Street, S. & Ors v Retravision (NSW) Pty Ltd & Ors [1995] FCA 247

CATCHWORDS

CORPORATIONS - Corporations Law, s. 592 - claim by guarantors of the debts of a company to render the creditor jointly and severally liable for those debts - distinction between imposition of joint and several liability and the bringing of proceedings for the recovery of debts from persons rendered so liable - common law rule against suing self - "any person who ... took part in the management of the company" construed to exclude creditors to whom the company incurred debt - right to contribution - liability for debts under s. 592 not co-ordinate with liability as a guarantor for same debts - right to indemnity.

EQUITY - doctrine of contribution - meaning of "co-ordinate liability" - whether primary and secondary liabilities sufficient - source of liabilities in statute and contract.

Corporations Law, ss. 592, 594

Corporations Act 1989, s. 56

Federal Court of Australia Act, ss. 21, 23

Corporations (New South Wales) Act (NSW), s. 42

Spika Trading Pty Ltd v Harrison (1990) 19 NSWLR 211

Cooper Brookes (Wollongong) Pty Ltd v The Commissioner of Taxation of the Commonwealth of Australia (1981) 147 CLR 297

Armstrong v Commissioner of Stamp Duties [1967] 2 NSWR 63

Watt v 3M Australia Pty Limited [1984] 3 NSWLR 671

Acton Engineering Pty Ltd v Campbell (1991) 31 FCR 1

The Commonwealth v Evans Deakin Industries Ltd (1986) 161 CLR 254

Capita Financial Group Ltd v Rothwells Ltd (1992) 30 NSWLR 619

Dering v Earl of Winchelsea (1787) 1 Cox Eq Cas 318; 29 ER 1184

Craythorne v Swinburne (1807) 14 Ves Jun 160; 33 ER 482

In re Denton's Estate [1904] 2 Ch 178

Scholefield Goodman & Sons Ltd v Zyngier [1986] AC 562

A.M. Spicer & Son Pty Ltd (In Liquidation) v Spicer (1931) 47 CLR 151

Firma C-Trade SA v Newcastle Protection & Indemnity Association [1991] 2 AC 1

Abigroup Ltd v Abignano (1992) 39 FCR 74

"Rowlatt on the Law of Principal and Surety", 4th ed., 1982, p. 134

IN THE MATTER OF TERRY'S SOUND LOUNGE PTY LTD

(IN LIQUIDATION) (RECEIVER AND MANAGER APPOINTED)

Australian Company Number: 001300812

STANLEY STREET & ORS v RETRAVISION (NSW) PTY LIMITED & ORS

No. NG3015 of 1995

BEFORE: GUMMOW J.

PLACE: SYDNEY.

DATE: 11 APRIL 1995.

IN THE FEDERAL COURT OF AUSTRALIA)

NEW SOUTH WALES DISTRICT REGISTRY) No. NG3015 of 1995

GENERAL DIVISION )

IN THE MATTER OF TERRY'S SOUND LOUNGE PTY LTD

(IN LIQUIDATION) (RECEIVER AND MANAGER APPOINTED)

Australian Company Number: 001300812

BETWEEN: STANLEY STREET

First Applicant

JUNE SHEILA STREET

Second Applicant

FRANCIS TERENCE HALLS

Third Applicant

COLLEEN MAY HALLS

Fourth Applicant

AND: RETRAVISION (NSW) PTY LIMITED

First Respondent

KEN MACAULEY

Second Respondent

BRIAN SCOTT

Third Respondent

BEFORE: GUMMOW J.

PLACE: SYDNEY.

DATE: 11 APRIL 1995.

MINUTE OF ORDERS

THE COURT ORDERS THAT:

(1) There be answered in the negative the question for separate determination pursuant to the order made on 2 March 1995, namely:

"Upon the admission by the First and Second Respondents solely for this purpose of the facts alleged in the Amended Statement of Claim and upon the evidence being Exhibits A and B and upon the agreed fact that the debt referred to in para. 4 of the Amended Statement of Claim arises under a judgment of the Supreme Court of New South Wales on 20 December 1994, are the Applicants entitled to declarations in or to the effect of paras. 1, 2 and 3 of the Amended Application?"

(2) The applicants pay the costs of the respondents of the separate question, including the costs of proceeding on 8 February 1995 and 2 March 1995.

