Kylsilver Pty Ltd v One Australia Pty Ltd

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2274/00 KYLSILVER PTY LTD v ONE AUSTRALIA PTY LIMITED & ORS

1 I have already determined these proceedings as between the plaintiff and the first defendant: Kylsilver Pty Ltd v One Australia Pty Ltd [2001] NSWSC 226 ("my judgment"). The claims arose out six separate contracts for sale of land in Glenwood Park Drive, Glenwood ("the Glenwood contracts"). The purchase prices under the Glenwood contracts ranged between $130,500 and $134,950. A deposit of $1,000 was paid under each of the Glenwood contracts. Each contract contained the following special condition: "16. In the event that the deposit paid by the Purchaser upon the exchange of this Contract is an amount which is less than ten percent (10%) of the purchase price, the Purchaser shall pay such further sum increasing the deposit to the amount which is ten percent (10%) of the purchase price upon completion or termination of this Contract. If this Contract is terminated, and the Purchaser fails to pay such further sum to the Vendor, the Vendor shall be entitled to recover it from the Purchaser as liquidated damages, in addition to any other moneys due and payable to the Vendor pursuant to any other provisions of this Contract." The Glenwood contracts came to an end in circumstances set out in [6] of my judgment. The plaintiff subsequently resold the six lots at prices ranging between $144,500 and $156,500, giving it a windfall profit in the vicinity of $157,000. 2 The plaintiff's claim was for $73,345, being the balance of the deposits under the six Glenwood contracts. The first defendant cross claimed against the plaintiff on various bases including for a return of the deposits under s 55(2A) of the Conveyancing Act 1919 ("the CA"). The defendant also made cross claims on the basis of misrepresentation, rectification and estoppel. Those cross claims I declined to determine on the merits on the basis that, even if they did not succeed, the first defendant for reasons set out in [15] of my judgment ought have a return of the deposits. This meant that it should have an order in its favour for the repayment of the $6,000 paid and, by reason that it could rely by way of defence to the plaintiff's claim on its entitlement to an order that the balance of the deposits should be repaid if they had been or were in fact paid, it had a defence to the plaintiff's claim; there should therefore be judgment for the first defendant on that claim. This determination having been made of the claims as between plaintiff and first defendant, the plaintiff now asks for a determination of its claims against the second and third defendants. The second and third defendants were also parties to the Glenwood contracts and undertook the obligation set out in Special Condition 23.3 as follows: "The Directors indemnify the Vendor against all losses, costs, expenses, damages or other moneys which pursuant to this Contract or at Law or at Equity [sic] may become due and payable by the Purchaser to the Vendor and have not been paid by the Purchaser to the Vendor." 3 The plaintiff contends that the second and third defendants are liable to the plaintiff pursuant to this indemnity even though relief has been granted to the first defendant pursuant to s 55(2A) of the CA, because the enforceability of the contract of indemnity is not dependent upon the continuing liability of the principal obligee. 4 The following principles may be stated relating to liability under a contract of indemnity (see generally O'Donovan and Phillips, The Modern Contract of Guarantee (3rd ed, 1996) 25 - 27; 20 Halsbury's Laws of England (4th ed Reissue, 1993) paras 109, 345, 354; 14 Halsbury's Laws of Australia [220-20]):

(1) A contract of indemnity is one under which the promisor undertakes a primary liability to the person indemnified, whether or not a third party makes default: Yeoman Credit Ltd v Latter [1961] 1WLR 828 per Holroyd Pearce LJ at 831; Total Oil Products (Australia) Pty Ltd v Robinson [1970] 1 NSWR 701 per Asprey JA at 703; and see Lakeman v Mountstephen ( 1874) LR 7 HL 17. This contrasts with the situation under a contract of guarantee, where the promise is made to assume liability if a principal contractor or principal debtor is in default: McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 per Dixon J at 479 - 480. And see generally Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 per Mason CJ at 252 - 254.

(2) Thus, in the case of a contract of guarantee, if the liability of the principal obligee has arisen but has subsequently been discharged then that discharge will in general terms discharge the guarantor: McDonald v Dennys Lascelles Ltd ibid. This is not necessarily so in the case of a contract of indemnity, because the liability of the promisor is a primary or direct liability.

(3) However, the moneys must indeed have become due and payable by the third person for the obligation to indemnify to become enlivened (unless the contract stipulates otherwise).

(4) In general terms, under a contract to indemnify the promisor undertakes to pay the promisee only in respect of actual losses suffered by the promisee. As to this and the preceding proposition, see Wren v Mahony (1972) 126 CLR 212 per Barwick CJ at 227 - 228; Citicorp Australia Ltd v Hendry (1985) 4 NSWLR 1 per Clarke J at 21, Priestley JA at 40 - 41.

