GIO Finance Limited v Cockburn & Ors

THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORAM: FOSTER AJ

FRIDAY, 19 May, 2000 2803/98 - G I O FINANCE LIMITED v Craig Manners COCKBURN & ORS JUDGMENT 1 HIS HONOUR: These proceedings are brought by GIO Finance Limited (GIO) against a firm of solicitors trading as Coleman & Greig (Colemans) to obtain contribution in respect of the burden of a judgment given against it in earlier proceedings. These proceedings (the first proceedings) were brought by one Michael McNally (McNally) against both GIO and Colemans in the Equity Division of this Court. In order fully to understand the nature of the present proceedings it is necessary to make some reference to the content and course of the first proceedings. 2 In 1987 McNally had, as a result of a motor vehicle accident, been rendered a quadriplegic. In December 1988 proceedings brought by him for damages were settled for $1.49 million. As he was then under the age of eighteen the damages sum was held in trust until he attained that age. 3 McNally's father was one of the trustees. He took an active part in the management of McNally's funds. When McNally turned eighteen this situation continued. McNally left the management of his affairs to his father. At his father's suggestion two properties were purchased, the first a house in Brucedale Drive, Baulkham Hills, the second a house in Windsor Road, Baulkham Hills. The first became the home of McNally and his father. The second was an investment property. Appropriate renovations were carried out to the Brucedale Drive house to provide for McNally's disabilities. 4 McNally's father was the proprietor of a business which was in financial difficulties. He utilised McNally's funds to assist in the finances of the business. Money was borrowed by way of mortgage over the Windsor Road property to the State Bank . Later further money was raised by way of mortgage on the Brucedale Drive property. The lender on this occasion was GIO. McNally received advice in relation to entering into the mortgage from Mr Cockburn of Colemans, who acted for him as mortgagor. 5 Mr Cockburn, as solicitor for McNally, obtained his signature to a number of documents required by the solicitors acting for GIO as mortgagee. One of these was a certificate given by himself, which certified that he had explained to McNally the nature and effect of the documents before they were signed and had formed the view that the borrower had the requisite capacity to enter into the transaction. 6 The money was duly advanced by GIO on the security of the mortgage. Part of it was used to pay out the mortgage on the Windsor Road property. The balance was utilised by McNally's father in the operation of the business, in which it was lost. Payments could not be made to GIO, which sought to exercise its rights as mortgagee over the Brucedale Road property. The result was that McNally brought the first proceedings against GIO and Colemans. 7 In those proceedings McNally claimed, inter alia, that he had entered into the obligations to GIO as a result of undue influence from his father, of which GIO knew or ought to have known. He asserted against Colemans that Mr Cockburn had been in breach of his duty to him, under his retainer, to advise him with all reasonable professional skill, care and diligence in relation to his entering into the mortgage over his home and that he also was aware of the father's influence. GIO brought a cross-claim against Colemans based upon the giving of the certificate referred to above and claiming indemnity in respect of any successful claim made by McNally. 8 The proceedings were heard by Cohen J who found in favour of McNally against GIO. 9 Cohen J stated the issues between McNally and GIO as follows:- "The plaintiff seeks to have the mortgage and a deed of guarantee and indemnity, to the extent that it relates to him, set aside on the grounds: (1) That they were obtained in circumstances where it would be unjust or inequitable to permit GIO to enforce the security, (2) Under the provisions of the Contracts Review Act , (3) That they were obtained as a result of the undue influence of the plaintiff's father upon him in circumstances where GIO knew or ought to have known of that influence." 10 As between McNally and Colemans, Cohen J stated the issues of determination as follows:- "As against the second defendant the plaintiff seeks damages on the ground that Coleman & Greig were never instructed by him, but if they were then there was a breach of the contract of retainer because of a failure to exercise a proper standard of care in relation to the giving of the security, and alternatively that the second defendant was negligent in failing to exercise that standard of care." 11 As to the cross-claim by GIO against Colemans, the issues included, inter alia, the claim: "That the second defendant gave information by way of a certificate knowing that it would be acted upon and was negligent in doing so." 12 Cohen J found in favour of McNally against GIO on the issues referred to above. He also found that "there was a failure to exercise the necessary skill and care in advising of the plaintiff and in allowing the documents to be executed" on the part