(3) The balance of the proceeding is stood over for directions at a date to be fixed.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA)

NEW SOUTH WALES DISTRICT REGISTRY) No. NG3015 of 1995

GENERAL DIVISION )

IN THE MATTER OF TERRY'S SOUND LOUNGE PTY LTD

(IN LIQUIDATION) (RECEIVER AND MANAGER APPOINTED)

Australian Company Number: 001300812

BETWEEN: STANLEY STREET

First Applicant

JUNE SHEILA STREET

Second Applicant

FRANCIS TERENCE HALLS

Third Applicant

COLLEEN MAY HALLS

Fourth Applicant

AND: RETRAVISION (NSW) PTY LIMITED

First Respondent

KEN MACAULEY

Second Respondent

BRIAN SCOTT

Third Respondent

BEFORE: GUMMOW J.

PLACE: SYDNEY.

DATE: 11 APRIL 1995.

REASONS FOR JUDGMENT

These are the reasons for judgment upon a question for separate determination pursuant to an order made under O.29 r.2 on 2 March 1995. The question is posed upon the assumption of certain facts. To these I now turn.

In their application, the applicants' claim to relief is said to be made pursuant to s. 592 of the Corporations Law ("the Law"). They also seek certain ancillary relief under ss. 21 and 23 of the Federal Court of Australia Act 1976 ("the Federal Court Act"). Section 592 largely follows the text of s. 556 of the previous Code. However, s. 592 has now been superseded by quite different legislation which commenced on 23 June 1993; see Re New World Alliance Pty Limited; Sycotex Pty Ltd v Baseler (1994) 51 FCR 425 at 432-3, where the relevant provisions bringing about the change are set out. It is accepted by both sides that s. 592 continues to govern the present dispute.

On 20 December 1994, the Supreme Court of New South Wales ordered that there be judgment in favour of the present first respondent ("Retravision") against each of the four present applicants in the sum of $2,817,867.88. The judgments were upon guarantees. Terry's Sound Lounge Pty Limited ("Terry's") was a member of Retravision, a cooperative which purchased electrical goods on behalf of its members. Terry's was incorporated in the State of New South Wales. It went into liquidation owing a substantial amount to Retravision. On 24 August 1994, by order made pursuant to s. 502 of the Law, the Supreme Court of New South Wales appointed Mr G.F.C. Thomas liquidator of Terry's.

Written guarantees of the indebtedness of Terry's to Retravision were given to Retravision by Mrs Street and Mr and Mrs Halls (the second, third and fourth applicants) by instrument dated 19 September 1976, and by Mr Street (the first applicant) by instrument dated 14 September 1983. Mrs Halls is the daughter of Mr and Mrs Street. The instruments are relevantly in the same terms. It is common ground that as at 20 December 1994, each applicant was indebted to Retravision in the sum of $2,817,867.88, the amount of the Supreme Court judgment upon the guarantees. That judgment remains unsatisfied.

The proceeding in this Court was instituted by application filed 11 January 1995. The liquidator of Terry's is not a party. It is agreed that s. 592 cannot apply in respect of events occurring after 23 June 1993. Between 18 June 1992 and 23 June 1993 Terry's incurred debts to Retravision of $2,134,375. Retravision, a respondent, is not an applicant in these proceedings. It seeks no order in its favour under s. 592 in respect of these debts. Retravision's counsel disavowed any intention on his client's part to take any such step under s. 592, saying that it had preferred to pursue to judgment its rights on the guarantees. The significance of this will become apparent.

The fourth applicant, Mrs Halls, was a director of Terry's. In the period between 17 June 1992 and 23 June 1993, she, Retravision and the other two respondents, Mr Macauley and Mr Scott, took part in the management of Terry's. The respondents did not permit Terry's to pay any creditors other than Retravision. Further, at all material times, on and from 17 June 1992, there were reasonable grounds to expect that Terry's would not be able to pay all its debts as and when they became due. Throughout this period, Terry's was trading at a loss and was insolvent.

The second respondent, Mr Macauley, is finance director of Retravision, and the third respondent, Mr Scott, is a chartered accountant who was engaged by Retravision as an external consultant to report on the affairs of Terry's.

The above facts are assumed solely for the purpose of determining the question isolated by the order under O.29 r.2. Upon the basis of those facts, the applicants claim:

(i) a declaration that the respondents and the fourth applicant are jointly and severally liable pursuant to s. 592 of the Law for the debts totalling $2,134,375.33 incurred by Terry's Sound Lounge to Retravision,

(ii) a declaration that the applicants have a right of contribution against the respondents in respect of those debts, and

(iii) alternatively to (ii), a declaration that respondents are liable to indemnify the applicants in that sum.

The question for a separate decision is whether, upon the agreed facts, the applicants are entitled to declarations in or to the above effect.

