Supreme Court of NSW|1997-08-06|Before: Young J

Gpi Leisure Corporation Ltd (In Liq) v Yuill and 85 Ors Matter No 1907/94 [1997] NSWSC 292 (6 August 1997)

GPI LEISURE CORPORATION LTD (IN LIQ) v YUILL & 85 ORS

The Supreme Court of New South Wales Equity Division

It is necessary to sketch the present litigation so as to put the fourth cross claim in the matrix. Some years ago, a series of companies, including the plaintiff GPI Leisure Corporation Limited, now in liquidation, and the two fourth cross claimants, were in a group of companies which were at least under the de facto control of Brian Richard Yuill. The boards of all these companies included the second defendant, James Douglas Beatty. At the relevant time, Mr Beatty was a partner of solicitors Baker & McKenzie. Baker & McKenzie acted as solicitors for various companies in the group, including the plaintiff, for whom they held a general retainer.

There were a considerable number of disputes involving the group which might loosely be called "the Spedley group of companies" and on 27 September 1992, two deeds of settlement were sealed and delivered. One of these, which was referred to in evidence as "the main deed", was not executed by the plaintiff, but was executed by the fourth cross claimants. The second, which has been referred to in evidence as "the GPIL deed", was executed by those parties plus the plaintiff. I should note here for the purpose of clarification, that although both the plaintiff and its liquidator, Mr John William O'Brien, are named as the defendants to the fourth cross claim, no relief is sought in this motion against Mr O'Brien so that for all intents and purposes the plaintiff and the second cross defendant can be considered as identical. I will refer to this party as either the plaintiff or GPIL. I will refer to the fourth cross claimants as SSL/SHL.

After the execution and delivery of those deeds in 1994 the plaintiff commenced the present proceedings. The further amended statement of claim filed on 5 November 1996 listed certain transactions called "the impugned transactions". These are dealt with in para 22 of the statement of claim and I will list them as they currently appear in the further amended statement of claim together with their approximate date.

22.3 GPIL convertible notes transaction (April/June 1988)

22.8 Bills and bill endorsement facility transaction

22.11 1989 reconstruction proposal (January to April 1989)

The statement of claim made various allegations against the directors of GPIL alleging breach of fiduciary duties, but section I (paras 31-38) and section J (paras 39-49) made two sets of claims against Baker & McKenzie, section I was headed, perhaps infelicitously, but the term will do, "Vicarious Liability for the Acts and Omissions of Beatty" and section J was headed "Primary Liability as Solicitors for GPIL".

By the first cross claim, Baker & McKenzie alleged certain matters and then pleaded in para 46 that they were entitled to full indemnity in equity and pursuant to s 5 of the Law Reform (Miscellaneous Provisions) Act 1946 from, inter alia, SSL and SHL in respect of any damages or compensation awarded against them in favour of GPIL and they also claimed that no loss was suffered by GPIL in respect of the matters that were raised against them. Furthermore, it was put that if GPIL did establish loss, it "will have been caused by or resulted from the breaches of fiduciary duty, common law duty of care and statutory duty, alleged herein against Yuill and Gray vis-a-vis GPIL, such breaches having been participated in with knowledge by each of ... SHL and SSL; in the premises (Baker & McKenzie) are entitled to full indemnity."

The fourth cross claim pleads the GPIL deed and the main deed. There is then pleaded that certain proofs of debt were notified to the liquidator of SSL and SHL (a matter which will become relevant when I set out the relevant provisions of the deeds) and then para 16 of the fourth cross claim is as follows:-

"16. All conditions have been fulfilled and all things

neglect[s] and refuse[s] to comply with that indemnity."

The cross claim then seeks a declaration that SSL and SHL "are entitled to an indemnity by the cross defendants for any liability of the cross claimants, jointly or severally, to any of the defendants in equity proceedings 1907 of 1994 or any other person, corporation or entity, in respect of any of the matters the subject of, arising out of or relating to those proceedings." It also seeks a declaration that SSL/SHL are entitled to an indemnity for their costs and disbursements in respect of these proceedings and any of the matters relating to those proceedings and to a charge to secure the cross defendants' compliance with the indemnity.

