Barber v De Prima

1. [1]

   This case raises issues as to whether there has been a valid assignment to the plaintiff of rights of contribution and subrogation as between co-guarantors, and if so, whether those rights are now statute-barred. If the plaintiff succeeds on those issues, a question arises as to the amount of the contribution to which the plaintiff is entitled.

2. [2]

   The plaintiff’s husband and the two defendants were originally co-guarantors, but the second defendant has been made bankrupt, and the action has not proceeded against her. The plaintiff’s husband’s trustee in bankruptcy granted an assignment of the husband’s rights against the first defendant to the plaintiff. The first defendant challenges the validity of that assignment.

Agreed Facts

1. [3]

   This case has been fought on the basis of an agreed statement of facts, as well as evidence given by the plaintiff’s husband and the first defendant. The agreed facts are as set out below (the wording being paraphrased to fit these reasons for judgment):

   1. (1)

      On 4 February 2003, Vanuatu Indigenous Development Alliance Pty Ltd (the Company) was incorporated and the first defendant, Philip De Prima, the second defendant, Isobelle Gidley, and Richard Shears were appointed its directors. Each of the directors held one share in the Company.

   2. (2)

      Prior to 2004, the plaintiff’s husband, Tony Barber, became the registered proprietor of lot 9/DP28729, known as 29 Bernera Road, Prestons, NSW (the Property).

   3. (3)

      Between 1 June 2001 and 21 December 2004, the Property was held by Mr Barber subject to a registered mortgage in favour of ING Bank (Australia) Ltd (ING) (ING Mortgage).

   4. (4)

      On 5 October 2004, Mr Barber became a director of the Company, and one of the shares in the Company was transferred to him by Mr Shears.

   5. (5)

      On 17 November 2004, Mr Barber executed a mortgage over the Property in favour of the National Australia Bank (NAB) (NAB Mortgage), which was registered on 21 December 2004.

   6. (6)

      On 15 November 2004, the Company entered into a written facility agreement with NAB pursuant to which it agreed to borrow $1.4 million on the security of the NAB Mortgage.

   7. (7)

      In October/November 2004, each of Mr Barber, the first defendant and the second defendant executed a guarantee in favour of NAB of the NAB Facility.

   8. (8)

      The NAB Mortgage was registered on 21 December 2004, at which time the monies under the NAB Facility were advanced:

   9. (9)

      On 12 March 2007, the NAB gave notices to the Company and the guarantors of the cancellation of the NAB Facility and required immediate payment, and on 13 March 2007 the NAB issued demands for payment of the NAB Facility.

   10. (10)

       On 24 May 2007, the Company borrowed from Challenger the amount of $1.55 million (Challenger Facility). The Challenger Facility had an expiry date of 1 March 2008. The Company’s indebtedness to NAB was discharged in full from the monies borrowed from Challenger.

   11. (11)

       On 24 May 2007, Mr Barber mortgaged the Property to Perpetual Trustee Co Ltd (Perpetual), by mortgage registered number AD217972X to secure the Challenger Facility. (It will be convenient generally to refer solely to Challenger in relation to the facility and the mortgage, although Perpetual was party to many of the transaction documents, apparently as trustee for Challenger).

   12. (12)

       Also on 24 May 2007, each of Mr Barber, the first defendant and the second defendant executed a Deed of Guarantee and Indemnity (the Deed) in respect of the Challenger Facility.

   13. (13)

       On 1 March 2008, the Challenger Facility fell due for repayment and was not repaid.

   14. (14)

       On 14 June 2008, Perpetual and Challenger filed a statement of claim against Mr Barber as mortgagor to obtain possession of the Property.

   15. (15)

       On 13 January 2009, the Challenger Facility was paid out in full in the amount of $1.763 million using funds borrowed by Mr Barber from Australian Secured Lending Pty Ltd (ASL) (ASL Facility), which facility was secured by way of a mortgage against the Property.

   16. (16)

       On 15 January 2009, ASL registered its mortgage on the title to the Property.

   17. (17)

       On 27 June 2011, the Company was deregistered.

   18. (18)

       On 6 February 2015, Mr Barber commenced the present proceedings as the original plaintiff against the two defendants.

   19. (19)

       The second defendant was declared bankrupt on 7 August 2015.

   20. (20)

       Mr Barber was declared bankrupt on 12 April 2016, and Mr Bradley Tonks was appointed as his trustee in bankruptcy.

   21. (21)

       On 14 November 2016, Mr Tonks entered into a deed of assignment with the plaintiff.

   22. (22)

       On 21 December 2016, the plaintiff was substituted in the proceedings as plaintiff for her husband, Mr Barber.

2. [4]

   Mr Barber commenced these proceedings as plaintiff against his two co-guarantors on 6 February 2015. As appears from Agreed Fact (15), Mr Barber paid out the Challenger Facility on 13 January 2009. That payment was almost one month more than a period of 6 years before the proceedings were commenced. Consequently, any aspect of the plaintiff’s claim to which a 6 year limitation period applies will now be statute-barred.

3. [5]

   By means of the payment procured by Mr Barber referred to in par (15) of the Agreed Facts, the plaintiff’s husband unilaterally paid out the Challenger Facility which had been guaranteed by the husband and the two defendants. As the Company has been deregistered, none of the guarantors are able to enforce the Company’s obligation to indemnify the guarantors. The essential issue in this case is whether the plaintiff is a valid assignee of her husband’s rights of contribution and subrogation as a co-guarantor with the defendants, and if so, whether the first defendant is liable to contribute equally in respect of the obligation of the Company that was paid out by the plaintiff’s husband.

4. [6]

   A significant issue to be considered, if the point is reached where it is necessary to calculate the amount of contribution that the first defendant is required to make, is that $226,000 of the NAB Facility was applied by the Company to repay a debt owed solely by Mr Barber, which had been borrowed by him in connection with his acquisition of the Property.

5. [7]

   The evidence establishes that Mr Barber incurred transaction costs in connection with the granting of the ASL Facility, and he became liable to pay ASL interest. In due course, the Property was sold for the purpose of paying out a subsequent facility to the ASL Facility.

Deed of Guarantee and Indemnity

1. [8]

   The parties to the Deed were the three guarantors, Perpetual and the Company. By cl 1 of the Deed the three guarantors jointly and severally guaranteed to Perpetual the due performance by the Company of all of its obligations under a deed of loan dated 24 May 2007, whereby an advance of $1,550,000 was made to the Company. The clause also created an indemnity by the guarantors in favour of Perpetual.

2. [9]

   The case has proceeded on the basis, which is clear from the terms of the Deed, that the obligations of each of the guarantors to Perpetual on behalf of Challenger were co-ordinate liabilities, in the sense that each of the guarantors was equally liable to Challenger in respect of the guarantee of the Company’s indebtedness with the other two guarantors.

3. [10]

   The Deed contained terms of the type that is now conventional that protected Challenger against all of the protections afforded to guarantors under the principles of equity. No issue has arisen in this case concerning the application of those terms.

Deed of Assignment

1. [11]

   The Deed of Assignment was entered into on 14 November 2016, between Mr Tonks in his capacity as trustee of the bankrupt estate of Mr Barber and the plaintiff. The operative term of the deed was cl 3, which provides:

2. [12]

   It is sufficient to note that the Effective Date occurred soon after the date of the deed.

3. [13]

   The “Assignment Fee” was defined in cl 1.1 as meaning the sum of $12,000. I infer that the plaintiff has paid that amount to Mr Tonks.

4. [14]

   “Chose in Action” was defined in cl 1.1 as meaning:

5. [15]

   The original statement of claim in this matter, filed on 6 February 2015, is annexed to the deed. The first defendant did not seek to make anything out of the fact that a further amended statement of claim was filed on 29 May 2017, and that pleading was amended further by leave at the hearing.

6. [16]

   Logically, the first question that arises is whether Mr Tonks has validly assigned to the plaintiff the right to prosecute these proceedings against the first defendant, as if the assignment was ineffective that will be the end of the case. However, it will be more convenient to defer that question until after the substance of the case has been determined (as the parties did in their submissions) because the reasons for the determination of the validity of the assignment will be more meaningful.

7. [17]

   In the discussion that follows I will usually use the more general expressions “surety” and “co-surety”, except where in the context the expressions “guarantor” and “co-guarantor” are more appropriate.

The further amended statement of claim

1. [18]

   It is only necessary to record, as the first defendant did in par 8 of his outline of submissions before the commencement of the hearing, that in the further amended statement of claim the plaintiff claims that the first defendant is indebted to her (par 27), the plaintiff is entitled to damages of some sort (pars 28, 29 and 34), subrogation (par 35), contribution (par 36) and recoupment (par 36).

2. [19]

   The first defendant rightly noted in par 9 of his outline of submissions that the only claims that the plaintiff sought to advance were the claims for contribution and subrogation, and the case was fought on that basis. The claim for subrogation was in respect of Challenger’s rights under the Deed against the first defendant.

3. [20]

   After the amendment made to the further amended statement of claim at the hearing, par 35 read:

4. [21]

   The effect of the amendment was to make it clear that the plaintiff makes a claim for subrogation both in equity and under s 3 of the statute, and that subrogation is sought in respect of Challenger’s rights under the Deed. It was not previously expressly clear that the plaintiff relied upon the statute.

5. [22]

   Although the plaintiff amended to rely upon statutory subrogation, the plaintiff did not address in any detailed way the differences that may exist between equitable and statutory subrogation, particularly in relation to the limitation of actions.

Agreed Statement of Issues

1. [23]

   The parties agreed that the following are the issues to be determined by the Court in these proceedings:

   1. (1)

      Whether the proceedings are statute barred, whether by direct application of statutory limitation provisions or in equity by analogy.

   2. (2)

      Whether there is an equitable defence of laches.

   3. (3)

      Whether the cause of action is personal to Mr Barber such that the plaintiff as assignee does not have standing to prosecute it.

   4. (4)

      Whether the cause of action was incapable of assignment from Mr Barber’s trustee in bankruptcy.

   5. (5)

      In the event that there was an effective assignment whether that assignment is limited to the rights arising from the facts pleaded in the statement of claim attached to the deed of assignment.

   6. (6)

      In the event that there was a valid assignment, whether the Court would decline to grant relief to the plaintiff, or limit any relief to the sum of $6000 or $12,000, in circumstances where:

   7. (7)

      Whether the plaintiff is entitled to be subrogated to Challenger’s securities, and if so, what securities.

   8. (8)

      Whether the plaintiff is entitled to contribution from the first defendant.

   9. (9)

      The quantum of any amount for which the first defendant is liable, if any, in the circumstances of this case and having regard to the above issues as well as:

2. [24]

   It did not appear to me from the way that the first defendant conducted his case that issue (5) remains a real one.

3. [25]

   The initial and primary issues for consideration concerned whether the right of contribution (the existence of which the first defendant accepted, assuming it had been validly assigned to the plaintiff) is now statute-barred because of a 6 year limitation period; and whether the plaintiff is limited to that right of contribution, because subrogation is not available. If subrogation is available, is it also now statute-barred because the relevant limitation period is also 6 years.

The decision in Lang v Le Boursicot

1. [26]

   Assuming that the rights that the plaintiff’s husband had against his co-guarantors have been validly assigned by the husband’s trustee in bankruptcy to the plaintiff, it will be necessary for the Court to determine the nature of the rights that have been assigned, and then to decide whether the application of any provision in the Limitation Act 1969 (NSW) has had the effect of preventing the plaintiff from pursuing the assigned rights against the first defendant.

2. [27]

   These may have been simple questions for the present Court to decide, because identical issues have already been decided by McLelland J (as his Honour then was) in Lang v Le Boursicot (1993) 5 BPR 97,406. In the usual case, the Court would readily follow the decision of his Honour and that would be the end of it, particularly as the decision was followed by Bergin CJ in Eq in Parker v Alessi [2011] NSWSC 947 at [107]-[109]. His Honour's judgment was also accepted by the learned editors of O'Donovan and Phillips, The Modern Contract of Guarantee (3rd English Ed, 2016, Sweet & Maxwell) (O'Donovan and Phillips) at [12-280].

3. [28]

   There are two relevant aspects of the reasoning of McLelland J in Lang v Le Boursicot, one of which is favourable to the plaintiff’s case and the other favourable to the case made by the first defendant. In this case, each party invited the Court to decline to follow that part of McLelland J’s reasoning where his Honour reached a conclusion contrary to that party’s case. That is an adventurous approach, given the esteem in which the judgment of McLelland J is held on matters of equitable principle.

4. [29]

   I will now explain why I am of the opinion that McLelland J was correct on both aspects of his reasoning, and why I will follow Lang v Le Boursicot.

5. [30]

   In that case, a company that was the lessor of factory and office premises to another company that had gone into liquidation was one of a number of guarantors of that other company’s obligations under two commercial leases for equipment and furniture that was installed in the premises. The lessor company made payments to the lessors under the commercial leases in full discharge of all present and future obligations under the leases. The lessor company made the payments on a number of dates and final substantial payments were made on 22 November 1985. The lessor company made a claim against the other guarantors by the amendment of an existing statement of claim that occurred on 18 November 1992. That was more than 6 years after the last of the payments made under the guarantee.

6. [31]

   McLelland J described the two grounds upon which the lessor company made its claim against the co-guarantors in the following terms, at 4:

7. [32]

   In his Honour’s characteristically complete but succinct way, he determined each of these grounds as follows, at 4:

Limitation period applicable to claim for contribution

1. [33]

   In response to the lessor company’s claim for contribution, McLelland J found that, where a claim for contribution arose between guarantors who had become liable under the same instrument, the common law provided a remedy in quasi-contract. The common law treated the amount paid by the guarantor in excess of that guarantor’s share of the debt, where a number of guarantors were equally liable to the creditor, as being an amount paid to the use of the other guarantors. Section 14(1)(a) of the Limitation Act prescribes a limitation period of 6 years for a cause of action founded on quasi-contract. Section 23 requires that for a cause of action for equitable relief, such as contribution in equity, s 14 does not apply, except so far as it may be applied by analogy. His Honour found such an analogy to exist, so the claim for contribution in equity would be barred if brought more than 6 years after the right to contribution arose.