of Colemans. He said, however, "the question of the negligence of the second defendant is only relevant in the plaintiff's case if GIO is not liable." In respect of the cross-claim by GIO against Colemans he made the following findings:- "In the circumstances the cross-claimant has established the deceptive and misleading conduct, quite independent of any intention, and that conduct resulted in its entering into the mortgage and deed and advancing the funds. It has suffered the loss of not being able to recover from the plaintiff the balance of the money due and it has incurred the costs of the loan transaction and of the proceedings for possession.. Those amounts have not been quantified and it will be necessary, in the absence of agreement, to have a referral for the assessment of damages." 13 So far as is presently relevant Cohen J made the following orders:- "1. That the First Defendant deliver to the Plaintiff within 21 days from the date of these orders a duly executed discharge of the Mortgage over the property at 57 Brucedale Drive, Baulkham Hills. 4. That the Plaintiff's claim against the Second Defendant be dismissed on the liability of the First Defendant. 8. That the Second Defendant as Cross Defendant pay to the Cross Claimant the damages suffered by it arising out of the orders made against the Cross Claimant in favour of the Plaintiff. 9. That the assessment of the damages referred to in the proceeding order, if not agreed, be referred to a Master."

Consequential orders were made as to costs. 14 Both GIO and Colemans appealed against the decision and orders. 15 Cohen J's decision and order in favour of McNally against GIO was upheld. However, Colemans' appeal in respect of the judgment against it on GIO's cross-claim was upheld, the Court finding that his Honour had erred in holding that the certificate given by Mr Cockburn as to McNally's "capacity to enter into the transaction" had been relevantly misleading. In these circumstances, orders 8 and 9 made by Cohen J were set aside. The Court was of the view that order 4 made by Cohen J had depended upon the existence of orders 8 and 9. In the circumstances, it was necessary that it, also, be set aside. The Court found that, on the evidence, Colemans were liable to McNally for breach of their contractual retainer. In this regard, Priestley JA, in whose judgment the other members of the Court concurred, said:- "I earlier said that I thought it necessary to embark on the question of Colemans' liability to the plaintiff because the damages flowing from the breach of retainer were not necessarily the same as the damage that would be suffered by GIO consequent upon Cohen J's orders against it. However, a difficulty is caused by the approach taken by the plaintiff in a notice of cross-appeal filed by leave of the court on the first day of the oral argument in the appeal. This document, which began life as a notice of contention, asked that if GIO's appeal were upheld then Colemans should "be ordered to pay damages to [the plaintiff] in the sum equal to the amount required to obtain a discharge of the mortgage." Once the court permitted this document to be treated as a notice of cross-appeal, I took it as being an appeal against Cohen J's order 4 dismissing the plaintiff's claim against Colemans on the basis that GIO was liable. In the plaintiff's written submissions the assumption was made (par 2) that if the plaintiff obtained from Colemans the amount required to pay out the mortgage then that would put the plaintiff in the position in which he would have been but for Colemans' breach. There was no examination of this assumption in the argument in this court. The correct legal conclusion from the opinions I have reached seems to me to be that the plaintiff is entitled to the equitable relief against GIO which Cohen J granted and is also entitled to a common law judgment against Colemans for the damages recoverable by reason of Colemans' breach of contractual retainer. Whether the money value of the latter is the same as, greater than or smaller than the money value of the equitable relief against GIO is something I would not decide without hearing argument. Argument could be obviated by agreement between all parties, but I do not think anything that has been put before the court would justify us in acting on the basis that the parties are in agreement that, for example, the money value of the two remedies is the same. If the amount that the plaintiff has indicated he is willing to take as satisfying his common law claim is clearly no larger than the money value of the equitable remedy, then the court might properly enter judgment on the proposed basis. I am inclined to think, without having had any assistance on the point, that what the plaintiff has indicated he is prepared to take is no larger than the money value of the equitable remedy. However, I am not clear enough about this view to act upon it. If the other position turned out to be the correct position then the court's order would not be fair to Colemans Further, although GIO has lost the relief against Colemans which Cohen J ordered, it is possible that other claims for analogous relief are still open to be litigated. I have formed no view on this possibility." 