[2009] HCA 27
Banque Commercial SA (En Liquidation) v Akhil Holdings Ltd (1990) 169 CLR 279
[1990] HCA 11
Cavasinni v Cavasinni (No 2) [2007] NSWSC 957
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No 2) [1998] NSWSC 578
(1998) 29 ACSR 290
Sharkey v Nissi [2015] NSWSC 1266
Vale v Sutherland (2009) 137 CLR 638
Source
Original judgment source is linked above.
Catchwords
[2009] HCA 27
Banque Commercial SA (En Liquidation) v Akhil Holdings Ltd (1990) 169 CLR 279[1990] HCA 11
Cavasinni v Cavasinni (No 2) [2007] NSWSC 957
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No 2) [1998] NSWSC 578(1998) 29 ACSR 290
Sharkey v Nissi [2015] NSWSC 1266
Vale v Sutherland (2009) 137 CLR 638
Judgment (2 paragraphs)
[1]
Judgment
The principal hearing in this matter took place on 16 to 20 February and 9 March 2015, and delivered judgment on 2 September 2015: Sharkey v Nissi [2015] NSWSC 1266.
By notice of motion filed on 16 June 2016, Ms Nissi seeks the leave of the court to amend the cross claim that she filed on 10 March 2014, to claim new relief against Sharkey Family Trust Pty Ltd, as trustee of the Sharkey Family Trust (the Trustee).
I heard the notice of motion on 10 August 2016. I appointed 19 August 2016 as the date upon which I would deliver judgment. When the matter was called for judgment, counsel for Ms Nissi informed the court that he had come to appreciate that there was material on the court's file relevant to the application, which neither party had brought to the attention of the court on the hearing of the notice of motion.
I withheld delivery of judgment, and gave the parties time to deliver further submissions on the new issue. The Trustee did so on 23 August 2016, and Ms Nissi on 24 August 2016.
I will explain the new issue below in the context in which it arises.
While the application to amend has been made after the delivery of reasons for judgment, judgment has not yet formally been entered in the court's computerised court record system: see Uniform Civil Procedure Rules 2005 (NSW) r 36.11. It is not necessary to record the unusual reasons why judgment has not yet formally been entered.
The relevant facts and background are adequately set out in the primary reasons for judgment.
It is sufficient to note that I found that, when the residential property called Number 98 in the earlier judgment was purchased by Mr Sharkey, by way of a contract in the name of Ms Nissi as purchaser, and when Mr Sharkey caused Number 98 to be transferred into the name of Ms Nissi, as registered proprietor, he did so with the intention of making a gift of Number 98 to Ms Nissi, and that intention was effective.
The question now before the court arises out of the fact that, on 10 December 2007, which was the same day as the settlement of the purchase of Number 98, Ms Nissi as registered proprietor, executed a mortgage in favour of the St George Bank, to secure a loan made to the Trustee. Effectively, Mr Sharkey paid the purchase price for Number 98 from his own funds, and at the same time, Ms Nissi granted a mortgage over Number 98 to secure a loan to the Trustee, to be used for the commercial purposes of the Trust.
By her amended first cross claim, Ms Nissi claimed relief including the following:
Claim for subrogation
19. By reason of [Ms Nissi's] discharge of the St George Bank mortgage, [Ms Nissi] is subrogated to St George Bank under that mortgage given by [the Trustee]…
20. Under that mortgage, [the Trustee] is obliged to pay the discharge sum paid by [Ms Nissi] to discharge the mortgage, being the sum of $524,888.63.
21. In the premises, [the Trustee] is liable to pay [Ms Nissi] the sum of $524,888.63 together with interest.
While it was true that Ms Nissi had paid out the mortgage debt, this aspect of the cross claim was drawn upon the misconception that the Trustee had granted the mortgage, when in fact Ms Nissi had.
Ms Nissi's legal advisers apparently realised, after judgment had been delivered, that Ms Nissi, having paid out her third party mortgage granted to secure the debt owed by the Trustee, should have made a claim against the Trustee that it indemnify her, as the effective guarantor of the debt, rather than her being subrogated to a mortgage, when no such mortgage had been granted by the Trustee.
By its defence to the cross claim, the Trustee admitted that Ms Nissi had repaid the mortgage debt, but relevantly denied in par 19(b)(ii) that it granted the mortgage to the Bank.
This denial apparently did not trigger in Ms Nissi's legal representatives, a realisation that the cross claim misguidedly sought subrogation, when it should have sought an indemnity.