The plaintiff's defence to the fourth cross claim is set out in para 7 of the document filed in November 1996. The relevant parts are (c) to (g) which are as follows:

"(c) the Cross-Claimant has not suffered any loss or

(g) the Cross-Claimant has failed to take all steps

I must now turn to the GPIL deed. The vital part of the deed is clause 9 which is headed "Indemnity". The relevant parts of clause 9 are set out in the Appendix.

Mr Sullivan QC who appeared with Mr Walton for SSL/SHL, put that the first part of clause 9.1.1 in the events which had happened could be paraphrased as follows:

execution date as a consequence of the claim brought

"Proceedings" was defined in the deed as meaning Commercial Division proceedings 50190 of 1991, 50182 of 1991, 50467 of 1991 and 50320 of 1991.

There is a separate provision in 9.2.2 in relation at least to certain legal costs and disbursements where the deed provides that the indemnity in clause 9.1 shall not apply. Again, paraphrasing what is in the Appendix, the operative part of 9.2.2 is that:

"Where the indemnified party is SSL or SHL and the indemnifying party is GPIL the latter shall pay that

part of the former's account as relates to (i) any costs and disbursements approved by GPIL prior to their being incurred; and (ii) any legal advisor who was selected by GPIL and retained by SSL/SHL or whose retainer by SSL/SHL was approved by GPIL and the remainder of SSL/SHL's account shall be borne by SSL/SHL provided that -

A. SSL/SHL take all such steps as GPIL may reasonably

require for the purpose of the conduct of any proceedings ...".

The case really falls into two parts, the first dealing with the indemnity under 9.1.1 and the second with the indemnity under 9.2.2. I will deal with these separately.

As to 9.1.1, Mr Sullivan QC and Mr Walton say that in construing the indemnity one must note its width. It was to cover matters in issue in the Proceedings which were settled between the parties who did not wish to be afflicted by the same questions arising by a side wind in some subsequent proceedings. It is to be noted that SSL and SHL can only be concerned if GPIL succeeds against Baker & McKenzie. Again, SSL and SHL will only be exposed if Baker & McKenzie get a judgment against SSL and SHL on the first cross claim. It is conceded that neither of these events has arisen.

It is necessary, so it is submitted, to look at the claims made by Baker & McKenzie in the present proceedings and compare them with the claims made by Baker & McKenzie in the Proceedings. One must then ask, do any of such claims (i) arise out of; or (ii) had been made in the Proceedings; or (iii) had been made in respect of the Proceedings? Again, are the claims by Baker & McKenzie against SSL and SHL claims which arise out of circumstances or allegations in the Proceedings or the circumstances on which any of the Proceedings were based?

To answer these questions, one needs to look at the allegations being made in the further amended statement of claim and the first cross claim which are directed to what the statement of claim calls "the impugned transactions".

The fourth cross claimants say that the complaint against them in the first cross claim is that their accounts for the financial year ending 31 October 1987 were false and misleading and were used in order to induce GPIL to take up 11 million cumulative redeemable preference shares for a total consideration of $100 million. They say that this claim was also the subject of the claim in proceedings 50182 of 1991 which are referred to in the evidence as "the GPIL/SCB proceedings". They concede that the Baker & McKenzie cross claim contains other particulars of falsity of those accounts which are not necessarily to be found in any of the earlier proceedings but despite this it is put that the Baker & McKenzie claim is a claim which has been made in those proceedings or is a claim which arises out of the circumstances or allegations referred to in the proceedings or on which the proceedings were based. The exception to this is the Dirham transaction. It is conceded there is no specific reference to this transaction in any pleading in the earlier sets of proceedings. However, they say that in the GPIL/SCB proceedings para 39C of the third further amended summons puts that "By reason, inter alia, of the matters referred to ... SHL [and] SSL induced ... breach of the fiduciary obligations ...".

Mr Sullivan QC and Mr Walton put that an indemnity clause such as 9.1.1 is not to be construed strictly. They cite the Court of Appeal's decision in Glebe Island Terminals Pty Ltd v Continental Seagram Pty Ltd (1993) 40 NSWLR 206 at 242-3 and the decision of Cohen, J in Pendal Nominees Pty Ltd v Lednez Industries (Australia) Ltd (1996) 40 NSWLR 282.

