HERSKOPE & ORS. v. PERPETUAL TRUSTEES (W.A.) LIMITED [2002] NSWCA 153

ALAN HERSKOPE, TOM LINARDOS, ROSEMARY LUFF, ROYDAN EUAN LUFF, TARGRIDGE PTY. LIMITED and H.K. CAPITAL LIMITED (Appellants) PARTIES : PERPETUAL TRUSTEE (W.A.) LIMITED (First Respondent) EQUUSCORP PTY. LIMITED (Second Respondent) A.D.J. CONTRACTING PTY. LIMITED & ORS. (Third to Thirtieth Respondents) JUDGMENT OF : Sheller JA at 1; Powell JA at 19; Beazley JA at 71

LOWER COURT JURISDICTION : Supreme Court - Equity Division LOWER COURT ED 4424/99 FILE NUMBER(S) : LOWER COURT Bergin J JUDICIAL OFFICER :

C.R.C. Newlinds (Appellants) COUNSEL : J.B. Simpkins SC (First Respondent) No appearance (Second to Thirtieth Respondents) Michell Sillar (Appellants) SOLICITORS : Henry Davis York (First Respondent) No appearance (Second to Thirtieth Respondents) CATCHWORDS : Interpretation of Instruments - Rules of construction - Deed of settlement - Apparently inconsistent provisions - Whether to be construed as a release or as a covenant not to sue. D Bateson v. Gosling (1871) LR 7 cp 9 Commercial Bank of Tasmania v. Jones & Anor. [1893] AC 313 Dorgal Holdings Pty. Limited v. Buckley & Ors. (1996) 22 ACSR 163 Duke v. Mayeu [1892] 2 QB 511 CASES CITED: In re EWA [1901] 2 KB 642 Hume v. Rundle (1825) 2 Sim & St 174; 57 ER 311 Kearsley v. Cole (1846) 16 M & W 128 Kenworthy v. Avoth Holdings Pty. Limited, Cannon & Bishop (1974) WAR 135 The Life Insurance Company of Australia Limited v. Phillips (1925) 36 CLR 60 Lloyd v. Lloyd (1837) 2 My & Cr 192; 40 ER 613 DECISION : Appeal dismissed