2. [34]

   McLelland J found that the analogy could be drawn in the case before him even though the guarantees given by the guarantors did not arise under the same instrument. The common law would not give a right to contribution amongst the guarantors in that circumstance. In the present case, the plaintiff’s husband and the first defendant gave their guarantees by the same instrument, so it is not necessary for the Court to consider the question decided by McLelland J, as to whether it is proper to hold that a 6 year limitation period arises by analogy in cases where guarantees are given under different instruments, and the common law does not provide any remedy of contribution at all in that case.

3. [35]

   The plaintiff submitted that the Court should not follow this reasoning of McLelland J, because for a contribution claim equity “covers the field” relying upon Burke v LFOT Pty Ltd (2002) 209 CLR 282; [2002] HCA 17 at [38] and [88], and also Lavin v Toppi (2015) 254 CLR 459; [2015] HCA 4 at [44]-[54]. She submitted that a limitation period could only arise if equity acted by analogy under s 23 of the Limitation Act, but equity will not apply an analogy where it is unjust to do so, relying upon Barker v The Duke Group Limited (2005) 91 SASR 167 at [84]. Finally, the plaintiff submitted that, if an analogy is to be drawn, as the guarantees were all granted in the one deed, the analogy should be with the 12 year limitation period provided for actions on deeds by s 16 of the Limitation Act.

4. [36]

   If by the plaintiff’s reliance upon any statement in Burke v LFOT Pty Ltd to the effect that equity “covers the field”, she makes a submission that the equitable right of contribution now exists to the exclusion of the equivalent common law right, that submission cannot be sustained. The first passage in the judgment of Gaudron ACJ and Hayne J cited by the plaintiff at [15], starts with the statement: “The doctrine of equitable contribution applies both at common law and in equity”, and, with respect, correctly relies upon the explanation of the history of contribution given by Kitto J in Albion Insurance Co Ltd v Government Insurance Office (NSW) (1969) 121 CLR 342 at 349-350. The true principles can be taken from the second passage relied upon by the plaintiff, being in the judgment of McHugh J at [38] and following, where his Honour said (footnotes omitted):

5. [37]

   McHugh J’s observation that “the equitable principles now cover the field” did not mean that the equitable right to contribution now exists to the exclusion of the former common law right, but that the principle that is the foundation of the equitable right is now also the foundation of the common law right. That follows from McHugh J’s reference to the statement made by Lord Chief Baron Eyre in Dering v Earl of Winchelsea (1787) 1 Cox Eq 318; 29 ER 1184 at 321, where his Lordship said: “If we take a view of the cases both in law and equity, we shall find that contribution is bottomed and fixed on general principles of justice, and does not spring from contract; though contract may qualify it…”

6. [38]

   In fact, both of the High Court cases relied upon by the plaintiff unquestionably establish that the right of contribution exists both at common law and in equity. That appears from Lavin v Toppi in the joint judgment at [32] in express terms.

7. [39]

   It is probably now the case, following Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221; [1987] HCA 5 at 227 and 262-263, that the claim at common law for contribution in an action, which would formerly have been an action in indebitatus assumpsit based upon quasi contract, will no longer be considered to be based upon an implied agreement to contribute, arising out of the circumstances in which co-guarantors gave their guarantees by the same instrument. It is more likely to arise out of restitution and unjust enrichment, flowing from the circumstances in which payment by one guarantor of more than that guarantor’s share of the common obligation would proportionally reduce the liability of the other guarantors. However, while the basis of the quasi-contract claim may have changed, the claim for contribution at common law remains a claim in quasi-contract, for the purposes of s 14(1)(a) of the Limitation Act.

8. [40]

   The case of Davies v Evan Humphreys (1840) 6 M & W 153; 151 ER 361, relied upon by McLelland J in Lang v Le Boursicot as authority that co-guarantors under a single instrument can maintain an action for contribution in quasi-contract at common law, supports the conclusion reached by his Honour. The claim was in indebitatus assumpsit by one of the makers of a joint and several promissory note to recover for money paid, and on an account stated against the co-surety, in respect of the amount that the plaintiff had paid in excess of his share of the liability. The plaintiff had paid all but £30 of the amount more than 6 years before he commenced the suit. Parke B, in giving judgment on behalf of the Court, laid down that at common law the right to contribution arose at the time when one co-surety paid more than that surety’s due proportion of the debt, and accordingly the plaintiff’s claim was statute-barred for all but the amount of £30.

9. [41]

   Parke B observed, at 168, that in Craythorne v Swinburne (1870) 14 Ves 160; 33 ER 482 at 169, Lord Eldon LC had “not without some reason, intimated some regret that the courts of law have assumed jurisdiction on this subject, on account of the difficulties in doing full justice between the parties”. Notwithstanding this lamentation, the common law jurisdiction to give at least some co-sureties rights of contribution by actions in quasi-contract continues to exist.

10. [42]

    The basis upon which equity will apply limitation periods by analogy was explained by the Court of Appeal in Gerace v Auzhair Supplies Pty Ltd (2014) 87 NSWLR 435; [2014] NSWCA 181, where Meagher JA said (Beazley P and Emmett JA agreeing):

11. [43]

    As I have noted, the plaintiff relied upon Barker v The Duke Group Limited (in liq) (2005) 91 SASR 167; [2005] SASC 81, where Perry J said:

12. [44]

    The plaintiff’s submissions do not clearly explain the basis of the suggested injustice in this case of the Court applying any statutory period of limitation by analogy. Doyle CJ, at first instance in The Duke Group Ltd (in liq) v Alamain Investments Ltd [2004] SASC 415, considered the circumstances in which equity will apply a limitation period by analogy at [111]-[117]. In my view the issue is covered by the judgment of Meagher JA in Gerace v Auzhair Supplies Pty Ltd, where his Honour said at [70] that the authorities “do not support the proposition that equity retains any broader discretion whether to apply the bar” than that which is involved in determining whether an analogy exists. His Honour identified the sort of conduct that may lead to injustice in applying the bar at [72].

13. [45]

    In my respectful view, McLelland J was right in Lang v Le Boursicot, where he found that the analogy should be drawn between a claim for contribution in equity and the equivalent claim at common law, where the very same facts gave rise to the two actions. This is an interesting field of law, where the common law remedy is essentially based on an equitable principle, but because of the limitations in the circumstances in which the remedy of contribution is available at common law, there will be cases where contribution is available in equity, when it is just not available at common law at all. As noted above, that is not an issue that I am required to enter upon in this case. The judgment of McLelland J would suggest that an analogy may be found where the remedy of contribution is essentially the same, save that it is not available at common law because of the technical limitations of that law.

14. [46]

    I also reject the plaintiff’s submission that McLelland J was wrong in drawing the analogy with the common law claim for contribution in quasi-contract, rather than some claim under the deed by which the plaintiff’s husband and the first defendant jointly gave their guarantees. In no way can it be said that the plaintiff’s claim for contribution is a claim made under or to enforce any term of the Deed. The plaintiff’s claim for contribution is simply not “an action on a cause of action founded on a deed” within the meaning of s 16 of the Limitation Act.

15. [47]

    McLelland J correctly relied upon the judgment of Lord Eldon LC in Copis v Middleton (1823) Turn & R 224; 37 ER 1083, where his Lordship held that, when two persons execute a bond (which is an instrument given under seal and thus a specialty), one as principal and the other as surety, and the surety subsequently pays the bond debt, the right of the surety to be indemnified by the party principally liable on the bond is as a simple contract creditor only of the principal debtor.

16. [48]

    The right of one surety, who is a party to a deed with a principal debtor and other sureties, to be indemnified by the principal debtor, or to receive contribution from the co-sureties upon payment of more than the first surety’s share of the debt, arises out of the fact that the surety has paid the debt (in relation to the indemnity owed by the principal debtor), or that the surety has paid more than the surety’s share of the debt (in the case of co-sureties), and is a creation of equity, and not the terms of the deed. Even where there is a common law remedy, the decision in Pavey & Matthews Pty Ltd v Paul now suggests that the right to contribution arises in order to provide restitution or to avoid unjust enrichment, when the surety pays more than the surety’s share of the debt, and in no way involves the enforcement of the deed.

17. [49]

    In the present case, as Mr Barber paid the debt owed by the Company to Challenger, the latest time when Mr Barber’s liability as surety was ascertained was the date of payment, and the limitation period commenced to run from that date. I accordingly find that the plaintiff’s claim for contribution against the first defendant is statute-barred.

The existence of the right of subrogation

1. [50]

   The next issue for consideration is whether the plaintiff is entitled to be subrogated to Challenger’s right to enforce the guarantee given by the first defendant in the Deed, and then if so, whether the consequence is that the plaintiff is entitled to contribution from the first defendant because the relevant limitation period under s 16 of the Limitation Act is 12 years.

2. [51]

   The first defendant put an argument as to why the Court should not follow the judgment of McLelland J in Lang v Le Boursicot in respect of this aspect of his Honour’s decision, and it will be necessary to deal separately with each aspect of the argument.

3. [52]

   The first defendant submitted that, in this case, the plaintiff is not entitled to the remedy of subrogation at all, because that remedy is only available where the Court considers the circumstances to be appropriate for its use, and it is not available where a claimant has a remedy at law or another remedy in equity sufficient to avoid an unconscionable result. As the plaintiff was entitled to the remedy of contribution, then there is no need for equity to allow the plaintiff to be subrogated to Challenger’s rights under the Deed against the first defendant.

4. [53]

   As I understand the first defendant’s submission, he goes so far as to submit that the flexibility of equity extends to denying a party’s right to the remedy of subrogation wherever it is determined that the party’s right to contribution should provide the party an adequate remedy. If this submission were correct, subrogation to the creditor’s securities and other rights would never be available to a surety who had paid more than its share of the principal debt against co-sureties, because (on this argument) the right of contribution will always be available and will be sufficient.

5. [54]

   The first defendant pursued this argument to the extent of saying that the adequacy of the remedy of contribution would exclude the remedy of subrogation, even in cases where in practical terms a direct claim for contribution against the co-surety was statute barred.

Preliminary consideration of statutory subrogation

1. [55]

   Before I begin to consider the first defendant’s arguments as to why the plaintiff is not entitled to be subrogated to the rights of Challenger against the first defendant under the Deed, it will be appropriate to digress to explain the significance of s 3 of the Law Reform (Miscellaneous Provisions) Act 1965 (NSW), to which McLelland J referred in the part of his judgment that is extracted above (at par 31) where his Honour stated the two grounds upon which the lessor company had based its case.

2. [56]

   McLelland J referred to the section as having “extended” the principle of subrogation of the guarantor who has paid a guaranteed liability to the rights and securities of the principal creditor against a co-guarantor. Yet, in deciding in the case before him that the plaintiffs had made out the second ground of their argument, McLelland J did not rely upon or even mention the effect of this section.

3. [57]

   In the present case, the plaintiff amended her statement of claim at the hearing to make it clear that she claimed subrogation to Challenger’s rights under the Deed both in equity and under s 3 of the Act.

4. [58]

   This introduces the need for the Court to address the relationship between the section and the general principles of equity concerning subrogation in the context of co-sureties. The reason why I have digressed to deal with the issue now is that the general equitable principle and the statutory ‘extension’ overlap in a way that has sometimes had the result that courts have based their decisions on either the general principle or the statute, or occasionally both. That sometimes obscures the analysis of the authorities on the issue of the principles that they support concerning the availability of subrogation.

5. [59]

   The precursor to the section was s 5 of the Mercantile Law Amendment Act 1856 (Imp). Section 8A of the Usury, Bills of Lading and Written Memoranda Act 1902 (NSW) enacted s 5 in this State. Section 8A has been replaced by s 3 of the present Act. There are equivalent provisions in the other States. Given the cumbersome names, I will refer to the Acts in their various guises simply as the “Act” or the relevant remedy as “statutory subrogation”.

6. [60]

   Section 3 of the Act provides:

7. [61]

   On its face, s 3(1) gives an entitlement to any person who is a surety or liable with another person for a debt, and who pays that debt. The entitlement, put simply, is to have assigned to the person “every judgment, specialty or other security held by the creditor in respect of that debt”. The entitlement exists even if the effect of the payment of the debt is to satisfy the judgment, specialty or other security. The person can stand in the place of the creditor in any proceedings to obtain from the “principal debtor or any co-surety, co-contractor or co-debtor” indemnity for the payment, but the effect of sub-s (3) is to prevent the person from recovering “more than the proportion to which, as between those parties themselves, that person is justly liable”. Sub-section (2) reinforces the effect of that part of sub-s (1) that provides that the entitlement is available notwithstanding that the payment by the person would otherwise discharge the particular rights the subject of the entitlement.

8. [62]

   It may be noted that, on its face, s 3 gives the entitlement to statutory subrogation to one of a number of co-debtors who pays the whole of the debt to the creditor.

9. [63]

   As the plaintiff claims a right to subrogation under s 3 of the Act, it is necessary to consider how she seeks to rely upon that provision. The plaintiff has not obtained an assignment from Challenger, and does not sue on the Deed as an assignee. Plainly, the plaintiff is not suing Challenger for breach of s 3(1)(a) by failing to assign its rights to her under the Deed following a request that it do so. In the context of her pleading generally, the plaintiff can only be relying upon s 3(1)(b), in so far as it provides that a surety who pays the debt is entitled to stand in the place of the creditor and to use all the remedies of the creditor in any proceedings to obtain from any co-surety the amount that the co-surety is justly liable to pay to the surety. The plaintiff’s claim treats sub-s (1)(b) as being more than an aid to the enforcement of judgments, specialties and other securities assigned to a person under sub-s (1)(b), and being a separate statutory right to enforce such securities “in any proceedings”.

