necessary nor appropriate to express a concluded view on that point, however, such an approach finds some support in the authorities and writings in this area. (at [67])
6. Although Leeming JA did not express a final conclusion on the topic, that passage has been cited for the following proposition, in J O'Donovan and J Phillips, Modern Contract of Guarantee (4th ed, 2004, Lawbook Co, looseleaf) at [12.1890]: But it has been held that, where one guarantor enjoys the whole benefit of the guarantee through that guarantor's shareholding in a company from which the co-surety has withdrawn, the co-surety is not liable to contribute. If one co-obligor receives all the benefit, and the other none, then absent some other factor pointing to a different result, an intention that the first co-obligor ranked ahead of the second might readily be imputed. Since the guarantor enjoys all the benefits of the guarantee, he or she alone must bear its burden and the co-surety had a sound defence to an action for contribution. [citations omitted].
7. In Global Consulting, Leeming JA also left open the question whether the second exception to the principle of contribution between co-sureties applies where one of the guarantors obtained some of the benefits of the loan, although the principal benefit was obtained by another entity. As his Honour pointed out, that was a different situation from the one in Citibank, where it might be said that the whole of the benefit of the loan was received by Ralph and Rosa through their shareholding in the company.
8. Contribution is only available in respect of a payment made in discharge of a co-ordinate liability: Cockburn v GIO Finance Ltd (No 2) at 634 [41] per Mason P; at 640 [78] per Ipp AJA; as discussed in Burke v LFOT Pty Ltd at [44]ff per McHugh J; see also Friend v Brooker at [38] per French CJ, Gummow, Hayne and Bell JJ.
9. It is accepted that equity will in certain circumstances grant a guarantor quia timet relief requiring a principal debtor to repay the guaranteed debt, even if the obligation to make payment under the guarantee has not yet arisen because no demand has been made under the guarantee. As Goff J explained in Thomas v Nottingham Incorporated Football Club Ltd [1972] 1 Ch 596 at 606: Of course, there may be particular cases where, as a matter of contract, as in Bradford v Gammon [1925] Ch 132, the right is not available to the surety; but as a general principle, in my judgment, once the account is closed and there is an accrued fixed liability, the surety is entitled to this quia timet relief, whether the case be one in which no demand was required to be made, or one in which it was and a demand has been made, or one in which it was and no demand has been made.
10. It has been suggested that that principle extends to cases where a guarantor pays the debt itself and seeks to recover contribution. Moulton v Roberts [1977] Qd R 135 is an example. In that case, the plaintiffs and the defendant, who were directors and shareholders of a company, had guaranteed a debt owed by the company to the National Bank of Australasia Limited. The plaintiffs had also granted a mortgage over property they owned to secure repayment of the money advanced by the bank. The company got into financial difficulties and ceased to trade. It was agreed with the bank that the mortgaged property would be sold and the proceeds of sale would be used to discharge the loan. Subsequently, the plaintiffs sued the defendant for one quarter of the amount paid to discharge the loan. The defendant resisted the claim on the basis that no demand had been made by the bank under the guarantee and consequently no amount was due under it at the time the payment was made. That argument was rejected by Williams J. After referring to the passage quoted above from Thomas, his Honour said (at [8]): Although Thomas was a case of a surety requiring a principal debtor to pay off the amount due it seems to me that the principles are equally apposite where it is a case of one surety requiring contribution as a result of either having paid off the debt or being prepared to pay it off to the advantage of his co-sureties.
11. In Moulton v Roberts, the evidence suggested that it was likely that the bank would have made a demand very shortly after it had learnt of the decision of the debtor company to cease trading. Moreover, in that case there was an express agreement between the plaintiffs and the defendant that the defendant would pay his appropriate share of the amount paid by the plaintiffs to the bank. However, in Re Hayes; Ex parte Hayes (1996) 138 ALR 54 Heerey J did not regard either of those matters as critical, albeit in the context of an application to set aside a bankruptcy notice where the question was whether the applicant had a sufficiently arguable counter-claim, set-off or cross-demand for the purposes of s 41(7) of the Bankruptcy Act 1966 (Cth) based on a right of contribution. In concluding that the applicant did have a sufficiently arguable case, Heerey J said (at 57): In the present case counsel for Mr Hayes did not contend that the evidence showed an express agreement by Ms Watts to the payments by Wensley Bray. Nor perhaps was there that degree of practical likelihood of demand by the bank on the debtor that there was in Moulton, albeit that there was some degree of pressure, if not a formal demand. However, such possible grounds for distinguishing Moulton do not in my opinion compel a conclusion against Wensley Bray having acquired a right of contribution from Ms Watts, at least for the purposes of s 41(7).
12. The extension of the principle stated in Thomas v Nottingham Incorporated Football Club Ltd to claims for contribution between co-sureties remains in some doubt: for discussion, see Friend v Brooker (2009) 239 CLR 129; [2009] HCA 21 at [56]ff. And on any view the risk of a demand must be sufficiently clear and imminent so that it can be said that the payment was made in respect of the liability under the guarantee. As Judge LJ explained in Stimpson v Smith [1999] Ch 340 at 353: In my judgment, whether the factual situation facing a surety is properly described as an "imminent" threat of loss, or he is in immediate "jeopardy" under the guarantee, once the stage has been reached where a demand in accordance with the formal terms of the guarantee can realistically be anticipated in the absence of a negotiated settlement, the surety who reaches an arrangement with the creditor which is not disadvantageous to his co-surety is not thereafter deprived of his entitlement to contribution. Unless there were a separate contractual arrangement between the sureties themselves to this effect, it would be unjust and contrary to the basic principles that govern the mutual obligations of co-sureties if contribution were not to follow. See also 350-1 per Gibson LJ; Friend v Brooker at [52].
13. A court should not take an overly technical approach to the question whether a payment was a payment made in discharge of an obligation under a guarantee. As Gibbs CJ (with whom Aickin J agreed) explained in Mahoney v McManus [1981] HCA 54; (1981) 180 CLR 370 at 378: It should be remembered that the doctrine of contribution is based on the principle of natural justice that if several persons have a common obligation they should as between themselves contribute proportionately in satisfaction of that obligation. The operation of such a principle should not be defeated by too technical an approach to the question whether a surety has paid the creditor, when he has supplied moneys to the principal debtor for the purpose of making such payment.
14. In that case, the directors of a company had given guarantees to a number of the company's creditors. The company got into financial difficulties. Following a demand for payment by two of the creditors, one of the directors agreed to provide the company with funds at an interest rate of 15 percent to be used to discharge the debts. The majority of the High Court (Gibbs CJ, Aickin and Murphy JJ; Wilson and Brennan JJ dissenting) held that those advances should be treated as payments under the guarantee with the result that the director was entitled to claim contribution from the other guarantors. Critical to that conclusion was the fact that the money was only provided to enable the company to discharge the guaranteed debts.

