Moorooka Shopping Town (Nominees) Pty Ltd v Kilmartin & Anor [1999] QSC 195

Supreme Court of Queensland|1999-08-20|Before: Chief Justice P, Jersey CJ

[Moorooka Shopping Town (Nominees) Pty Ltd v Kilmartin & Anor]

1 The plaintiff claims from the defendant, Dr Mulherin, the sum of $202,500 (together with interest, and costs assessed on a solicitor and own client basis), under a deed of indemnity dated 27 July 1994. Clause 2.1.1 provided for payment of $405,000 by Kilcor Management Pty Ltd. Kilcor did not make that payment to the plaintiff. Dr Mulherin and Mr Kilmartin had jointly and severally guaranteed the payment. Mr Kilmartin claims to have accounted to the plaintiff for his half share of the liability ($202,500), and the plaintiff claims by Exhibit 12 to have covenanted not to sue Mr Kilmartin further in respect of the liability. Dr Mulherin contends that the plaintiff thereby effectually released both Kilcor, Mr Kilmartin and himself. In any event, Dr Mulherin claims, no debt ever arose, on the proper construction of clause 2.1.1, because a contemplated "development agreement", on which the obligation to pay depended, did not eventuate. Further, in purporting to bind Dr Mulherin to the particular contractual obligation on which the plaintiff now relies, the solicitor Mr Landsberg, of Minter Ellison Morris Fletcher, acted without Dr Mulherin's authority. Alternatively Dr Mulherin claims contribution from Mr Kilmartin to the extent of one-half of any amount Dr Mulherin is obliged to pay the plaintiff.

2 Dr Mulherin made other claims based on alleged fraudulent misrepresentation and contravention of the Trade Practices Act: those claims were not borne out by the evidence and Mr Couper SC, who appeared for Dr Mulherin, abandoned them. I need therefore say nothing more of them here.

3 The deed of indemnity dated 27 July 1994 was preceded by a "risk participation deed" dated 16 June 1994. The plaintiff was the registered proprietor of land on which the Wynnum Plaza Shopping Centre was constructed. The plaintiff wished to refurbish and expand the centre. Kilcor was to provide two-thirds of the costs (and other moneys) in return for a share of the profit. The parties contemplated the sale of the redeveloped centre, preferably by 31 July 1994. The deed specified minimum requirements for such a contract of sale, and then, in clause 4.3:

"Should a contract of sale be completed consequent upon such a Property Offer the parties agree that notwithstanding any other provision of this agreement:

(c) Kilcor will be entitled to enter into a Development Agreement with the Purchaser and shall pay to Moorooka $500,000 on the earlier of completion of the Development Agreement and 2 years from settlement of the sale resulting from the Property Offer;"

4 The deed of indemnity was entered into when the plaintiff expected to sell the property to Mercantile Mutual Custodians Pty Ltd. That deed refers to a possible "Wynnum Plaza Sale Contract". The plaintiff sues now on the basis of clause 2.1, which provides:

"2.1 For the purpose of allaying any questions as to the continuation of Kilcor's obligation pursuant to Clause 4.3(c) of the Risk Participation Deed, Kilcor acknowledges that it is obliged to and confirms that it shall pay to Moorooka $500,000.00 as follows:-

2.1.1 $405,000.00 on the earlier of completion of the Development Agreement referred to in Clause 4.3(c) of the Risk Participation Deed and two years from the settlement of the Wynnum Plaza Sale Contract; and

2.1.2 in satisfaction of the remaining $95,000.00 Kilcor acknowledges that as at completion of the Wynnum Plaza Sale Contract it does not have any claim over or against any monies presently held by Moorooka or against Moorooka in respect thereof."

5 Kilcor did not enter into a development agreement. The issue is whether Kilcor's obligation to pay the sum of $500,000 was dependent upon its having entered into a development agreement; or whether clause 2.1 was merely acknowledging the possibility that it might, then taking account of that possibility in prescribing the time for payment of the $500,000 otherwise due. The amount, if due, was to be paid on the earlier of two dates, the date of completion of the development agreement, and the date two years from the settlement of the Wynnum Plaza Sale Contract. The "Wynnum Plaza Sale Contract" specifically contemplated by the deed of indemnity did not eventuate, that is, by 31 July 1994. But on 16 August 1994 the plaintiff did sell the property to Mercantile Mutual. The plaintiff contends that the parties agreed to treat that contract of sale as being the "Wynnum Plaza Sale Contract" for purposes of clause 2.1.1 of the deed of indemnity.