10. [64]

    The first defendant relied upon the observations made unanimously by the High Court in Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44 at [37], to support his argument that a co-surety does not have a right of subrogation to the creditor’s rights against another co-surety, because of the adequacy of the remedy of contribution. The High Court said:

11. [65]

    The first defendant’s submission was that if, as it otherwise submitted, equity did not in general principle give the plaintiff a right of subrogation in this context, s 3 of the Act did not remedy that deficiency.

12. [66]

    I have referred to this passage from Bofinger v Kingsway Group Ltd for a different reason however, that being that the High Court described the effect of the section as being to “furnish a summary mode of carrying into effect [rights and remedies] otherwise available in courts of equity”.

13. [67]

    One of the authorities referred to by the High Court in footnote 55 was Embling v McEwan (1872) 3 VR (L) 52, in which Stawell CJ said at 53:

14. [68]

    These observations as to the provenance of the English provision in 1856 are borne out by the recital to the relevant Act, which states the purpose to be to remedy inconvenience felt by persons engaged in trade by reason of the laws of England and Ireland being different in some particulars from those of Scotland.

15. [69]

    In the other case cited by the High Court in footnote 55, Hardy v Johnston (1880) 6 VLR (L) 190, Stephen J said at 193:

16. [70]

    The first defendant’s argument as to why subrogation is not available to the plaintiff because she has a right of contribution is based upon a number of steps whereby he combines propositions from a number of authorities to support that conclusion. He then says, relying upon Bofinger v Kingsway Group Ltd (above), that s 3 of the Act does not supply any deficiency flowing from the fact that equity would not grant a remedy of subrogation to the plaintiff. This argument does not, however, grapple with the express wording of s 3 that does appear to grant a statutory right of subrogation to a surety in the position of the plaintiff’s husband, at least if sub-s (1)(b) has the independent operation that its wording appears to give it. I will return to this issue below, after I have considered the question whether, contrary to the first defendant’s submissions, equity gives the plaintiff a right of subrogation to the Deed in this case.

Argument as to why subrogation is not available

1. [71]

   I will now move to consider the first defendant’s argument that, contrary to the second conclusion reached by McLelland J in Lang v Le Boursicot, a surety who has a right of contribution from a co-surety has no right of subrogation to the creditor’s rights against that co-surety.

Reliance on Re Trivan Pty Ltd

1. [72]

   The first defendant supported his submission that subrogation would not be awarded to a surety who could recover from co-sureties by a claim for contribution by reliance upon the decision of Young J (as his Honour then was) in Re Trivan Pty Ltd (1996) 134 FLR 368. The case was an appeal from a liquidator’s rejection of a proof of debt. The appellant was the proprietor of land upon which a hotel was being built by the company in liquidation. After the commencement of the winding up of the builder, the proprietor terminated the building contract. The proprietor completed the building itself, and for that purpose entered into contracts with existing sub-contractors, under which the proprietor was obliged to pay debts owed by the builder to the sub-contractors. The proprietor claimed that it was entitled to be subrogated to the rights of the sub-contractors against the builder because of the payments which it had made (see 370).

2. [73]

   The issue that Young J was required to decide was whether a right of subrogation arose in this novel situation.

3. [74]

   After making a number of observations about the provenance of subrogation and its theoretical basis, his Honour said at 371: “However, as an equitable doctrine it does not seem to me that it is one that is restricted to closed categories”. Young J considered the American jurisprudence, and then said at 372-373:

4. [75]

   It may be thought, with respect, that the process of reasoning that led his Honour to conclude that there was no right of subrogation in the case before him is not entirely clear. However, in my view, the comment that Young J made that the equitable remedy of subrogation will only be granted in circumstances where it is appropriate to do so was directed to the issue of whether a proprietor who had paid the debts to sub-contractors of a building corporation should be subrogated to the rights of the sub-contractors against the builder for the purpose of proving in the builder’s winding up. His Honour concluded for various reasons that the right to subrogation was not available.

5. [76]

   In my view, Young J did not suggest that equity was so flexible that in all cases where the relationship between the parties had historically been accepted as giving rise to rights of both contribution and subrogation in one party against the other, then the Court could deny one of those rights, being subrogation, to the party, if the theoretical outcome of a claim for contribution would lead to the party recovering everything to which the party was entitled.

6. [77]

   In so far as Young J said: “That means that it will not be granted merely as a right, but will only be granted in circumstances where it is appropriate to do so”, his Honour may have been referring to the general principle that equitable remedies are not granted as of right, and are discretionary. Accordingly, on the facts of the particular case there may be some good reason for equity not to grant one remedy when another equitable remedy will be sufficient. That cannot be taken to support a general proposition that when one established equitable remedy may be sufficient to provide all of the relief needed, another established remedy will never be permitted.

Reliance on Cochrane v Cochrane

1. [78]

   The primary authority relied upon by the first defendant in support of this submission was the judgment of Kearney J in the interlocutory decision of Cochrane v Cochrane (1985) 3 NSWLR 403 at 405.

2. [79]

   In that case, the plaintiff and his wife, the defendant, had borrowed money from the wife’s mother, and given a mortgage to the mother over property that they jointly owned to secure repayment of the debt. The mother died and left a part of her estate to the plaintiff, with the instruction to the trustees to apply part of the plaintiff’s share of the estate in repayment of the debt. The trustees did so, and accordingly gave to the plaintiff a discharge of mortgage, for the purpose of the discharge being registered at the Land Titles Office. Following a deterioration in the marital relationship, the defendant, having obtained the discharge of mortgage, lodged it for registration. The issue before Kearney J was whether an interlocutory injunction should be continued to prevent the registration of the discharge of mortgage. His Honour described the plaintiff’s case in the following terms:

3. [80]

   Given the importance of the reasoning of Kearney J to the first defendant’s argument, it will be appropriate to set out that reasoning at some length (pages 404 and 405):

4. [81]

   It should be noted that in Cochrane v Cochrane both parties were debtors who were jointly primarily liable to the creditor to repay the amount of the debt, and each party mortgaged his or her interest in the property to secure repayment of the joint debt. Neither party executed the mortgage as a surety for the repayment of the debt, in circumstances where the other party was the principal debtor.

5. [82]

   Kearney J observed, at 404, that there was “apparently little relevant authority” on the point, which may be true on the issue that concerned his Honour. As will be seen, there is a great deal of authority on the point concerning whether a surety has a right of subrogation to the creditor’s rights against the principal debtor and any co-sureties, which is the issue that is relevant in the present case.

6. [83]

   His Honour was referred to a passage in Meagher, Gummow and Lehane, Equity Doctrines and Remedies (2nd Ed, 1984, Butterworths) (Meagher, Gummow and Lehane) at [912] et seq. In those paragraphs the learned authors considered the position where a third party pays off a mortgage, and stated the principle, based upon Ghana Commercial Bank v Chandiram [1960] AC 732 at 745, that the third party “is presumed, unless the contrary appears, to intend that the mortgage shall be kept alive for his own benefit”. Kearney J observed that there was “a common thread running through the relevant cases to the effect that the conscience of the mortgagor should be affected so as to cause the mortgage to be kept alive”.

7. [84]

   His Honour stated further, at 405, that “there is no occasion for equity to intervene by way of subrogation where there is available to the third party a remedy at law or in equity sufficient to avoid an unconscionable result”. In stating that proposition, his Honour was not dealing with the case before him, as the plaintiff was not a third party. He then addressed the case where the repayment of the mortgage debt was by a co-mortgagor, who was a principal debtor, and concluded: “In the light of these notions I am unable to accept that the doctrine of subrogation applies to the case of repayment of the mortgage debt by a co-mortgagor in the absence of a very clear reservation expressly or impliedly of such right. Each co-mortgagor being primarily liable for the whole debt, adequate justice is done between them if one has to pay the whole debt, by his entitlement to contribution… The implied indemnity inherent in such relationships [e.g. between surety and principal debtor] and creating the equity calling for subrogation does not exist in the relationship between co-mortgagors”.

8. [85]

   In explaining the basis for his conclusion, Kearney J did so in two steps. The first, (step 1) was that equity would not intervene by way of subrogation where there was available to a third party who pays out a mortgage a remedy at law or in equity sufficient to avoid the unconscionable result that would follow from the mortgage being discharged, when it was paid out on the understanding that security would be provided. This step was said to follow from an analysis of the text book examples and the passages in Meagher, Gummow and Lehane. The second step (step 2) concerned the case where co-mortgagors were also principal co-debtors. In that case, his Honour found that there was no equity justifying subrogation to the creditor’s mortgage in favour of the debtor who paid the debt, as the availability of contribution would provide a sufficient remedy to the payer.

9. [86]

   It must be said, with respect, that Kearney J did not develop the reasoning in his first step. He did not identify circumstances where the third party would not be subrogated to the creditor’s mortgage because other remedies at law or in equity would be sufficient to avoid an unconscionable result. His Honour did not examine the authorities concerning the principle in the Ghana Commercial Bank case, to identify the principles that would lead equity to refuse subrogation because of the availability of some other sufficient remedy.

10. [87]

    The point for which Cochrane v Cochrane is direct authority is that, in the absence of a very clear reservation of the right to enforce the mortgage, one co-debtor, who is also a co-mortgagor, will not be subrogated upon payment of the debt to the rights of the mortgagee under the mortgage against the other debtor, but will be left to its remedy in contribution.

11. [88]

    As an addendum to the consideration of Cochrane v Cochrane, it should be noted, concerning Kearney J’s observation that there was “apparently little relevant authority” on the point before him, that in Batchellor v Lawrence (1861) 9 CB (NS) 543; 142 ER 214, the Court of Common Pleas held that, where 10 co-debtors had been sued to judgment by the creditor, and one of the judgment debtors paid out the debt after having been arrested, that judgment debtor was entitled under the equivalent of s 3 of the Act to an order that the creditor assign to him the judgment that had been obtained. The position should not have been any different if the creditor had any other secured or unsecured rights against the co-debtors. The co-debtors in that case were all primary obligors, in effectively the same position as the plaintiff and the defendant in Cochrane v Cochrane. Batchellor v Lawrence appears to be authority for the proposition that, where s 3 of the Act refers to “a person who…being liable with another for a debt”, it means what it says, and applies to co-principal debtors. This authority does not appear to have been brought to the attention of Kearney J.

Reliance on Rossfreight Holdings Pty Ltd v Unipep Australia Pty Ltd

1. [89]

   The first defendant also relied upon the decision of Campbell J (as his Honour then was) in Rossfreight Holdings Pty Ltd v Unipep Australia Pty Ltd [2002] NSWSC 1074. The plaintiff and the defendant were co-owners of land in the proportions 65% to 35%, upon which they conducted a joint venture enterprise. They executed a mortgage over the land to secure a loan made to the plaintiff, which enabled it to purchase its interest in the land. It was not clear on the evidence whether each party had guaranteed the repayment of the loan by the plaintiff. The mortgage itself was effectively a guarantee by the provision of security. The joint venture broke down and orders were made for the appointment of trustees for the sale of the property, and also for the conducting of an inquiry to ascertain which of the parties owed money to the other, and if so how much. One subject for the inquiry was whether the amount required to discharge the mortgage was to be borne wholly by the plaintiff. It was noted that the defendant might move the Court for interim relief in respect of the discharge of the mortgage.

2. [90]

   The defendant sought from the Court an order that the plaintiff repay the debt and obtain a discharge of the mortgage over the property, or alternatively that the plaintiff pay to the trustees for sale a specified sum to ensure that, after the property was sold and the mortgage debt repaid, the trustees would still have enough money in their hands to cover any obligation of the plaintiff, following the completion of the taking of accounts, to pay money to the defendant.

3. [91]

   Campbell J refused the application for a number of complex reasons that do not require detailed consideration. It is important, however, to note that his Honour observed, at [15], that he did not have before him any of the evidence relevant to the account, and did not know its likely outcome. Accordingly, he did not know whether the orders sought by the defendant would actually be necessary to protect it. Further, one of the questions that had been submitted for inquiry in the account was whether the amount required to discharge the mortgage was to be borne wholly by the plaintiff. The point is that Campbell J had been asked to make qui timet orders in circumstances where the actual need for those orders to be made was uncertain.

4. [92]

   His Honour noted, at [22], that one way that the defendant sought to support its claims was by reliance on the principle of subrogation. The defendant’s submission was that “if [the lender] were to be paid out following the sale of the property, the defendant would then be subrogated to the mortgage, to the extent its interest in the land had been lessened by that payment out”. The defendant relied upon the principle that “where a third party pays off the mortgage he is presumed, unless the contrary appears, to intend that the mortgage shall be kept alive for his own benefit”, based upon the Ghana Commercial Bank case. However, if the loan was paid out of the defendant’s share of the mortgaged property, the defendant would not be a third party within this principle. The defendant then sought to distinguish the part of the reasoning of Kearney J in Cochrane v Cochrane that I have set out above, and described as step 2 in his Honour’s process of reasoning, by submitting (see [25]) that Cochrane v Cochrane is distinguishable because, while “both plaintiff and defendant are liable for the mortgage debt, the liability of the defendant is a secondary liability…in the form of being at risk of having its property taken to satisfy the mortgage debt”.

5. [93]

   The defendant’s position in the case before Campbell J is much closer to the plaintiff’s position in the present case than the plaintiff in Cochrane v Cochrane. The difference in the present case is that the first defendant is a co-guarantor rather than a principal debtor.