SSL/SHL put that it is significant that the word "claim" is used in 9.1.1 rather than a technical term such as "cause of action". It is put that this word generally connotes the object which is claimed rather than the cause of action by which it might be supported or the grounds on which it might be based, taking up the words of Develin, J in West Wake Price & Co v Ching [1957] 1 WLR 45, 55; [1956] 3 All ER 821, 829. See also Thomson v Consumer Claims Tribunal [1981] 1 NSWLR 68, 71. Thus it is put that it really matters little that there may be some difference in the particulars or in the way the claim is expressed, so long as the claim itself is the same as that made in the Proceedings or arises out of the circumstances or allegations referred to in the Proceedings and that as the basal allegation of falsity of the 1987 accounts is the same, the cross claimants are entitled to an indemnity.

Mr Weber for the plaintiff, puts that the cross claimants have over-simplified the situation.

Mr Weber draws attention to the fact that what is being sought in the fourth cross claim is a declaratory order that there is an indemnity notwithstanding that no judgment has been suffered by SSL or SHL on any cross claim. He acknowledges that such an order can be made in the appropriate case though he says it would be singularly inappropriate for the court to make a declaration in as wide terms as that sought in the fourth cross claim and indeed, it is very seldom that the court would contemplate making a declaration as to a future event. I will deal with this proposition later.

Mr Weber puts that at this stage and on the material before me, one just could not predict the outcome of the first cross claim. Of course, if Baker & McKenzie fail on that cross claim there is no need to go any further. But if Baker & McKenzie succeed in relation to findings of fact in relation to, for instance, the Dirham transaction or the 1989 reconstruction proposal or indeed in respect of matters arising from the plaintiff's claim against Baker & McKenzie for their own negligence in acting as its solicitors, it simply cannot be said with any degree of certainty that the indemnity would apply.

Mr Weber points to the fact that the 1987 accounts have very little to do with the Dirham transaction which occurred in February 1989, after the financial year ended 31 October 1988 and the same can be said with the 1989 reconstruction. Indeed, only the SHL preference share transaction was before the 31 October 1988 accounting period expired. Furthermore, the statement of claim pleads that about Christmas Day 1988 and certainly by 12 January 1989, Mr Beatty and hence the other partners in Baker & McKenzie "vicariously" had sufficient notice of the problems to show the transactions after that time which were carried out by their client GPIL to its loss may well have been in breach of a solicitor's duty of care to its clients.

Furthermore Mr Weber puts that not only are there allegations about misrepresentations in the accounts of 31 October 1987, but there are also claims for oral misrepresentations. It may be at the final hearing these will be held to be established and they have nothing to do with the matters referred to in the deeds of indemnity. Thus, one just cannot say at present that it is clear that the result of the action will be a verdict for the cross claimants on the fourth cross claim.

Mr Weber's next point is that the same sort of matter which is currently before me was fairly conclusively dealt with by Brownie, J in an application made to him by the liquidator of GPIL in proceedings 4842 of 1991 decided on 15 December 1995. Although that was an application for directions, Brownie, J granted leave, which leave was taken up for Baker & McKenzie, SHL, SSL and another company to intervene. His Honour said this, "The intervenors submit that in these circumstances, it can be seen that Baker & McKenzie will be entitled to be indemnified by one or more of these Indemnified Parties, so that Baker & McKenzie also have available the defence of circuity of action. In my view the short answer to this submission is that whilst on the evidence now before me Baker & McKenzie may well have claims to contribution from these proposed cross-defendants, it is not apparent that they will have a right to be indemnified; and therefore whilst GPIL may have to indemnify these cross-defendants in respect of their liability to Baker & McKenzie, that will amount to an indemnification only to the extent of any contribution ordered, and the defence of circuity of action is not now shown to be so likely to succeed, as to mean that the directions now sought should be refused."

That passage, of course, focuses more on Baker & McKenzie than SSL and SHL, but it should be set out as part of the general picture.

Counsel were agreed in their submissions that the test to be applied is whether GPIL's defence to the fourth cross claim is "so clearly untenable that it cannot possibly succeed". Mr Weber said this involved SSL/SHL in establishing that (i) regardless of the nature of any judgment which may be obtained against them; and (ii) regardless of how those cross claims may be later amended; and (iii) regardless of the nature of any claim which may be made by any of the defendants, whether now on foot or otherwise; and (iv) regardless of the nature of any claim made by any other person, corporation or entity, it is unarguable that GPIL might not have to indemnify SSL/SHL in respect of such claims. This is the first hurdle. The second is that SSL/SHL must show that this is an appropriate case for declaratory relief in respect of future matters.

