Perry v Anthony

Court of Appeal (NSW)|2016-03-03|Before: Beazley P, Gleeson JA

Background facts

The first appellant, Mr Vince Perry, was an accountant. Mr Perry was the principal of the second appellant, Perry Properties Pty Ltd (Perry Properties). The respondent, Ms Anthony, was introduced to Mr Perry by her then partner Ms Schipper, who was a client of Mr Perry's accounting firm. In about August 1999, during the course of discussions between Ms Anthony and Mr Perry as to investment strategies, Mr Perry made a suggestion in respect of foreign exchange trading.
On 10 September 1999, the parties entered the following written agreement, which was signed by Ms Anthony and Mr Perry on his own behalf and on behalf of Perry Properties: "I Patricia Anthony, of ***** Hartley, hereby enter into a joint venture agreement with Vince Perry and [Perry Properties] under the following terms and conditions: A $250,000 advance for the purpose of trading currencies, with Ord Minnett. Jardine Flemming under the current number 8604. Vince Perry personally indemnifies Patricia Anthony as to her capital of $250,000. [Perry Properties], of which Vince Perry is the sole director and share holder, personally guarantees Patricia Anthony as to her capital of $250,000. Net profits on trading shall be distributed in equal shares between Patricia Anthony and [Perry Properties]. The management of the currency shall be in the absolute discretion of Vince Perry. Profits generally shall be distributed on a monthly basis. If there is no profits then the capital shall not in any event be distributed in lieu of profits. Termination of this agreement by either party must not require reasonable time to recover any adverse in currencies. Statement of trading shall be provided weekly to Patricia Anthony."

Trial judge's findings

The trial judge found that the guarantee and indemnity clause in the 10 September 1999 agreement extended to the investment of the further $250,000 made on 2 November 1999 in accordance with the endorsement made on that date on the 10 September 1999 agreement.
His Honour further found, at [150], that Ms Anthony and Mr Perry had entered into a further agreement on 1 February 2000. In making that finding, his Honour rejected that the appellants had entered into a contract directly with Ms Schipper and accepted Ms Anthony's evidence as to the circumstances leading up to the entry into the further agreement on that date.
Ms Anthony's evidence was that she spoke to Mr Perry in January 2000, informing him that Ms Schipper wanted to invest the sum of $200,000 with him for the purposes of currency trading. Mr Perry had responded that he did not wish to make a separate agreement with Ms Schipper, but that he would add the funds as a continuation of the agreement with Ms Anthony under the same terms and conditions.
His Honour found that that agreement was typed and signed by the parties, including Mr Perry, on 1 February 2000. His Honour held, at [151], that the words in the typed agreement: "… the parties agree to increase the Patricia Anthony capital by another $200,000, bringing the total investment sum to $700,000, incorporating the identical terms and conditions as previously stated" involved an extension of the indemnity provided by the appellants in respect of the capital invested by both Ms Anthony and Ms Schipper.
His Honour, at [152], also rejected an argument that there was no consideration for a further agreement between Ms Anthony and the appellants entered into on 1 February 2000. His Honour observed that the absence of consideration had not been pleaded in the amended defence and, in any event, did not accept the appellants' submission, finding that "there was clearly a consideration for the agreement, namely the payment of $200,000".

Issues on the appeal

The appellants did not challenge his Honour's finding that there was no contract between them and Ms Schipper in respect of the $200,000 invested on 1 February 2000. Rather, they raised the following issues on the appeal: 1. Whether his Honour erred in finding that there was consideration supporting the agreement entered into on 1 February 2000 between Ms Anthony and the appellants: ground 1 of the amended notice of appeal; 2. Whether Ms Anthony was entitled to be indemnified in respect of the $200,000 because she had not suffered any loss, as those monies belonged to Ms Schipper: grounds 2 and 3 of the amended notice of appeal; 3. Whether the payments totalling $104,058 were payments of profit or were a return of capital: grounds 4-6 of the amended notice of appeal.

