Resource Equities Limited v Leon Carr Resource Equities Limited v John Garrett

1 HIS HONOUR: The question for decision is whether two cross-claims brought by Messrs Carr and Purves against Mr Thomas, seeking equitable contribution in relation to any amount that Mr Carr or Mr Purves may be ordered to pay to the plaintiff (REL), can stand in circumstances where REL and Mr Thomas have entered into a deed whereby, among other things, REL released Mr Thomas from any liability that he might have to it in relation to the subject matter of the proceedings. 2 The question arises in proceedings 50205 and 50214 of 2007. Those proceedings were originally (and respectively) proceedings CIV 1605 and CIV 1606 of 2006 in the Supreme Court of Western Australia. They have been transferred to this Court for reasons that do not need consideration. 3 In substance, REL asserts that Messrs Carr and Purves, among others, breached duties that they owed to it in their capacity as directors of REL. Mr Thomas had also been a director of REL. He had been a defendant in the proceedings in the Supreme Court of Western Australia. REL claimed that Mr Thomas, too, breached his duties as a Director. 4 The deed of release was made in May 2007: before the cross-claims for contribution were filed. Recital E to the deed referred to the proceedings in the Supreme Court of Western Australia (and named them the "REL proceedings"). Recital H noted that REL and Mr Thomas "have agreed to resolve the REL proceedings only as between REL and [Mr] Thomas, on the terms set out in this deed." 5 Clause 1.5 of the deed stated that nothing in it was "intended to affect or compromise in any way the REL proceedings as against any defendant to the REL proceedings other than [Mr] Thomas. 6 By clause 2.2, REL and Mr Thomas agreed to sign consent orders in a specified form. 7 By clause 3.4, REL and others agreed "to release and discharge [Mr] Thomas from any and all claims arising directly or indirectly in relation to any circumstance or event pertaining to the REL proceedings" and other, for present purposes irrelevant, proceedings. 8 Clause 8.1.5 contained a more extensive definition of the REL proceedings. It said that it meant proceedings which were subsequently defined "but limited to the proceedings as between REL and [Mr] Thomas. 9 On 23 May, 2007, the Supreme Court of Western Australia made orders by consent that REL's actions against Mr Thomas be dismissed, and that there be no order as to costs as between them. 10 In respect of the cross-claims brought in proceedings 50205 and 50214 of 2007 in this Court, (which I repeat are in effect the proceedings that formed the subject of the deed of release), Mr Thomas seeks an order for summary dismissal. He submits in substance that all that is sought is equitable contribution, on the basis that if Messrs Carr and Purves are liable to REL then so is he, so that they are under coordinate liabilities. This claim, he submits, cannot stand having regard to the terms of the deed of settlement. 11 The terms by which the cross-claim is pressed are in a state of some flux. However, it was common ground between Mr Donaldson of Senior Counsel (who appeared with Mr Jones of Counsel for Mr Thomas) and Mr Martin of Senior Counsel (who appeared with Mr Wells of Counsel for Messrs Carr and Purves) that the debate - in relation to the application for summary dismissal - could proceed by way of a proposed draft amended cross-claim statement, sufficiently identified as annexure "F" to the affidavit of Neil O'Shea sworn 13 August 2008. 12 By that statement the cross-claimants repeat a number of allegations made against them by REL in its amended list statement. They assert that the cross-defendants (who include Mr Thomas) owed to REL certain duties alleged by it in its amended list statement, and that the cross-defendants breached those duties. 13 They then make further allegations, amplifying the breaches of duty alleged, or perhaps alleging further breaches of duty. In each case, however, the amplified or further duties are said to be duties owed by the cross-defendants to REL. In each case, it is said, it is the breach of those amplified or further duties, together with the breaches of the duties alleged by REL, that give rise to the entitlement to equitable contribution. 14 Thus, in paragraph 4 of the document, Messrs Carr and Purves assert that if they are liable to REL for the breaches of duty alleged against them, that liability "is coordinate with the liability of the cross-defendants for the breaches of duty pleaded" in the paragraphs that I have previously summarised. 15 Messrs Carr and Purves then allege that if they are liable to the plaintiff then by reason of the cross-defendants' breaches of duty they have suffered loss or damage, namely, the extent of their liability to REL, together with interest and costs. Although that allegation is less than conspicuously clear, Mr Martin confirmed that it was not intended to operate as an allegation of a breach of duty owed by the cross-defendants (including Mr Thomas) to the cross-claimants Messrs Carr and Purves. 16 Finally, the cross-claim asserts that by reason of the matters earlier alleged, each of the cross-defendants is liable to make equitable contribution to the cross-claimants for any liability that they may have to REL. There was an alternative claim for indemnity, or contribution pursuant to s 1325 (1) of the Corporations Act 2001, but I understand that alternative basis is not pressed. 