6 On 16 August 1994 the plaintiff's solicitors sent a fax to Mr Landsberg at Minter Ellison Morris Fletcher, saying that the plaintiff would be prepared to regard the deed of indemnity as applying to the new contract provided Mr Landsberg's clients confirmed that they took the same position. Mr Landsberg faxed back on 18 August (17 August having been a public holiday) in these terms:

"Following on your facsimile of 16 August 1994, we confirm our telephone advice that we hold instructions from Mr Kilmartin and Mr Mulherin as follows-

The Deed of Indemnity continues to apply to the new contract to be exchanged on 16 August 1994 and that they will if required re-execute a fresh Deed of Indemnity on the same terms."

It is common ground that this bound Kilcor to a construction of clause 2.1.1 which encompassed the contract of 16 August 1994. The issue is whether in sending that fax, Mr Landsberg was acting also on the instructions of Dr Mulherin.

7 Mr Landsberg and Dr Mulherin both gave substantial evidence about that issue. I accepted the evidence of Mr Landsberg that at about 5.45pm on 16 August, he had a telephone conversation with Dr Mulherin, in the course of which Dr Mulherin expressly instructed Mr Landsberg to send a fax in those terms. That finding is based on an assessment of the comparative credit worthiness of the two witnesses as they gave their evidence. Further, it seems to me improbable that Mr Landsberg would have referred in his fax to "instructions from .. Mr Mulherin" if he had not received them. Mr Landsberg gave his evidence after refreshing his memory from contemporaneous diary notes. Further, although Dr Mulherin saw the fax more than two years ago, and claims to have regarded it as "not really factual", there is no suggestion of any consequent complaint to Minter Ellison Morris Fletcher that they had acted without his authority. Accepting the evidence of Mr Landsberg in preference to the conflicting evidence about this from Dr Mulherin, I find that in making that communication with the solicitors for the plaintiff, Mr Landsberg acted on Dr Mulherin's specific instructions. Dr Mulherin is therefore, as with Kilcor and Mr Kilmartin, tied to a construction of clause 2.1.1 which brings in the contract of sale of 16 August 1994.

8 I turn to the issue of the construction of clause 2.1 of the deed of indemnity. The opening words of the provision appear to confirm an unqualified obligation to pay the sum of $500,000, subparagraphs 1 and 2 being concerned with the manner and time of payment. There having been no development deed, the only operative date under clause 2.1.1 could be the date two years from the settlement of the contract of sale of 16 August 1994.

9 Need the deed of indemnity be read as a document standing alone? Not necessarily, although reading it in context of the risk participation deed does not particularly aid the process of construction. Because clause 2.1 of the deed of indemnity refers back to clause 4.3 of the risk participation deed and especially because of the opening words of clause 2.1 ("For the purpose of allaying any questions ..."), it may not be impermissible to have regard in this process to that earlier deed. One notes then that para (c) of clause 4.3 was expressed to be conditional only upon completion of a contract of sale. Clause 4.3 did not say that the obligation to pay the $500,000 depended on entry into a development agreement. It could easily have done so, were that intended to be the case. The clause acknowledged the possibility of such an agreement, but did not oblige Kilcor to enter into one, and as Mr Fraser QC for the plaintiff pointed out, there may have been utility in confirming expressly that one joint venturer might for its own sole benefit enter into an independent agreement with the purchaser. Reverting to clause 2.1 of the deed of indemnity, it is again significant that the provision does not in terms express the obligation to pay as being conditional upon there being a development agreement, as could easily have been done had that been intended. There is, then, no apparent inconsistency between the two deeds, in their confirming an obligation to pay the $500,000 which is not expressed to be conditional in this respect.

10 I do regard the construction advanced at the outset, as the clear, natural construction to be adopted. Yet that is said to produce a situation unfair to Kilcor.

11 Although the evidence established that Kilcor would likely have benefited financially from the sale of the shopping centre only through involvement in the redevelopment of the site with the new purchaser, I doubt the relevance of that evidence to the construction of the agreement, even allowing for the "matrix of fact" approach. That is because I read clause 2.1 of the deed of indemnity as clearly confirming an obligation in Kilcor to pay $500,000, an obligation not conditional upon Kilcor's having entered into a development agreement. If the practical result is thought "unreasonable" from Kilcor's point of view, then there is no relief against that consequence: this is not a case where "the language is open to two constructions" (Australian Broadcasting Commission v. Australasian Performing Right Association Ltd [1973] HCA 36; (1972-1973) 129 CLR 99, 109).