Retravision has shifted to the applicants the burden it carried of the debts owed to it by Terry's by recovery of judgment on the applicant's guarantees. The practical effect of the relief claimed in these proceedings, particularly (iii), would be to return that burden to Retravision. An application for a declaration that the applicants are entitled to set off $2,134,375.33 against any amount owing by them to Retravision, including the judgment debt on the guarantees, was not pressed.

Before turning to the text of s. 592 and explaining the way in which it is sought to be relied upon in the present case by the applicants, I should refer to a textual point concerning s. 594. This states:

"594. Except as provided by subsection 592 (4) nothing in subsection 592 (1) or 593 (1) or (2) affects any rights of a person to indemnity, subrogation or contribution."

Section 594 follows the text of s. 558 of the Code save for the replacement of "556" by "592" and "557" by "593". However, it was accepted before me that the identification in s. 594 of "subsection 592 (4)" whilst it made sense when it appeared as "subsection 556 (4)" in the old s. 558, now would achieve a nonsense. This was the consequence of re-numbering of sub-sections in s. 592 so that they no longer correspond to those in the old s. 556. The result is a clear case of an error by the draftsman which requires a "realistic solution", to adopt the phrase of Gibbs CJ in Cooper Brookes (Wollongong) Pty Ltd v The Commissioner of Taxation of the Commonwealth of Australia (1981) 147 CLR 297 at 304-5. Accordingly, I will deal with the text of s. 594 as it would stand after the correction of the manifest error by inserting "592 (5)" in place of "592 (4)".

Sub-sections 592 (1) - (5) are as follows:

"592(1) Where:

(a) a company has incurred a debt before the commencement of Part 5.7B;

(b) immediately before the time when the debt was incurred:

(i) there were reasonable grounds to expect that the company will not be able to pay all its debts as and when they become due; or

(ii)there were reasonable grounds to expect that, if the company incurs the debt, it will not be able to pay all its debts as and when they become due; and

(c) the company was, at the time when the debt was incurred, or becomes at a later time, a company to which this section applies;

any person who was a director of the company, or took part in the management of the company, at the time when the debt was incurred contravenes this subsection and the company and that person or, if there are 2 or more such persons, those persons are jointly and severally liable for the payment of the debt.

(2) In any proceedings against a person under subsection (1), it is a defence if it is proved:

(a) that the debt was incurred without the person's express or implied authority or consent; or

(b) that at the time when the debt was incurred, the person did not have reasonable cause to expect:

(i) that the company would not be able to pay all its debts as and when they became due; or

(ii)that, if the company incurred that debt, it would not be able to pay all its debts as and when they became due.

(3) Proceedings may be brought under subsection (1) for the recovery of a debt whether or not the person against whom the proceedings are brought, or any other person, has been convicted of an offence under subsection (1) in respect of the incurring of that debt.

(4) In proceedings brought under subsection (1) for the recovery of a debt, the liability of a person under that subsection in respect of the debt may be established on the balance of probabilities.

(5) Where subsection (1) renders a person or persons liable to pay a debt incurred by a company, the payment by that person or either or any of those persons of the whole or any part of that debt does not render the company liable to the person concerned in respect of the amount so paid."

Except as provided by this sub-s. 592 (5), nothing in sub-s. 592 (1) "affects any rights of a person to indemnity, subrogation or contribution": s. 594.

The phrase in sub-s. 592 (1) "a company to which this section applies", identifies a company in liquidation or provisional liquidation or under administration (sub-s. 589 (1)). But as sub-s. 589 (1) also makes clear, s. 592 includes a company which has ceased to carry on business or is unable to pay its debts or whose affairs are under investigation. Thus it is wrong to approach the construction of s. 592 as if it were concerned only with companies which are being or have been wound up.

Counsel for the applicants placed much reliance upon Spika Trading Pty Ltd v Harrison (1990) 19 NSWLR 211. Accordingly, it is important to understand what Giles J decided in that case.

Spika Trading Pty Limited alleged that it had provided printing materials and services to a company which had been wound up. It claimed the amount of indebtedness from Mr Harrison ("H") on two bases. First, it alleged that H had guaranteed the obligations of the company to Spika. Secondly, Spika alleged that immediately before the time when the indebtedness was incurred by the company, there were reasonable grounds to expect that the company would not be able to pay off its debts as and when they became due and that H, a director of the company, was personally liable to Spika under what was then s. 556 of the Code. H then cross-claimed for contribution against Mr Booth ("B") and Mr Davis ("D") who had taken part in the management of the company. The allegation was that B and D were personally liable under s. 556 and that H was entitled to contribution from them. In turn, B cross-claimed against six other persons alleging that each of them had taken part in the management of the company and claiming contribution on a similar basis. The question for separate decision by Giles J was whether there was an entitlement to contribution from other persons who might otherwise be liable for the debts of the company by reason of s. 556 but who were not sued by the creditor.