17 Mr Donaldson submitted that the basis on which coordinate liability to contribute to the one loss is imposed is that there are several persons liable to make good the one loss. He referred to the decision of the High Court of Australia in Burke v LFOT Pty Limited (2002) 209 CLR 282. That was a case where a vendor of retail premises was said to have engaged in misleading or deceptive conduct in relation to the subject matter of the sale. The vendor (and its director, who was also sued) claimed equitable contribution from the purchaser's solicitor, who was also a director of the purchaser. Contribution was sought on the basis that the solicitor had acted in breach of his duty of care in relation to the purchase. 18 The Court held (Kirby J dissenting) that the vendor and its director were not entitled to equitable contribution. The majority (Gaudron ACJ and Hayne J, in a joint judgment, and McHugh J) said that it was not inequitable for the vendor to be required to make good the difference between the price received and the true value of the subject matter of the sale. Callinan J said that none of the conditions for the application of contribution had been made good. 19 Gaudron ACJ and Hayne J explained the nature of the right to equitable contribution at 292 [14]. Their Honours said that "the principle of equitable contribution requires that those who are jointly or severally liable in respect of the same loss or damage should contribute to the compensation payable in respect of that loss or damage, either equally where they are liable in the same amount or proportionately, where the amount of their liability differs". 20 Their Honours explained at 293 [16] that "[t]he notion of "co-ordinate liability" is one that depends on common interest and common burden".

21 At 294 [22] their Honours noted that "the doctrine of equitable contribution is founded on concepts of fairness… and natural justice". They referred to the judgment of Kitto J in Albion Insurance Company Limited v Government Insurance Office of New South Wales (1969) 121 CLR 342 at 351. His Honour there said that in the context of equitable contribution, natural justice requires that one of several persons who has paid more than his fair share towards a common obligation is entitled to be recompensed by those who have not. 22 McHugh J dealt with the basis on which equitable contribution is ordered at 298 [38] and following. His Honour noted that the principle of equitable contribution is "based on the equitable doctrine of equality. When a person pays more than his or her share of a common monetary obligation, the payment pro tanto discharges the obligation of all who owe the common obligation ... [i]n accordance with the maxim that equality is equity, equity requires the common burden to be shared equally so that none of those owing the common obligation will pay more than his or her share of the burden. An order of contribution prevents the injustice that would otherwise flow to the plaintiff by the defendant being enriched at the plaintiff's expense in circumstances where they have a common obligation to meet the liability which the plaintiff has met, or will meet ... " 23 His Honour discussed a number of cases, and a number of relationships, in which the obligation of equitable contribution had been analysed and applied. He said at 300 [41] that in general, the essential foundation for establishing an entitlement to contribution was that there be "a common interest and a common burden." His Honour said that "[t]he nature of the relevant interest and burden is such that the discharge of the burden by one party constitutes a benefit to the other or others which, in fairness, the law cannot countenance them keeping". 24 Mr Donaldson submitted that the effect of the deed of release was that Mr Thomas had no liability (either from the date of the deed or from the date the consent orders were made; it does not matter) to REL. Thus, he submitted, if Messrs Carr and Purves were found liable to REL, and made payment, Mr Thomas would receive no benefit because the payment would not - could not - satisfy pro tanto any obligation that he had, or has to REL. 25 On that deceptively simple basis, Mr Donaldson founded the application for summary dismissal. 26 Mr Martin pointed to the high threshold test for a summary dismissal claim: referring to the oft cited statement of Barwick CJ in General Steel Industries Inc v the Commissioner for Railways (NSW) (1964) 112 CLR 125 at 130. He accepted, however, that if what were involved was a question of law, and that nothing relevant for the resolution of that question could come up through the processes of pretrial preparation, or in the course of the hearing, then a resolution of the question of law could ground an order for summary dismissal. Mr Martin did reserve the question where the law was contentious or unsettled, but did not I think suggest that this was such a case. 27 In dealing with the substance of the application, Mr Martin submitted that the deed of release should not be construed as having effected a release of Mr Thomas. He relied on the principle established, in relation to cases of joint or joint and several liability, that where it appears from the terms of the release of co-obligors that the releasor intended not to release its rights against the other co-obligors then the release would be construed only as a covenant not to sue. 28 The principle is well established, even if the jurisprudence that has led to its formulation is based on the need to avoid the consequences of a rather peculiar doctrine of the common law that the release of one of a number of joint and several debtors releases all joint and several debtors. The principle was discussed by McClelland CJ in Eq in Dorgal Holdings Pty Limited v Buckley (1996) 22 ACSR 164 at 167. That was a case where three directors of an insolvent company were sued by a creditor of the company, in reliance on what was then s 592 of the Corporations Law. The plaintiff and one of the directors entered into a deed of release, whereby that director agreed to pay a certain amount, and the plaintiff agreed to release that director completely. Orders were in due course made giving effect to the compromise. The deed contained an explicit reservation of rights against the other directors. 