I consider, with respect, that the first hurdle put up by Mr Weber is overstated. The court deals with the cross claim as it is currently framed. If it considers that, on the cross claim as currently framed there is no defence, then summary judgment is given. If there is a possibility of a defence being amended in such a way as would meet the cross claim, then the defence is struck out with leave within a certain time to plead an amended defence, or alternatively, the matter is stood over so that the proposed amended defence can be formulated and the court can see whether it is a proper defence or not. This is a slightly different case because the cross claims being considered are the cross claims being made by Baker & McKenzie and it is possible that these will be amended. However, again I believe the general proposition holds good that the court deals with the pleadings in a strike-out application as it finds them, and if there are any subsequent amendments, then that can be dealt with when the need arises. Again I appreciate that these are declaratory proceedings and what is being sought is a declaration as to indemnity. Mr Weber rightly says that the declaration sought in the fourth cross claim is far too wide. However a declaration could be framed which would make it abundantly apparent that the only declaration of indemnity was in respect of Baker & McKenzie's cross claims as currently framed.

The second hurdle that Mr Weber puts in the way of the motion is to my mind far more serious.

There is no doubt that it is competent for the court to make a declaration on an application for summary judgment, but it will only be in exceptional cases that the court will do so. Although courts have become more venturesome since 1939, what was said by Lord Maugham, LC in New Brunswick Railway v British & French Trust Corp Ltd [1939] AC 1, 22, for the greater part still holds good. His Lordship said, "I think it right to observe that it is in my view undesirable that judges should make declarations as to the true construction of documents on motions for judgment in default of defence. It has not, I believe, been the practice to do so in the Chancery Division for a good many years. As far as possible the Court should make such declarations only when the matter has been argued by counsel on each side, and is then the subject of adjudication by the judge." See also Lord Russell at p 28 and Meade v Haringey Council [1979] 1 WLR 637, 657.

Zamir and Woolf on The Declaratory Judgment 2nd ed p 264 put it this way, "If the proceedings are begun by writ, final declarations can be obtained on an application for summary judgment under RSC, Ord 14. Where a party is in default, for example, in entering an appearance or in delivering a pleading, it is possible to obtain a judgment, including a declaration. However, the courts will generally be reluctant to grant a declaration as part of a default judgment in the absence of any evidence and argument. Before the court grants a declaration it wants to be sure, as in the case of an injunction, that it is appropriate to grant that relief."

As I have already noted, Mr Weber submitted that the court should not in any event make a declaration because the form of the declaration would be dependent on future events. See Young on Declaratory Orders 2nd ed para [717] and cases there cited. However, when the cases are analysed closely, the matter of futurity is only one of the elements that a court takes into account when it is considering whether in its discretion it is of utility to make a declaration: Re An Application by Tooth & Co Ltd [1978] FCA 10; (1978) 19 ALR 191, 207-209 and Bond v Sulan [1990] FCA 419; (1990) 98 ALR 121, 131. As Brennan, J said in the Tooth case, at 209, "A controversy as to the lawfulness of future conduct cannot be said to be immediate and real if it is unlikely that the applicant will engage in the conduct... . If the prospects of the applicant engaging in the conduct are uncertain, the uncertainty may deprive the controversy of a sufficient immediacy and reality to warrant the making of a declaration. ... The degree of uncertainty as to whether the applicant will engage in the conduct proposed will usually determine whether the circumstances call for the making of a declaration." (I have omitted his Honour's citation of authority).