First issue: was the further agreement of 1 February 2000 supported by agreement

The appellants submitted that for a contract to be valid, it must be supported by consideration moving from the promisor, the onus being on the promisor/plaintiff to prove adequate consideration. They contended that in circumstances where the sum of $200,000 was paid by Ms Schipper directly into the Ord Minnett account, no consideration had moved from Ms Anthony to obtain the indemnity in relation to that sum. In short, the appellants submitted that Ms Anthony contributed nothing to obtain the indemnity.
According to the appellants, it was not sufficient that Ms Anthony's name was on the agreement. As the argument went, the mere entry into the contract did not constitute consideration. They described Ms Anthony as a mere bystander to the transaction.
Ground 1 of the amended notice of appeal should be rejected. It is uncontroversial that mutual promises are sufficient to support a contract: Dunlop Pneumatic Tyre Co Ltd v Selfridge and Co Ltd [1915] AC 847 at 855: see generally Carter, Peden and Tolhurst, Contract Law in Australia, 5th ed, at Ch 6, esp 6-13.
The contract pleaded by Ms Anthony was an agreement in writing made on 1 February 2000, by which Ms Anthony and the appellants agreed to vary the 10 September 1999 agreement "by increasing the capital sum by a further $200,000, bringing the total capital sum to $700,000" on the same terms and conditions as the 10 September agreement. That contract was proved in the evidence. That evidence was uncontradicted, was not the subject of cross-examination, was accepted by the trial judge and was not challenged on the appeal.
The contract pleaded and proved was executory in that Ms Anthony promised to pay to the appellants the further sum of $200,000 on the same terms and conditions as in the 10 September agreement and the appellants agreed to receive the payment on those terms and conditions. The contract was performed by the payment of the sum of $200,000 into the Ord Minnett account. The source of payment in performance of the contract was irrelevant to the question of whether the contract was supported by consideration.
We would only add that should it have been necessary to decide the point, we would have considered that the better view was that the appellants did not plead that the contract alleged by Ms Anthony was not supported by consideration.

Grounds 2 and 3: did Ms Anthony suffer a loss so as to be entitled to the indemnity?

The appellants challenged the trial judge's finding, at [151], that on its proper construction, the 1 February agreement involved an extension of the indemnity provided by the appellants in respect of "the capital invested by both [Ms Anthony] and Ms Schipper". The appellants submitted that the indemnity was to be construed strictly, with any ambiguity resolved in favour of the indemnifier: see Andar Transport Pty Ltd v Brambles Ltd [2004] HCA 28; 217 CLR 424 at [17]-]23]; Bofinger v Kingsway Group Limited [2009] HCA 44; 230 CLR 269. The appellants contended that on its proper construction, the reference in the 1 February 2000 agreement to "Ms Anthony's capital" was a reference to Ms Anthony's own money and did not include the $200,000 that had been sourced from Ms Schipper.
The appellants further contended that in circumstances where the sum paid in performance of the 1 February 2000 agreement was not paid by Ms Anthony personally and was not her money, she suffered no loss and accordingly was not entitled to any indemnity from either appellant under the terms of the agreement: see Rankin v Palmer [1912] HCA 95; 16 CLR 285; Wren v Mahony [1972] HCA 5; 126 CLR 212 per Barwick CJ; O'Donovan and Phillips, Modern Contract of Guarantee at 1.1100.
The appellants also submitted that, similarly to the parties in Rankin v Palmer who had a right to sue a principal for the monies they had paid to its agent, Ms Schipper herself would have rights to claim against the appellants in respect of the $200,000 that she had paid into the Ord Minnett account. According to the appellants, if Ms Anthony was entitled to claim the sum of $200,000 under the terms of the indemnity, that would result in a windfall gain, because, under the terms of an agreement entered into with Ms Schipper after their relationship ended, Ms Anthony and Ms Schipper released and indemnified each other in respect of any claim the other may have against the other relating to the monies invested with Mr Perry and Perry Properties. The appellants also contended that the trial judge failed to give consideration to the argument they advanced on this issue.