16 In these circumstances order 4 made by Cohen J was set aside and there was substituted for it an order that McNally have judgment against Colemans for breach of retainer, damages to be assessed. In the event of these not being agreed, the assessment was to be made by a Master. In addition GIO's judgment on its cross-claim against Colemans was set aside and the cross-claim dismissed with costs. 17 The payment of any amount as damages for breach of retainer by Colemans to McNally was stayed "until a judge of the Equity Division has considered what set off or allowance, if any, should be made as between GIO and Colemans to avoid double payment or benefit to the plaintiff." 18 Formal orders to this effect were made on 2 February 1996. 19 Thereafter problems arose, in so far as McNally was satisfied with the relief he had obtained against GIO and did not seek to enforce the judgment he had obtained, on appeal, against Colemans. The question of any relief available to GIO against Colemans was not activated in the way the Court apparently envisaged. However, steps were taken between GIO and Colemans which were summarised in a judgment given by Priestley JA on 20 December 1996 in a directions hearing. His Honour referred to the portion of the earlier judgment dealing with this aspect of the proceedings and said as follows:- "The court made orders leaving it open to GIO, if it wished, to seek to raise some further basis for obtaining relief against Colemans. GIO did subsequently take steps to obtain relief in the general nature of indemnity or contribution from Colemans. Directions were sought from the court with a view to deciding whether it was open to GIO to make some such claim, and if so, what would be an appropriate means of determining it. In a number of directions hearings before me through the year various possibilities were examined. In the hope of clarifying the possible issues, I ordered that draft points of claim and points of defence be filed, and, later, that a document be filed by GIO indicating what evidence it would propose to rely on in the event of its obtaining a hearing of its claims. Colemans co-operated in the steps taken to clarify the issues, but always subject to a primary contention that, in the events that had happened, it was not now open to GIO to attempt to litigate its indemnity/contribution type claim." 20 His Honour then made reference to pleadings by way of draft points of claim and defence which the parties had prepared in response, apparently, to earlier directions. An issue had been raised in those documents as to whether GIO should be allowed to amend its pleadings, as they existed before Cohen J and the Court of Appeal, to make a claim against Colemans based upon an equitable right to contribution or indemnity. At that stage, it was determined that there should be a further hearing before the Court of Appeal to determine this preliminary question, on the basis that if it were decided in favour of GIO, then, the amendment having been allowed the proceedings would be remitted for decision to a single judge of the Equity Division. 21 A hearing took place before the Court of Appeal, in respect of which judgment was given on 19 June 1997. A number of matters were considered which are not presently relevant. In the result, the Court formed the view that it was inappropriate for leave to be granted to GIO to amend its pleadings, it being more appropriate that it should commence fresh proceedings. Accordingly, the application was dismissed and the proceedings which have come before me for decision have been commenced on fresh pleadings. I come, then, to consider those proceedings. 22 It is unnecessary to refer to the pleadings in detail, especially as they appear to assert contentions rather than facts. Their effect may be summarised as follows. GIO claims that as a result of undue influence exercised upon McNally by his father, of which it has been found by curial decision to have had notice, it has been obliged to give up its mortgage and its right to recover from McNally the amount of its loan. This has occurred, in circumstances where Colemans have also been found liable to McNally for negligence and breach of retainer which resulted in his entering into the same loan and security. In these circumstances it is alleged by GIO that it and Colemans were "under a common or co-ordinate liability to (McNally) which gave rise to a right in GIO at the time it delivered the discharge of mortgage to claim for contribution against (Coleman) on the general law principle of contribution". 23 The result of the defence filed on behalf of Colemans is, for practical purposes, to put in issue the claim that the orders pronounced against it properly found a claim for contribution by GIO against the firm. Colemans also assert that, consistently with the attitude maintained by them since the decision of the Court of Appeal on 2 February 1996, it is not now open to make a claim which could have been made in the original proceedings between the same parties and on the same facts. In other words, it seeks to rely upon the form of estoppel arising from the decision in Port of Melbourne Authority v Anshun Pty Limited (1981) 147 CLR 589.