In par 80 of his written outline of submissions, delivered before the commencement of the primary hearing, counsel for Mr Sharkey and the Trustee stated in relation to Ms Nissi's claim to a right of subrogation: "However, that mortgage was granted by [Ms Nissi] as the registered owner of No 98. There are no rights of subrogation against [the Trustee] pursuant to that mortgage". The outline of submissions otherwise made it clear that counsel accepted that the Trustee, as borrower, was liable to repay the debt.
In these circumstances, Ms Nissi sought leave to amend her cross claim to make the following claim:
19. By reason of [Ms Nissi's] repayment of [the Trustee's] debt secured by the St George Bank mortgage, [Ms Nissi] is entitled to be indemnified in respect of the debt by [the Trustee]…
20. [The Trustee] is obliged to pay the moneys paid by [Ms Nissi], as guarantor, to repay [the Trustee's] debt to St George Bank, being the sum of $524,888.63.
21. In the premises, [the Trustee] is liable to pay [Ms Nissi] the sum of $524,888.63, together with interest.
Counsel for Ms Nissi, on the hearing of the notice of motion, pointed out that, by the Trustee's solicitors' request for further and better particulars dated 14 March 2014, the solicitors asked: "What facts, matters and circumstances give rise to your client's assertion that your client's purported discharge of the St George mortgage entitles her to a right of subrogation?"
Ms Nissi's solicitors' response to this request was simply: "Our client, as guarantor, discharged the debt owed by your client".
The solicitors did not go further to say that Ms Nissi's claim was in fact one for an indemnity. Although the response was consistent with the real claim being one for an indemnity, the response was given as an explanation for the subrogation claim. I do not accept that the response in fact put the Trustee's legal advisers on notice that Ms Nissi had changed her claim, or that it de facto amended the cross claim.
The additional issue raised by Ms Nissi concerns an aspect of the agreed statement of issues prepared on behalf of the parties, and delivered to the court before the commencement of the original hearing. Paragraph 7 stated the following issue:
Is Sharkey Family Trust Pty Ltd liable to pay Ms Nissi the amount paid by her to discharge the debt owed by that company to St George?
As counsel for Ms Nissi said in his further submissions, the issue expressed in this way simply posed the question of whether the Trustee was liable to pay to Ms Nissi the amount that she paid to the bank to pay out the mortgage over Number 98. It was entirely neutral as to the basis upon which that obligation arose. It is at least as apt to describe an obligation to indemnify Ms Nissi, as the effective guarantor of the loan granted by the bank to the Trustee on the security of the mortgage granted by Ms Nissi over Number 98, as it is to describe any obligation of the Trustee to Ms Nissi under the mortgage after it was subrogated to Ms Nissi (assuming subrogation was possible in the circumstances).
The point made by counsel for Ms Nissi is that the issue stated in par 7 was capable of supporting a claim by Ms Nissi that she was entitled to be indemnified by the Trustee; and the evidence justifies the court granting the relief sought. Counsel submitted that cases are determined on the evidence, not the pleadings, so that it is not decisive that Ms Nissi's amended first cross claim sought relief based upon subrogation, rather than an indemnity: see Vale v Sutherland (2009) 137 CLR 638; [2009] HCA 26 at [41], approving Banque Commercial SA (En Liquidation) v Akhil Holdings Ltd (1990) 169 CLR 279; [1990] HCA 11 per Dawson J at 296-7.
Counsel for Mr Sharkey responded by saying, first, that par 7 makes no reference to a claim in indemnity. Secondly, it is wholly consistent with a claim made for subrogation. Thirdly, the agreed statement of issues must be read in the context of the pleadings. Fourthly, the agreed statement of issues was not intended to override the pleadings. Fifthly, the Trustee's outline of submissions, at [80], responded to the pleaded subrogation claim, and it was not the intention of the Trustee's legal advisers to argue an indemnity claim against the Trustee. Finally, the written submissions served by Ms Nissi after the original hearing confirmed, by par [30], that the claim against the Trustee was on the basis of subrogation.
The principle upon which Ms Nissi relies, as taken from the decision of the High Court in Vale v Sutherland (above), should be understood in its context, which is as follows (footnotes omitted):
[38] It is true that, as was noted by Lindgren J, nothing in the defence amounted to a "specific denial" or "a statement of specific non-admission", as required by the applicable court rules (O 11 r 13(2) of the Federal Court Rules (Cth)) in order to avoid a deemed admission.