The relevance of any rights in Ms Schipper

In Rankin v Palmer Griffith CJ, at 289, described the case as being concerned with: "… an action by an agent against an undisclosed principal for an indemnity in respect of claims that may be made upon the agent for money received by [the agent] on a consideration that has failed, and which he received on behalf of, and afterwards paid over to, his principal."
In Rankin v Palmer the trial judge had not only declared that the agent was entitled to an indemnity from the principal but also ordered that the principal pay to the agent the total amount that the agent might be called on to pay by those entitled to claim for monies paid to the agent and in respect of which consideration had failed.
Griffith CJ, Barton and Isaacs JJ concurring, held that the trial judge was correct to declare that the agent was entitled to indemnity from the principal but, in circumstances where no claims had been made against the agent, the agent was not entitled to payment from the principal of a sum of money representing the total of claims that might be, but had not been, made against him.
Griffith CJ explained the position, at 289-290, as follows: "It is clear, however, that the plaintiff's only right is to indemnity, and the Court is bound to see that it does not prejudice the defendant by giving the plaintiff anything more. If the judgment stood in its present form, and the defendant paid the whole sum to the plaintiff, the plaintiff might not pay it to the creditors, in which event the defendant as principal might have to pay the money over again. Such a result would be manifestly unfair. An undertaking by the plaintiff would not obviate this difficulty."
The appellants' submissions failed to grapple, or at least to grapple satisfactorily, with the finding of the trial judge that there was no contractual relationship between them and Ms Schipper. The only contract was with Ms Anthony. The Court was not concerned in the proceedings between those parties with the legal relationship between Ms Schipper and Ms Anthony in respect of the sum of $200,000.
The $200,000 paid into the Ord Minnett account may have been provided on the basis that the monies were held on trust for Ms Schipper by Ms Anthony, with a direction that they be invested in accordance with the 1 February 2000 agreement. If that were the case, the appellants do not suggest that Ms Anthony could not have sued on the indemnity as trustee. The monies may have been lent to Ms Anthony. The correct legal characterisation may be of monies had and received by Ms Anthony. Although on the facts as found by the trial judge it might be thought unlikely, Ms Schipper may have made a gift of the monies to Ms Anthony, or forgiven their repayment. However, the arrangements between Ms Schipper and Ms Anthony were not in issue in the proceedings below and were not in issue on the appeal.
Whatever the legal relationship between Ms Anthony and Ms Schipper in respect of the sum of $200,000 what is clear is that there was no legal chose vested in Ms Schipper as against the appellants in respect of the monies. This was not a case like Rankin v Palmer where there was a direct liability of the principal to the persons who had paid monies to the agent. The appellants were not directly liable to Ms Schipper. To the extent that Ms Schipper might have sought to rely upon the existence of a trust, her rights against the appellants would have been equitable only and Ms Anthony would have been a necessary party to any suit Ms Schipper may have brought as beneficiary of the trust. However, any such suggestion is purely hypothetical.

The need for "actual loss"

The principle for which the appellants contended, namely, that there can be no indemnity without actual loss, in the unqualified terms it which it was asserted, is not correct. In O'Donovan and Phillips, Modern Contract of Guarantee at 1.1100, the authors state that "the promisee generally has no right to receive a sum under an indemnity unless it suffers actual, ascertainable loss". However, the authors add that that statement is "subject to contrary terms" in the contract. The authors cite Wren v Mahony as authority.
Wren v Mahony concerned an application by the appellant, Wren, to go behind a bankruptcy judgment which had been obtained against him at the instance of Mahony. Wren's underlying liability, if any, arose from an indemnity he had given to Mahony in respect of any tax liability Mahony had to the Commissioner of Taxation.
Mahony became liable for tax within the meaning of the indemnity. However, Mahony entered judgment against Wren before the Commissioner had obtained judgment against him. Barwick CJ, at 225, applying Rankin v Palmer held that Wren's covenant to indemnify Mahony did not contain a promise to pay the amount of the tax due or which might become due, and without such a promise there was no cause of action against Wren until the tax had been paid. As Barwick CJ further explained at 227, the nature and extent of the liability under an indemnity clause "is of course a matter of construction of the language used in the circumstances in which it was used".
Contrary to the appellant's submission, there is no general principle that a person is not entitled to the benefit of an indemnity unless that person has suffered an actual ascertainable loss. Rather, it is always a question of the proper construction of the indemnifying clause as to the nature and extent of the rights and liabilities that arise thereunder and as to when such rights may be enforced. This is clear, not only from the commentary in O'Donovan and Phillips, Modern Contract of Guarantee but also from the remarks of Barwick CJ in Wren v Mahony to which we have made reference. Accordingly, even if it could be suggested that the trial judge ought to have dealt with the appellants' argument on this point, the argument would have failed.