(5) In each case it is of importance to construe the contract of indemnity in order to understand precisely what obligation it is that the indemnifier has undertaken towards the person to be indemnified: Yeoman Credit Ltd v Latter supra at 831 - 833; Cameo Motors Limited v Portland Holdings Limited [1965] NZLR 109 per Richmond J at 113; Moschi v Lep Air Services Ltd [1973] AC 331 per Lord Diplock at 349; Alfred McAlpine Construction Ltd v Unex Corporation Ltd (1994) 70 BLR 26 per Evans LJ at 32 - 33. This principle is of importance in relation to the present claim.

(6) An indemnity is to be construed strictly and , in case of ambiguity, the contra proferentem rule is to be applied, that is, the clause is to be construed according to its natural and ordinary meaning, read in the light of the contract as a whole and construing the clause contra proferentem in case of ambiguity: Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 per curiam at 510; Albert SC v Vanderloos ( 1992) 77 LGRA 309 per curiam at 312; Pendal Nominees Pty Ltd v Lednez Industries (Australia) Ltd (1996) 40 NSWLR 282 per Cohen J at 289. 5 In Citicorp Australia Ltd v Hendry supra the indemnifier was held not liable because the sum claimed was said never to have become due and payable, being irrecoverable as a penalty, and because it went beyond any loss actually suffered by the party to be indemnified. The plaintiff accepts the correctness of the principles stated by Clarke J in that case. But they say that in this case what the plaintiff was entitled to against the first defendant as the principal obligee (otherwise than by reason of the Court's discretionary decision to order the return of the deposit under s 55(2A)) was to retain the deposit and equally to retain any windfall profit which arose from a resale of the lots at a higher price. If the plaintiff does not receive both these benefits in the circumstances, then it has suffered a loss which it is entitled to recover. 6 At this stage it is necessary to turn to the precise terms of the obligation undertaken in this case. An examination of them shows the following. The directors by Special Condition 23.3 promised to indemnify the vendor against "all losses, costs, expenses, damages or other moneys which … may become due and payable by the purchaser to the vendor …". By Special Condition 16, if the contract is terminated and the purchaser fails to pay the balance of the deposit to the vendor, "the vendor shall be entitled to recover it from the purchaser as liquidated damages". In other words, the purchaser's liability is to have the balance of the deposit recovered against it as liquidated damages in proceedings brought by the vendor for that purpose. In this case the vendor has in fact sued the purchaser (the first defendant) for the relevant sums as liquidated damages but, far from them being found to be recoverable, the Court has found the vendor not entitled to recover the same and has entered judgment for the first defendant on that claim. In those circumstances, so far as the balance deposits totalling $73,000 odd are concerned, they cannot be characterised as moneys falling within the promise of the second and third defendants, ie, to indemnify the plaintiff against losses, damages etc due and payable to it as liquidated damages which it is entitled to recover. The $6,000 which was in fact paid cannot be found to fall within the promise, as those moneys cannot be characterised as moneys which became due and payable and have not been paid. They have in fact been paid. They are not brought within the promise by the fact that the Court has ordered their repayment. There are various other bases upon which the claim is put but it seems to me that in these circumstances it cannot succeed. 7 One interesting question which may fall for decision on another occasion is whether or not, if payable under the promise, the moneys could be ordered, albeit payable by the second and third defendants who were not the purchasers, to be repaid pursuant to s 55(2A). The section provides for an order for the repayment of a deposit without specifying by whom it was paid. It may well be arguable that if moneys that were paid were able to be characterised as a payment of the deposit, albeit the payment was not made by the purchaser but by someone else, an order for their repayment would be within the jurisdiction conferred by s 55(2A), which proceeds by giving power to order the repayment of a deposit without specifying or limiting the person who may be ordered to repay it. A countervailing argument may be that, in the context of an indemnity clause such as this, the payment if ordered would be by way of damages not by way of debt (De Santo v Munduna Investments Limited (In Liquidation) (1981) 12 ATR 517; but cf the passage cited from Sunbird Plaza Pty Ltd v Maloney supra), so could not be characterised as payment of the deposits. But that is matter for another day. 8 For the reasons set out above there should be judgment for the second and third defendants on the claim made against them by the plaintiff. It seems to me that it should follow that the plaintiff should be ordered to pay the second and third defendants' costs of that claim. If there is any argument to be put to the contrary the question may be raised before me in due course. …oOo…

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