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40127/2001

SHELLER JA POWELL JA BEAZLEY JA

31 May 2002 HERSKOPE & ORS. v. PERPETUAL TRUSTEES (W.A.) LIMITED & ORS. Judgment

1 SHELLER JA: This is an appeal from a decision of Bergin J of 5 December 2000 in proceedings which the first respondent, Perpetual Trustee (WA) Ltd (PTWA) began in 1999 in the Equity Division of the Court. There were 148 defendants. The appellants in this appeal are Alan Herskope, Tom Linardos, Rosemary Luff, Royden Euan Luff, Targridge Pty Limited (Targridge) and HK Capital Limited (HK) who were respectively the 35th, 59th, 61st, 62nd, 96th and 148th defendant. The respondents are Equus Corp Pty Ltd (EPL), ADJ Contracting Pty Ltd and twenty-seven other respondents listed in a schedule to the notice of appeal. 2 PTWA was the trustee of assets relating to a film originally called "Night of the Leopard". The trust was in writing and contained in a deed made on 9 May 1988. There were two classes of investors in the film. The first class consisted of investors who had borrowed money from EPL. The second class consisted of investors who were self funded or had obtained finance from sources other than EPL. The investors held units in the trust. In 1996 by a statutory demand, PTWA claimed more than $5,000,000 from EPL under a letter of credit dated 29 June 1990. The statutory demand was challenged and the figure reduced to $943,765 which EPL paid to PTWA. The Federal Court granted an injunction restraining PTWA from distributing that amount. PTWA asserted there was still money payable to it by EPL pursuant to the letter of credit. EPL claimed that pursuant to its rights as assignee of investors who had borrowed from it, it was entitled to receive from the trust fund distributions due to those investors. 3 In 1996 EPL began proceedings in the Federal Court (the 1996 proceedings) against PTWA based on allegations of breach of trust, breach of fiduciary duty and misleading or deceptive conduct. PTWA cross-claimed for $4,064,995 owing under the letter of credit. In 1997 PTWA also began proceedings (the 1998 proceedings) which were cross-vested to the Federal Court and involved over one hundred parties. Amongst them were HK, Nick Russo, Katie Russo and Targridge. In those proceedings PTWA sought and received judicial advice about distributions it had made in previous years on a wrong footing. Orders were sought that would recognise that the amounts distributed by PTWA to unit holders consisted of amounts that investors had to repay to PTWA so that previous distributions would be equal. PTWA also sought orders to reflect its claim that the fund consisted of $5,008,760 which EPL had failed to pay under the letter of credit plus interest. 4 An issue in the 1998 proceedings was whether the rule in Cherry v Boultbee (1839) 4 My & Cr 442 at 447; 41 ER 171 at 173 applied. The rule as formulated by Sargant J in Re Peruvian Railway Construction Company Ltd [1915] 2 Ch 144 at 150 is "that where a person entitled to participate in a fund is also bound to make a contribution in aid of that fund, he cannot be allowed so to participate unless and until he has fulfilled his duty to contribute." The decision was affirmed in the Court of Appeal [1915] 2 Ch 442. 5 In the 1998 proceedings before they were cross-vested to the Federal Court, Young J, as his Honour then was, held that the rule did apply to EPL. 6 Some of the claims in the 1996 proceedings in the Federal Court were set down for hearing in Melbourne on 13 September 1999. On 10 September 1999 PTWA, Nick Russo and Katie Russo, who were directors of EPL and of Targridge, and Targridge entered into an agreement which took the form of a deed of settlement dated 22 September 1999. Relevantly the deed recited as follows: "E. Equus has expressed its intention to withdraw or discontinue the claims made against the Trustee in the Further Amended Statement of Claim in the 1996 Proceedings. F. On 10 September 1999 the Trustee, Equus, Nick Russo, Katie Russo and Targridge ('the Parties') entered into an Agreement ('the Agreement') whereby: 1. Equus proposed to the Trustee that the disputes between the parties including the 1996 Proceedings be settled by the payment to the Trustee of the sum of $500,000.00 ('the Payment'), and otherwise on the terms contained in this Deed (being in identical terms to annexure 'A' to the Agreement) on the basis that the Payment is greater than that which would be available to the Trustee if it attempted to enforce any judgment which it might obtain on its Cross Claim in proceedings VG610 of 1996; and 2. the Trustee agreed to consent to an adjournment of the Trial on the terms contained in the Agreement in order to give Equus an opportunity to obtain an independent chartered accountant's report to attempt to satisfy the Trustee that the proposed settlement is the best reasonably available to the Trustee. G. The Trustee has been provided with the independent chartered accountant's report and is satisfied that the Payment on the terms and conditions contained in this Deed is an appropriate settlement of the 1996 Proceedings having regard to its duties as Trustee of the Trust Fund associated with investment in the production of the film 'Night of the Leopard' ('the Trust Fund'). H. Equus and the Trustee have agreed to settle the 1996 Proceedings on the terms and conditions contained in this Deed." 7 The relevant operative provisions of the Deed of Settlement were as follows: " Settlement of the 1996 Proceedings 1. In consideration of the Trustee foregoing its right to sue and receive the sum of $4,064,995.00 from Equus, Equus authorises Middletons Moore & Bevins ('Middletons') to release to the Trustee the sum of $500,000.00 currently held in the Middletons trust account ('the Payment'). 2. Subject to the provisions of this Deed: (a) Equus agrees to discontinue the 1996 Proceedings against the Trustee as pleaded in the Further Amended Statement of Claim and the Trustee consents to the discontinuance of the proceedings. (b) The Trustee agrees to discontinue the 1996 Proceedings as pleaded in the Cross Claim and Equus consents to the discontinuance on the proceedings. (c) Each party is to bear its own costs with respect to the 1996 Proceedings. Settlement of the 1998 Proceedings 3. With respect to the 1998 Proceedings and subject to the provisions of this Deed the parties agree that: (a) Equus will, upon execution of this Deed, pay to the Trustee $52,693.56 being the sum assessed by Mr Ian Dwyer, Cost Assessor of Laurence & Laurence, Solicitors, in full and final satisfaction of costs orders of the Supreme Court of NSW by 'Windeyer J on 13 November 1997 and Young J on 5 March 1998 in the 1998 Proceedings; and in all other respects the Trustee, Equus and Targridge agree that, as at the date of this Deed, costs incurred by the Trustee, Equus and Targridge lie where they fall; (b) Each party to the 1998 Proceedings will otherwise pay its own costs of those proceedings incurred up to and including the date of this Deed; (c) Equus and Targridge will remain as parties to the 1998 Proceedings but will take no further active part therein other than to submit formally to such order the Court sees fit to make; and (d) Provided that Equus and Targridge observe the covenants on their part contained in sub-paragraph 3(c) the Trustee will make no claim against Equus or Targridge for any further costs in the 1998 Proceedings. 4. In consideration of the Trustee agreeing to accept the Payment as full and final settlement of all the Trustee's claims against Equus, Equus makes the following admissions: (a) the security provided by Equus Financial Services Pty Limited (now Equuscorp Pty Ltd) being a document entitled 'Equus Financial Services Limited Irrevocable Standby Letter of Credit dated 29 June 1990', and provided in relation to investment in the Prospectus for the film 'Night of the Leopard', is an irrevocable Letter of Credit; (b) but for the terms of this Deed of Settlement and the payment of $500,000.00 to the Trustee, (i) Equus would have been indebted to the Trust for the sum of $4,064,995.00; and (ii) the Trustee is entitled to recover the sum of $4,064,995.00 from Equus for the benefit of the Fund and on behalf of unitholders. Distribution of the Fund 5. Equus acknowledges and agrees that the Trustee is able to deal with the payment of $500,000.00 as it thinks fit and acknowledges that it is the Trustee's intention, upon payment of the $500,000.00, to distribute the Fund in accordance with the orders of Young J in the 1998 Proceedings made on 5 March 1998 and in accordance with such further orders as may be made in the 1998 Proceedings. 6. Equus agrees and consents without any order as to damages or costs: (a) to the extinguishment of the injunction granted by the Federal Court on 19 December 1997 preventing a distribution of the sum of $943,765.00 paid into the Fund by Equus; (b) in so far as it might be required, and for the sake of certainty, to any necessary order of any Court to allow the distribution of the balance of the Fund by the Trustee and if necessary Equus will give its consent to such an order; (c) that it has no objection to the Trustee proceeding to distribute the entire Fund; and (d) Equus agrees to provide to the Trustee a letter in the form of Annexure B to this Deed which is to be tendered for the purposes of satisfying a Court as to the matters contained in this clause. 7. Equus, Nick Russo and Katie Russo agree, with respect to the Trustee's proposed distribution of the Fund as referred to in clause 5: (a) that they and each of them undertake and warrant that none of them, nor any other corporation that is a related entity to Equus or of which Nick Russo or Katie Russo (together or either of them individually) is or are directors, will oppose in any manner whatsoever the said proposed distribution by the Trustee of the Fund; (b) that they and each of them undertake and warrant that none of them will assist: (i) HK Capital; (ii) Roydon Luff; (iii) Rosemary Luff; (iv) Alan Herskope; (v) Tom Linardos; (vi) Wilmoth Field & Warne, or any other person or corporation that takes a position that is in opposition to the Trustee's said proposed distribution of the Fund; (c) that they and each of them undertake and warrant that each and all of them will do whatever is reasonably necessary to assist the Trustee in its said proposed distribution of the Fund including the signing of any documents; and (d) that they and each of them and any other corporation that is a related entity to Equus or of which Nick Russo or Katie Russo (together or either of them individually) is or are directors, will not take any objection to the Trustee's standing to bring any legal proceedings on behalf of unitholders in connection with the Fund. ……. Default Provisions 10. If: (a) a liquidator or other administrator in insolvency is appointed to Equus, or a trustee in bankruptcy is appointed to the estate of Carol Russo; and (b) such liquidator or administrator in insolvency or trustee in bankruptcy is entitled to recover part or all of the Payment from the Trustee, whether pursuant to the provisions of Part 5.7B of the Corporations Law, or Part VI Division 3 of the Bankruptcy Act 1966, or on any other basis then the following provisions shall apply: (i) the Trustee will be entitled to prove in any winding up, Deed of Company Arrangement, or other administration, composition or arrangement of Equus, for the whole of the amount of the Letter of Credit, being the sum of $4,064,995.00; (ii) in addition to the right of the Trustee reserved in (i), Nick Russo and Katie Russo shall jointly and severally indemnify the Trustee in respect of the amount of the Payment which the Trustee is liable to repay as referred to in (b) and shall pay such amount to the Trustee or at its direction forthwith on request. ……

Releases 12. Each of Equus, Nick Russo, Katie Russo and Targridge (except where Targridge owes a lawful duty as bare Trustee of 60 units held for and on behalf of HK Capital Limited) releases the Trustee (both in its capacity as Trustee and in its personal capacity) from all actions, claims, demands and liabilities arising out of the matters that are the subject of the 1996 Proceedings or the 1998 Proceedings or arising otherwise out of the Trustee's conduct with respect to the administration of the Trust Fund.