Another matter as to declarations that should be considered is when the court of equity will grant a declaration that a person is entitled to an indemnity. In a case of a surety, the law is that unless the loss to the surety is imminent, a surety who has not paid under a guarantee or indemnity is not able to obtain a judgment either at law or in equity against a person who is liable to indemnify or contribute. In McLean v Discount and Finance Ltd [1939] HCA 38; (1939) 64 CLR 312, 341, Starke, J says, "The authorities support the view that in equity the right to contribution can be declared before actual payment is made or loss sustained provided that such payment or loss is imminent." His Honour cited as authority Wolmershausen v Gullick [1983] 2 Ch 514. In the latter case at p 527, Wright, J again limited the equitable right of a surety to recover in equity before payment by saying, "provided loss was imminent". In Rogers v ANZ Banking Group Ltd [1985] WAR 304, Burt, CJ made a declaration that a guarantor was entitled to an indemnity notwithstanding that the principal creditor was not making any immediate threat to the guarantors. At 313 his Honour said he thought that appropriate because the principal creditor was denying its liability to the guarantors. It may be that this case goes too far, but even if it is correct, the present is not a case where GPIL is repudiating its liability. It is rather a case where GPIL says that circumstances for payment have not yet arisen and may never arise. If the judgment in favour of Baker & McKenzie is obtained in terms of the indemnity under the GPIL deed, there is no threat that GPIL will not pay.

O'Donovan & Phillips, The Modern Contract of Guarantees 3rd ed (LBC Sydney 1996) p 566 says as follows, "A guarantor may seek quia timet relief even if the guarantor is not yet in jeopardy and even if there is no immediate probability that the creditor will press her or him for payment in the near future." The principal authority for this proposition is Re Giles [1986] 1 Ch 956. However, that case was, as is another that is cited in the same footnote (251) by O'Donovan & Phillips, an Administration Act case. Another case which they cite in the same footnote, Ranelaugh v Hayes [1680] EngR 235; (1863) 1 Vern 189; 23 ER 405, is a special case because of the complications of the Irish revenue law as the learned Lord Keeper points out in the judgment. The final case relied on, Bechervaise v Lewis (1872) LR 7 CP 372 at 377, is a common law case dealing with equitable set-off in which Willes, J, giving the judgment of the court says, "The surety, however, has another right, viz that, as soon as his obligation to pay is become absolute, he has a right in equity to be exonerated by his principal."

I think, with respect, these statements put the surety's right too high. Unless there is some cause for equity to intervene, it usually does not do so. Equity usually only intervenes where there is some reason for not letting the law take its course. In the law of surety, that reason is usually that there is imminent danger to the surety's estate in the principal creditor collecting the money from the surety before the surety has a chance to marshall the persons who are liable to indemnify him or contribute to his liability. There may, as in Ranelaugh's case, be other reasons why equitable relief is necessary. It may these days be only a matter of discretion, equity may not be prepared to grant relief to a surety before he or she has paid the debt or is imminently liable to pay it.

Looking at the insurance cases gives a like result. In a proper case, the court will make a declaration of liability of an insurer, before the determination of liability of the insured, Lissenden v Yorkville Nominees Pty Ltd [1984] 3 NSWLR 138, 140 and Marr Contracting Pty Ltd v FAI Insurances Ltd (Rogers, J 8.12.1987, unreported). However, courts often decline to do so, and indeed in some jurisdictions they hardly ever do so, mainly because of the possibilities of dealing with matters which may turn out to be hypothetical; see eg AMP Fire & General Insurance Co Ltd v Dixon [1982] VicRp 83; [1982] VR 833.

For this reason too it seems to me that until the liability of GPIL to indemnify SSL/SHL if and when Baker & McKenzie obtain judgment on the first cross claim arises, there is not a sufficient reason for equity to grant a declaration, let alone a declaration on an application for summary judgment.

To combine the arguments on the two hurdles, Mr Weber says that because there are so many conceivable bases for Baker & McKenzie to succeed on one of their cross claims, that it is almost in the realm of speculation to work out when the precise words of the indemnity have been fulfilled. Mr Weber illustrates his submission by saying that Baker & McKenzie may succeed in relation to findings of fact with respect to the Dirham transaction or the 1989 reconstruction proposal or the solicitor's negligence action against Baker & McKenzie, but it cannot be said that whichever way those claims turn out, there must be an entitlement to an indemnity.

Despite everything that Mr Sullivan QC and Mr Walton have said, it seems to me that what Mr Weber says is probably correct for this type of application, or at least that for the reasons Mr Weber has stated, Mr Sullivan QC's client does not get over the necessary hurdles to get summary judgment. Essentially, the GPIL deed as Mr Sullivan QC has submitted, was intended to put to rest once and for all liability for obligations arising out of the matters, facts and circumstances referred to in the GPIL deed. Basically these were claims arising from the allegation that there was a false representation inherent in the 1987 accounts, that is, the accounts for the year ended 31 October 1987. This is, of course, a gross simplification, but it will suffice for present purposes. The current allegations involve matters that occurred after the 1988 accounts, matters that happened after Mr Beatty was aware (if he was not aware before) of certain damning facts, oral representations and the direct liability for common law negligence of Baker & McKenzie.