12 To the extent that there may be any arguable uncertainty about the construction of clause 2.1, it should in any event be resolved against Dr Mulherin's construction, on the basis of the position reserved by Mason J in Codelfa Construction Pty Ltd v. State Rail Authority of New South Wales (1981-2) 149 CLR 337, 352-3:

"There may perhaps be one situation in which evidence of the actual intention of the parties should be allowed to prevail over their presumed intention. If it transpires that the parties have refused to include in the contract a provision which would give effect to the presumed intention of persons in their position it may be proper to receive evidence of that refusal. After all, the court is interpreting the contract which the parties have made and in that exercise the court takes into account what reasonable men in that situation would have intended to convey by the words chosen. But is it right to carry that exercise to the point of placing on the words of the contract a meaning which the parties have united in rejecting? It is possible that evidence of mutual intention, if amounting to concurrence, is receivable so as to negative an inference sought to be drawn from surrounding circumstances."

13 During the period of negotiation of the terms of the deed of indemnity, Mr Landsberg expressed the view to Dr Mulherin that Kilcor's obligation to pay the $500,000 should be conditional on not only a contract of sale, but also a development deed. He raised that with the plaintiff's solicitor prior to the finalisation of the deed of indemnity. See Exhibit 16. The plaintiff's solicitor rejected such a position in clear terms: "Our client is not prepared to vary clause 2.1 to make payment of the $500,000.00 dependent on your client entering into the Development Agreement ...". See Exhibit 15. That exchange concerned a draft deed of indemnity which included clause 2.1 in terms indistinguishable from those appearing in the eventual deed of 27 July 1994. Adopting the construction for which Dr Mulherin now contends, if thought to be favoured by the extraneous circumstance of the source of Kilcor's likely financial benefit or by some arguable uncertainty in the language of the provision, would therefore run counter to the "concurrence" (the term used by Mason J in Codelfa) emerging from that exchange.

14 I logically turn now to the question whether the settlement reached between the plaintiff and Mr Kilmartin effected a release of Dr Mulherin's obligation as guarantor. The release of one guarantor, whose liability is joint and several with that of another, will also release that other: Mahoney v. McManus [1981] HCA 54; (1981) 55 ALJR 673, 677. Where there has been no release, but by way of contrast, a mere covenant not to sue the guarantor, the liability of the other surety will not be affected. See Hancock v. Williams [1942] NSWStRp 28; (1942) 42 SR (NSW) 252, 257; Cole v. Lynn (1942) 1KB 142,145; Bateson v. Gosling (1871) LR 7 CP9; Halsbury's Laws of England 4th edition, vol 20, para 294; Rowlatt on the Law of Principal and Surety 4th edition, p170; O'Donovan and Philips, The Modern Contract of Guarantee, 3rd edition, p382.

15 The deed of settlement concluded in December 1996 between the plaintiff and Mr Kilmartin (Exhibit 12) obliged Mr Kilmartin to pay the sum of $202,500 (and other moneys) in return for the plaintiff's agreement not to proceed with court proceedings against him. Any release was expressly deferred until proceedings against Dr Mulherin were concluded. The deed provided:

"Once the court action (including any appeals) against Mulherin and Kilcor is finally resolved to the satisfaction of Moorooka by judgment or settlement and any money payable by Mulherin and/or Kilcor has been paid, Moorooka will grant to Kilmartin a release of any and all liability of Kilmartin to Moorooka under the documents and a full and formal discharge of the guarantee."

"Moorooka and Kilmartin agree that nothing in this Deed shall extinguish or limit in any way the rights, remedies and claims of Moorooka against any other person:-

6.2 in respect of money owing by Mulherin and Kilcor;

Kilmartin and Moorooka acknowledge and agree that the guarantee granted by Kilmartin and Mulherin in the Deed of Indemnity is not discharged by virtue or as a consequence of this Deed."

16 The deed clearly puts this case within the scope of the authority referred to above. The deed should not be regarded as having led to the release of Kilcor or Dr Mulherin.

17 Mr Couper sought however to use Exhibit 28 for a contention that the plaintiff's agreement with Mr Kilmartin extended more broadly than the deed would suggest, including Mr Kilmartin's giving up a share of joint venture profits. Mr Fraser objected to that use of Exhibit 28, which had been tendered in that part of the case which at least focussed on the claim for contribution. It would in any event be impermissible to use Exhibit 28 to construe the deed of settlement Exhibit 12, which perfectly plainly established the position just summarised.

18 Mr Couper also submitted that the decisions mentioned above sat inconsistently with Ankar Pty Ltd v. National Westminster Finance (Australia) Ltd [1987] HCA 15; (1987) 162 CLR 549, 558-561. That is not so. The point in Ankar was quite different, and the conclusion reached there could not analogously apply here. Here there is no question of the creditor's conduct "having the effect of altering the surety's rights". Ankar says nothing to cast doubt on the well established principle referred to above.