It is convenient, in the first place, to consider the claim for contribution. 24 This claim is not based upon statute. It is based upon a doctrine, the classical statement of which is found in Dering v Earl of Winchester, (1787) 1 Cox 318; 29 ER 1184, a case concerning contribution between co-sureties. It was there stated: "…In all these cases the sureties have a common interest, and the common burthen they are joined by the common end and purpose of their obligations, as much as if they were joined in one instrument, with this difference only, that the penalties will ascertain the proportion in which they are to contribute, whereas if they had joined in one bond, it must have depend upon other circumstances…" 25 Another general statement of principle is to be found in Story, Equity Jurisprudence (3rd ed, London, para 493) where the statement is made: "The claim certainly has its foundation in the clearest principles of natural justice; for as tall are equally bound and are equally relieved, it seems but just that in such a case all should contribute in proportion towards a benefit obtained by all, upon the maxim, Qui sentit commodum, sentire debet et onus. And the doctrine has equal foundation in morals; since no one ought to profit by another man's loss where he himself has incurred a like responsibility. Any other rule would put it in the power of the creditor to select his own victim; and, upon motives of mere caprice or favouritism, to make a common burden a most gross oppression. It would be against equity for the creditor to exact or receive payment from one, and to permit, or by his conduct cause, the other debtors to be exempt from payment…" 26 For present purposes the statement of principle made by Kitto J in Albion Insurance Company Limited v Government Insurance Office of New South Wales, (1969) 121 CLR 342 at 349-350, in a case involving double insurance, provides a focal point. His Honour said that "the general doctrine of contribution…forms part of the common law" and stated that "a principle applicable at law no less than an equity, is 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…". 27 It is asserted on behalf of GIO that this principle, stated in various ways in the authorities, requires that Colemans should contribute to the loss that it has suffered as a result of the judgment given against it in these proceedings. On behalf of Colemans, it is submitted that the principle does not apply. The case is not one of co-ordinate liability and there is no "loss" to which the firm can be required to contribute. 28 Some shortening of the proceedings has been achieved by a sensible concession made by Colemans. It is accepted that GIO's quantification of its total claimed loss is $298,246.90 and it is agreed that in the event of Colemans being liable to contribute, then its contribution should be one-half of that amount. 29 I find it helpful to analyse the case in the following way. The basic cause of the problem was the undue influence exercised by his father over McNally. As a result of this influence he was induced to make his home available as security for the borrowing of in excess of $300,000 from GIO and to incur a personal debt to GIO in that sum together with other payments required from him by the mortgage contract. He incurred this debt and submitted to the security obligations in circumstances where the money borrowed was to be made available to his father for business purposes which involved the risk of its loss, which in fact occurred. The combination of the loan to him and its security by way of a mortgage placed upon the title to his home diminished his legal rights in respect of his home and reduced its value to the extent of the financial obligations imposed by the mortgage. 30 As has been held, GIO was constructively aware, prior to making the loan and obtaining the mortgage, that McNally was dealing with them in relation to these matters whilst under the undue influence of his father. Being in possession of that knowledge it both could and should have, in the interest of McNally, refused to enter into the transaction at all. 31 Mr Cockburn, on behalf of Colemans, was aware that the money was being borrowed for the purposes of the father in circumstances where McNally could be in danger of losing his home. He was also aware of the facts indicating that the transaction was being entered into as a result of influence being brought to bear on McNally by the father. It was found by Cohen J that, had he issued a very strong warning to McNally, then it was most unlikely that McNally would have entered into the transaction. He did not do so and, acted for McNally in relation to the mortgage and provided documentation which facilitated its implementation. 32 In these circumstances both GIO and Colemans could, on the findings of fact made in the proceedings, have prevented the loan and the mortgage. 33 Does this analysis produce the result that GIO and Colemans "are under co-ordinate liabilities to make good the one loss"? 