6. [94]

   Campbell J stated his conclusion, at [26], in the following terms:

7. [95]

   His Honour’s judgment was delivered on the day of the hearing. The actual decision was to decline to make a quia timet order on either basis sought by the defendant. That was at least in part because of the uncertain state of the accounts as between the parties. It is not clear from the judgment how the possibility that the defendant may have been entitled to be subrogated to the creditor’s mortgage would have assisted the defendant to obtain the quia timet orders that it sought. Nonetheless, Campbell J did state the conclusion that, as the defendant, being a surety, was entitled to be exonerated by the plaintiff, as the principal debtor, and because of the availability, sometimes, of a quia timet injunction to require the early payment out of the mortgage debt secured over the property of a surety, the law had already provided for an appropriate adjustment of the rights of the parties. By analogy with the reasoning in Cochrane v Cochrane, in these circumstances there was no need for an equity of subrogation to arise.

8. [96]

   That conclusion was expressed to be “except, possibly, in a situation where a quia timet injunction would have been available but was not applied for”. The qualified way in which this exception was expressed suggests that Campbell J had not reached a concluded opinion on the issue. His Honour seems to be saying that, as the principal debtor has the obligation to exonerate the surety, and as sometimes at least the surety will be entitled to a quia timet order to require the principal debtor to repay the creditor, which will lift the mortgage from the surety’s property, there will be no need for equity to permit the surety to be subrogated to the creditor’s mortgage. However, Campbell J left open the possibility that, where the Court would have ordered the principal debtor to repay the mortgage debt, but is not asked to do so, subrogation may be available to the surety.

9. [97]

   Campbell J’s reasoning seems to be consistent with the conclusion that the issue is not so much whether subrogation is available, but whether it is necessary. At a time before the creditor has called upon the surety to pay the debt, the surety has the right to seek an order that the principal debtor do so, provided the debt is due and payable, and if that does not happen, the surety is entitled to be exonerated by the principal debtor. If in response to an order the principal debtor repays the mortgage debt that will discharge the surety. There will be no occasion for the surety to need to be subrogated to the mortgage to recover any amount paid from the principal debtor. Campbell J’s reasoning seems to leave open the possibility that, if the surety is called upon to pay by the creditor, the unsecured obligation of the principal debtor to exonerate the surety may not be sufficient to protect the surety, and in that case the surety may be entitled to subrogation to the creditor’s mortgage.

10. [98]

    As equitable remedies are always discretionary, there is more than a hint in this judgment by Campbell J that he did not mean to decide that, as a general rule, a surety who has given a mortgage with the principal debtor over property owned in common by them to secure both parties’ obligations to the creditor, will never be entitled to subrogation to the creditor’s mortgage, but will be restricted to the unsecured right to sue the principal debtor for exoneration.

Reliance on Bofinger v Kingsway Group Limited

1. [99]

   The first defendant claimed that his reliance upon Cochrane v Cochrane is sustained by the treatment given to that case by the High Court in Bofinger v Kingsway Group Limited (above), where their Honours said (footnotes omitted):

2. [100]

   In that case, a company that owned land acquired for development borrowed from three lenders. By separate instruments, two directors of the borrower guaranteed the repayment of each debt. Each guarantee was secured by a Torrens system mortgage against the title to land owned by the guarantors. After the borrower had defaulted under each mortgage, the guarantors sold the properties the subject of the mortgages given by them and used the proceeds to repay part of the borrower’s debt. The first mortgagee then sold some of the properties the subject of the mortgage given by the borrower. It used part of the proceeds to repay the balance of the debt owed to it, which had the result that the first mortgages over those properties were discharged. The first mortgagee then paid the balance of the proceeds of sale of the properties to the second mortgagee. The guarantors then claimed that they were entitled to the monies paid by the first mortgagee to the second mortgagee, and that the first mortgagee should have accounted to them for the balance of the proceeds of sale of the borrower’s properties. That is the issue on which the guarantors succeeded before the High Court.

3. [101]

   In [83] of the judgment of the High Court, which is set out above, the Court said that Cochrane v Cochrane contained an “orthodox statement and application of principles respecting the interrelation between the doctrines of subrogation and contribution”. However, the Court then immediately proceeded to say: “The remedy of one co-mortgagor who pays off the mortgage in full is not of subrogation to the rights of the mortgagee against the other mortgagor, but to contribution from that mortgagor”. That is a clear statement of agreement to the conclusion reached by Kearney J that I have described as step 2 above. That is the step that expressed a conclusion about the right of a co-principal debtor and co-mortgagor to subrogation to the mortgage as against the other co-principal debtor and co-mortgagor.

4. [102]

   The issue before the High Court was whether the guarantors should be subrogated to the rights of the first mortgagee under its mortgage granted by the principal debtor, so that the guarantors would have priority in relation to the excess proceeds of the sale of the principal debtor’s properties over the rights of the second and subsequent mortgagee under their respective mortgages.

5. [103]

   The issue as to whether the conclusion reached by Kearney J, as the second step in his reasoning, represents the law was not the issue before the Court, but I accept that the statements made in [83] represent the seriously considered views of a unanimous High Court and ought to be followed: see the implication to this effect in Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 at [134].

6. [104]

   That still leaves the question of whether the High Court, in [83] intended to give its imprimatur only to step 2 in Kearney J’s conclusions, or whether it intended to approve his reasoning generally.

7. [105]

   For the purposes of determining the case before it, the High Court, at [84], referred to the reference by Kearney J “to the implied indemnity by the principal debtor which reflected the ultimate liability of that party in cases of suretyship”. The High Court then observed that it was the ultimate liability of the borrower company “which in the present case founded the application of the doctrine of subrogation in favour of the appellants”. The High Court noted that Kearney J “contrasted the right of subrogation with the right of contribution between those, such as the present appellants, who are subject to co-ordinate liabilities or common obligations”, where “equity is moved by concern that the common exposure of the contributors to the creditor and the equality of burden not be defeated by the accident or chance that the creditor select for recovery one or some rather than all of the contributors”.

8. [106]

   The High Court concluded, at [88], by referring to Cochrane v Cochrane and stating: “Subrogation may be seen as preventing the unjust enrichment of the principal debtor who otherwise might escape carriage of ultimate liability and contribution prevents one of equal obligors bearing more than its share of the burden. The two doctrines do not let matters lie where they would fall if the carriage of risk between the various actors involved were to be left entirely to be worked out within the limits of their contractual obligations. But as Cochrane shows, and as explained above, the two doctrines have different foundations in equity and operate with different results”.

9. [107]

   In the result, the High Court concluded that the guarantors were entitled to be subrogated to the mortgage of the first mortgagee in respect of so much of the debt owed by the borrower to that mortgagee that had been repaid by the guarantors. By that means the guarantors achieved priority over the second and third mortgagees in respect of the principal debtor’s properties.

10. [108]

    The case was not a case where the party claiming subrogation was a principal debtor who claimed against another principal debtor. Nor was it a case where one co-surety claimed subrogation to the rights of the creditor against another co-surety.

11. [109]

    However, in my view for present purposes, there is no valid distinction between the position of a surety who claims a right to be subrogated to the creditor’s rights against a principal debtor, and the position of a surety who seeks to be subrogated to the same rights as against a co-surety. There is a difference in the surety’s position in the two cases, but only in so far as in the first case the surety has a complete right of indemnity or exoneration against the principal debtor, and in the second case the right is only as to contribution by the co-surety, so that all solvent sureties bear the burden of the debt equally. That distinction has no bearing upon whether the surety should be subrogated to the rights of the creditor. If that conclusion is correct, then albeit indirectly, the decision of the High Court in Bofinger v Kingsway Group Ltd is powerful authority in favour of the plaintiff’s claim in this case to be entitled to be subrogated to Challenger’s rights under the Deed against the first defendant.

12. [110]

    It is appropriate at this point to return to the consideration of a different aspect of the judgment in Bofinger v Kingsway Group Ltd, which I have introduced above.

13. [111]

    In essence, the first defendant relies upon the High Court’s apparent endorsement of step 1 of Kearney J’s reasoning in Cochrane v Cochrane, to the effect that equity would not intervene by way of subrogation where there was available to a third party who pays out a mortgage a remedy at law or in equity sufficient to avoid the unconscionable result that would follow from the mortgage being discharged. That means, the first defendant submits, that subrogation will not generally be available when contribution is available. The first defendant then seeks to pre-empt the argument that s 3 of the Act gives a remedy in statutory subrogation, by relying on [37] in Bofinger v Kingsway Group Ltd for the proposition that the Act does not “supply that deficiency”.

14. [112]

    Section 3, on its face, gives entitlements to a “person who, being a surety for the debt… pays that debt”. These words, if given their natural meaning, would be inconsistent with a construction of the Act whereby a surety who pays the creditor has no right to statutory subrogation to the creditor’s rights against co-sureties who have not paid their fair share of the debt. This gives rise to the question of whether, in referring to the Act as not supplying the deficiency, the High Court meant to exclude the right of a surety to statutory subrogation in respect of the creditor’s rights against co-sureties, or whether the High Court was referring to some other “deficiency”.

15. [113]

    As cases like Craythorne v Swinburne (above), Duncan Fox and Co v North and South Wales Bank (1880) 6 App Cas 1, and Scholefield Goodman and Sons Ltd v Zyngier [1986] AC 562 show, parties who guarantee the same debt may not be subject to co-ordinate liabilities for that debt, because they are not sureties in the same degree. One may be a sub-surety for another surety, or may only become liable if all of the other sureties do not pay. This will depend upon the terms of the various agreements with the creditor. There is no right of contribution or subrogation in favour of sureties against a surety who is of a lesser degree. This situation would fall within the observations of the High Court in [37], that s 3 of the Act would not create in favour of one surety the entitlements provided by this section in favour of a surety in a lesser degree. That outcome would be consistent with the wording of sub-s (3), whereby a surety would not be entitled to recover by means of statutory subrogation from a surety in a lesser degree.

16. [114]

    It may be noted that the decision in Batchellor v Lawrence (above) appears to be inconsistent with the High Court’s conclusion that s 3 of the Act does not supply the deficiency, in view of the High Court’s endorsement of the decision of Kearney J in Cochrane v Cochrane, that equity does not give a right of subrogation to one co-debtor who is also a co-mortgagor in respect of the mortgage given to the creditor.

17. [115]

    I conclude that the true meaning to be given to Bofinger v Kingsway Group Ltd, by reason of the primary finding that sureties are entitled to be subrogated in equity to the creditor’s securities granted by the principal debtor, so that they take in priority after paying out the debt over subsequent mortgagees, is that an equivalent right of subrogation should exist in favour of one surety who has paid more than its fair share of the debt to the rights granted to the creditor by co-sureties. The decision of the High Court does not stand as authority that, as a general principle of equity, wherever a surety has a right of contribution against a co-surety, the surety will not be entitled to subrogation to the creditor’s rights against co-sureties. The decision may be authority for Kearney J’s step 2 in Cochrane v Cochrane, but even if that is so, it is not in any way dispositive of the present case.

18. [116]

    In summary then, the first defendant put a considered argument that subrogation was not available to the plaintiff in this case because equity would have provided the remedy of contribution (though that remedy happens to be statute-barred). In making this argument the first defendant relied upon (1) step 1 in Kearney J’s reasoning in Cochrane v Cochrane; which (2) was explicitly approved by the High Court in Bofinger v Kingsway Group Ltd; and then (3) added that the High Court had excluded the possibility that s 3 of the Act could supply any deficiency so that the plaintiff would have a remedy in subrogation. In my view, these propositions are sustainable if considered in isolation, but they do not ultimately support the submission made, and are in fact inconsistent with the decision of the High Court, provided only that it is correct to equate the High Court’s decision in relation to a surety’s right of subrogation against the principal debtor, to the position of a surety against a co-surety.

Some subsequent consideration of these cases

1. [117]

   It will be convenient to consider briefly at this point how Cochrane v Cochrane and Bofinger v Kingsway Group Ltd have been treated in subsequent editions of Meagher, Gummow and Lehane, given that some views expressed in the second edition of that work were the starting point of Kearney J’s reasoning in Cochrane v Cochrane.

2. [118]

   In the third edition (1992), at [914], the authors set out part of the judgment of Kearney J in Cochrane v Cochrane that I have extracted above, and then express the conclusion:

3. [119]

   Thus, the authors endorsed step 2 in Kearney J’s reasoning. They did so as part of their treatment of the law concerning the payment out of prior securities, and did not consider the subject when dealing with the principles that govern subrogation in the context of guarantees ([942]-[945]). Nor did the authors deal with this issue when discussing contribution and subrogation in the context of their chapter on contribution ([1032]-(1039]).

4. [120]

   In the fourth edition (2002), the editors retained the extract from Cochrane v Cochrane at [9-070], and repeated the reference to step 2 in Kearney J’s conclusions. They added, however, the following concerning Kearney J’s statement that “there is no occasion for equity to intervene by way of subrogation where there is available to the third party a remedy at law or in equity sufficient to avoid an unconscionable result”:

5. [121]

   In New South Wales Medical Defence Union Ltd v Crawford (No 3) [1994] NSWCA 231, Kirby P repeated the statement made by Kearney J, as a reason why (if the issue were able to be raised for the first time on appeal in that case, which it was not) the estate of Dr Bailey would not be subrogated to the rights of Mr Crawford against the Medical Defence Union, in respect of the statutory charge given to Mr Crawford under s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW). The reason given was that Mr Crawford had a direct entitlement to enforce his rights under the Act. Kirby P said: “It is an entitlement Mr Crawford can be trusted to pursue. In such circumstances, there would be no occasion for equity to intervene by way of subrogation to provide a remedy to the estate”. His Honour appears to have reasoned, in a case where a novel right to subrogation was asserted, whereby the estate of Dr Bailey could enforce a statutory charge granted to Mr Crawford in a way that would benefit the estate, that there was no reason to give the estate that right, because Mr Crawford could be trusted to enforce the charge himself.