[39] Nevertheless, the hearing was conducted on the basis that the value of the properties at the time of the transfer which was stated in the notice was in issue. Counsel for Mr Vale made it clear in his opening address that Mr Vale was challenging the amount stated in the notice:
… the notice on its face is wrong. It's wrong (a) as to amount and (b) as to any evidentiary basis upon which you can substantiate what the value is.
[40] It is also clear from his closing address outlined above that value was in issue. Furthermore, the trustee was cross-examined in relation to the value of the properties given in the notice. Specifically, he was taken through the ramifications of the 1999 valuation, for example:
Then, on page 13, this is in respect of the lot 18 valuation, it values the property, with improvements, at $130,000? - Yes, it does.
Counsel for the trustee did not object to this line of questioning. The evidence of the disparity between the valuations had been in the trustee's possession and was in evidence.
[41] In his written submissions to this court the trustee contends that the determination of whether Mr Vale disputed the value asserted in the notice "depends entirely" upon whether in his defence he made a "specific denial" or a statement of "specific non-admission" in accordance with the rules, as outlined above. However, in Banque Commerciale SA (En Liquidation) v Akhil Holdings Ltd Dawson J noted:
But modern pleadings have never imposed so rigid a framework that if evidence which raises fresh issues is admitted without objection at trial, the case is to be decided upon a basis which does not embrace the real controversy between the parties… cases are determined on the evidence, not the pleadings.
Thus, whatever view is taken of the range of issues tendered by the pleadings, it was open to Lloyd-Jones FM to decide the case as he did. No unfairness results to the trustee from such a result.
While I am bound by the observation made by Dawson J, approved by the High Court, to the effect that cases are to be determined on the evidence, not the pleadings, that statement must be understood in its context, whereby it was sufficiently clear that the parties had fought the case on a particular basis, which may not strictly have been raised by the pleadings, and there was no unfairness in the court deciding the case on the basis of the issues as fought, and the evidence relevant to the determination of those issues.
I accept the submission made by counsel for the Trustee that he did not fight the case on the basis that the issue was whether the Trustee was liable to indemnify Ms Nissi. In retrospect, Ms Nissi's misconception may seem obvious. However, the Trustee properly points to the fact (as reflected in his final submission referred to above), that Ms Nissi's misconception survived into her final written submissions.
The position now taken by the Trustee's counsel accords with my recollection and understanding of the way in which the hearing was conducted by the parties. Very little attention was given to Ms Nissi's claim against the Trustee, and on the Trustee's part, that is likely to be because the Trustee saw Ms Nissi's claim to be misconceived; as was made clear in par 80 of counsel's written outline of submissions.
I do not, however, based my determination of Ms Nissi's notice of motion solely on the basis that the issue that she now wishes to raise was not raised by her pleadings.
More significant than the pleading issue is the circumstance, as I will now explain, that I consider the new claim that Ms Nissi now wishes to make to be fundamentally inconsistent with the basis upon which I determined her claim against Mr Sharkey in her favour. If I allowed the amendment without any further evidence being tendered, I would be obliged to dismiss the amended claim.
Further, it would be necessary for me to allow the Trustee to amend its defence to Ms Nissi's cross claim, and for me to receive further evidence at a new hearing to deal with Ms Nissi's new claim. Contrary to Ms Nissi's submission, I do not consider her entitlement to an indemnity from the Trustee to follow necessarily and inescapably from the existing evidence. The Trustee would be entitled to contest the issue of whether in all of the circumstances the Trustee, or Ms Nissi, was intended to be primarily liable to the bank.
I will now explain why it is that I do not accept that the automatic legal outcome of Ms Nissi having repaid the bank to discharge her mortgage is that she is entitled to an indemnity from the Trustee.
It should be recorded that, in the principal judgment, I simply stated at [408]: "Ms Nissi's claim against the second cross defendant, the company that I have called the Trustee, fails".
As counsel for Ms Nissi pointed out, I did not explain in any detail, or even at all, in the principal judgment, why I made that finding.
In fact, Ms Nissi's cross claim against the Trustee was doomed to fail, as pleaded, because it was misconceived. However, the primary reason why I did not offer any detailed reasons for my finding was that, as counsel on the hearing of the notice of motion accepted, neither of them had made any submission concerning the cross claim against the Trustee (save for the observations made on behalf of the Trustee in the outline opening submissions that I have set out above).