13. Except as otherwise provided in clause 10 the Trustee releases Equus from any further obligations or claims with respect to the Equus Letter of Credit. Acknowledgment 14. Subject to the provisions of Clause 5, the Trustee acknowledges that it will distribute such of the Trust Fund (if any) to Equus as the holder of 5 units in the Trust and to Targridge as holder of 60 units as bare trustee for HK Capital as the Trustee may be required to at law and nothing in this Deed shall be construed as a waiver by Equus or Targridge to their entitlement to funds from the Trust Fund." 8 After Young J gave his decision on 18 March 1998, EPL transferred its units in trust to HK. HK conceded that it took EPL's rights as assignee "subject to the equities" and that if there had been no change in circumstances, the equities would apply to it. However, it contended that the Deed of Settlement made on 22 September 1999 released EPL from the obligation to pay the debt and in those circumstances the rule in Cherry v Boultbee was not applicable to HK. PTWA contended that, properly construed, the Deed of Settlement constituted a covenant not to sue for the debt and not a release and that HK, as EPL's assignee, was subject to the rule in Cherry v Boultbee. Bergin J was satisfied that the rule in Cherry v Boultbee applied and that PTWA was entitled to distribute the fund in accordance with the application of that rule. This is an appeal against that part of her Honour's judgment. 9 The grounds of appeal were as follows: "1. Her Honour erred in declaring that the Deed between the First Respondent and, inter alia , the Second Respondent made 21 September 1999 ('the Deed') contained a covenant not to sue rather than a release of monies owing by the Second Respondent to the First Respondent pursuant to the Equus Letter of Credit, as that term is defined in the Statement of Claim filed 11 April 2000 in the proceedings below. 2. Her Honour should have declared that the effect of the Deed is that it released the Second Respondent from any liability to pay to the First Respondent any monies pursuant to the Equus Letter of Credit. 3. Her Honour erred in declaring that the sixth named Appellant, HK Capital Limited ('HK Capital') was only entitled to participate in the distribution of the Trust Fund, the subject of the proceedings in the Court below, upon the basis that there be a notional set-off between, on the one hand, the obligations of the Second Respondent to contribute to the fund of money held by the First Respondent, and on the other hand, HK Capital's entitlement as an assignee from the Second Respondent as a unitholder to receive distributions from the fund. 4. Her Honour should have declared that HK Capital was entitled to receive distributions from the Trust Fund held by the First Respondent in accordance with unit entitlement and upon the basis that the Second Respondent has no obligation to contribute to the fund." 10 During the course of oral submissions it was conceded by Mr Newlinds, who appeared for the appellants, that the only point in the appeal was whether or not the Deed of Settlement had the effect of releasing the indebtedness of EPL to PTWA. It was accepted that if it did not the rule in Cherry v Boultbee applied. On the other side it was accepted that if the Deed of Settlement was to be treated as a release of the indebtedness of EPL, the rule did not apply to EPL. 11 Despite the careful argument advanced by Mr Newlinds, I have no difficulty in concluding that the Deed of Settlement on a fair reading of it and without reference to any extrinsic material was designed to enable PTWA to distribute the trust fund in accordance with the orders of Young J in the 1998 proceedings. Young J concluded in reasons for judgment given on 5 March 1998 that on the true construction of the trust deed and in the events which had happened EPL was entitled to participate in the trust fund only on the basis that it had paid to itself any amount distributable from the trust fund from the money it owed to the trust fund. So much is acknowledged in cl 3(a) of the Deed of Settlement. By cl 4(b)(i) of the Deed of Settlement EPL admitted that, but for its terms of the Deed of Settlement and the payment of $500,000 to PTWA, EPL would have been indebted to the trust for the sum of $4,064,995 and (ii) PTWA was entitled to recover that sum from it for the benefit of the fund and on behalf of the unitholders. 12 The language of cl 1 is most important. It provides that in consideration of the trustee foregoing its right to sue and receive (I emphasise the word 'receive') the sum of $4,064,995 from EPL, EPL authorises the release to PTWA of the sum of $500,000 held in a trust account. Clearly the arrangement was that PTWA forewent its right to receive the sum of $4,064,995. But the consequence of that was that EPL remained bound by the rule in Cherry v Boultbee before it could participate in the fund. If there were any doubt about the matter it is to be noted that by cl 7 EPL and its directors, Nick Russo and Katie Russo, "undertake and warrant" that they will not oppose in any manner whatsoever the proposed distribution by PTWA of the fund both on behalf of themselves and also on behalf of HK and others. It is quite consistent with this that by cl 13 PTWA released EPL from any further obligations or claims with respect to the EPL letter of credit. I emphasise the word 'further'. 13 Clause 13 of the Deed of Settlement contained an exception, namely, the provision in cl 10. If a liquidator is appointed to EPL or a trustee in bankruptcy to the estate of Carol Russo and the liquidator or trustee is entitled to recover part or all of the payment from PTWA, then PTWA is entitled to prove for the whole of the amount of the letter of credit being the sum of $4,064,995. Such a provision is, in my opinion, inconsistent with the suggestion that the debt had been released and extinguished. It remained and became significant not only in the circumstances of the liquidation of EPL or bankruptcy of Carol Russo but also in determining how the fund should be distributed and, relevantly, in the application of the rule in Cherry v Boultbee. 14 In a passage quoted by Bergin J from Derham on Set Off, 2nd ed (1996) at 440, it is said, speaking of Cherry v Boultbee: "The administrator of the fund has not set up that liability as a form of cross-claim. Rather he says that, although the claim is unenforceable, it is still a subsisting asset of the estate. Since the person claiming a share of the fund still holds an asset constituting part of the fund, he should pay himself pro tanto out of that asset." 15 That statement explains and reconciles the language of cl 1, namely that the trustee foregoes its right to sue and receive the sum, and the language of cl 13 that PTWA releases EPL from any further obligations or claims with respect to the letter of credit. It should be noted that, in that part of the Deed of Settlement concerned with the 1998 proceedings, EPL and Targridge were to remain as parties but would "take no further active part therein other than to submit formally to such order the Court sees fit to make". If the rule in Cherry v Boultbee no longer applied to EPL, the continuance of the 1998 proceedings was pointless. On the importance of the parties' intention as a determinant of whether a document is a release or a covenant not to sue see Duck v Mayeu [1892] 2 QB 511 at 514; Dorgal Holdings Pty Ltd v Buckley & Ors (1996) 22 ACSR 163 at 167. 16 I mention two further considerations. The release in the limited form of cl 13 should be compared with the release in cl 12. Secondly, cl 14 was made "subject to the provisions of cl 5". In cl 14 PTWA acknowledged that it would distribute such of the trust fund (if any) to EPL as the holder of five units in the trust and to Targridge as holder of sixty units as bare trustee for HK as PTWA might be required to at law and nothing in the deed should be construed as a waiver by EPL or Targridge to their entitlement to funds from the trust fund. Clause 5 was EPL's acknowledgement of PTWA's intention to distribute in accordance with the orders of Young J. If the EPL debt was extinguished by the Deed of Settlement there was no necessity for the opening words of cl 14. 17 Bergin J referred to the correspondence and said, and I agree, that although she was not satisfied that there was an ambiguity which justified resort to the correspondence, such review supported a finding that the parties intended that cl 5 be a reference to EPL's acknowledgement and agreement that PTWA distribute the fund in accordance with the findings made by Young J in respect of the application of Cherry v Boultbee. 18 In my opinion the appeal should be dismissed with costs.