6. [122]

   The editors of Meagher, Gummow and Lehane, in the fifth edition (2015), essentially repeat the treatment of Cochrane v Cochrane found in the earlier editions. They refer to Bofinger v Kingsway Group Ltd at [9-115], but only in relation to more general issues concerning the doctrinal basis of subrogation, and not to the observations made by the High Court as to the circumstances in which subrogation may be available. Consequently, the only specific circumstance endorsed by the editors as to when subrogation is not available is the case involving the payment of the debt by one co-principal debtor who is also a co-mortgagor.

The right of co-sureties to subrogation in equity

1. [123]

   I have now explained, by what has necessarily been a protracted analysis of Cochrane v Cochrane and Bofinger v Kingsway Group Ltd, and the other cases relied upon by the first defendant, why I do not accept his argument as to why those authorities compel the conclusion that the plaintiff cannot have a right of subrogation because she has a right of contribution from the first defendant that is an adequate remedy.

2. [124]

   I will now consider the authorities that have examined the principles governing subrogation in equity, to explain my view that they clearly establish that the remedies of subrogation and contribution coexist, so that if for any reason a surety is unable to achieve an equal distribution of the burden between co-sureties after paying the creditor by means of the personal action for contribution, the surety is permitted to stand in the shoes of the creditor to enforce the creditor’s securities and other rights against those co-sureties.

3. [125]

   As early as 1744, the Lord Chancellor said in Ex parte Crisp (1744) 1 Atkyns 133; 26 ER 87 at 88 (spelling as in original):

4. [126]

   The reference in the judgment to the surety recovery “what he has paid over and above his own share” should, it is suggested, include reference to recovery from co-sureties, because as against the principal debtor everything that a surety pays is over and above the surety’s own share, and the question of sharing only arises between co-sureties.

5. [127]

   In the House of Lords decision of Duncan, Fox & Co v The North and South Wales Bank (1880) 6 App Cas 1, Lord Selborne LC explained the rights of a surety at 12 and 13, and at 19, Lord Blackburn considered those rights, and in particular the rights of the surety in respect of all of the rights and securities of the creditor in the following terms (footnotes omitted):

6. [128]

   Lord Blackburn stated the equitable principle in general terms, and referred to statutory subrogation as doing no more than recognising and enacting that principle.

7. [129]

   The Appellate Division of the Alberta Supreme Court in McNeil v Short [1926] 4 DLR 951, said at 953:

8. [130]

   The speeches of the Lord Chancellor and Lord Blackburn in the Duncan, Fox & Co case were adopted by the High Court in Buckeridge v Mercantile Credits Ltd (1981) 147 CLR 654; [1981] HCA 62. Aickin J (with whom Gibbs CJ and Wilson J concurred) adopted extracts from their Lordships' speeches at 669. His Honour's statements were obiter, as the case was decided upon the basis that the appellants were not entitled to subrogation because they had not paid any part of the amount due by them under the guarantee to the creditor. After setting out part of the speech of the Lord Chancellor at 13, Aickin J said (footnotes omitted):

9. [131]

   In endorsing the words "all his remedies against the other debtors", Aickin J must have intended to refer not only to securities given to the creditor by the principal debtor, but also securities given by co-sureties.

10. [132]

    Aickin J's adoption of the words of Lord Blackburn was followed by the Court of Appeal in Austin v Royal (1999) 47 NSWLR 27; [1999] NSWCA 222 by Cole AJA at 32 (Meagher and Handley JJA agreeing).

11. [133]

    In that case, Cole AJA said:

12. [134]

    Thus, in Austin v Royal, the Court of Appeal endorsed a description of the right of subrogation as being not strictly a right or cause of action, but an equitable remedy whereby the legal relationships between parties "are regulated as if the benefit of the charge had been assigned", but the plaintiff may not "for all purposes be treated as an actual assignee of the benefit of the charge". (Care must now be taken with Lord Hoffmann’s reliance upon unjust enrichment as the basis for the remedy of subrogation: see Bofinger v Kingsway Group Ltd (above)).

13. [135]

    Bryson J (as his Honour then was) recognised this principle in Official Trustee in Bankruptcy v Citibank Savings Ltd (1995) 38 NSWLR 116, where he said at 119, in respect of a person under a common liability who had borne a disproportionate share of the burden: “…he has an entitlement to be subrogated to the rights which the creditor has not exercised, such as securities over property of others who are under the common liability. This is an application of the equitable principle ‘Equity is Equality’”. His Honour’s statement of principle was accepted by Bergin CJ in Eq in Parker v Alessi (above) at [114].

14. [136]

    There are many other authorities that support the principle that a surety who has paid the creditor is entitled to subrogation to the creditor's securities and other remedies against co-sureties who have not paid. However, in my view these decisions of the High Court and the Court of Appeal settle the issue in principle.

15. [137]

    The conclusion that I have reached is supported by the text writers who have dealt with the rights of sureties in detail.

16. [138]

    In Andrews and Millett, Law of Guarantees (7th ed, 2015, Sweet & Maxwell) (Andrews and Millett), the learned authors say at 12-016 (footnotes omitted):

17. [139]

    The learned editors of Rowlatt on Principal and Surety (6th ed, 2011, Sweet & Maxwell) (Rowlatt) state the principle in the following terms (footnotes omitted):

18. [140]

    O’Donovan and Phillips say at [12-300] (footnotes omitted):

19. [141]

    The authors of that work made the same statement as to the applicable principles at 666-667 of their earlier third Australian edition (1996).

20. [142]

    See also Mitchell and Watterson, Subrogation Law and Practice (1st ed, 2007, Oxford University Press) at [6.14].

21. [143]

    It is fitting to give McLelland J the last word, as in a case decided after Lang v Le Boursicot, his Honour, when McLelland CJ in Eq, provided a fuller explanation of his second conclusion in the earlier case. In Chin Hoat Pty Ltd v National Australia Bank Limited [1996] ANZ ConvR 188; BC9504360, McLelland CJ in Eq said:

22. [144]

    I therefore conclude that in equity the plaintiff has acquired by an assignment from the trustee in bankruptcy of her husband a right to be subrogated to Challenger’s rights against the first defendant under the Deed.

The right of co-sureties to statutory subrogation

1. [145]

   Although the plaintiff amended her statement of claim to add a claim for statutory subrogation, neither party made any significant submissions as to how statutory subrogation operates in this context, where the plaintiff has not obtained by assignment from Challenger a right to sue the second defendant on the Deed.

2. [146]

   In the present context, if that statutory right exists, it must be because s 3(1)(b) of the Act creates a statutory entitlement in the plaintiff to stand in the shoes of Challenger in these proceedings to obtain from the first defendant such payment as is necessary to ensure that he pays an equal share of the debt to Challenger as that paid by the plaintiff’s husband.

3. [147]

   As I have found that the plaintiff is entitled in equity to be subrogated to Challenger’s rights against the first defendant under the Deed, it is not strictly necessary that I decide whether or not she is also entitled to statutory subrogation. However, I will now explain why it is my view that the plaintiff is entitled to statutory subrogation. It is probably necessary that I consider this issue, as part of the basis of the first defendant’s claim that any right to subrogation in the plaintiff is now statute-barred depends upon the drawing of an analogy between equitable subrogation and statutory subrogation.

4. [148]

   On the proper interpretation of the wording of s 3 of the Act, the right of a surety (or other person described in the section) to stand in the place of the creditor in sub-s (1)(b) should not be treated only as an adjunct of the right to enforce judgements, specialties or other securities that are assigned by the creditor to the surety in accordance with the entitlement created by sub-s (1)(a). The use of the word “and” between the two paragraphs of sub-s (1) should be treated as giving the surety an additional right, and not merely a subsidiary right to the right of assignment. If the creditor assigns to a surety a judgment, specialty or other security in accordance with sub-s (1)(a), the fact that the surety is an assignee (after that assignment has been perfected in accordance with any applicable legal provisions) should be sufficient to enable the surety to enforce the judgment, specialty or other security, without the need for a provision such as the one in sub-s (1)(b). That provision would be superfluous if it does not have an independent operation.

5. [149]

   Further, the two paragraphs operate in somewhat different circumstances. The first gives the surety a right to the assignment, and after the assignment the surety can enforce the judgment, specialty or other security independently by exercising all of the rights that were available to the creditor. The second gives of the surety the right to stand in the place of the creditor to use all the remedies of the creditor in any proceedings. That will be a course that may provide satisfaction to the surety where the creditor’s rights against the principal debtor or co-sureties are of a nature where they must be enforced by curial proceedings, or by order of some other tribunal.

6. [150]

   The view that s 3(1)(b) of the Act provides a surety who has paid the debt to the creditor a separate right is supported by the decision of Chitty J in In re McMyn; Lightbown v McMyn (1886) 33 Ch D 575. In that case a creditor had obtained a judgment against a surety and the principal debtor and co-sureties. One of the co-sureties died, and a creditor of the deceased co-surety instituted proceedings for the administration of the co-surety’s estate. The executor of the surety who had paid the debt sought in the administration to establish that the estate of the surety was entitled to priority over other creditors by reason of being able to enforce the judgment obtained by the creditor. There was no assignment of the judgment by the creditor to the surety or her executor. It was argued on behalf of the creditor of the deceased co-surety who had commenced the administration proceedings that the executor of the surety who had paid the debt was not entitled to any priority because there had been no assignment of the judgment.

7. [151]

   Chitty J held at 578:

8. [152]

   This reasoning is accepted in Andrews and Millett at [11-021], and by the learned editors of O’Donovan and Phillips at [12-305], but in the latter case with misgivings at [12-306] and [12-307]. The editors suggest that the principle in Re McMyn should be restricted to the situation where the paying surety invokes the statutory right of subrogation to enforce its claim to contribution from an insolvent co-surety. The reason given is that in any other context, allowing the surety to enforce the creditor’s securities without first obtaining an assignment would logically be inconsistent with the right that the courts have recognised in the surety to sue a creditor who declines to make the assignment to which s 3(1)(a) of the Act entitles the surety for damages for breach of the statutory obligation. It appears that the editors’ view is that, if the statute empowers the surety to stand in the shoes of the creditor without an assignment, the surety would never suffer loss as the result of the refusal of an assignment.

9. [153]

   It is necessary to address this qualification because in the present case the first defendant is not insolvent. I do not think that the inconsistency suggested in O’Donovan and Phillips really exists. In many cases the surety may wish to enforce the creditor’s securities out of court, and in those cases the surety will be thwarted if the creditor refuses to assign the securities. In that case the surety may suffer loss as a result of the refusal. Section 3(1)(b) is directed at “remedies…in any proceedings”. It is true that in that particular context, if the Court permits a surety to stand in the shoes of the creditor, the surety will be able to pursue the creditor’s rights without an assignment, but, just as no assignment is necessary, no loss will be suffered. With respect, the editors’ misgivings evaporate when it is appreciated that work remains to be done by assignments in all cases where the surety wishes to enforce the securities by its own actions out of court.

10. [154]

    Helsham CJ in Eq considered the operation of the predecessor of s 3 of the Act in D & J Fowler (Australia) Ltd v Bank of New South Wales [1982] 2 NSWLR 879. The plaintiffs were the drawers of bills of exchange which were accepted by the debtor, and then negotiated to a bank who paid the discounted amount of the bills to the debtor. When the debtor did not honour the bills on maturity, the bank recovered the amount of the bills from the plaintiffs. In addition to the bank’s rights against the plaintiffs as drawers, the bank had the benefit of two equitable charges given by the debtor, and the joint and several guarantee by each of the two directors and secretary of the debtor and their three wives, and three separate memoranda of mortgage over the homes of the guarantors.

11. [155]

    The question was whether the plaintiffs were entitled to be subrogated to the bank’s rights under the equitable mortgages, the guarantee and the memoranda of mortgage. It was only the guarantors who resisted the plaintiffs’ claim.

12. [156]

    Under its terms, the guarantee was payable on demand, and nothing had ever become payable under the guarantee because the bank had never made a demand. Rather, it chose to recover from the plaintiffs under the bills of exchange.

13. [157]

    This fact explains why the plaintiffs did not make a claim for subrogation in equity, and instead made a claim for statutory subrogation. At 883, the Chief Judge explained that the plaintiffs conceded that the fact that no demand had been made on the guarantee precluded recovery by way of subrogation in equity. His Honour expressed some doubt about whether this concession was necessary. Had the plaintiffs not taken this course, it would have seemed strange that the Chief Judge in Equity did not decide the case on equitable principles.

14. [158]

    Helsham CJ in Eq answered a number of questions concerning the application of the Act, not all of which need to be addressed. In answer to the second question, his Honour held, at 885, that the plaintiffs’ entitlement to the assignment of the bank’s securities extended beyond securities given by the debtor, to include the guarantee and mortgages granted by the co-sureties. In this respect, a guarantee was included within the meaning of securities.

15. [159]

    The third question considered by his Honour was whether the plaintiffs could rely upon the Act to give them a remedy against the guarantors. He said at 885-6:

16. [160]

    In my view, this passage should be understood as involving the Chief Judge interpreting the Act, in accordance with its language, as giving the surety, first, a right to have assigned any security held by the creditor in respect of the debt, and if the surety has an entitlement to the assignment (even if the assignment has not occurred) the surety will be in a position to sue on any judgment, specialty or other security held by the creditor. His Honour then goes on to consider whether, in addition, the surety will be entitled to stand in the shoes of the creditor so far as concerns any security held by the creditor and use all the remedies of the creditor. He then addressed the problem that the bank had not made a demand on the guarantee, and found that the plaintiffs were entitled to an assignment of the guarantee, after which they could make a demand on it, and then enforce the guarantee against the guarantors.