Construction of the agreement

The appellants accepted that their obligation was to indemnify Ms Anthony in respect of the loss of her capital. However, by reference to the terms of the agreement between the parties, they sought to limit that indemnity to the amount of $500,000 that Ms Anthony contributed of her own money.
The words of the agreement between the parties clearly provide otherwise. The indemnifying clause, as it first appeared in the 10 September 1999 agreement, provided that Mr Perry "personally indemnifies Patricia Anthony as to her capital of $250,000". Perry Properties provided an indemnity in identical terms. The appellants accepted that the indemnity extended to the initial sum of $250,000.
The terms of the further agreement of 2 November 1999 provided that: "… the parties agree to increase Patricia Anthony's capital by a further $250,000 incorporating the identical terms and conditions of as stated in the [19 September 1999] agreement."
As we have indicated, the appellants accepted that the indemnity extended to the further sum of $250,000. The phrase "Patricia Anthony's capital" used in the 2 November 1999 agreement was a comprehensive term that extended to the capital sum invested. The same phrase "Patricia Anthony's capital" was used in the 1 February 2000 agreement, the intention being to increase that capital by $200,000 on the same terms and conditions as previously. The words are plain in their meaning and bear good commercial sense. There is no room for any meaning other than that asserted by Ms Anthony and as found by the trial judge.
Nor was there any merit in the appellants' argument that Ms Anthony would be the beneficiary of a windfall gain, given the release and indemnity given in the property agreement between Ms Anthony and Ms Schipper. That agreement provided for the payment of a lump sum to Ms Schipper, releases and indemnities in respect of the Perry investment, as well as in respect of outgoings on property previously owned jointly by Ms Anthony and Ms Schipper, and a relinquishment of all claims under the Family Provision Act 1982 (NSW).
In circumstances where the underlying claims and negotiations that resulted in that agreement are not known, there was no basis for the assertion that Ms Anthony obtained a windfall gain. In any event, on the facts as found by his Honour, the assertion had no legal underpinning and in particular was not supported by the decision in Rankin v Palmer as the appellants contended.
Grounds 2 and 3 should be rejected.

Grounds 4-6: were the payments of $104,058 on account of income or capital?

The appellants contended, and the trial judge rejected, that the sums totalling $104,058, paid over the period between 28 September 1999 and 31 January 2000, were payments of capital. His Honour, at [129], held that: "The payments totalling $104,058.00 paid to [Ms Anthony] and [Perry Properties], were clearly net profits on trading, being the result of successful trades made by [Mr Perry] and being funds in excess of the capital invested by [Mr Perry]."
His Honour's reasons for this finding, as apparent from [129] and [130] of the judgment, were based on the proper construction of the 10 September 1999 agreement. That agreement provided that "net profits on trading shall be distributed in equal shares" between Ms Anthony and Perry Properties (the fifth clause) and that "profits generally shall be distributed on a monthly basis" (the seventh clause). The latter clause also provided that capital was not to be distributed in lieu of profits.
In their written submissions, the appellants contended that there was no evidence to support that finding as the payments were not paid out of the invested capital. They contended that a review of the Ord Minnett accounts revealed that the payments brought the account balance below the level of the capital invested by Ms Anthony from time to time.
The appellants, whilst acknowledging that the mere description by the parties of an arrangement as a joint-venture was not determinative of its real character, nonetheless submitted that properly construed, their agreement was a joint enterprise in which one party, Ms Anthony contributed money whilst the other, Mr Perry, contributed his time and effort. The agreement between them was to split "net profits". As the argument went, the profitability of the enterprise depended upon an analysis of trading over the entire life of the venture. The appellants submitted that upon its proper construction, the reference to 'net profits' meant net profits when accounts were taken when the agreement came to an end. To the extent that there had been payments during the course of the arrangement, those payments must have been of payments of capital as, on the state of the accounts when the agreement came to an end, there were no profits to distribute. In other words, the appellants contended that even if trading had been profitable for a period and distributions made to the parties of interim profits, if the capital was subsequently lost, the terms of the agreement did not allow the previously distributed 'profits' to be so categorised and given the ultimate loss on trading, any such payments were to be characterised as a return of capital.
In their oral argument on the appeal, the appellants insisted that the point they sought to make did not involve an accounting exercise as such and in particular did not involve a monthly analysis of the accounts. Rather, having regard to the terms of their agreement, the necessary accounting exercise was only to be done at the end of the arrangement. The appellants submitted that this followed from the terms of the fifth clause, which provided that net profits were to be distributed equally between the parties.
The appellants submitted that his Honour's construction of the seventh clause as preventing the distributed sum being characterised as a return of capital misunderstood the purpose of the clause, which was to prevent Ms Anthony from withdrawing her capital in the absence of profits. The appellants contended that, in circumstances where Ms Anthony had been paid nearly $600,000 from the venture whereas the appellants had only absorbed losses, his Honour's approach was inimical to the mutual gains characteristic of a joint venture: Gibson Motor Sports Merchandise Pty Ltd and Ors v Robert James Forbes & Ors [2005] FCA 749 at [80].
The appellants' contention neither accords with the clear words of the agreement between the parties nor does it accurately reflect the actual trading on the Ord Minnett account.
It is well settled that a commercial contract must be construed as whole according to its terms and in accordance with what a reasonable business person would have understood them to mean. This involves: "… a consideration of the language used, the surrounding circumstances known to [to the parties] and the commercial purpose or objects to be secured by the contract": Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640 at [35].
The contract between the parties here was not one of great commercial sophistication. It was nonetheless a commercial contract, the purpose of which was to engage in foreign currency trading with a view to earning profits. Although the preamble described the contract as a "joint venture", its proper characterisation depends upon its actual terms: United Dominions Corporation Ltd v Brian Pty Ltd [1985] HCA 49; 157 CLR 1 at 10. The fifth clause expressly provided that net profits were to be distributed equally. The seventh clause expressly provides for two things. First, profits will generally be distributed monthly. Secondly, if there are no profits, capital is not to be distributed in lieu of profits. The reference to profits in the latter clause is clearly a reference back to 'net profits' in the former.
Upon the proper construction and interaction of these two clauses, therefore, the results of trading were to be determined on a monthly basis and if there were profits, the net profits were to be distributed equally. If there were no profits, capital was not to be distributed in lieu.
We have already noted above the appellants' written submission that the trial judge's finding, that the distributions between 28 September 1999 and 31 January 2000 were distributions of profits, was not borne out by the evidence. That submission appeared to have been abandoned in oral argument, presumably because an analysis of the Ord Minnett trading account reveals that between the first deposit of $250,000 on 13 September 1999 and the second deposit of $250,000 on 3 November 1999, the running balance of the account hovered just above or below the initial capital sum. The same pattern occurred between 3 November 1999 and 1 February 2000, being the dates when the subsequent sums of $250,000 and $200,000 were deposited.
The first monthly loss recorded in the account was January 2000. No profits were made on the account after February 2000. Importantly, no withdrawals were made from the account after 1 February 2000, as from that time the balance in the account fell significantly below the invested amount of $700,000.
It follows that grounds 4-6 are rejected.
The Court makes the following orders:
Appeal dismissed;
Order the appellants to pay the respondent's costs of the appeal;
The parties are granted liberty to apply in respect of moneys paid into Court pursuant to orders made in these proceedings on 14 September 2015.