Ms Nissi sought leave to amend her cross claim in the belief that, once the conceptual error in how her claim had been framed was corrected, it would follow automatically that judgment would be made in her favour on the cross claim against the Trustee, because there was no possible answer to her claim that, as the guarantor by way of a third party mortgage of the debt owed by the Trustee, when she was forced to repay the debt to avoid the bank exercising its rights over Number 98 as mortgagee, she was entitled to be indemnified by the Trustee.
Indeed, one of the primary arguments Ms Nissi put for being given leave to amend her cross claim, after the delivery of judgment in the proceedings, was that it would not be necessary for any further evidence to be tendered in the proceedings, and she would not seek to do so.
Faced with the application made by Ms Nissi on this basis, I felt that it was necessary to make a number of observations at the hearing of the notice of motion concerning the significance of a number of parts of the primary judgment. It is, of course, undesirable for a trial judge to be put in the position, after delivery of judgment, of having to comment upon the reasons, for the purpose of resolving an application made by a party after judgment. However, as I felt that Ms Nissi was proceeding upon a misconception, it was necessary for me to explain the significance of a number of aspects of the judgment.
I referred the parties in particular to [337] to [343] and [380] in my principal judgment. I will not set out the contents of those paragraphs.
The starting point in understanding the significance of those paragraphs is that, as Ms Nissi's cross claim did not claim an indemnity from the Trustee, issues that the Trustee may otherwise have raised in its defence have not been addressed. The Trustee did not plead any response to Ms Nissi's claim for an indemnity, because no such claim was made.
The primary forensic issue in the proceedings was whether, when Mr Sharkey caused the title to Number 98 to be placed in Ms Nissi's name, he intended that she would be the beneficial owner of the property.
One, of many, pieces of evidence that had a significant bearing on the probability that Mr Sharkey expressed an intention to make a gift of Number 98 to Ms Nissi was the circumstance that she readily, and without question, on the day of completion, granted a mortgage over the property to secure the debt of the Trustee. That mortgage was given in circumstances where Ms Nissi had no control over the amount borrowed, or re-borrowed, or repayment of the debt.
Mr Sharkey's submission was that the explanation of Ms Nissi's readiness to grant a mortgage over Number 98 was that she appreciated that Mr Sharkey was the true beneficial owner of the property.
Ms Nissi denied that proposition. What then was the explanation for Ms Nissi's readiness to grant a mortgage over Number 98, when her case was that at all times she believed that she was the sole beneficial owner?
This was a significant issue in the proceedings. If the court was to find that the evidence justified the conclusion that Mr Sharkey made an express gift of Number 98 to Ms Nissi, and she accordingly believed that she was the owner, what was the explanation consistent with that belief as to why she granted the mortgage, which put her equity in the property in jeopardy in a manner that was beyond her control? Consistency of reasoning required that this issue be addressed.
It was addressed in the paragraphs of the judgment that I have identified above, particularly [342] and [380].
In essence, I found that the overall explanation for the conduct of the parties was that Mr Sharkey had made the gift of Number 98 to Ms Nissi out of love and affection, in the belief and the hope that their relationship would continue indefinitely; and that on the same basis, Ms Nissi had granted a mortgage over the property, for the benefit of Mr Sharkey's family trust company. As I said at [380]:
… However, the better view is that, as Ms Nissi agreed to encumber her title to Number 98 with a mortgage to benefit Mr Sharkey's trust, she in effect permitted him to have the benefit of the existence of that security, in much the same circumstances and effect as Mr Sharkey had put the title to Number 98 into Ms Nissi's sole name.
Thus, the resolution of the difficulties in determining the case that most closely fitted all relevant objective circumstances was that Mr Sharkey and Ms Nissi had both acted out of love and affection, with the objective intention that the other would enjoy beneficially the consequences of their actions.
Although the observations I made in these paragraphs of my judgment do not stand as material findings of fact on the issue (because the pleadings did not raise the issue), the observations made would logically go a long way to supporting a defence by the Trustee to Ms Nissi's amended cross claim (if leave were granted), to the effect that Ms Nissi's third party mortgage was granted in circumstances where it was not intended that Ms Nissi's obligation to the Bank was subordinate to the obligation of the Trustee.
While the ordinary position is that the obligation of the guarantor is subordinate to the primary obligation of the debtor, that position may need to give way in cases where the evidence establishes that the arrangement between the parties was that the guarantor would not seek to be indemnified by the debtor.
In these circumstances, I explained to the parties that a number of consequences may follow. First, if I gave leave to Ms Nissi to make the amendment she wished to make to her cross claim, and no further evidence was led, consistency with the reasons already expressed in the primary judgment would require me to dismiss the cross claim, subject to the effect of any submissions to the contrary.