Was the payment made under the guarantee?

1. Whatever the precise scope of the principles stated in Moulton v Roberts, in my opinion they have no application to the present case. Nor do I think it could be said that the substance of what happened was that Garland Lot 4 elected to pay the debt owed by the Borrowers, so as to bring the case within the principle stated in Mahoney v McManus.
2. Throughout the relevant period, the ultimate beneficial owners of Lot 402 (and, before it was developed and sold, the balance of the Project Land) were Ms Pennington and Mr Bartlett, since the land was held by Garland Lot 4 on trust for the unitholder of the Garland Lot 4 Unit Trust and that unitholder (Plenus Residential) held its interest in Lot 402 on trust for Mr Bartlett and Ms Pennington. Following the failure of Mr Bartlett and Ms Pennington to obtain financing from ANZ (or any other lender) to develop Lot 402, they decided to sell it (or, more accurately, cause Garland Lot 4 to do so) together with the other remaining assets of the project. It seems clear that the decision to sell Lot 402 was taken, and notified to Goldman Sachs, before the Term Loan Agreement fell due (albeit only shortly before) and at a time when Mr Bartlett and Ms Pennington were still negotiating with Goldman Sachs for an extension of the facility. No doubt, the decision was taken so that both the NAB facility and the Term Loan Agreement could be repaid, but it was also taken so that Mr Bartlett and Ms Pennington could maximise the returns (or, more accurately, minimise the losses) they received (or suffered) on the development. A necessary consequence of the fact that Goldman Sachs held a mortgage over Lot 402 was that it would be repaid out of the sale proceeds.
3. In light of those facts, I do not think that a fair characterisation of what happened is that Garland Lot 4, faced with an imminent threat of a call on its guarantee, elected to repay the loan to Goldman Sachs itself to the benefit of all guarantors. Rather, faced with the fact that it would not be possible to obtain financing for the balance of the development, the ultimate beneficiaries of the development elected to cause the remaining land to be sold so that they would be in a position to repay the loans owed to NAB and Goldman Sachs. No doubt, a consequence of that decision was that it became unnecessary for Goldman Sachs to call on the guarantee given by Garland Lot 4 (as trustee for the Garland Lot 4 Unit Trust) and any liability that Garland Lot 4 had under the guarantee was discharged as a consequence of the sale of property it owned. But that is not sufficient to say in the circumstances that the payment it made was made in discharge of its liability under the guarantee given by it. Rather, that was a consequence of the decision taken by Mr Bartlett and Ms Pennington.