It follows that the questions of contribution which arose in Spika did so within litigation initiated by the creditor. Giles J did not decide any issue arising from the liability of H under the guarantee. He decided that the joint and several liability for which s. 556 provided gave rise to a common obligation or co-ordinate liability apt to attract the doctrine of contribution, notwithstanding that s. 556 created an offence as well as imposing a civil liability. The result was that the question for separate determination was answered in the affirmative and thus favourably to H.

It also should be noted that Giles J was not deciding that the right of contribution was implicit in, or something which flowed out of, s. 556. As the reference to Armstrong v Commissioner of Stamp Duties [1967] 2 NSWR 63 makes clear, the reasoning was that the joint and several liability for which s. 556 provided, like that created by s. 25 of the Gift Duty Assessment Act 1941, created coordinate liabilities. It was upon these liabilities that the equitable doctrine of contribution then operated. It was no objection to the operation of the doctrine of contribution that the relevant liabilities were imposed by statute rather than created pursuant to contract (as with guarantees), the law of trusts (as between co-trustees) or other institution of the general law.

Giles J recorded several further submissions which had been made by H in support of an affirmative answer. He noted them as follows (at 217-8):

"The first was that [H's] liability under the guarantee was a co-ordinate liability with the liability of the cross-defendants pursuant to s. 556 (1), that the doctrine of contribution was attracted to that co-ordinate liability, and that if that be so there was no room for any vitiating illegality because his claim to contribution did not depend upon any illegal act. The second [submission] was that s. 556 (1) did not expressly limit those who might enforce the joint and several liability to the creditor, and could and should be construed to permit an action to be brought by one director or participant in the management of the company against other directors or participants upon whom liability was imposed. It is unnecessary to do more than record the submissions."

To some extent, the submissions made for the applicants in the present case renew those submissions. However, I would reject immediately the further submission put by the applicants that "the ratio decidendi of the Spika Trading case is that the jurisdiction of the Court may be invoked in a section 592 proceeding even where there is no suit by a creditor". As I have indicated, it was in response to the claim made against H by the creditor that H, in the same proceeding, cross-claimed for contribution against B and D.

I turn first to consider the submissions for the applicants that (i) all they require "is to have an interest or standing" to bring proceedings under s. 592, and (ii) therefore it is not to the point that Retravision, to which Terry's incurred the debts, is not seeking to enforce any liability against third parties by proceedings under s. 592.

What then is the nature of the right of action conferred by s. 592, and the jurisdiction of this Court exercised in respect of it?

Like its immediate predecessor, s. 556 of the Code, s. 592 has a dual aspect or operation. This is that a person may be convicted of an offence under sub-s. 592 (1) and that proceedings may be brought under the same sub-section against the same person for the recovery of the debt in respect of the incurring of which there has been the conviction. Sub-section 592 (3) so provides. Furthermore, sub-s. 592 (4) makes it clear that in a proceeding for the recovery of a debt liability may be established on the balance of probabilities.

In Watt v 3M Australia Pty Limited [1984] 3 NSWLR 671, the New South Wales Court of Appeal held that s. 556 of the Code confers a right of action upon a creditor against a director personally and against the other individuals which fall within its operation. This was so although s. 556 did not in express terms confer a right of action upon a creditor.

Sub-section 592 (1) operates, where the conditions it prescribes are satisfied, to render the debtor company and the person or persons who are directors or who took part in the management of the company, together jointly and severally liable for the payment of the debt. Liable to whom? Plainly, one would have thought, to the creditor, being the person who, as mentioned in sub-ss. (3) and (4), brings proceedings under sub-s. (1) for the recovery of the debt.

The effect of sub-s. 592 (1) is to add to those primarily liable for the debt and to do so by creating a class of persons who, with the company, are jointly and severally liable. The statute does not render that class liable to answer for the default of the company in payment, nor liable to keep the creditor harmless against its loss suffered by non-payment. That is to say, the class is not placed by the statute in the position of those who have provided a guarantee or an indemnity. The members of the class and the company together are liable to the debtor, jointly and severally, as a matter of primary obligation.

That the obligation of the class is not in the same degree as the obligation of those who have given an indemnity or guarantee is emphasised by sub-s. 592 (5). I have set out the text of that subsection earlier in these reasons. Persons who had given an indemnity or guarantee would have a right of exoneration by the debtor company. At law the action was one for money paid: "Rowlatt on the Law of Principal and Surety", 4th ed., 1982, p. 134. The common law right of exoneration was supplemented by equity in the manner discussed in Firma C-Trade SA v Newcastle Protection & Indemnity Association [1991] 2 AC 1 at 28 and in Abigroup Ltd v Abignano (1992) 39 FCR 74 at 81-3. However, if liability to pay a debt incurred by a company has been imposed by sub-s. 592 (1), payment by a person so liable of the whole or any part of that debt does not render the company liable to recoup that person: sub-s. 592 (5).