17. [161]

    It is not necessary to delve into the intricacies of the reasoning that occurred to deal with the fact that in the particular case the creditor had not made a demand on the guarantee, before it recovered the amount of the debt from the plaintiffs. Helsham CJ in Eq found that the plaintiffs would ultimately be able to recover, although an assignment of the guarantee might first be necessary so that the demand could be made. Along the way to reaching this conclusion, his Honour appears clearly to have accepted that the predecessor of s 3 of the Act would have permitted the plaintiffs to sue on the guarantee in the proceedings before him, had it not been necessary first to make a demand on the guarantee. This reasoning supports the conclusion that s 3(1)(b) of the Act entitles the surety to stand in the shoes of the creditor to enforce the creditor’s securities against co-sureties in curial proceedings. This conclusion has been accepted by the editors of O’Donovan and Phillips at [12-308]. (This case has been doubted on other grounds in Scholefield Goodman & Sons Ltd v Zyngier (above)).

18. [162]

    In Manzo v 555/255 Pitt Street Pty Ltd (1990) 21 NSWLR 1, Hodgson J (as his Honour then was), in the context of finding that the defendant company was entitled to resist a winding up application on the ground that there was a bona fide dispute on reasonable grounds as to whether the debt relied upon by the plaintiff was owing, appears at 6 to have accepted the decision in Re McMyn, albeit in the form of a statement of the submission made by counsel for the plaintiff. His Honour appears to have accepted that the case established that the effect of the predecessor of s 3 of the Act was that it “entitled a surety who has paid out a creditor to all the remedies of the creditor against the principal debtor”, and that the surety was permitted by the provision to sue in its own name. Hodgson J expressed the opinion, at 7, that the surety would be entitled to the remedies against the debtor which the creditor would have had, had it not been paid out. His Honour cited D & J Fowler (Australia) Ltd v Bank of New South Wales. It must be acknowledged that the principal debtor in Manzo was likely to have been insolvent.

Application of limitation provisions

1. [163]

   The first defendant makes three separate submissions as to why the plaintiff’s subrogation claim against him is statute-barred.

2. [164]

   First, he submits that, if the plaintiff has a right of subrogation, that right arises under s 3 of the Act, and it is now too late for the plaintiff to avail herself of the rights under that section, as if she applies for an assignment of the Deed to her, that will be “a cause of action to recover money recoverable by virtue of an enactment”, within the meaning of s 14(1)(d) of the Limitation Act, and so will be barred as being outside the 6 year limitation period provided in that section.

3. [165]

   The plaintiff does not sue on any security assigned to her by Challenger, and does not claim a right to such an assignment, or for loss caused by a failure to assign any security to her. Section 3(1)(a) of the Act is not relevant to the present case.

4. [166]

   Rather, as an alternative to her claim to be able to enforce Challenger’s rights against the first defendant by subrogation in equity, she claims to be entitled to stand in the place of Challenger and to use its remedies under the Deed against the first defendant to recover the share of the debt for which her husband’s co-surety is responsible. That claim invokes s 3(1)(b) of the Act.

5. [167]

   The question is whether the plaintiff’s standing in the place of Challenger for this purpose is the pursuit of a cause of action to recover money recoverable by virtue of an enactment within the meaning of s 14(1)(d) of the Limitation Act.

6. [168]

   There is a sense in which the plaintiff is seeking to recover money, and in this alternative of her case it is a provision of the Act that enables her to do so. However, the plaintiff is not enforcing a right assigned to her from her husband, but is enforcing a right that was available to Challenger before her husband paid the debt. The right sought to be enforced was created by the Deed and not by any statute. It is only the entitlement to enforce that right that is created by a statute.

7. [169]

   It is necessary to determine the effect of s 14(1)(d) of the Limitation Act on its proper interpretation.

8. [170]

   As “action” is defined in s 11(1) of the Limitation Act as including “any proceeding in a court”, it should be accepted that the plaintiff’s claim is an action for the purposes of s 14(1)(d), but is it a cause of action?

9. [171]

   As noted by Lloyd J in Birdon Contracting Pty Ltd v Hawkesbury City Council (2009) 167 LGERA 178; [2009] NSWLEC 91 (a case that I will consider in more detail below) at [24]: “In Do Carmo v Ford Excavations Pty Ltd (1984) 154 CLR 234 at 245 the phrase “cause of action” was defined by Wilson J as being ‘simply the fact or combination of facts which gives rise to a right to sue’”. In the present case, the plaintiff’s right to sue arises out of a combination of facts, being shortly (a) the borrowing of the debt by the Company and the guarantee of that debt by the plaintiff’s husband and the first defendant; (b) the demand by Challenger for repayment; (c) the payment of the debt by the plaintiff’s husband; and (d) the assignment of the husband’s right of action to the plaintiff by his trustee in bankruptcy. In these circumstances, s 3(1)(b) of the Act empowered the husband to stand in the shoes of Challenger to enforce its rights under the Deed against the first defendant, notwithstanding that the legal effect of the payment of the debt was to discharge the obligation of the co-guarantors under the Deed.

10. [172]

    Yet is it correct to treat the combination of facts referred to in the preceding paragraph as a cause of action that is the separate subject of the application of s 14(1)(d) of the Act, in the sense of a cause of action that is the plaintiff’s cause of action? The answer to this question must depend upon how s 14(1)(d) of the Limitation Act and s 3(1)(b) of the Act should be read together. In so far as the latter provision had the effect that the plaintiff’s husband became entitled to stand in the place of Challenger, it may be that the proper way to read the two statutory provisions together is to not treat the husband as relevantly having his own separate cause of action for limitation purposes, but to treat him as having Challenger’s cause of action, and it is only that cause of action to which any relevant provision of the Limitation Act should apply.

11. [173]

    Such an approach would be consistent with the equitable principle, in respect of which (as noted above at [135]) the Court of Appeal accepted in Austin v Royal, that subrogation is not a right or a cause of action but an equitable remedy. The most literal way to apply s 3(1)(b) of the Act is to treat it in the same way as being a statutory entitlement in the surety to stand in the place of the creditor, and to exercise the creditor’s rights against a co-surety. Although in the sense considered in par [173] above there are a combination of facts that give the surety a right to sue that could be considered to be the relevant cause of action, the better view is that the only cause of action that is relevant in a case of statutory subrogation is the cause of action that is the subject of the subrogation.

12. [174]

    One reason why that is the better view is that otherwise the Limitation Act would operate perversely depending upon how the surety attempted to exercise its rights under s 3 of the Act. If the surety obtained the assignment of the creditor’s rights to which the creditor was entitled against the co-surety, then the surety could pursue those rights and the only limitation provisions that would be relevant would be the provisions that applied to the assigned rights. If it had been the Deed that had been assigned, the applicable limitation period would have been 12 years under s 16 of the Limitation Act. If in addition to the combination of facts that give the creditor a right to sue the co-surety, the facts that give the surety the right to statutory subrogation are included in a separate cause of action for the purposes of s 14(1)(d) of the Limitation Act, then an outcome inconsistent with the apparent intention of s 3 of the Act could occur by reason of a lesser six-year limitation period applying.

13. [175]

    Of course, that result would only occur if it were correct to treat the larger cause of action as being one to recover money recoverable by virtue of an enactment. As an alternative reason for my concluding that s 14(1)(d) does not apply to the present case, I will now explain why I have concluded that the cause of action is not one that falls within that provision.

14. [176]

    The structure of s 14(1)(d) is in two parts, the first being “cause of action to recover money”, and the second being “recoverable by virtue of an enactment”. The second part qualifies the “money” that is the subject of the cause of action in the first part. The structure of the paragraph suggests that it is necessary that the enactment be the source of the right to recover the money, rather than that it is the source of the entitlement to maintain the action. This consideration is not conclusive, but it does support an interpretation of the provision that would require that an enactment rather than a deed be the direct source of the obligation to pay the money.

15. [177]

    It is also instructive to consider the circumstances in which s 14(1)(d) was included in the Limitation Act, and the harm that it was intended to address. The provision was included in the Limitation Act on the recommendation of the Report of the Law Reform Commission on the Limitation of Actions (LRC 3) October 1967. The Commissioners said at [107]:

16. [178]

    Here, the Committee is in effect saying that, under the earlier law of limitations an action for debt upon a specialty had a 20 year limitation period, and a debt created by a statute was a specialty. Note that the Committee used the expression “an action for money under a statute” in contradistinction to “an action founded on simple contract”.

17. [179]

    In respect of s 2(1)(d) of the Limitation Act, 1939 (Imp), Lord Reid said in Central Electricity Board v Halifax Corporation [1963] AC 785 at 799, in respect of the earlier distinction referred to by the Law Reform Commission (footnotes omitted):

18. [180]

    It is not necessary to delve into the difference between the two competing concepts in depth. An illustration may be given from the facts of Gutsell v Reeve [1936] 1 KB 272. The appellant sued for an underpayment of wages, to which he was entitled by a Regulation, more than 6 years after the underpayment had occurred. The effect of the relevant Regulation was that, under his contract of employment, he was entitled to be paid a higher sum than the amount actually provided for in the contract. The Regulation effectively amended the contract. The question was whether the action was for a “debt upon any bond or other specialty” (per Lord Wright MR at 277), in circumstances where it was accepted that a debt created by, or “under” a statute was the highest form of specialty, or alternatively whether it was a debt on a contract without specialty. The Master of the Rolls, at 283, contrasted the instant case, which was brought upon a contract the effect of which had been amended by a statutory rule, and a case where the right sued upon “arose under the statute and nothing else”. As Romer LJ said at 288: “Is the plaintiff bringing an action on the statute of 1924, or is he merely suing in respect of a cause of action given to him by that statute?” The Court of Appeal held that the 6 year limitation period applied, because the appellant was suing on a contract and not upon a statute. For present purposes, it need only be accepted that the “nice distinctions” that arose under the earlier law related to distinguishing between an action on or under a statute, and an action in contract or quasi contract that depended in some way on the operation of a statute.

19. [181]

    The point for present purposes was the simple one that, if a statute was the direct source of the obligation to pay the debt, then the debt was created by a specialty so the longer limitation period applied. The effect of the enactment of s 14(1)(d) of the Limitation Act is that the limitation period for a cause of action to recover money recoverable by virtue of an enactment is 6 years, where “by virtue of” means that the statute is the direct source of the obligation. The provision abrogated the extended limitation period for specialties, where it was a statute that directly created the debt.

20. [182]

    If that reasoning is correct, then, when s 14(1)(d) speaks of the recovery of money recoverable by virtue of an enactment in the present case, it requires that the relevant statute create the obligation to pay the debt (which is not so), rather than that the statute gives one person a right to enforce an obligation that is not created by statute by standing in the place of another person.

21. [183]

    In the case of Birdon Contracting Pty Ltd v Hawkesbury City Council (mentioned above) Lloyd J considered this question in a slightly different context in the following terms, which it is convenient to set out at some length, given the explanation for the result provided by his Honour:

22. [184]

    In Handford, Limitation of Actions: the Laws of Australia (4th ed, 2017, Lawbook Co) at [5.10.2000], the author lists additional cases to those referred to at [37] of Lloyd J’s judgment, all of which consider claims, whereby the right sued upon to which the equivalent of s 15(1)(d) of the Limitation Act applied, were claims that arose directly by reason of the application of the relevant statute.

23. [185]

    For all of these reasons, I have concluded that the plaintiff’s claim in these proceedings against the first defendant, in so far as it involves statutory subrogation under s 3(1)(b) of the Act, is not statute-barred by reason of the direct application of s 14(1)(d) of the Limitation Act.

24. [186]

    The second limitation defence raised by the first defendant is that he submits that, even if the plaintiff’s right to subrogation arises in equity independently of the entitlement provided by s 3 of the Act, it is necessary to determine whether a limitation period applies in equity by analogy. The first defendant submits that it does, and the analogy is either (1) the action for contribution at common law which has a limitation period of 6 years; or (2) the action under s 3 of the Act, which also has a limitation period of 6 years.

25. [187]

    The principles that govern the question of when equity applies a statutory limitation period by analogy are as stated by Campbell J (as his Honour then was) in Belan v Casey (2003) 57 NSWLR 670; [2003] NSWSC 159 at [144]-[149]. The issue was whether equity would apply a limitation period by analogy in an action to enforce an equity of contribution, assuming that equity provided the remedy of contribution as between joint tortfeasors. The present case concerns the equity of subrogation.

26. [188]

    An interesting feature of the present case is that initially the remedy of subrogation was exclusively equitable, and that remedy did not correspond to any remedy at law. Statutory subrogation was enacted so that the common law could simulate the pre-existing equitable principle, so it is strange that any limitation provisions that might limit the availability of statutory subrogation might bring with it limits on the availability of the equitable remedy.

27. [189]

    For present purposes it will be sufficient to note the following extract from Spry, The Principles of Equitable Remedies (6th ed, 2001, Thomson Reuters) at 419 that Campbell J set out with approval at [148]:

28. [190]

    The question the first defendant suggests that the Court should answer is whether there is a sufficiently close similarity between the equitable remedy of subrogation and an action for contribution at common law, or an action under s 3 of the Act, for equity to apply by analogy the limitation period applicable to one or other of those actions.

29. [191]

    First, in my view that question is misconceived, because it involves a comparison between an equitable remedy and causes of action at common law. As has been explained above, subrogation is a remedy made available by equity that enables a surety to pursue a cause of action that is available to the creditor. There is only one cause of action, and it is the creditor’s cause of action.

30. [192]

    Secondly, even if that proposition is not correct, I do not accept that either analogy suggested by the first defendant should be drawn. Even though the outcome of a successful subrogation case may be that the surety recovers from a co-surety the same amount as the co-surety is liable to contribute to the debt paid by the surety, the two claims are different in principle and have a different legal basis. That much clearly follows from Bofinger v Kingsway Group Ltd at [88] (extracted above at [100]).