34 Counsel, with commendable diligence, have taken me to a large number of authorities dealing with contribution between co-obligors. In many of them, there is to be found an extensive discussion of earlier cases. I do no propose to enter into any such discussion in this case; nor do I find it necessary to refer to the authorities. I am satisfied, with respect, that I can safely follow the statement made by the learned authors of Meagher, Gummow and Lehane Equity Doctrines and Remedies, 3rd ed, Butterworths, 1992, where they state an overall test as follows:- "….the proper view appears to be that contribution may be recovered where the liabilities of the co-obligors to the principal claimant are such that enforcement by him against either co-obligor would diminish that obligor in his material substance to the value of the liability. Any alternative or additional requirement in the doctrine of contribution of similarity or consubstantial nature between the liabilities to which the co-obligors are exposed would produce intolerable uncertainty and obscure the true objects of the doctrine." 35 The basis contention made on behalf of Colemans is that McNally suffered no relevant loss to which Colemans could be ordered to contribute. All that happened was that he entered into an unenforceable arrangement of debt and security. With respect, I do not accept that this is a proper characterisation of "loss" in the present case. In the first place the loan and mortgage were not nullities. They existed with full legal effect until set aside by order of the Court. (See Kerr on Fraud and Mistake, 7th ed. p.7 and cases there cited). In my opinion, the true "loss" suffered by McNally occurred when he entered into the arrangements which, at the time of such entry, diminished his financial position and the value of his home. That loss could have been corrected by his obtaining either an award in damages equivalent to the value of the loss, against Colemans or appropriate orders against the lender, GIO preventing it from recovering the debt or enforcing its security. 36 He chose to do the latter and, thereby cast upon GIO the full financial burden of restoring him to a situation from which he had departed only because of breaches of duty owed to him, in different ways, by both GIO and Colemans. 37 In my opinion, viewed this way, the case falls squarely within the broad, general principle relating to contribution, to which I have made reference. 38 There remains for consideration the submission of Colemans that GIO should not be permitted to maintain its claim for contribution because of its failure to include it in the first proceedings. The claim is based upon the principles laid down in Anshun. It is fair to say that this claim was put forward by Colemans without any great show of enthusiasm. 39 It is clear that a claim for Anshun type estoppel presents a Court with the need to make a discretionary decision. Again, I have been referred to a number of authorities in the careful arguments of counsel both written and oral. I do not consider that I need to make reference to any of them, it being sufficient to refer to the remarks of the majority in the case itself (at p. 602), after a consideration of a number of decided cases. Their Honours (Gibbs CJ, Mason and Aickin JJ) said:- "In this situation we would prefer to say that there will be no estoppel unless it appears that the matter relied upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it. Generally speaking, it would be unreasonable not to plead a defence if, having regard to the nature of the plaintiff's claim, and its subject matter it would be expected that the defendant would raise the defence and thereby enable the relevant issues to be determined in the one proceeding."

40 Their Honours went on to say (at p. 603):- "It has generally been accepted that a party will be estopped from bringing an action which, if it succeeds, will result in a judgment which conflicts with an earlier judgment." 41 In the present proceedings, both defendants asserted, before Cohen J their respective lack of liability to McNally as plaintiff. There was a cross-claim brought by GIO against Colemans, asserting entitlement to a complete indemnity based upon the solicitor's certificate to which reference has already been made. It has been held that a claim for equitable contribution arising from the delivery a judgment against two or more defendants does not in fact accrue until the delivery of judgment (Trade Practices Commission v Manfal Pty Ltd (in liq) (1991) 33 FCR 382 at 385. The claim for complete indemnity based upon misrepresentation would not have sat well with a claim for equitable contribution based upon co-ordinate liability to the plaintiff. Nor, in my view, did the failure to plead the contribution claim have the potential to lead to inconsistent judgments. 42 I do not think it was unreasonable on the part of GIO to fail to make a claim for equitable contribution in the first proceedings. I decline to find Anshun estoppel in the present proceedings. 43 In the result GIO is entitled to equitable contribution from Coleman in the amount of $149,123.45, being one half of the agreed amount of $298,246.90. 44 I have not heard argument on interest or costs. It may be that those questions can be settled by agreement. In the circumstances I will direct that counsel bring in short minutes of proposed orders at 10.00am on Monday 5 June. ********************

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