This being the nature of the right and liability created by sub-s. 592 (1) in its civil application, what means are provided for curial determination of such rights and liabilities?

Division 1 of Part 9 of the Corporations Act 1989 ("the 1989 Act") comprises ss. 49 - 61A. Sub-section 56 (2) provides that this Court may exercise jurisdiction conferred upon it by the law of the State corresponding to Division 1, with respect to "matters arising under the Corporations Law of a State". Sub-section 42 (3) of the Corporations (New South Wales) Act 1990 (NSW) ("the NSW Act") confers jurisdiction on this Court "with respect to civil matters arising under the Corporations Law of New South Wales". Thus, it is not to the point that s. 592 does not, in terms, confer jurisdiction. Jurisdiction is conferred by other means in respect of matters arising under that section. See, generally, Acton Engineering Pty Ltd v Campbell (1991) 31 FCR 1 at 8-14. As is pointed out in that case (at 13-14) the term "matter" is of wide import.

The effect of the submissions for the respondents was that the right and remedy provided for in s. 592 are indistinguishable. Counsel contended that one can speak accurately of a liability under the section only where there is on foot or has been determined an action by the creditor to recover from the relevant third parties as jointly and severally liable with the debtor company. In the present instance, no such suit has been, or is likely to be, instituted by Retravision.

Certainly there are cases where the right and remedy are given by statute in the one breath, so that the one cannot be dissociated from the other. An example is Barraclough v Brown [1897] AC 615 at 622, referred to by Brennan J in The Commonwealth v Evans Deakin Industries Ltd (1986) 161 CLR 254 at 276. Other examples are given in Houston v Dewi Thomas Pty Ltd [1967] VR 300 at 305-6.

However, in its civil application, s. 592 deals distinctly with the imposition of the joint and several liability and with the bringing of proceedings for the recovery of the debt from the persons who have been rendered so liable. The phrase in sub-s. 592 (1), "where [certain conditions are satisfied] those persons are jointly and severally liable for the payment of the debt" suggests that the liability exists at a stage before adjudication by the taking of proceedings for payment. To adapt what was said in the joint judgment in The Commonwealth v Evans Deakin Industries Ltd, supra at 265-6, it being possible to say that once a proceeding is commenced the class of persons in question will be held liable for the payment of the debt, it follows that it can also be said, before the proceeding is commenced, that the events which have happened have created a liability which will be recognised and enforced in legal proceedings.

In this sense, upon its proper construction, and in its civil operation, s. 592 in conjunction with s. 42 of the NSW Act and s. 56 of the 1989 Act, in a case such as the present creates a new right in the creditor, Retravision, and gives a special mode of enforcing it.

It may be that, in accordance with the decisions referred to in Acton Engineering, supra at 13, the justiciable controversy may include what are otherwise independently existing claims under the general law or under another statute and that, together, these are elements of the "matter". An example would be the cross-claims seeking contribution which were elements of the matter litigated in Spika. Indeed, s. 594, with its reference to non-affectation of rights to indemnity, subrogation and contribution, is consistent with that approach.

However, the amplitude of the term "matter" does not mean that there is any change to the core of sub-s. 592 (1). This identifies those by whom proceedings may be brought under the section for the recovery of the company debt. At one stage in the argument, the applicants appeared to submit that sub-s. 592 (1) was to be construed in such a way as to render the relevant third parties jointly and severally liable for the payment of the debt to parties other than the creditor, here Retravision. If such a submission was intended, then it should be rejected.

It may be that a third party might obtain a "negative" declaration that it was not, in the circumstances of the case, liable to the creditor under s. 592 (1); cf Jenkins v NZI Securities Australia Ltd (1994) 124 ALR 605 at 616-7. The proposition would be that this was a declaration which, in the terms of s. 21 of the Federal Court Act, was "in relation to a matter" in which the Court had original jurisdiction. The applicants submit that as guarantors they are at least contingent creditors of Terry's. They say that this would give them sufficient interest for the obtaining of such declaratory relief. Even if that were so, it is more difficult to see how a third party might obtain declaratory relief as to the rights or lack of rights of a creditor against others under sub-s. 592 (1).