31. [193]

    Further, there is no similarity between subrogation in equity and a claim by a person with an entitlement to have assigned by a creditor a judgment, specialty or other security under s 3(1)(a) of the Act to specific performance of the obligation to assign, or damages for failure to assign in performance of the obligation. It may well be, although it is not necessary to decide the point, that a claim of this nature may be subject to a 6 year limitation period under s 14(1)(a) or (d) of the Limitation Act. The claim for subrogation in this case has no relation to a claim that the plaintiff’s husband may have been entitled to make against Challenger in hypothetical circumstances that have not occurred.

32. [194]

    The obvious similarity in the present case is that between equitable subrogation and statutory subrogation under s 3(1)(b) of the Act, as the two remedies are almost identical in effect. For the reasons that I have given above in dealing with the first defendant’s first submission, even if an analogy must be drawn between the two remedies, a separate limitation provision does not apply, and the only applicable limitation provision is that which applies to that particular right of the creditor that the surety is permitted to enforce by subrogation.

33. [195]

    Accordingly, I reject the first defendant’s second submission.

34. [196]

    Finally, the first defendant submits that the plaintiff’s claim is statute-barred by the operation of s 13 of the Limitation Act. That section provides:

35. [197]

    The first defendant submits that the plaintiff has a claim against him for contribution that is barred by analogy to the operation of s 14(1)(a) of the Limitation Act, and if she also has an action against him to enforce his obligations under the Deed in favour of Challenger, and even if the limitation period in respect of the latter action would otherwise be 12 years under s 16 of the Limitation Act, s 13 has the effect that the plaintiff’s action against him is not maintainable at all because it was brought after the expiry of the 6 year limitation period for the first of those actions.

36. [198]

    In my view this submission fails, because for it to succeed it would be necessary for the plaintiff to have only one “action” against the first defendant, and for separate provisions of the Limitation Act to provide different limitation periods for that one action under the different provisions.

37. [199]

    That is not so in the present case, because the right of subrogation is not itself an action but a remedy in which equity permits the plaintiff to pursue an action that was available to another party, in this case Challenger, under the Deed against the first defendant. In this case there are two “actions” rather than one. The Limitation Act acts separately on each of the actions, with the result that, if one action is barred by the operation of a provision of that Act, but there is no provision that bars the maintenance of the second action, the second action may be maintained. In this case there is no bar on the plaintiff’s action on the Deed, as the action was commenced before the expiration of the 12 year limitation period provided for in s 16 of the Limitation Act.

Laches

1. [200]

   Against the possibility that the first defendant’s limitation defences failed, he pleaded and maintained that the Court should dismiss the plaintiff’s claim by applying the equitable defence of laches.

2. [201]

   The plaintiff’s husband commenced these proceedings a little less than one month after the period of 6 years following his payment of the debt to Challenger. Consequently, the claim based upon contribution had become statute-barred by slightly less than one month. The first defendant did not in any serious way, or indeed at all, proffer any explanation of why the conduct of the plaintiff’s husband justifies the application of the defence of laches, and I propose to reject that defence without elaborate explanation.

Assessment of amount of contribution

1. [202]

   It will now be necessary to assess the amount that the first defendant should be ordered to pay to the plaintiff.

2. [203]

   The first defendant did not contest that the equitable rule is that where, as in this case, one of the sureties is insolvent, the solvent sureties are required to contribute equally to the relevant amount.

3. [204]

   There is, however, as between the plaintiff and the first defendant, a contest as to what the relevant amount is.

4. [205]

   In her outline of submissions, the plaintiff claimed that the first defendant should be ordered to pay $881,612.55 plus interest and costs (par 34). However, as I understand the way the plaintiff developed her submissions, she claims that the first defendant should also be ordered to pay half of certain costs that have been incurred by the plaintiff.

5. [206]

   The evidence establishes that the amount that was required to pay out the Challenger Facility on 13 January 2009 was $1,763,225.11. The $881,612.55 referred to in the preceding paragraph represents half of this amount.

6. [207]

   The $1,763,225.11 consisted of principal of $1,561,343.34, interest of $126,757.08, interest at a higher rate of $59,340.15, and discharge fees of $15,784.54.

7. [208]

   According to Agreed Fact (10), the amount of the principal that the Company borrowed from Challenger was $1.55 million. This is sufficiently close to the $1,561,343.33 that was repaid as principal for the Court to equate the two amounts. I will adopt a figure of $1.55 million to be consistent with the Agreed Facts.

8. [209]

   According to Agree Fact (6), the amount that the Company borrowed on 15 November 2004 from NAB was $1.4 million, of which, according to Agreed Fact (8), $226,000 was advanced by the Company to Mr Barber to repay his existing indebtedness to ING Bank, and the balance was used for the purposes of the Company.

9. [210]

   Therefore, the NAB Facility financed a loan of $226,000 by the Company to Mr Barber. I infer that none of the principal under that facility was repaid before the facility was paid out of the Challenger Facility. I infer that of the $1.55 million, the amount of $155,000 in excess of the $1.4 million represented accrued interest and payout expenses. That additional amount of $155,000 should be apportioned equally between the amount of $226,000 advanced to Mr Barber and the balance. The result is that $25,000 of the additional amount should be attributed to the $226,000, making a total of $251,000. That amount is about 16% of the principal amount of $1.55 million borrowed from Challenger.

10. [211]

    When the Challenger Facility was repaid, the discharge figure, as noted above, was about $1.76 million. It is proper to treat part of the interest and discharge fees within that amount as being proportionally attributable to the original borrowing by the Company to make the advance to Mr Barber. Sixteen percent of $1.76 million is about $282,000. That is the part of the Challenger Facility payout figure that should be attributed to the original borrowing by the Company to make the advance to Mr Barber.

11. [212]

    The first issue that arises in calculating the amount of contribution that the first defendant should pay is that he contends that Mr Barber would have been wholly responsible for repaying that sum, and as the plaintiff as the assignee of his trustee in bankruptcy stands in his shoes, she is not entitled to contribution from the first defendant in relation to that amount, or any interest or costs that are attributable to it. The plaintiff denies this submission, and submits that Mr Barber was not unjustly enriched when the loan made to him was paid out with the Challenger Facility, which in turn was paid out by the ASL Facility.

12. [213]

    Mr Barber accepted in cross-examination that the amount of $226,000 was recorded in the Company’s financial statements for the year ending 30 June 2005 as a loan from the Company to him. He explained that financial statements for the Company for the period since 2007 are not available, because the books of the Company had been given to its secretary, who was said to be allied to the second defendant, and whose name was not known to Mr Barber. Mr Barber accepted that he did not separately repay the amount of the loan to the Company before the Challenger Facility was repaid out of the ASL Facility on 13 January 2009.

13. [214]

    The first defendant submitted that, even though it cannot now be proved how the $226,000 loan was treated after the Challenger Facility was repaid, or even whether it was dealt with at all, because of the absence of the Company’s financial statements, it should be inferred from the fact that Mr Barber procured the ASL Facility by mortgaging the Property that the legal effect of the repayment was that the $226,000 loan was repaid.

14. [215]

    Alternatively, even if the Company did not treat the $226,000 loan as having been repaid, the Company would have been indebted to Mr Barber in respect of the borrowing that he made from ASL that was used to pay out the Company’s debt to Challenger, and the automatic effect of s 553C of the Corporations Act 2001 (Cth) in the winding up of the Company would be a set-off of the two debts, with the result that the $226,000 loan was extinguished, to the benefit of Mr Barber.

15. [216]

    I have reached the conclusion that the second defendant is not required to contribute to so much of the ASL Facility as should be apportioned to the repayment of the $226,000, any increase in the Company’s borrowing attributable to that amount, and any costs and interest attributable to the repayment of that amount.

16. [217]

    First, in the absence of any specific evidence to the contrary, I would infer from the fact that the three guarantors guaranteed the NAB Facility that the defendants did not intend to assume a co-ordinate liability with Mr Barber for so much of that borrowing as was for his benefit, rather than the benefit of the Company. No agreement or reason has been proved that would cause me to find that the defendants in effect agreed to take on equal responsibility with Mr Barber for repayment of that part of the borrowing, if the Company was unable to repay that part itself.

17. [218]

    The plaintiff submitted that the preparedness of the defendants to give co-ordinate guarantees with Mr Barber for the full amount of the NAB Facility could be explained by the fact that Mr Barber alone took the risk involved in making the Property available to be the subject of the mortgage, when the defendants did not take an equivalent risk. I accept that in different circumstances that consideration could have provided the basis for an agreement by the defendants to take an equal guarantee risk with Mr Barber in respect of the part of the facility that was going to be used to make an advance to him. I would not, however, infer that such an arrangement was made between the three guarantors without any evidence to that effect.

18. [219]

    The basal rule underlying the equitable doctrine of contribution is that each surety of equal degree should bear no more than that surety’s just proportion of the debt, which is recognised in that part of s 5(3) of the Act which limits the right of the co-surety to recover no “more than the proportion to which, as between those parties themselves, that person is justly liable”. In my opinion, as a matter of fundamental principle, a co-surety who pays out the whole of the debt, and thereby gains the benefit of the extinguishment of a liability of that co-surety, cannot obtain contribution from the other co-sureties in respect of any part of that benefit. That statement of principle is supported by the judgment of Bergin CJ in Eq in Parker v Alessi (above), where her Honour said:

19. [220]

    Bergin CJ in Eq then, at [107] to [122], considered authorities which support the principle that the general rule that co-sureties should bear the burden equally is subject not only to a contrary agreement between the co-sureties, but is subject to general equitable considerations of fairness, so that the Court is entitled to take into account any benefit received by one co-surety that is not available to the others.

20. [221]

    Accordingly, in calculating the amount of contribution that the first defendant has to pay there should be excluded from the calculation the whole of the $1.76 million that is attributable to the $226,000 loan, in the manner that I have discussed above, as well as any subsequent costs and expenses that are attributable to that sum.

21. [222]

    It should be recorded that in pars 14(c) and 44(a) of his defence to the further amended statement of claim, the first defendant pleaded that Mr Barber obtained a personal benefit of $50,000 out of the Challenger Facility, and claimed that any obligation on his part to give contribution should be reduced because of the $50,000 benefit as well as the $226,000 loan. The $50,000 was not dealt with in the Agreed Facts. In the plaintiff’s written outline of submissions, at par 30, she said that her submissions concerning why the $226,000 benefit should be ignored “apply to any asserted benefit of $50,000”, and then said that both payments were made with the knowledge and concurrence of the first defendant. It did not appear to me that the $50,000 was separately dealt with in the submissions made on behalf of the first defendant, and the first defendant’s written closing submissions only refer at par 46, to the $226,000. Accordingly, I have not made any findings concerning the $50,000 in these reasons for judgment.

22. [223]

    I am unsure of the real status of this aspect of the first defendant’s defence, and mention it so that it can be dealt with if that is proper and necessary.

23. [224]

    The ASL Facility was for a greater amount than the $1,763,225.11 needed to pay out the Challenger Facility. The facility limit was $2.3 million. From that amount, deductions were made of $264,500 for pre-paid 12 months interest, $72,105 for an approval fee, and estimated fees and expenses of $5095.64, giving total deductions of $341,700.64. The total amount available to the borrower was therefore $1,958,299.36. From this amount, in addition to the $1,763,225.11 paid to discharge the Challenger Facility, $9141 was paid for mortgage duty, $564.30 was paid to ASL’s solicitors, $2000 was paid as a valuation fee, and $183,368.95 was paid to Mr Barber.

24. [225]

    The plaintiff’s written outline of submissions claims, in par 32, that the Court should take into account expenses incurred by Mr Barber associated with the refinancing by ASL of the Challenger Facility, and says: “For the ASL Facility, they included stamp duty, solicitors, valuation fees and Challenger discharge fees of at least $27,489.84 in total”. In fact, taking into account the approval fee, the total of the additional costs was $89,905.94.

25. [226]

    The first defendant responded to the plaintiff’s claim that he should be required to contribute half of these additional costs (after making the adjustment in respect of the $226,000 loan that has been considered above), by saying that there is no authority that supports the principle that co-sureties are required to contribute to the borrowing costs of another co-surety who pays out the whole of the debt.

26. [227]

    I, also, have not found any authority in the cases or the texts that specifically supports the proposition that, if one co-surety is obliged to borrow to pay out the debt, the other co-sureties can be required to contribute to the borrowing costs.

27. [228]

    Counsel for the plaintiff accepted that he also could not find any authority that supported this aspect of the plaintiff’s claim, but he submitted that the claim was justified as an extrapolation of the principal that co-sureties could be ordered to contribute to the legal costs incurred by one co-surety in defending a claim made against that co-surety by the creditor. The plaintiff relied upon the decision of Giles J (as his Honour then was) in Morgan Equipment Co v Rodgers (No 2) (1993) 32 NSWLR 467 at 482:

28. [229]

    Giles JA repeated this passage (with the agreement of Heydon JA) in James Hardie & Co Pty Ltd v Wyong Shire Council (2000) 48 NSWLR 679 at 688-689; [2000] NSWCA 107. The principle was conceded and accepted by Bergin J (as her Honour then was) in Amaca Pty Ltd v CSR Ltd [2001] NSWSC 324 at [108]. Finally, it was approved by Young CJ in Eq (with whom Mason P and Hodgson JA agreed) in CSR Ltd v Amaca Pty Ltd [2007] NSWCA 107 at [44].

29. [230]

    Giles J accepted that it was “but a short step” that costs reasonably incurred by one co-surety in achieving a benefit for the others in the form of the discharge of the debt fall within the fundamental equitable principle, which is to achieve equality of burden and benefit as between co-sureties. This principle is accepted in Rowlatt at [7-64], on the basis that it is assumed that the proceedings were defended on grounds which would relieve the other co-sureties as well and not merely the defending surety on grounds personal to the surety. The same is said by the editors of O’Donovan and Phillips at [12-245], where it is added: “Only where the costs were incurred in raising a reasonable defence against the creditor’s claim on grounds which would also have relieved the co-sureties will the guarantor be able to obtain contribution for a proportionate share of the costs”.