The matter is complicated factually. That should not of itself prevent summary judgment being given in an appropriate case. However, it seems to me that in the instant case there is arguably a situation where the indemnity might not apply. Furthermore, there are difficulties in formulating a precise declaration. In any event, declaratory relief in this sort of matter is only available without a full hearing in a narrow range of cases. In my view this is not, as a matter of discretion, an appropriate case for summary judgment.

I should note that I appreciate Mr Sullivan QC and Mr Walton's submissions that there are good commercial and practical grounds why summary judgment should be given. It would appear to the liquidator of SSL/SHL that the great probabilities are that either Baker & McKenzie will fail on the first cross claim or if they succeed, then the indemnity in the GPIL deed will protect SSL and SHL. The litigation may well be long drawn out and costly. If at this stage there could be a determination that no matter what happens, SSL/SHL will not have to pay out any money, then not only can they safely withdraw from active participation in the litigation, but also a distribution can now be made to the creditors and the winding up completed.

Early completion of a winding up is something to be aimed for and the minimisation of the costs of the winding up is another worthy goal. A liquidator's desire to terminate the winding up soon is placed in a different category to the normal litigant's desire to finish with litigation as soon as possible. However, such a desire is not the only public interest involved. Another interest is that all litigants should be permitted to have any proper case submitted to the decision of a full and fair final hearing. If all other factors are equal, this latter public interest overbears the interest in terminating a winding up early.

I pass then to the question as to the indemnity under 9.2.2 of the GPIL deed with respect to the matter of costs.

The case for this indemnity is in a different plight to the one I have already considered. This is because the question that separates the parties is really one of construction of clause 9.2.2 rather than one that might depend on the way in which the first cross claim is decided. Furthermore, the question of construction does not appear to me to be affected by any further development of the factual matrix which might result from all the facts coming out at the final hearing.

There is no doubt at all that SSL/SHL have incurred legal costs which, if the conditions of the GPIL deed were met, would need to be reimbursed by GPIL. There is also no doubt that SSL/SHL sought the approval of GPIL of their preferred legal advisors. Mr Sullivan QC and Mr Walton say that it follows from the request for approval and non-reply that approval shall be deemed to have been given. They refer to my decision in Beneficial Finance Corp Ltd v Multiplex Constructions Pty Ltd (1995) 36 NSWLR 510 and Mackay v Dick (1881) 6 App Cas 251, especially at 263, 264, 270, 271 and 272.

I do not, with respect, consider that the Multiplex case is of any substantial guidance in the present case or that I there said that if a person unreasonably withholds consent, the consent is dispensed with. All that I said in Multiplex was that when a person pleads that the opponent cannot take advantage of his own wrong, that statement may fall into at least three different legal categories.

The law as to excusing compliance with conditions precedent originally was important because of the old system of pleadings whereby a plaintiff had to allege performance of all conditions precedent, or alternatively the performance of all conditions precedent save those which had been excused. The plaintiff then had to plead in the latter case the reasons why performance should be excused and the usual reason was waiver. Waiver could be either by words or conduct.

Lord Blackburn's judgment in Mackay v Dick at 233 shows that the principle of common law that one could waive performance of a condition precedent derives from the case of The Mildenhall Bell (1469) YB 9 Ed IV (Easter Term 4A). In the 1680 edition of the Year Book in the Law Courts Library the report starts at the foot of page 3. It is, of course, in Law French, but freely translated, reads as follows:

In debt over an obligation, the defendant pleaded an indenture namely that the Great Bell of Mildenhall should be brought to the defendant in Norwich at the cost of the men of Mildenhall and there weighed and put in the fire in the presence of the men of Mildenhall and the defendant was to make a tenor of it to agree in tone and sound with the other Bells of Mildenhall and that if this did not occur the obligation would be void. The defendant then pleaded that the said Bell was not weighed and put in the fire in accordance with the indenture and sought judgment in the action. Genney argued that that plea was not valid because although it was averred that the Bell was to be weighed and put in the fire the indenture did not specify who was to do the weighing and that as the defendant's occupation appeared to be that of a brazier the better view was that it was he that would do the acts. Choke, CJ, Littleton and Moyle JJ agreed with this, the fourth Judge, Needham, J, adopted a variation. Counsel then discussed what would have been the situation had the plea alleged that the defendant had put the Bell in the fire without seeing it weighed and all agreed that that would not go to the substance of the bond and the obligation would not have been forfeited.