Were the parties' liabilities co-ordinate?

1. In my opinion, the Remaining Guarantors are also correct to say that no rights of contribution arise because the liability of the guarantors was not co-ordinate. That is so because, at the time the guarantees were given, the parties must have intended to exclude rights of contribution between them. That intention is to be implied not from the fact that some guarantors received an indirect benefit from the loan and others received none, but rather from the relationship between the parties.
2. The focus of the parties' submissions was on the BPI Deed and whether it evinced an intention on the part of the Borrowing Parties to exclude rights of contribution between the guarantors. Mr Rathner in final closing submissions points out that the purpose of the BPI Deed was to regulate the rights as between BPI, as a junior lender to the project, and most of the project entities. It was not to regulate the rights between the guarantors; and, indeed, Ms Pennington was not even a party to the BPI Deed.
3. That submission is correct as far as it goes. The BPI Deed was not the source of any agreement or understanding that excluded rights of contribution between the guarantors of the Term Loan Agreement. However, the BPI Deed, in providing that the Net Project Proceeds would be used first to discharge the loans to NAB and Suncorp, recognises that the intention was that the project liabilities would be discharged first out of the project assets.
4. The corporate entities (and trusts) that gave guarantees were not independent from Mr Bartlett and Ms Pennington. As I have explained, apart from P&J Projects, which appears to have been a private company of Mr Bartlett and Ms Pennington, they were the vehicles through which Mr Bartlett and Ms Pennington carried out the development. The intention of the corporate entities was the intention of Mr Bartlett and Ms Pennington and ultimately Mr Bartlett and Ms Pennington's intention was to procure the loan to assist with the development for their own benefit. The Project Companies had no assets other than their interests (as trustees) in the project assets (that is, the Project Land as developed). Consequently, what must have been intended was that the Term Loan Agreement would be repaid from the project assets and that if there was any shortfall, it would be borne by Mr Bartlett, Ms Pennington and P & J Projects as the only entities that had assets other than the project assets. In that context, the Borrowing Parties could not have intended (objectively) that rights of contribution would exist between the guarantors. They could not have intended that, having repaid the loan out of the project assets, one of the corporate guarantors would have a right to claim contribution from Mr Bartlett, Ms Pennington or P & J Projects. That conclusion is reinforced by the fact that as between Mr Bartlett and Ms Pennington on the one hand and the Project Companies on the other, there is no reason to draw a distinction between the Borrowers, from whom Mr Bartlett and Ms Pennington would have a right of indemnity if they made a payment under their guarantees, and the other guarantors. The conclusion is also consistent with the fact that each of the Project Companies gave a mortgage over that part of the Project Land it owned whereas Mr Bartlett and Ms Pennington gave no security in respect of their liabilities. Finally, it is also consistent with cl 8 of the BPI Deed.
5. The plaintiff submitted that the parties must have intended to preserve rights of contribution since if Suncorp, or later Goldman Sachs, had chosen first to enforce the guarantee given by Mr Bartlett or Ms Pennington, then it must have been intended that they would have rights of contribution against the Project Companies. I do not accept that submission.
6. If Goldman Sachs had, for example, first sought to enforce the guarantee given by Ms Pennington, then presumably Ms Pennington would have taken steps to recover the whole of the amount of her liability under the guarantee from the Project Companies (including Garland Lot 4) by causing the Project Companies to sell the Project Land and to distribute the sale proceeds to her to reimburse her for the liability she had incurred under her guarantee. Any right of contribution would both be unnecessary and inadequate.
7. The position is made more complex by the fact that Mr Bartlett also gave a guarantee and it may be that rights of contribution were preserved between him and Ms Pennington and possibly P&J Projects. However, there is no suggestion in this case that they are relevantly in different camps and the issue does not arise in this case.
8. It might be thought, at the time the guarantees were given, it could not be said that Mr Bartlett and Ms Pennington were the sole beneficiaries of the project since Plenus Residential and Plenus Retail had granted to BPI fixed and floating charges over their assets, which included the units they held in the respective unit trusts. But it is difficult to see why that fact would affect the imputed intention of the Borrowing Parties. In any event, to the extent that the position of BPI is somehow relevant, BPI agreed to detailed provisions setting out how the proceeds of the project were to be distributed. It is plain from cl 8 of the BPI Deed that BPI accepted that the projects assets would be used first to discharge the loans to NAB and Goldman Sachs, which is what happened. Consequently, it could not be said that the imputed agreement is inconsistent with any rights BPI had. Indeed, it might be said that Mr Rathner, who makes a claim through rights granted to BPI, seeks to circumvent the agreement reached by BPI in the BPI Deed by asserting that Garland Lot 4's rights of contribution (as trustee) were preserved.