In any event, none of the above situations have arisen in this case. The applicants are guarantors of the obligations to Retravision of Terry's. They seek a declaration that Retravision itself and the second and third respondents are jointly and severally liable for the debts incurred by Terry's to Retravision.

There is a conceptual problem in construing s. 592 as rendering the creditor Retravision liable to itself in a proceeding brought under sub-s. 592 (1) for the recovery of the debts of Terry's owed to Retravision. It is not suggested on either side of the record that Retravision would appear in a representative capacity. The difficulties involved are not removed by the consideration that the liability of Retravision to itself is said to be joint and several with that of others. The common law rule, applicable to an action to recover a debt, is that a party cannot sue himself either alone or in conjunction with others: Dicey "A Treatise on the Rules for the Selection of the Parties to an Action", 1870, pp. 65-6. See also Perpetual Trustee Co. Ltd v Attorney-General (1937) 54 WN (NSW) 95-6, Re Bubnich; Marian v Bubnich [1965] WAR 138 at 141.

The existence of this basic common law doctrine suggests that s. 592 was not designed to achieve a situation where because the creditor had taken part in the management of the company the creditor acquired a cause of action against itself for recovery of the debt owed by the company. In my view, the words in sub-s. (1) "any person who ... took part in the management of the company" should not be construed so as to include the creditor to whom the company incurred the debt. The mischief to which the section plainly is directed is the alleviation of the position of the creditor, in the given circumstances, by rendering liable to the creditor parties additional to, but jointly and severally with, the company itself.

For this reason, no declaration in the terms of (i) of those sought, should be made. This is so even if the terms of the proposed declaration were amended so as to state specifically, as would be in accordance with the operation of s. 592, that the liability pursuant to s. 592 would be to Retravision. That would serve only to make clear the fundamental difficulty referred to above.

In any event, it would not be a sound exercise of discretion to make declaration (i) unless one or other of declarations (ii) or (iii) were made. This is because the intent of declaration (i) is to provide a foundation for one or other of the other declarations. The objective is to obtain a judicial ruling that there is the right of contribution or indemnity against the respondents and in favour of the applicants.

I turn first to consider the question of contribution. At the outset I should note that contribution involving a tortfeasor stands in a special position. As is well known, legislation has been necessary and its scope is not altogether clear: Bitumen and Oil Refineries (Australia) Ltd v Commissioner for Government Transport (1955) 92 CLR 200 at 209-210, Fletcher v National Mutual Life Nominees Ltd [1990] 1 NZLR 97 at 103-5.

It is, of course, not a prerequisite of the application of the doctrine of contribution that the co-ordinate liabilities arise from the same instrument. Thus obligations arising from distinct instruments of guarantee may suffice, provided that the liabilities in question are "co-ordinate" in the sense required by the authorities. Nor is it necessary that the liabilities have arisen at the same time, or that those which arose later in time were incurred with knowledge of the existence of the earlier liabilities. All of these propositions have been regarded as settled since Dering v Earl of Winchelsea (1787) 1 Cox Eq Cas 318; 29 ER 1184. Nor is it in dispute that in equity contribution is between those obligors which are solvent, so that an insolvent party may be excluded and the whole of the burden shouldered by their remaining solvent obligors. Solvency is assessed at the time when contribution is sought: Mahoney v McManus (1981) 180 CLR 370 at 376. Hence the exclusion of Terry's from those against whom the applicants seek to establish their right to contribution.

The respondents submit that even if it be assumed, contrary to their contention, that they are jointly and severally liable for the payment of Terry's debts to Retravision, by force of the operation of sub-s. 592 (1), nevertheless their liabilities are not "co-ordinate" with those of the applicants as guarantors in the sense required by the authorities.

It would be taking too narrow a view of the matter and give insufficient weight to the preference equity has for substance to form to hold that there could be no common obligation if there were different "causes of action" against the co-obligors. In BP Petroleum Development Ltd v Esso Petroleum Co. Ltd [1987] SLT 345 at 347, Lord Ross preferred the statement of the criterion as whether the liability "is of the same nature and the same extent". This was the phrase used by Lord Chelmsford in Caledonian Railway Co. v Colt (1860) 3 Macq. 833 at 844. In BP Petroleum, an oil tanker owned by Esso damaged a jetty in the Shetlands. By contract with the port authority, BP was liable to it for the damage to the jetty and by statute Esso was liable to the port authority for the same damage. His Lordship held that, BP having paid the authority, it might recoup half of its outgoing from Esso. It was not to the point that the common obligations to the port authority arose as to BP from contract and as to Esso from statute. The liability of the parties was "of the same nature and the same extent" because each was liable to the authority to make good the damage to the jetty ([1987] SLT at 348).