In Chitty on Pleading 7th ed (1843) Vol 1 p 335 on pleading excuse for non-performance of a condition precedent, the learned author says, "The plaintiff must in general show that the defendant either prevented the performance, or rendered it unnecessary to do the prior act, by his neglect, or by his discharging the plaintiff from performance. The performance of a condition precedent may also be excused by the absence of the defendant, if his presence were necessary for the plaintiff's performance; or by his neglect to do the first act, if it were incumbent on him to perform it. It may also be excused in some cases by the defendants not giving notice to the plaintiff. ...

"Where the respective acts to be done by the plaintiff and defendant were mutual, and were to be performed at the same time, the plaintiff should aver his readiness to perform his part and either state that the defendant neglected to attend where necessary, or refused to perform his part or discharged the plaintiff from his performance."

The main authority for this passage is Hotham v The East India Company (1787) 1 Term Reports 638; [1787] EngR 48; 99 ER 1295 where at ER 1299 Ashhurst, J, giving the decision of the Court of King's Bench in Banc said that where it is rendered impossible to perform a condition precedent by the neglect and default of the opponent, that is equal to performance. This followed from common sense and from Rolle's Abridgment 445. This statement was affirmed on many subsequent occasions; see eg Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd [1954] HCA 25; (1954) 90 CLR 235, 246, per Dixon, CJ.

The principle that allows a person to show that performance of a condition precedent has been excused actually covers at least 10 separate rules. Many of these rules appear from the extracts I have already set out. It is convenient to list them with some brief comments.

1. When considering whether a condition precedent has been fulfilled, one looks to the substance of the condition and not to each detail of it (Hotham v The East India Company).

2. Where the opponent has prevented performance of a condition precedent that is the equivalent to its performance. 3. If the opponent discharges the plaintiff from fulfilling the condition it does not have to be fulfilled.

4. If the opponent expressly or impliedly intimates that it is useless to perform the condition precedent and requests the person who was to perform it not to do so and that person acts upon that intimation it is the same as actual prevention (the Peter Turnbull case at 247).

5. A party may waive performance of a condition precedent.

6. A party may not in conscience rely on that party's non-performance of a condition precedent under the rule that no-one can take advantage of his own wrong. Where justice can be done by simply disallowing a defence founded on the failure of compliance with a condition precedent, a court of law has concurrent jurisdiction with a court of equity to do justice: Edwards v Aberayson Mutual Ship Insurance Society (1876) 1 QBD 563, 581.

7. Where a condition precedent and performance are mutual, such as the case of payment of the price and delivery of goods, the readiness of one party and the neglect of the other to perform will allow the party ready to perform to sue.

8. Where a condition precedent is wholly for the benefit of a person, that person can dispense with it; see Turnstila Pty Ltd v North Shore Gas Co Ltd (1981) 2 BPR 9105 and Toga Development No 10 Pty Ltd v Gibson (1973) 2 BPR 9260

9. It may be that one construes a covenant containing what appears to be a condition precedent as a whole so that if the apparent condition is not fulfilled the whole covenant cannot be sued upon. The most common example of this is a covenant against assignment in a lease subject to the landlord not unreasonably withholding consent. If the consent is unreasonably withheld, the landlord cannot allege that the assignment was in breach of covenant; see Treloar v Bigge (1874) LR 9 Exch 151; Barina Properties Pty Ltd v Bernard Hastie (Australia) Pty Ltd [1979] 1 NSWLR 480 and Yared v Spier [1979] 2 NSWLR 291.

10. In appropriate cases, the court will so construe a covenant including a condition precedent so that the condition precedent will not operate unless the parties have been ready, willing and able to do all such things in co-operation as to make the contract work.