19 POWELL JA: As the facts which gave rise to the proceedings which Bergin J, from whose Judgment this appeal has been brought, are rather complex and as my understanding of those facts differs from the facts recorded by Bergin J in her Judgment, it seems desirable that I should record the facts as I understand them to have been. 20 Kamisha Corporation Limited ("Kamisha"), a company duly incorporated pursuant to the laws of the State of Western Australia was, at all relevant times, a licensed securities dealer which carried on the business of arranging finance for the production of films, including the issuing and marketing of prospectuses for investment in films, and liaising between prospective and actual financiers and investors. 21 Perpetual Trustees (W.A.) Limited ("Perpetual"), a company also incorporated pursuant to the laws of Western Australia, as its name suggests, at all times carried on a business which included acting as a trustee of (inter alia) trusts such as those to be created pursuant to the deed to which I shall later refer. 22 Equuscorp Pty. Limited (formerly Equus Financial Services Limited) ("Equus") a company incorporated pursuant to the laws of the State of Victoria, at all relevant times prior to June 1992 carried on the business of providing financial services and finance for consumer and investment loans. After June 1992, Equus no longer provided consumer finance to borrowers but principally engaged in the collection of loans earlier made by it. 23 In May 1988, Kamisha (in the Deed called "the Manager") and Perpetual (in the Deed called "the Trustee") executed what was described as the "Second Multiple Prospectus Deed", which Deed entitled Kamisha to issue up to ten prospectuses, each of which was to relate to the regulation of investment in the production of one or more films and pursuant to which Perpetual as trustee was obliged to create and administer a separate trust fund for the benefit of those who had subscribed for the units offered in respect of each prospectus. 24 Although it is not entirely clear that this was so, the probability is that, at some time prior to June 1990, a company known as Balmedie Pty. Limited ("Balmedie"), which company had the right to produce a film originally to be entitled "Night of the Leopard", but ultimately released under the title "Double Impact", approached Kamisha with a view to having it arrange finance for the production of that film. 25 It would seem that, prior to June 1990, Kamisha and Perpetual negotiated with Equus - and, perhaps, with National Mutual Royal Bank Limited - for the provision of finance for investors who wished to make an investment in the film and for the provision of security for the performance of the obligation of Balmedie to make payment to those investors of certain guaranteed minimum fees (the "Base Production Services Fee"). 26 In June 1990 Perpetual and Kamisha executed a Supplemental Deed to the Trust Deed to enable a prospectus to be issued for the film in accordance with the Trust Deed and Kamisha issued a prospectus pursuant to the Trust Deed for the purpose of regulating investment in the production of the film. 27 Under the prospectus, potential investors were offered units of $100.00 each in the trust fund and parcels of what were described as "production contribution moneys" of $5,000.00 on the condition that each investor apply for and provide funds in the same number of units and parcels of production contribution moneys. 28 The prospectus also provided:

(a) that each investor, upon subscription, was deemed contemporaneously to become a party to the Trust Deed as a "production contractor" in accordance with which each production contractor appointed the Trustee as its trustee with the powers, rights and duties and the like set out in the Trust Deed and the Trustee accepted such appointment;

(b) production contractors were to be principally responsible for the production and delivery of the films;

(c) Kamisha was appointed to be the Manager on behalf of the production contractors and act as their agent in relation to the production and delivery of the film;

(d) each production contractor, in return for providing the production contribution moneys, was entitled to receive a pro rata share of the Base Production Services Fee, that entitlement arising under a Production Services Agreement to be entered into by the Trustee on behalf of the production contractors and Balmedie, together with further fees based upon the success of the distribution of the film;