In any event, if I gave the leave sought, the Trustee would have to be given the opportunity to file a defence, and that defence could have been based on the observations in the judgment that I have discussed above.
That course would require the parties to be given the opportunity to serve further evidence, and there would need to be a further hearing.
As I have made negative findings in the primary judgment concerning the credibility of Mr Sharkey's evidence, a difficult question would arise concerning the appropriateness of my being the trial judge on any further hearing (on the one hand), and the obvious inconvenience of my not being the trial judge (on the other).
For these reasons, Ms Nissi's expectation that she could benefit from being granted leave to amend her cross claim, on the basis that no further evidence would be necessary, was misguided.
It is obvious that extremely difficult barriers are placed in the way of Ms Nissi's application for leave to amend by the considerations addressed by the High Court in Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175. Counsel for Ms Nissi quite properly conceded the significance of these difficulties. He did not withdraw Ms Nissi's application for leave to amend her cross claim, but he put no further submissions in support of it than he had already done so in his written submissions.
I am satisfied that it is not appropriate for the court to grant the leave sought by Ms Nissi in her notice of motion.
It is now too late for this application to be made. Mr Sharkey and the Trustee should not, at this stage, be made to suffer further costs, anxiety and delay as a result of the amendment being allowed. No explanation has been given for the original error, or the failure to correct it earlier, save for the acknowledgement that an error was made. Had Ms Nissi's legal advisers considered the terms of the Trustee's defence, the Trustee's request for particulars of the subrogation claim, and the particulars given by them more carefully, they would have realised and corrected the error.
If I had given leave to amend, on the basis that no further evidence was to be received, I am satisfied that consistency with the reasoning in my primary judgment would have required me to dismiss the cross claim as amended. My finding as to the reason why Ms Nissi granted the mortgage was a crucial step in my finding that Mr Sharkey gave Number 98 to her, so that I could not find that he made the gift to her without also finding that she made the gift of the mortgage, so to speak, to him.
It is clear that the Trustee would have to be given an opportunity to file a defence to the amended cross claim, and that would lead to substantial further delay and costs, and give rise to questions that should not have to be faced, as to who should conduct the trial of the amended cross claim.
Finally, while the reasoning in my primary judgment stands, the likelihood that the prosecution of the amended cross claim will yield the benefits sought by Ms Nissi is too small to justify the parties being put to all of the delay, expense and anxiety.
Counsel for Ms Nissi then sought to put her claim on an alternative basis, which assumes that the court would not give her leave to amend her cross claim.
The alternative basis depended upon the submission that the parties in fact fought the issue of whether the Trustee was liable to reimburse Ms Nissi for the amount of the debt repaid by her on the basis that her claim was in reality a claim for an indemnity, and not a claim to be subrogated to any mortgage.
Counsel submitted that the finding that I made at [408] to the effect that the cross claim failed was wrong, and as judgment has not been entered, the court is entitled to, and should in this instance, correct the judgment: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No 2) [1998] NSWSC 578; (1998) 29 ACSR 290 at 293; and Cavasinni v Cavasinni (No 2) [2007] NSWSC 957.
I accept that those authorities would permit me to change the primary judgment, if I was satisfied that I had made an error. I am not so satisfied.
Counsel for Mr Sharkey and the Trustee assured me that he had fought the case on the basis that Ms Nissi's claim was for subrogation - a claim that was doomed - and he had not proceeded on the basis that a claim for an indemnity was being made against the Trustee. I accept counsel's assurance. It is consistent with my view of the way that the case was fought - particularly the fact that neither counsel said anything about Ms Nissi's claim against the Trustee in submissions.
I am satisfied that it is likely that, if Ms Nissi had amended her cross claim in a timely way, so that the Trustee's legal advisers had come to appreciate that a claim for an indemnity was being made against the Trustee, it would have been reasonably obvious that the Trustee should claim in its defence, by parity of reasoning with Ms Nissi's claim that Mr Sharkey made a gift of Number 98 to Ms Nissi, that she in effect made a gift of the mortgage back to him.
I reached the result that I did in [408] on what I believe was the correct appreciation that the parties had not made submissions to me because Ms Nissi's claim had to fail on the basis upon which it was pleaded.
I therefore make the following orders:
1. The notice of motion filed by the defendant/cross claimant on 16 June 2016 is dismissed.
2. The defendant/cross claimant is ordered to pay the costs of the plaintiff and the cross defendants of the notice of motion.
[2]
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Decision last updated: 10 November 2016