Amendments 31 March 2016 - [33], [35], [36]: typographical errors corrected DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 31 March 2016

Family Provision Act 1982(NSW)

Solicitors: Houston Dearn O'Connor (Appellants) Taperell Rutledge Lawyers (Respondent) File Number(s): CA 2015/234063 Decision under appeal Court or tribunal: District Court Jurisdiction: Civil Citation: Patricia Catherine Anthony v Vince Perry and Anor [2015] NSWDC 120 Date of Decision: 17 July 2015 Before: Mahony SC DCJ File Number(s): 14/127711

The Court: (1) It is uncontroversial that mutual promises are sufficient to support a contract. As was the case here, a promise to pay a sum of money will constitute good consideration. [26]-[29] Dunlop Pneumatic Tyre Co Ltd v Selfridge and Co Ltd [1915] AC 847 at 855 (2) Where a third party has enforceable legal rights against both the promisee and promisor of a contractual indemnity, the promisee will not be entitled to payment from the promisor for claims that might be, but have not been, made by the third party against the promisee. Here, third party legal entitlements were not in issue. Rankin v Palmer [1912] HCA 95; 16 CLR 285 at 289-290 (distinguished) (3) There is no strict principle that a person is not entitled to the benefit of an indemnity unless that person has suffered an actual ascertainable loss. The nature and extent of the rights and liabilities that arise under an indemnity is always a question of construction. [40]-[43] Wren v Mahony [1972] HCA 5; 126 CLR 212 at 227; O'Donovan and Phillips, Modern Contract of Guarantee at 1.1100 (4) A commercial contract must be construed as a whole, according to its terms and in accordance with what a reasonable business person would have understood them to mean. [58]-[59] Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640 at [35] (5) The proper characterisation of a commercial contract depends on its actual terms, and not on any formal description attached by the parties. [59] United Dominions Corporation Ltd v Brian Pty Ltd [1985] HCA 49; 157 CLR 1 at 10

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