(e) Balmedie was to be obliged to provide security for the payment of the base production services fee; 29 As the result of the negotiations between the Trustee, Kamisha and Equus, Equus agreed to provide funds for the purpose of investment in the film and also agreed to provide security for the performance of Balmedie's obligation to pay the base production services fee to the Trustee on behalf of the production contractors - although it is not clear that this was so later events suggest that similar negotiations were had, and agreement reached, with National Mutual Royal Bank Limited. 30 In June 1990, Equus provided to Perpetual as trustee a guarantee by way of such security, that guarantee taking the form of a document entitled "Advice of Stand-by Letter of Credit: Original" which security provided for payments making up the Base Production Services Fee, those payments to be made on three occasions at twelve monthly intervals commencing on 29 June 1994. 31 A total of 1,903 units were purchased in the Trust Fund, of which 1675 units were purchased by investors who had been financed by Equus and the remaining 228 units were purchased by investors who used their own moneys or used moneys provided by some other lender ("the cash investors"). 32 The funds - $8,375,000.00 - which were advanced by Equus, were advanced pursuant to loan contracts entered into by each Equus-financed investor which contracts provided that the investor appointed Equus his, her or its attorney (inter alia) for the purpose of authorising Perpetual as trustee to pay to Equus all proceeds, distributions, dividends or returns from the investment and which contracts also required the investor to execute a document entitled "Charge and Assignment and Notice to Trustee" (Blue AB 168) by which document each Equus-financed investor gave notice in writing to Perpetual as trustee that the investor had charged and assigned to Equus all of his, her or its right, title and interest in the film including the Base Production Services Fee as security for payment of all moneys due by the investor to Equus. 33 Prior to June 1996, Perpetual as Trustee - seemingly because of the interpretation which it had placed upon the terms of the Trust Deed - had distributed the moneys which it had received from Equus pursuant to the stand-by letter of credit and from National Mutual Royal Bank Limited - which had provided to the Trustee two letters of credit in respect of Balmedie's obligation to pay the Base Production Services Fee - upon a basis which provided to the cash investors a slightly higher amount per unit than that which was paid to Equus or to the Equus-financed investors who had paid our their loans from Equus. 34 It would seem that, by the end of June 1996, disputes had arisen between Perpetual as Trustee and Equus as to the amounts to be paid by Equus to the Trustee pursuant to the letter of credit which it had given to Perpetual as trustee in 1990 and as to the amounts paid or payable by Perpetual as the trustee to Equus in respect of the units issued to those of the Equus-financed investors who had not by then paid out their loans from Equus. 35 On 18 July 1996 Perpetual as trustee served on Equus a statutory demand pursuant to s.459E of the Corporations Law for the payment by Equus of $5,008,760.00 said to be the balance of the amount due pursuant to the letter of credit dated 29 June 1990. 36 On 6 August 1996, Equus applied to the Federal Court in proceeding VG3415 of 1996 for an order that that statutory demand be set aside. 37 At or about the same time, Perpetual as trustee commenced proceeding ED 8227 of 1996 - later treated as a Summons for Judicial Advice (Blue AB 79-82) - seemingly directed toward determining what, upon the proper construction of the Trust Deed and the Production Services Agreement, were the amounts to which the various investors were entitled to be paid. 38 Before either Equus' application to have the statutory demand set aside, or the proceeding which had been commenced in the Equity Division, came on for hearing, Equus commenced a further proceeding - VG610 of 1996 ("the 1996 proceedings") - in the Federal Court seeking damages pursuant to s.82 of the Trade Practices Act 1974 (Cth) and, in addition to, or alternatively with, such damages, orders pursuant to s.87 of the Trade Practices Act 1974 (Cth) in respect of what was alleged to have been misleading conduct on the part of both Kamisha and Perpetual as trustee in the negotiations which led to Equus providing finance for investors and the provision of the stand-by letter of credit. Those proceedings (Blue AB 1-24) appear to have been amended from time to time in the years which followed. 39 The proceeding in the Equity Division of the Court - to which only Equus had been joined as a party/defendant - was heard by Windeyer J who, on 19 February 1997, advised (Blue AB 80-81): "(1) The (trustee) is justified in acting upon the basis that upon the true construction of the Trust Deed and the Production Services Agreement, and in the events which have happened, the proceeds of the letters of credit now held by the (trustee) and any future proceeds so far as those proceeds are distributable to investors, be distributed to the investors so that after distribution of the funds now held each investor will have received the same amount per unit held by that investor pursuant to the prospectus for the film and thereafter each investor will receive the same amount per unit held. (2) In respect of any Equus investor whose loan from Equus has not been repaid the (trustee) is justified until further order in withholding any payment until the respective rights of the (trustee), (Equus) and the said Equus investors have been determined in proceedings to be commenced by the (trustee) for that purpose." 40 The proceedings in which Equus had sought an order that the statutory demand served by Perpetual be set aside were heard by Heerey J who, on 12 May 1997 ordered that the statutory demand be varied by deleting the figure of $5,008,760.00 and substituting the figure of $943,765.00 as the sum due and owing by Equus to Perpetual. From his Honour's decision, Equus filed a Notice of Appeal to the Full Court of the Federal Court which on 5 December 1997 dismissed the appeal, extended the time for compliance with the Notice of Demand as varied by Heerey J to 21 days from the date of its Judgment but enjoined Perpetual as trustee from distributing that sum after it had been received. The sum of $943,765.00 was paid by Equus to Perpetual on 28 December 1997. 41 On 27 May 1997, Perpetual as trustee commenced proceeding ED 2591 of 1997 in the Equity Division against Equus and the Equus-financed investors whose loans from Equus had not been paid out. Pursuant to an order made by Windeyer J on 27 June 1997, the proceedings were amended so as to join as additional parties/defendants those of the Equus-financed investors whose loans from Equus had been paid out together with the cash investors. In the proceedings as so amended (Blue AB 100-117) Perpetual sought to have it determined (inter alia) that Equus was not entitled to receive from the fund then available for distribution to investors any sum until it had paid the sum - then said to be $5,008,760.00 - payable pursuant to the letter of credit. 42 In pursuance of a Notice of Motion filed on behalf of Perpetual prior to the dismissal by the Full Court of the Federal Court of the appeal by Equus from the order made by Heerey J, Young J (as he then was) ordered (inter alia) that there be tried, as a separate question and before all other issues, in the proceedings which had been commenced in the Equity Division, the following (inter alia) question (Blue AB 153): "A. Whether on the true construction of the (Second Multiple Trust Deed), and in the events which have happened, (Equus) is entitled to participate in the Trust Fund described in the (Second Multiple Trust Deed) only on the basis that it has paid to itself any amount distributable from the Trust Fund from the money it owes to the Trust Fund." 43 The hearing of that question - and other questions which Young J had also ordered to be heard as preliminary questions - was had before his Honour on 5 March 1998 on which day, his Honour - relying on the principle commonly known as "the rule in Cherry v. Boultbee" (1839) 4 My & Cr 442; 41 ER 171 determined (Blue AB 162) that that question should be answered in the affirmative. Having then answered the other questions which he had ordered to be heard as preliminary questions and ordered that Equus pay Perpetual's costs of the argument of the separate questions, Young J then ordered that the proceedings be transferred to the Federal Court of Australia with a suggestion that they be connected with the proceedings in that Court which had been commenced by Equus seeking relief pursuant to the provisions of the Trade Practices Act 1974 (Cth). When transferred to the Federal Court, the proceedings were given proceeding No. VG140 of 1998 ("the 1998 proceedings"). 44 As the hearing of the preliminary questions before Young J had proceeded upon the basis of assumed facts, the question of the amount, if any, which Equus was obliged to pay to Perpetual as trustee pursuant to the stand-by letter of credit remained unresolved. Accordingly, in June 1998, there was filed in the 1996 proceedings in the Federal Court a Cross-Claim in which Perpetual sought to recover from Equus the sum of $4,064,995.00, that is, the amount of $5,008,760.00 which had been the subject of the statutory Notice of Demand which had been served on Equus in June 1996 less the sum of $943,765.00 which had been paid by Equus to Perpetual as trustee in December 1997. 