19 I turn now to Dr Mulherin's claim for contribution from Mr Kilmartin. It is important first to determine what liability has been satisfied by Mr Kilmartin. I find that Mr Kilmartin caused the trustee of his family trust, Charfern Pty Ltd, to pay $67,500 to Pacific Shopping Centres Australia Pty Ltd at the plaintiff's direction. See Exhibits 30, 34, 35 and 36. In addition, Mr Kilmartin caused Pacific Shopping Centres, which I am satisfied then owed $142,500 to Kilcor, to pay that amount to the plaintiff. Those sums total $210,000, arrived at by adding to the $202,500 (Mr Kilmartin's half share of the guaranteed liability) two other sums due under the deed of settlement.

20 There was an issue whether Pacific Shopping Centres genuinely owed Kilcor that amount of $142,500. I am satisfied that it did. The evidence shows that in July 1996 Kilcor and Pacific Shopping Centres entered into a joint venture agreement for the redevelopment of a shopping centre then owned by Pacific Shopping Centres at Kuraby. See Exhibits 25 and 26. For no fee, Kilcor undertook to obtain planning approval for an access road and to provide an appropriate feasibility study. Kilcor performed that work. It was to receive a project management fee of $150,000 together with 40% of the profits in respect of the redevelopment. See Exhibit 25. In this context, and accepting as I do the evidence of Mr Kilmartin, I find that in return for Kilcor's relinquishing its rights under the joint venture agreement, Pacific Shopping Centres agreed to pay Kilcor the sum of $142,500. Note Exhibit 28. By arrangement between those companies, then, that debt was satisfied by Pacific Shopping Centres paying that amount to the plaintiff on account of Mr Kilmartin's remaining liability under the deed of settlement. In any case, as pointed out by Mr Clothier who appeared for Mr Kilmartin, the evidence shows that $142,500 was in fact paid by Pacific Shopping Centres to the plaintiff in part satisfaction of Mr Kilmartin's liability under the deed of settlement. His obligations to the plaintiff have in fact been satisfied. If the result were that Kilcor were liable to reimburse those funds to Pacific Shopping Centres, for want of a genuine debt, that would be of no consequence in these proceedings.

21 As part of the argument that this asserted debt was illusory, it was submitted for Dr Mulherin that no "debt" could be constructed out of the agreement to forego rights under the joint venture agreement (it having been agreed that Kilcor would carry out the other work for no fee). Mr Kilmartin's position was that Kilcor surrendered valuable rights pursuant to the joint venture agreement. I accept the genuineness of that belief. Dr Mulherin would contend, however, that it was not well founded, because on the evidence as at 23 December 1996 there was no prospect that Woolworths would commit itself to a new lease of the Kuraby shopping centre by 31 December 1996. The effect of clause 4 of the joint venture agreement (Exhibit 25) was that Kilcor only earned a right to participate if Woolworths committed itself by that date or another agreed date. While in the absence of an agreed date, Kilcor had no right to participate, it had an expectation which I would characterise as reasonable that it might by subsequent agreement obtain such a right. The evidence established a sufficient likelihood of an extension of time to secure Woolworths' participation to exclude any argument that the consideration for the payment of $142,500 should be characterised as "illusory". I accepted the evidence of Mr Kilmartin and Mr Boerkamp.

22 Dr Mulherin claims against Mr Kilmartin "contribution to the extent of 50% against the claims of (the plaintiff) (inclusive of interest and costs)". On no view is Dr Mulherin entitled to that relief. The right of contribution between co-sureties arises only once one of them pays more than his or her "total proportion or share" of the common debt: Halsbury's Laws of England 4th, vol 20 para 224, Davies v. Humphreys [1840] EngR 223; (1840) 6 M&W 153, 168-9 [1840] EngR 223; (151 ER 361 at 367-8). Dr Mulherin has not paid more than his share of the common debt, that is $205,000. He has not paid anything. Accordingly he is not entitled to contribution from Mr Kilmartin. He is likewise not entitled to a declaration on the quia timet basis also raised on his behalf.

23 I was requested by the parties not to deliver a formal judgment without hearing particular additional submissions with relation to interest and costs. With the agreement of the parties I will therefore, in publishing these reasons, adjourn the further hearing of the matter so that the parties might give consideration to the preparation of minutes of the judgment which follows from the reasons, and prepare submissions on the question of interest and costs, preferably in writing, from an informed basis.

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