Quantum

1. Having regard to the conclusions I have reached, it is unnecessary to deal with the issues raised by the Remaining Guarantors in relation to quantum. However, I should say something about them in case I am wrong in the conclusions I have reached.
2. Although the Remaining Guarantors initially raised a contention that Garland Lot 4 was not entitled to the whole of the proceeds of the sale of Lot 402 because part of that lot was owned by Garland Lot 3 as trustee for the Garland Lot 2 Unit Trust, that matter was abandoned in final submissions. Accordingly, it need not be considered further.

Adjustment for inter-company loan

1. In my opinion, the first adjustment sought by the Remaining Guarantors is correct. Prior to the sale of Lot 402, Garland Lot 4 (as trustee) was indebted to Garland 204 in the sum of $2,128,422.45. Immediately following the sale of Lot 402, Garland Lot 4's loan account with Garland 204 was credited with the amount of $7,980,385.00, which was the amount owing by the Borrowers (including Garland 204) at the time the loan to Goldman Sachs was repaid. The result was that, taking account of a number of other minor adjustments, the balance sheet of Garland Lot 4 following the sale of Lot 402 recorded a loan to Garland 204 of -$5,911,871.32 (that is, Garland 204 now owed Garland Lot 4 $5,911,871.32). As a result of these transactions, Garland Lot 204 must be treated as having indemnified Garland Lot 4 in respect of its liability under the guarantee at least to the extent of the $2,128,422.45, since Garland 204 must be treated as having paid Garland Lot 4 at least that amount. Garland Lot 4 is not entitled to claim contribution from co-sureties in respect of an amount it has recovered from the principal debtor: Steel v Dixon (1881) 17 Ch D 825 at 831 per Fry J. Consequently, at most, Garland Lot 4 is only entitled to claim contribution in respect of $5,851,962.55 (that is, the $7,980,385 less $2,128,422.45). Garland Lot 4 would be entitled to claim three quarters of that amount from the Remaining Guarantors.

Interest

1. The Remaining Guarantors submitted that, even if the plaintiff had been successful, he should not be entitled to recover interest because of the long delay in commencing proceedings.
2. I do not accept that suggestion. The purpose of pre-judgment interest is to compensate the judgment creditor for the practical loss it has suffered. In this case, it is not suggested that the plaintiff has not suffered a loss as a consequence of being out of pocket for the amount of any judgment, or that the Remaining Guarantors have not had the benefit of the money claimed by the plaintiff. In those circumstances, mere delay is not generally regarded as a basis for refusing interest: see Perri v Flavell (No 2) (Court of Appeal (NSW), Kirby P, Powell JA, 20 September 1995, unrep), where the Court of Appeal awarded interest notwithstanding a delay of eight and a half years in pursuing an appeal.

Orders

1. It follows that the orders of the Court are: 1. The proceedings (including the amended cross-claim) are dismissed; 2. The plaintiff pay the defendants' costs of the proceedings.

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. Decision last updated: 29 August 2023