45 Meantime, Equus had negotiated with a number of the Equus-financed investors, whose loans had not been paid out, a settlement pursuant to which each of those investors purported to forfeit to Equus or its nominated transferee, the investors' rights in (inter alia) the film, the Production Contribution Moneys and the Base Production Services Fee payable in respect of the film and executed a number of documents to give effect to that settlement. 46 In September 1998, Equus delivered to a representative of HK Capital Limited ("HK Capital"), its nominated transferee, the unit certificates which it had received from each of the relevant investors. 47 In addition, HK acquired from cash investors and from Equus-financed investors whose loans had been paid out other units which had been issued pursuant to the June 1990 prospectus. 48 All told, HK Capital acquired 1673 of the units which had been issued pursuant to that prospectus, of which units 1473 were acquired from Equus, 142 were acquired from cash investors and 58 were acquired from Equus-financed investors whose loans had been paid out. 49 Commencing in May 1999, negotiations with a view to settling the 1996 proceedings in the Federal Court took place between Equus on the one hand and Perpetual as trustee and its solicitors on the other (Blue AB 169-279). Those negotiations culminated in the execution on 10 September 1999 of a Deed of Agreement (Blue AB 294-316) between Equus, Perpetual, Nick Russo and Katie Russo (each of whom was a director of Equus) and Targridge Pty. Limited ("Targridge") (which was the holding company of Equus), 10 September 1999 being the Friday prior to the commencement, on the following Monday, of the hearing of the 1996 proceeding by Heerey J. 50 The Deed of Agreement, which recited that Equus had proposed to Perpetual as trustee that the disputes between the parties including those in the 1996 proceedings be settled by the payment to Perpetual as trustee of the sum of $500,000.00 and otherwise on the terms contained in a Deed of Settlement annexed to the Deed of Agreement, and recited that Perpetual as trustee had agreed to consent to an adjournment of the trial in order to give Equus an opportunity to obtain an independent chartered account's report to satisfy Perpetual as trustee that the proposed settlement was the best reasonably available to Perpetual as trustee, then provided for a joint application being made to seek the adjournment of the trial, insofar as it concerned matters in dispute between Equus and Perpetual, until 27 September 1999, and for the provision to Perpetual as trustee by 23 September 1999 of an independent chartered accountant's report. The Deed of Agreement further provided for Equus, Nick Russo and Targridge to procure the payment of $500,000.00 to Perpetual's solicitors, and for the execution by Equus, Nick Russo, Katie Russo and Targridge of the Deed of Settlement to be held in escrow by Perpetual pending delivery to Equus of a duly executed counterpart. The Deed of Agreement further provided that Perpetual reserved the right, in its absolute discretion, upon receipt of the independent accountant's report to determine whether it would settle the 1996 proceedings on the terms and conditions contained in the Deed of Settlement. 51 Thereafter, Perpetual having been provided with the independent accountant's report, and having satisfied itself that it was appropriate to settle the 1996 proceedings in accordance with the Deed of Settlement, proceeded to execute the Deed of Settlement, and the $500,000.00 which had been paid to its solicitors was released to Perpetual in its capacity as trustee. 52 Insofar as is relevant, the Deed of Settlement provided as follows: " Settlement of the 1996 Proceedings 1. In consideration of the Trustee foregoing its right to sue and receive the sum of $4,064,995.00 from Equus, Equus authorises Middletons Moore & Bevins ('Middletons') to release to the Trustee the sum of $500,000.00 currently held in the Middletons trust account ('the Payment'). 2. Subject to the provisions of this Deed: (a) Equus agrees to discontinue the 1996 Proceedings against the Trustee as pleaded in the Further Amended Statement of Claim and the Trustee consents to the discontinuance of the proceedings. (b) The Trustee agrees to discontinue the 1996 Proceedings as pleaded in the Cross Claim and Equus consents to the discontinuance on the proceedings. (c) Each party is to bear its own costs with respect to the 1996 Proceedings. Settlement of the 1998 Proceedings 3. With respect to the 1998 Proceedings and subject to the provisions of this Deed the parties agree that: (a) Equus will, upon execution of this Deed, pay to the Trustee $52,693.56 being the sum assessed by Mr Ian Dwyer, Cost Assessor of Laurence & Laurence, Solicitors, in full and final satisfaction of costs orders of the Supreme Court of NSW by 'Windeyer J on 13 November 1997 and Young J on 5 March 1998 in the 1998 Proceedings; and in all other respects the Trustee, Equus and Targridge agree that, as at the date of this Deed, costs incurred by the Trustee, Equus and Targridge lie where they fall; (b) Each party to the 1998 Proceedings will otherwise pay its own costs of those proceedings incurred up to and including the date of this Deed; (c) Equus and Targridge will remain as parties to the 1998 Proceedings but will take no further active part therein other than to submit formally to such order the Court sees fit to make; and (d) Provided that Equus and Targridge observe the covenants on their part contained in sub-paragraph 3(c) the Trustee will make no claim against Equus or Targridge for any further costs in the 1998 Proceedings. 4. In consideration of the Trustee agreeing to accept the Payment as full and final settlement of all the Trustee's claims against Equus, Equus makes the following admissions: (a) the security provided by Equus Financial Services Pty Limited (now Equuscorp Pty Ltd) being a document entitled 'Equus Financial Services Limited Irrevocable Standby Letter of Credit dated 29 June 1990', and provided in relation to investment in the Prospectus for the film 'Night of the Leopard', is an irrevocable Letter of Credit; (b) but for the terms of this Deed of Settlement and the payment of $500,000.00 to the Trustee, (i) Equus would have been indebted to the Trust for the sum of $4,064,995.00; and (ii) the Trustee is entitled to recover the sum of $4,064,995.00 from Equus for the benefit of the Fund and on behalf of unitholders. Distribution of the Fund 5. Equus acknowledges and agrees that the Trustee is able to deal with the payment of $500,000.00 as it thinks fit and acknowledges that it is the Trustee's intention, upon payment of the $500,000.00, to distribute the Fund in accordance with the orders of Young J in the 1998 Proceedings made on 5 March 1998 and in accordance with such further orders as may be made in the 1998 Proceedings. 6. Equus agrees and consents without any order as to damages or costs: (a) to the extinguishment of the injunction granted by the Federal Court on 19 December 1997 preventing a distribution of the sum of $943,765.00 paid into the Fund by Equus; (b) in so far as it might be required, and for the sake of certainty, to any necessary order of any Court to allow the distribution of the balance of the Fund by the Trustee and if necessary Equus will give its consent to such an order; (c) that it has no objection to the Trustee proceeding to distribute the entire Fund; and (d) Equus agrees to provide to the Trustee a letter in the form of Annexure B to this Deed which is to be tendered for the purposes of satisfying a Court as to the matters contained in this clause. 7. Equus, Nick Russo and Katie Russo agree, with respect to the Trustee's proposed distribution of the Fund as referred to in clause 5: (a) that they and each of them undertake and warrant that none of them, nor any other corporation that is a related entity to Equus or of which Nick Russo or Katie Russo (together or either of them individually) is or are directors, will oppose in any manner whatsoever the said proposed distribution by the Trustee of the Fund; (b) that they and each of them undertake and warrant that none of them will assist: (i) HK Capital; (ii) Roydon Luff; (iii) Rosemary Luff; (iv) Alan Herskope; (v) Tom Linardos; (vi) Wilmoth Field & Warne, or any other person or corporation that takes a position that is in opposition to the Trustee's said proposed distribution of the Fund; (c) that they and each of them undertake and warrant that each and all of them will do whatever is reasonably necessary to assist the Trustee in its said proposed distribution of the Fund including the signing of any documents; and (d) that they and each of them and any other corporation that is a related entity to Equus or of which Nick Russo or Katie Russo (together or either of them individually) is or are directors, will not take any objection to the Trustee's standing to bring any legal proceedings on behalf of unitholders in connection with the Fund. ……. Default Provisions 10. If: (a) a liquidator or other administrator in insolvency is appointed to Equus, or a trustee in bankruptcy is appointed to the estate of Carol Russo; and (b) such liquidator or administrator in insolvency or trustee in bankruptcy is entitled to recover part or all of the Payment from the Trustee, whether pursuant to the provisions of Part 5.7B of the Corporations Law, or Part VI Division 3 of the Bankruptcy Act 1966, or on any other basis then the following provisions shall apply: (i) the Trustee will be entitled to prove in any winding up, Deed of Company Arrangement, or other administration, composition or arrangement of Equus, for the whole of the amount of the Letter of Credit, being the sum of $4,064,995.00; (ii) in addition to the right of the Trustee reserved in (i), Nick Russo and Katie Russo shall jointly and severally indemnify the Trustee in respect of the amount of the Payment which the Trustee is liable to repay as referred to in (b) and shall pay such amount to the Trustee or at its direction forthwith on request. ……