I think it is necessary to expand the statement that a condition precedent may be excused by the opponent's default and to state the ten rules which, by induction, one gains the wider principle, particularly as the wider principle in itself is rather vague. In the instant case, it would seem that what is being alleged is that GPIL's conduct prevented performance of the condition precedent or that SSL/SHL were discharged from performing it, or alternatively that GPIL waived it. All of these allegations involve questions of fact. One cannot just move to some sort of amorphous proposition of law that, in every case where a defendant has not co-operated in the carrying out of a condition precedent, the plaintiff can assume that it has been excused performance.

Accordingly, if SSL/SHL's construction of the clause is correct, the matter may not be one for summary judgment because questions of fact need to be considered which are not obviously admitted on the state of the materials before the court.

Apart from this, the submissions of GPIL are that the true construction of 9.2.2(b) gives the party in the position of GPIL an absolute right to decline to agree to approving a legal advisor. Mr Weber points out that the drafter of the deed has been careful to say "which consent shall not be unreasonably withheld" where that is what the parties mean, see eg proviso C to clause 9.2.2(b) and it is significant that no such words are used earlier in the clause. I am not in favour of this submission. It seems to me that at least there must be an implied term that there would be a bona fide attempt to approve or not approve a legal advisor and that the operation of the clause could not be stifled merely by taking a head in the sand approach to whether approval would be given or not (not, of course, that I am saying that the GPIL lawyers took a head in the sand approach in this case).

But putting these things aside, is the construction of clause 9.2.2 that Mr Sullivan QC and Mr Walton put correct, or is Mr Weber right that before the clause can come into play SSL/SHL have to show that they are an "indemnified party", that is, that inevitably SSL/SHL are liable to indemnify Baker & McKenzie?

"Indemnified party" is defined by the opening words of clause 9.1.1 as a Core Party (which includes SSL and SHL) who "suffers any loss or detriment after the Execution Date (including without limitation, any judgment, or any costs, whether or not the subject of a Court order)." It would seem to me that the words "or any costs" trigger the definition so that a party becomes an indemnified party as soon as it suffers a loss because of costs as a result of the matters contained in 9.1.1. This is reinforced by the structure of 9.2.2 which seems to envisage that it is in the defence of the claims made against the indemnified party that costs will be incurred and which the other party may wish to have input into the litigation before its money should be used to pay another party's costs.

Should one then, read the clause disjunctively, that is, that it is liable either if the costs and disbursements are pre-approved or else the retainer of a particular legal advisor was approved or are those two matters cumulative?

In favour of reading the provisions cumulatively are -

(a) that the word "and" occurs between (i) and (ii);

(b) that the whole tenor of the provisos predicates a situation where the party other than the indemnified party has fairly full control of the litigation; and

Mr Sullivan QC and Mr Walton, however, say that it is commercially more realistic to take that view. This is mainly because there is no commercial reason why SSL/SHL should give up their right to choose their own legal advisor because such a right just does not affect GPIL. I am always a little concerned about submissions that something is more "commercially realistic" than something else because often this really means that it is more commercially desirable for the position of the party putting forward the submission. What one has to do is to look objectively at what was the commercial intention of both parties. It seems to me that although theoretically all barristers and solicitors are equal, in the words of George Orwell, some are more equal than others and that it is quite commercially realistic for a person who is to foot the bill to make sure that the persons who are to handle the legal work are persons with whose skills and efficiency they are comfortable with.

Thus, I come to an interpretation of the clause which is in between the submissions of the counsel for the opposing parties. However, on that construction there would be questions of fact as to whether the non-response by the GPIL interests as to the nomination of Dibbs Crowther & Osborne and Messrs Sullivan QC and Walton was an excuse for not complying with the condition precedent.

Accordingly, the notice of motion for summary judgment is dismissed with costs.

Reform (Miscellaneous Provisions) Act 1946

Gpi Leisure Corporation Ltd (In Liq) v Yuill and 85 Ors Matter No 1907/94 [1997] NSWSC 292

At a glance

Court

Decision date

Before

Source

Judgment (91 paragraphs)

Gpi Leisure Corporation Ltd (In Liq) v Yuill and 85 Ors Matter No 1907/94 [1997] NSWSC 292 (6 August 1997)

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Legislation Cited (2)

Cases Cited (7)