Some further assistance is provided by Capita Financial Group Ltd v Rothwells Ltd (1992) 30 NSWLR 619. The New South Wales Court of Appeal held that the circumstance that co-obligors were free to adopt different methods of discharging their obligations did not mean that the burden to which they were subjected was not a common one so as to attract a claim for contribution. Priestley JA referred to the statement of the Lord Chief Baron in Dering (29 ER at 1186) that in all cases where contribution had been ordered:

"[T]he sureties have a common interest, and a common burthen; they are joined by the common end and purpose of their several obligations, as much as if they were joined in one instrument ..."

In Capita, Rothwells and Capita separately undertook to Trans City, which was providing the bulk of the accommodation for a building development, that they would, to put it broadly, arrange such financial assistance as to maintain the solvency of the project. The obligations arose from somewhat loosely expressed letters of undertaking given severally to Trans City. Priestley JA pointed out that there were various ways of fulfilling the undertaking by Capita and by Rothwells to Trans City. One would have been by contribution of equity capital to the project, another by the lending of money to one of the entities concerned in the project for the purpose of payment to Trans City. His Honour held that it was not accurate to say that each of Capita and Rothwells was under a number of burdens, that number being as great as the number of available methods of performance. Rather, and it may have been a matter of characterisation, both Capita and Rothwells were under the same burden of putting in enough money to maintain the solvency of the project.

This decision may be compared with Craythorne v Swinburne (1807) 14 Ves Jun 160; 33 ER 482. There, the submission was, in effect, that A and B were co-sureties of the same debt. But the decision was that A was rather a surety for the default of B who himself was surety for a third party, and there was no equity for contribution in favour of a surety for a surety. Craythorne has been applied by the English Court of Appeal in In re Denton's Estate [1904] 2 Ch 178, and by the Supreme Court of Canada in Fox v Royal Bank of Canada [1976] 2 SCR 2. In Denton, Cozens-Hardy LJ drew the distinction (at 194) between a case where the defendant was co-surety with the plaintiffs for the principal debtor (and as such bound to contribute), and a case where the defendant was a surety for both the principal debtor and the plaintiffs (and under no liability to contribute).

Further, there is no entitlement to contribution where sureties, even though bound by the one instrument, are only liable for distinct portions of the one debt, none being liable to the creditor in the aggregate: Ellis v Emmanuel (1876) 1 Ex D 157 at 162, Cornfoot v Holdenson [1932] VLR 4 at 6-7, Scholefield Goodman & Sons Ltd v Zyngier [1986] AC 562,
White & Tudor, "Leading Cases in Equity", 9th ed., Vol II, p. 497.

The matter is summed up in "Rowlatt on the Law of Principal and Surety", supra at 153 under the heading "Contributing co-sureties must be sureties in same degree". The text continues:

"The equity depends upon the creditor's original ability (apart from any equity preventing him from doing so) to charge the co-surety from whom contribution is sought as much as the co-surety seeking contribution. Where this could not have been done there is no inequity to be remedied and no contribution. For example, where the surety's guarantee provides that he cannot be sued unless the other sureties made default, no right to contribution arises against him. The surety in that position is in reality a 'surety for the surety'."

The same point may be expressed, in the terms used by Eyre LCB, in Dering, as being that there is not co-ordinate liability if there is lacking a common burden from joinder of the several obligations by a common end and purpose. In Capita supra the width and generality of the expression of the obligations assumed by Capita and Rothwells in the letters of undertaking was such as to permit a finding that such a common obligation existed. That is less likely to be so where, as in the present case, the respective obligations are given distinct characteristics, on the one hand by the terms of the two instruments of guarantee which are in evidence, and on the other by the operation of s. 592 of the Law.

Craythorne v Swinburne and In re Denton's Estate were discussed and applied by the Judicial Committee in Scholefield Goodman & Sons Ltd v Zyngier supra. This was an appeal brought from the Supreme Court of Victoria. Their Lordships said ([1986] AC at 575):

"Contribution is founded on the principle that equality is equity, and there is no room for the application of this doctrine unless the surety against whom contribution is claimed has placed himself on the same level of liability as the surety who claims contribution from him."

Earlier, in A.M. Spicer & Son Pty Ltd (In Liquidation) v Spicer (1931) 47 CLR 151 at 185, when deciding if contribution was available, Dixon J had asked:

"As between the appellant Company and the respondent Spicer, were their liabilities upon an equality, or is one secondary and the other primary?"

In Zyngier it was held that the first respondent had guaranteed payment to a bank by X upon certain bills of exchange endorsed by X, but that she was not thereby a surety on the same level with any of the other parties liable to the bank on the bills. The consequence was that the first respondent was not liable in contribution to the appellant, the drawer, when it had met the bills after presentation by the bank and their dishonour by X.