Releases 12. Each of Equus, Nick Russo, Katie Russo and Targridge (except where Targridge owes a lawful duty as bare Trustee of 60 units held for and on behalf of HK Capital Limited) releases the Trustee (both in its capacity as Trustee and in its personal capacity) from all actions, claims, demands and liabilities arising out of the matters that are the subject of the 1996 Proceedings or the 1998 Proceedings or arising otherwise out of the Trustee's conduct with respect to the administration of the Trust Fund.

13. Except as otherwise provided in clause 10 the Trustee releases Equus from any further obligations or claims with respect to the Equus Letter of Credit.

14. Subject to the provisions of Clause 5, the Trustee acknowledges that it will distribute such of the Trust Fund (if any) to Equus as the holder of 5 units in the Trust and to Targridge as holder of 60 units as bare trustee for HK Capital as the Trustee may be required to at law and nothing in this Deed shall be construed as a waiver by Equus or Targridge to their entitlement to funds from the Trust Fund." 53 Thereafter, on 27 September 1999 the following Orders (Blue AB 354-355) were made by consent by the Federal Court in the 1996 proceedings: "1. That leave be granted to the Applicant/Cross Defendant to withdraw paragraph I through to T (inclusive) of the amended application filed pursuant to the order of Justice Heerey of 28 May 1998 and dated 3 June 1998 and otherwise insofar as the Amended Application makes a claim against the Third Respondent/Cross Claimant. 2. That leave be granted to the Applicant/Cross Defendant to discontinue its claims against the Third Respondent/Cross Claimant pleaded in the Further Amended Statement of Claim filed pursuant to the order of Justice Heerey of 28 May 1998 and dated 3 June 1998. 3. That leave be granted for the Third Respondent/Cross Claimant to discontinue its Cross-Claim against the Applicant/Cross Defendant. 4. No order as to costs." 54 Although the materials which are before the Court do not reveal what occurred between late September and the commencement of the proceedings with which Bergin J was concerned to deal, it seems tolerably plain that Perpetual took the stand "that HK (was) entitled to participate in the … fund only on the basis that it has paid to itself any amount distributable from the … fund, from the money Equus (owed) to the … fund" (RAB 17), while "HK Capital (claimed) to be entitled to a pro rata distribution of the proceeds of the … letters of credit not previously disbursed without taking into account" Equus' obligation to contribute pursuant to the stand-by letter of credit to the fund, Equus' failure (except as to the extent of the sums of $943,765.00 paid in December 1997 and the $500,000.00 paid in September 1999) to pay the sum of $5,008,760.00 which had been the subject of the statutory demand and the fact that the assignment of the units to HK Capital were subject to the equities affecting Equus at the time of assignment (Red AB 16). 55 In the proceedings with which Bergin J was concerned to deal - which proceedings appear to have been commenced at some time in the latter part of 1999 - Perpetual joined as parties/defendants Equus (as First Defendant), the Equus-financed investors whose loans had not been paid out (as the Second to One Hundred and Sixteenth Defendants), the cash investors (as the One Hundred and Seventeenth to One Hundred and Thirty-Fourth Defendants), the Equus-financed investors whose loans had been paid out (as the One Hundred and Thirty-Fifth to One Hundred and Forty Seventh Defendants) and HK Capital Limited. Of those defendants only the Appellants filed a Defence (RAB 41-52) to the proceedings, which Defence was a common defence. Save that the first five of the Appellants were, in the Statement of Claim (RAB 2), said to have been investors whose investment was funded by borrowings from Equus which borrowings had not been repaid, the materials which are before the Court give no indication as to the reason for their joining with HK Capital in the Defence which was filed. 56 So far as is relevant, the Defendants' denied that Equus was under any obligation to pay to Perpetual as trustee, the sum of $3,564,995.00 referred to in the Statement of Claim, and, in answer to the whole of the Statement of Claim, claimed to rely on the Deed of Settlement, the effect of which was said to be a complete answer to the claims made by Perpetual (RAB 49). 57 In its reply (RAB 54) Perpetual pleaded (inter alia) that, upon its proper construction, the Deed of Settlement constituted a covenant on the part of Perpetual not to sue Equus in respect of the stand-by letter of credit and that, accordingly, it provided no answer to Perpetual's claim. 58 In the "Contentions of Fact and Law and Issues for Decision" (Orange AB 22-27) filed on behalf of the Appellants prior to the hearing before Bergin J, counsel for the Appellants wrote (inter alia) (Orange AB 24): " THE ISSUE FOR DETERMINATION 11. There is really only one question to be determined, that is, whether the events that have occurred since Young J's determination have altered the position as determined by his Honour. In other words, does the rule in Cherry v. Boltbee (sic) still apply, notwithstanding the fact that Equus has now assigned its rights to receive distributions under the trust and Equus has been released from any obligation to pay any further moneys to the trustee. 12. It is readily accepted on behalf of HK Capital that HK Capital took Equus' rights as assignee 'subject to the equities'. In other words, if there were nothing more than the assignment, the position as determined by Young J would not have altered. 13. It is the effect of the Release contained in the Deed of Settlement that is central to the determination of this case." 59 At the commencement of that part of her Judgment which recorded the submissions advanced on behalf of Perpetual and her discussion of the relevant principles to be applied, Bergin J wrote (RAB 67): "30 In support of the plaintiff's submission that the Deed constitutes a covenant not to sue, reliance was placed upon a number of authorities which deal with joint or joint and several debtors: Duck v. Mayeu [1892] 2 QB 511 at 514; Kenworthy v. Avoth Holdings Pty. Ltd., Canon & Bishop (1974) WAR 135 at 138-139 and 141-142; and Dorgal Holdings Pty. Ltd. v. Buckley & Ors. (1996) 22 ACSR 164. The plaintiff submitted that such cases are analogous to the present circumstances of the first defendant's relationship with HK. HK submitted that such were not analogous."

(Although Kenworthy v. Avoth Holdings Pty. Ltd., Canon & Bishop and Dorgal Holdings Pty. Ltd. v. Buckley & Ors. are cases dealing with the effect of what was claimed to have been a release of one of two or more joint or joint and several debtors, Duck v. Mayeu is not such a case but, rather, is a case relating to what was claimed to have been a release of one of two joint tortfeasors.) 60 Later in her Judgment (RAB 69), following her discussion of the decision of McLelland CJ in Eq. In Dorgal Holdings Pty. Limited v. Buckley & Ors and the approach taken by his Honour in resolving the issue in that case, Bergin J wrote: "The same qualification is applicable to a guaranteed debt so far as the liability of a surety is concerned: Commercial Bank of Tasmania v. Jones & Anor. [1893] AC 313." 61 While the authorities to which Bergin J referred reflect the approach taken by courts in the varying fact situations which I have briefly described. It does not seem to me that they are to be taken as recording differing rules to be applied in each of those varying fact situations; rather, it seems to me, that each of those authorities is no more than a particular example of the application of what I regard as one of the fundamental rules of the construction of deeds and other like instruments. 62 While, if it be proper to say that the words of a particular provision, or of particular provisions, in a written instrument are plain and unambiguous, the Court is not authorised to depart from the intention thus revealed, in cases where that is not so the Court's task, so it seems to me, is, first, to seek to discern the real intention of the parties, and, then, so to construe the instrument as, if it be possible, to make a consonant whole giving effect to the intention thus discerned. That this is a legitimate approach is suggested by the following passage in the Judgment of Leach VC in Hume v. Rundle (1825) 2 Sim & St 174, 177; 57 ER 311, 312: "In the construction of all instruments it is the duty of the Court not to confine itself to the force of a particular expression, but to collect the intention from the whole instrument taken together. But a Court is not authorised to deviate from the force of a particular expression unless it finds in other parts of the instrument expressions which manifest that the author could not have the intention which the literal force of a particular expression would impute to him. However capricious may be the intention which is clearly and unequivocally expressed, every Court is bound by it, unless it be plainly contradicted by other parts of the instrument." 63 To the like effect is the following passage from the Judgment of Lord Cottenham LC in Lloyd v. Lloyd (1837) 2 My & Cr 192, 202; 40 ER 613, 617: "If the provisions are clearly expressed and there is nothing to enable the Court to put upon them a construction different from that which the words import, no doubt the words must prevail; but if the provisions and expressions be contradictory, and if there be grounds appearing on the face of the instrument, affording proof of the real intention of the parties, then that intention will prevail against the obvious and ordinary meaning of the words. If the parties have themselves furnished a key to the meaning of the words used, it is not material by what expression they convey their intention." 64 That that has been the approach taken in the authorities to which Bergin J referred is, I suggest, made clear by the Judgments to which I will now refer. 65 In In re EWA [1901] 2 KB 642 to which reference was made by each of the judges of the Court in Kenworthy v. Avoth Holdings Pty. Ltd., Canon & Bishop supra and