29 McClelland CJ in Eq referred at 166 to the general rule of the common law. He said that whether or not the rule was well founded was not an open question, as it had been expressly applied by the High Court of Australia in Walker v Bowry (1924) 35 CLR 48. 30 However, his Honour pointed out, there was a qualification to the general rule. That qualification was stated in cases such as Re EWA Limited [1902] 2 KB 642 and Commercial Bank of Tasmania v Jones [1893] AC 313. His Honour stated that the qualification was to the effect that if, on the true construction of the release, that which purports to be a release was intended not to operate as a release of the whole obligation then it will be treated as a covenant not to sue rather than a release. The question of construction could be informed (for example) by a reservation of rights against those who are said to be liable and who were not released. 31 The existence (and binding nature) of the common law rule, and of the exception to which McClelland CJ in Eq referred, cannot be doubted. The question is whether they have any relevance in the present case. 32 There is a separate question, which Mr Donaldson accepts cannot be resolved on this application, as to whether or not the alleged liability of Messrs Carr, Purves and Thomas to REL is joint, joint and several, or several. So far as the proposed amended cross-claim statement can be understood on the point, it does not appear to suggest joint or joint and several liability. Nor does it appear to suggest that the alleged liabilities to REL arose out of some common undertaking or venture. But in circumstances where the point was not addressed, and where clearly its resolution would require findings of fact, I do no more than record my doubt that it would be in truth a joint liability. 33 Mr Donaldson submitted that this did not matter, because even if the deed of release were to be construed merely as a covenant to sue, the relevant effect was the same: Mr Thomas had no liability to REL that could form the subject of a common burden to the satisfaction which Messrs Carr and Purves might contribute pursuant to any judgment against them. 34 In many ways, I think, the submissions for the parties addressed different issues. However, as I see it, the real issue raised by the application for summary dismissal is whether, on the proper construction of the deed of release (and assuming, for present purposes, that the release purportedly given may be no more than a covenant not to sue) Mr Thomas can have any liability to REL in respect of which he might be liable in equity to contribute to any payment made by Messrs Carr and Purves to REL. 35 The basis on which equitable contribution is ordered, as the cases to which I have referred make clear, is that a payment by one person under a common obligation with others, which has the effect of benefiting those others by diminishing the common obligation, ought be shared among them. It is fundamental to the existence of a right to equitable contribution that there be a common obligation to meet the one burden, or make good the one loss. If there is no common obligation then there is nothing on which the principle of equitable contribution can operate. 36 Further, as the decision in Albion makes clear, it does not matter whether the common obligation is joint, joint and several or several. In cases between insurers (of which Albion was an example) the obligation will ordinarily be several. In other cases (including some of those discussed by McHugh J in Burke) the obligation will be joint, or joint and several. It has not been suggested that the right to equitable contribution depends on a classification of the nature of the common obligation as joint, joint and several, or several. 37 In those circumstances, it seems to me to be inevitable that the effect of the deed of release, even reading it as no more than a covenant not to sue, is that since the deed was executed or since the joint orders were made (and I repeat that it does not matter which date is chosen) Mr Thomas had no liability to REL which could be enforced against him by REL in respect of the subject matter of the proceedings. 38 It follows that if REL succeeds against Messrs Carr and Purves, and they pay REL, Mr Thomas will receive no benefit. He will receive no benefit because no contingent or for that matter crystallised) liability that he has to REL will have been satisfied, either completely or pro tanto, by the payment. That is because he has no such liability. 39 Thus, I think, the effect of the deed of release is to take away a fundamental and essential element that Messrs Carr and Purves must prove if they are to make good their claim for equitable contribution. They cannot recover equitable contribution from Mr Thomas because he has no common obligation with them to REL. I am not sure that it matters that the date of the deed preceded the date on which the cross-claim was brought; certainly this cannot detract from the strength of Mr Thomas' position. 40 I therefore conclude that the claim for summary dismissal has been substantiated. In each proceeding, I make an order in accordance with prayer 1 of the notice of motion filed for Mr Thomas on 30 July 2008. I will hear the parties on costs. 41 I order the cross-claimants to pay Mr Thomas' costs of the proceedings including the notices of motion.

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