As I have indicated earlier in these reasons, on the assumed facts in the present case, the effect of sub-s. 592 (1) is to render the respondents jointly and severally liable (with the debtor Terry's) to the creditor. This is a matter of primary obligation. I have referred to the significance in that regard of sub-s. 592 (5). There is no right to exoneration by the debtor.

On the other hand, the liabilities of the applicants under the instruments of guarantee were not primary obligations in that sense. Clause 1 of both guarantees obliged the applicants to pay to Retravision on demand by Retravision all moneys which Terry's might become liable to pay to Retravision. The clause went on to provide that to the extent to which the guarantees might be void or unenforceable, by reason of the obligations of Terry's to Retravision having ceased to be enforceable against Terry's, the guarantors indemnified Retravision "in respect of any failure of [Terry's] to make any such payment as would otherwise have formed part of the moneys the subject of the Guarantee".

The winding-up of Terry's brought into operation the principles as to the effect of a winding-up upon current obligations and the lodgment of proofs of debt referred to in cases such as Ayerst v C. & K. (Construction) Ltd [1976] AC 167 at 176-7 and Tanning Research Laboratories Inc. v O'Brien (1990) 169 CLR 332 at 340-1. This may have had the result that the obligation of Terry's to Retravision to pay its indebtedness is not, in the sense of cl. 1 of the guarantee "enforceable against [Terry's]", so that the second branch of cl. 1 has effect and the obligation of the guarantors has become an obligation of indemnity.

However that may be, in either case cl. 1 of the guarantee places the applicants on a level of liability, to use the phrase of the Judicial Committee, which is conceptually distinct, as a matter of basic legal principle, from that of those having a direct primary liability, joint and several, to the creditor in respect of the guaranteed debt. In my view, nothing turns upon the circumstance that the liabilities under the instruments of guarantee have been pursued to judgment in favour of the creditor.

There is no common interest and no common burden, with joinder in a common end and purpose by the several obligations, to repeat the language of Eyre LCB in Dering. In my opinion, even on the assumption I have been making, no ground is made out for the existence of a right to contribution as contemplated by declaration (ii).

There being no right of contribution between the two classes of obligees, the applicants and the respondents, still less is there a right of indemnity as contemplated by proposed declaration (iii). Indeed, the focus of the oral argument was upon the suggested right of contribution.

What would be the source of the suggested obligation of the respondents to keep the applicants harmless against their loss in suffering the judgment against them on the guarantees? Plainly there is no contract to that effect. Nor, on the agreed facts, is there a relationship between them, an incident of which, implied by law or equity, is an obligation upon the respondents to indemnify the applicants. The obligation of the applicants on their guarantees to Retravision was not an obligation for the discharge of which the respondents were in a relevant sense ultimately liable. This is not the sort of case for application of the principle illustrated by such authorities as Moule v Garrett (1872) LR 7 Ex 101. That case illustrates the proposition that as between the lessor and the original lessee and subsequent assignees of the lease, each is liable to the lessor on the covenants to pay rent, but nevertheless as between the lessees the ultimate liability falls on the current assignee. See generally "Halsbury's Laws of England", 4th ed. Reissue, 1993, Vol. 20, paras. 345-350.

The applicants guaranteed the obligations to Retravision of Terry's. They did not undertake to Retravision to answer for the obligation imposed upon any parties pursuant to sub-s. 592 (1) of the Law. Therefore, they did not enjoy, in addition to any right of exoneration by Terry's, a right of exoneration by any other party rendered jointly and severally liable with Terry's by sub-s. 592 (1). Essentially, the issue is one of contribution or no contribution, and indemnity is not an alternative any more than it was in Commercial & General Insurance Company Ltd v Government Insurance Office of New South Wales (1973) 129 CLR 374.

The question for separate decision should be answered adversely to the applicants. The applicants should pay the costs of the respondents of the separate question, including the costs of the proceeding on 8 February and 2 March 1995.

The matter should stand over for directions as to the disposition of the balance of the proceeding.

I certify that this and the preceding twenty seven (27) pages are a true copy of the reasons for judgment of the Honourable Mr Justice Gummow.

Associate:

Date: 11 April 1995.

Counsel and solicitors Mr P.K. Searle instructed

for the applicants: by P.J. Pollack & Co.

Counsel and solicitors Mr B. Coles QC and

for the respondents: Mr J. Johnson instructed

by J.R. Gibb & Co.

Date of hearing: 8 February, 2 March 1995.

Date of judgment: 11 April 1995.

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