upon which McLelland CJ in Eq relied in Dorgal Holdings Pty. Ltd. v. Buckley & Ors. supra , Collins LJ, with whom Rigby LJ agreed wrote (inter alia) supra at 648-649 : "But now I come to what was really the main point argued before us. It is clear that, although a document in terms purports to release one of two joint debtors, yet it may contain in terms a reservation of rights against the other joint debtor. Where you find those two provisions you construe the document not as a release, but merely as an undertaking not to sue a particular individual, and the result is that the right to proceed against the co-debtor is reserved and can be put in force against him. Whenever you can find from the terms of the document an agreement for the reservation of rights against the co-debtor, then, I agree, the document cannot be construed as an accord and satisfaction of the joint debt and, therefore, as a release of the co-debtor. But it appears to me that, on the face of this document, there is no intention shewn so to limit its effect, and that it is framed in the widest possible terms so as to cover, not only this particular debt, but all other claims by the bank in connection with the Professional and Trades Papers, Limited, for it is admitted that the foundation of the judgment was the guarantee, and at the time this document was drawn up there was this joint liability on the judgment to the extent of 6,000 l. And there is this circumstance to be observed, that this document expressly states that the cash and bills are accepted 'in full discharge of all claims by the Capital and Counties Bank, Limited, against Mr. B - in connection with the Professional and Trades Papers, Limited'. Now, having regard to the fact that the fundamental claim against B was the judgment for 6,000 l, it is impossible to day that this judgment is not one of the 'claims' within the words I have read."

while Romer LJ said supra at 652-653 : "As my brethren are agreed on this case, I will content myself with an expression of doubt. But for their opinion, I should have considered the document of March 7, 1901, having regard to the particular form of it and to the surrounding circumstances, not as amounting to a discharge of the debt itself, but only as a discharge for the particular debtor from the liability as against himself personally: in other words, as an agreement by the bank not to sue him." 66

In Commercial Bank of Tasmania v. Jones, Lord Morris, who delivered the opinion of the Judicial Committee wrote supra at 316: "It may be taken as settled law that where there is an absolute release of the principal debtor, the remedy against the surety is gone because the debt is extinguished, and where such actual release is given no right can be reserved because the debt is satisfied, and no right of recourse remains when the debt is gone. Language importing an absolute release may be construed as a covenant by the creditor not to sue the principal debtor, when that intention appears, leaving such debtor open to any claims of relief at the instance of his surety. But a covenant not to sue the principal debtor, is a partial discharge only, and although expressly stipulated, is ineffectual, if the discharge given is in reality absolute. In this case, the acceptance of Marshall as full debtor, in room and stead of Wakeham, which constituted a complete novation of the debt, necessarily operated as an absolute release of Wakeham, and it is therefore in vain to contend that such novation merely amounted to a covenant not to sue the debtor for whom the respondent was surety."

(See also, Kearsley v. Cole (1846) 16 M & W 128; ; Bateson v. Gosling (1871) LR 7 CP 9 .) 67 In Duck v. Mayeu supra at 513-514 A.L. Smith LJ, who delivered the Judgment of the Court (Lord Esher MR, Bowen LJ and himself) wrote: "The first point for determination is whether the defendant has established her defence, that the plaintiff had released her joint tortfeasor, the Rev. Mr. Wills from a joint cause of action, so as to release her therefrom, or whether what she has established is merely that the plaintiff had covenanted not to sue Mr. Wills. It is, we think, clear law, that a release granted to one joint tortfeasor, or to one joint debtor, operates as a discharge of the other joint tortfeasor, or the other joint debtor, the reason being that the cause of action, which is one and indivisible, having been released, all persons otherwise liable thereto are consequently released. The case of Cocke v. Jennor (Hob. 66) is distinct upon the point, and there are many subsequent cases to the same effect. It has also been held that a covenant not to sue one of two joint debtors does not operate as a release to the other joint debtor, Hutton v. Eyre (6 Taunt. 289), the reason being that the joint action is still alive. We have found no case in which it has been held that a covenant not to sue releases a joint tortfeasor; and in our judgment the principle upon which it has been held that such a covenant does not release a joint debtor applies to the case of a joint tortfeasor. The question, then, is, does the document of April 10, 1891, operate as a release of the joint cause of action against Mr. Wills and the defendant, or only as a covenant not to sue Mr. Wills? It is as follows: '10 April 1891. Dear Sir, - 'Our Boys'. I beg to acknowledge receipt of yours of 9th the cheque for 2l.2s.0d. enclosed, in respect of fee and costs, in full discharge of your personal liability in connection with Miss Mayeu's performance of above at Wandsworth Town Hall on 23 January, 1891. This is, of course, without prejudice to my client's claim against Miss M. Mayeu. Yours faithfully, W.M. Tilson.' Tilson was solicitor for the plaintiff. A rule of construction for such a document was laid down by the Court of Queens Bench in Price v. Barker (4 E & B 760 at 777) where it was held that, in determining whether the document be a release or a covenant not to sue, the intention of the parties was to be carried out, and, if it were clear that the right against the joint debtor was intended to be preserved, in as much as such right would not be preserved if the document were held to be a release, the proper construction where this was sought to be done, was that it was a covenant not to sue, and not a release. In the case of Bateson v. Gosling (Law Rep. 7 CP 9) at Nisi Prius the same canon of construction was applied, and it was held that, the release being, as it was, limited by a proviso preserving rights against the surety, it must be taken that it was a covenant not to sue, and not a release; and this ruling was unanimously held by the Court of Common Pleas as reported in Law Rep. 7 CP 9. For these reasons, we are of the opinion that the document of April 10, 1891, is a covenant not to sue, and is not a release of the joint cause of action, and the defendant's defence fails in fact." 68 The question with which the Court is thus concerned to deal is one, not of interpretation - what is the meaning of words, but of construction - what is the legal effect of the words used - of the Deed of Settlement (The Life Insurance Company of Australia Limited v. Phillips (1925) 36 CLR 60, 78 per Isaacs J (as he then was)). The construction of the Deed of Settlement is thus a pure matter of law. 69 Notwithstanding the emphasis which Mr. C.R.C. Newlinds, who appeared for HK Capital, sought to place on clause 13 of the Deed of Settlement, it seems to me that the provisions of clauses 1, 4(b) and 10(i) of the Deed of Settlement make clear that it was intended that the debt claimed by Perpetual as trustee was intended to continue in existence rather than to be discharged, it following that, as Bergin J held, the Deed of Settlement operated in law as a covenant on the part of Perpetual as trustee not to sue. 70 In my opinion, the Appeal should be dismissed with costs.

71 BEAZLEY JA: I agree with Sheller JA. **********

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