30. [231]

    I am prepared to accept, as a matter of principle, that there may be cases where it is proper to take another “short step”, in giving one surety who incurs transaction costs of borrowing to enable the payment of the debt by that surety to obtain contribution from co-sureties in respect of those costs. The question is when it will be appropriate to order co-sureties to contribute to such costs.

31. [232]

    Just as co-sureties are not automatically required to contribute to the costs of one surety in defending a claim by the creditor, but will only be ordered to do so when the defending surety conducts the defence reasonably in the interests of all co-sureties, a surety who borrows money to repay the debt will not automatically be entitled to contribution from co-sureties in respect of transaction costs.

32. [233]

    If Mr Barber’s position is considered realistically, as he was the only guarantor who provided a security for the guaranteed debt, he had little choice, when Challenger as mortgagee commenced proceedings against him to recover possession of the Property, but to make arrangements to pay the debt.

33. [234]

    However, as is stated in Rowlatt at [7-58], relying principally on Wolmershausen v Gullick [1893] 2 Ch 514:

34. [235]

    The plaintiff did not specifically plead a claim for transaction costs in this case, and apart from the quantification of the transaction costs, the evidence was rudimentary on the issue of whether the plaintiff has an equity for contribution from the first defendant in respect of the transaction costs. In cross-examination, the first defendant asserted that he did not know about the proceedings against Mr Barber for possession of the Property until he saw the statement of claim filed by Mr Barber in these proceedings against him. The matter was not seriously pursued.

35. [236]

    While I am prepared to entertain the view that as a matter of principle there should be cases where equity will require co-sureties to contribute to the transaction costs of the surety who has had to borrow money to repay the creditor, I do not accept that the entitlement to contribution of that nature is universal or automatic. A proper case must be made out, with adequate notice in the ordinary procedural way, that the incurring of the transaction costs was sufficiently for the benefit of all of the sureties that it is just for all of them to bear their fair proportion of those costs.

36. [237]

    I am not satisfied in the present case that the plaintiff has adequately established an entitlement to contribution in respect of the transaction costs.

37. [238]

    There was no evidence that the other co-guarantors were given notice that the transaction costs would be incurred, or given an opportunity, whether by request or by being joined to the proceedings for possession against Mr Barber, to pay their share of the Company’s debt in a way that would have obviated the transaction costs having been incurred, or perhaps incurred at a lesser amount.

38. [239]

    Further, although it is natural that Mr Barber would have wanted to protect the Property from being sold on behalf of Challenger, it is not clear on the whole of the evidence that there was a realistic basis for Mr Barber to believe that incurring the transaction costs was worthwhile, because the refinancing of the Challenger Facility would give Mr Barber a reasonable prospect of ultimately paying out the debt, whether by recovery under the Company’s indemnity, by contribution from the co-guarantors, or otherwise.

39. [240]

    The next issue to be determined is the plaintiff’s entitlement to interest, and the appropriate rate at which interest should be calculated.

40. [241]

    The first defendant did not contest the claim for interest, and as I understand it, said nothing on the subject.

41. [242]

    In Morgan Equipment Co v Rodgers (No 2) (above), Giles J had the following to say on the subject of a surety’s right to interest from co-sureties liable to contribute to the amount paid by the surety in repayment of the principal debt (at 486):

42. [243]

    This approach was approved by McDonald J in Krakowski v Trenorth Ltd (Formerly known as Eurolynx Properties Ltd), Victorian Supreme Court Commercial List, 7 May 1996, unreported, BC9601760.

43. [244]

    I am satisfied that the plaintiff is entitled to a commercial rate of interest. That rate should be the interest rate actually paid by Mr Barber under any facility that he obtained to pay out the Challenger Facility, or any replacement facility for that purpose. It is not clear on the evidence what interest rates were charged against Mr Barber, and for how long those interest rates applied. Eventually, according to Mr Barber’s evidence, the Property was “lost” by reason of the activities of the subsequent mortgagee, Westpac. It is possible that a time came when the appropriate rate of interest would be the Court rate rather than any actual commercial rate that was paid by Mr Barber.

44. [245]

    I will leave it to the parties in the first instance to try to agree appropriate interest rates, and if that does not occur, it will be necessary for the Court to resolve the issue.

Validity of assignment of right of contribution

1. [246]

   The plaintiff became a party to these proceedings as a substitute plaintiff to her husband following the husband’s bankruptcy and the purported assignment of the right of action formulated in the statement of claim vested in the trustee by means of the deed of assignment.

2. [247]

   The first defendant submits that the deed of assignment was ineffective in assigning any right that would permit the plaintiff to maintain the claim in these proceedings against him.

3. [248]

   The first defendant accepts that a trustee in bankruptcy has the power to assign the property vested in the trustee, in circumstances where the rules of maintenance and champerty would formerly have prevented the assignment: Seear v Lawson (1880) 15 Ch D 426.

4. [249]

   The argument made by the first defendant is that it does not follow that a trustee in bankruptcy has the power to assign rights of the bankrupt that are inherently unassignable.

5. [250]

   The first defendant relied upon the decision of the Court of Appeal in Owners of Strata Plan 5290 v CGS & Co Pty Ltd (2011) 81 NSWLR 285; [2011] NSWCA 168 in support of the principle that the power of a bankruptcy trustee or liquidator to assign property does not overcome the inherent unassignability of some property. I will accept that proposition as a general rule, even though the case before the Court of Appeal concerned the right created by a contract that provided that the rights of the parties could not be assigned.

6. [251]

   The argument put by the first defendant depended upon the validity of equating a claim for statutory contribution under s 3 of the Act to a cause of action under s 1317H of the Corporations Act 2001 (Cth).

7. [252]

   The first defendant pointed to the decision of Gleeson JA in Re DH International Pty Ltd [2017] NSWSC 871, where at [19]-[21] his Honour canvassed the various authorities that had concluded either that an action under s 1317H was or was not assignable, without expressing a conclusion on the issue. He contended that the Court should prefer the authorities that concluded that the action was not assignable.

8. [253]

   This submission depended upon the assumption that in reality the action brought by the plaintiff in the present proceedings was an action under s 3 of the Act, notwithstanding that the claim has not been pleaded on that basis. For the reasons that I have given above, that assumption is not made out, and the plaintiff’s claim is one for subrogation to the rights of Challenger under the Deed and does not rely upon the Act.

9. [254]

   The first defendant has not put any submission as to why a claim for subrogation of this nature is not capable of being assigned by Mr Barber’s trustee in bankruptcy. I find that the right is capable of being assigned, and has been validly assigned.

10. [255]

    Although it is not necessary for the Court to do so, I would observe that s 1317H in its terms creates a remedy of the following nature: “A Court may order a person to compensate a corporation or registered scheme for damage suffered by the corporation or scheme if…” It is not hard to see why, if the Court is given a statutory power to order a person to compensate X, that is the only form that the order can take, so that the right is not assignable. It is not necessary for me to venture further into this issue, but it is to be noted that s 3 of the Act creates a statutory entitlement to an assignment of certain rights of the creditor. It does not appear from the wording of the section that there is any reason why the Court is only empowered to enforce that entitlement at the suit of the person who has paid the debt to the creditor.

11. [256]

    I do not accept the alternative aspect of the first defendant’s submission that, even assuming that Mr Barber’s rights against the first defendant have been validly assigned to the plaintiff, all that has been assigned is a right to approach the Court and seek discretionary relief. Albeit that there are equitable defences to a claim for subrogation, I do not accept that there is some general discretion that entitles the Court to grant relief or refuse it on some basis of fairness. That would be inconsistent, I believe, with what the High Court has said in Bofinger v Kingsway Group Ltd (above).

Absence of co-ordinate liability and mutuality

1. [257]

   The first defendant submitted that the plaintiff is not entitled to contribution from the first defendant because those parties were never under a co-ordinate liability in respect of the same debt, and there was no reciprocity of obligation between them.

2. [258]

   The basis of this argument, as I understand it, is that if the first defendant had paid the Company’s debt to Challenger, he could not have obtained contribution from the plaintiff, who in fact both at the time the guarantee was given of the Challenger Facility, and at the time that the facility was paid out, was neither a party to nor had anything to do with the transaction.

3. [259]

   The first defendant relies primarily on the decision of the High Court in HIH Claims Support Ltd v Insurance Australia Ltd (2011) 244 CLR 72; [2011] HCA 31. He also relied upon Heydon JD, Leeming MJ and Turner PG, Meagher, Gummow and Lehane’s Equity Doctrines and Remedies (5th ed, 2015, Butterworths) at [10-065].

4. [260]

   In that case, the High Court clearly restated the essentiality of co-ordinate liability and mutuality of obligation to the existence of an obligation of contribution, but it did so in what Heydon J recognised was a particularly “novel” case.

5. [261]

   An insured was covered for the one loss by policies issued by HIH and also the insurer who was the contractual predecessor of the respondent to the appeal. A loss occurred that entitled the insured to claim under both policies. HIH accepted liability but the respondent’s predecessor did not. After HIH had commenced to fund the insured’s defence of the claim it was placed in liquidation. The Commonwealth established a scheme of which the appellant was made trustee. Shortly, if the insured agreed to assign to the appellant all of his rights of recovery under the HIH policy and against other persons in connection with the matters giving rise to its claim, the appellant would pay out 90% of the claim. The insured acceded to this arrangement and received its 90%. The appellant sued for contribution from the respondent as if both were co-insurers with co-ordinate liabilities to the insured. The High Court rejected the appellant’s claim.

6. [262]

   It was held to be significant that, at the time the loss occurred, the insured could have claimed from both insurers but did not do so. Had a claim been made against one of them, contribution could have been sought against the other. In fact, after the insolvency of HIH, the appellant acquired the insured’s rights in return for its agreement to pay 90% of his claim. If instead of availing itself of the scheme, the insured had pursued a claim against the respondent and the respondent had paid, the respondent would not have had any right to claim for contribution against the appellant. The reason is that the insured would then not have suffered a loss that would have entitled it to participate in the scheme. If the respondent had paid, there was no event in which the appellant would pay any amount to the insured.

7. [263]

   The plurality (Gummow ACJ, Hayne, Crennan and Kiefel JJ) explained in detail at [50] to [56] why the circumstances did not establish that the appellant and the respondent were under true co-ordinate liabilities. It is not necessary to analyse those reasons in detail, save that the following part of their Honours’ judgment may be noted (footnotes omitted):

8. [264]

   Heydon J, in a separate judgment, focused at [66]-[69] on the absence of “mutuality”. Although when the appellant paid the insured it received an assignment of the insured’s rights, had the insured claimed against the respondent it would have had to pay the whole claim without any right of contribution from the appellant.

9. [265]

   While the general confirmation by the High Court of the requirement of co-ordinate liability, and in the sense considered by Heydon J mutuality is authoritative, the facts of the case are in my opinion so unusual that they do not provide significant guidance in the present case.

10. [266]

    In the present case it is accepted that the plaintiff’s husband and the first defendant were co-guarantors under a co-ordinate liability in respect of the debt owed by the Company to Challenger. At a time when the debt was due and payable it was paid by the plaintiff’s husband. At that time the plaintiff’s husband became entitled to contribution from the first defendant, and to prosecute a claim to recover the relevant amount. The entitlement to make that claim vested in the plaintiff’s husband’s trustee in bankruptcy, who then assigned it to the plaintiff. When the entitlement to contribution and to prosecute the claim arose, all of the pre-requisites to the entitlement existed, including mutuality between the first defendant and the plaintiff’s husband, in the sense that if the first defendant had been the one to pay the debt, he would have been entitled to contribution from the plaintiff’s husband. The plaintiff’s husband’s right had vested before the time of the assignment, and it was the vested right that was assigned. It is immaterial that there is now no mutuality or co-ordinate liability between the plaintiff and the first defendant.

11. [267]

    The present case requires the following adjustments to the facts of the case determined by the High Court to make the two cases comparable. If HIH had paid the insured’s claim, it would have had a right of contribution from the respondent. If HIH had then assigned its right of contribution to the appellant, the appellant would have been entitled to enforce that right against the respondent, not because it had a personal right of contribution from it, but because it was the assignee of HIH which did have such a right. There would have been no violation of the requirement for co-ordinate liability or mutuality, because both would have existed as between HIH and the respondent both at the time of the insured’s loss and when HIH paid the insured’s claim.

12. [268]

    The importance of the timing of relevant events is underscored by footnote 108 to the judgment of the plurality, which states: “Theoretically, had the respondent made a payment to Steele [the insured], after the appellant assumed enforceable obligations to Steele also by making a payment, different considerations and equities might have arisen”. That gives rise to the possibility (only) that had the respondent paid the insurer after the appellant assumed liability to the insured the conditions for the existence of a co-ordinate liability may have existed.

Discretionary refusal of relief

1. [269]

   The first defendant submitted that, because in this case the plaintiff’s claim is for the equitable remedy of contribution, the Court has a discretion as to whether or not to grant the relief, and it should not do so because the plaintiff has paid no more than $12,000 to her husband’s trustee in bankruptcy. Consequently, so the first defendant submits, the detriment suffered by the plaintiff was small, was voluntary and had no connection with any failure on the part of the first defendant to contribute to the payment of the guaranteed debt.

2. [270]

   This submission cannot be sustained. It was not supported by any authority. An order for contribution in this case would be an equitable remedy, and would be subject to discretionary rejection by the Court in the application of recognised discretionary defences, such as laches for unclean hands. Authority does not support a principle that there is a general discretion in the Court to reject an equitable claim for relief that would have been good if prosecuted by an assignor, on the basis that the claim has been assigned to an assignee for a price that the Court does not consider to be sufficient.

3. [271]

   If it be assumed that the plaintiff’s husband had a good claim for contribution against the first defendant, the prosecution of that claim by the husband’s trustee in bankruptcy would not have given rise to any equity in the first defendant that would justify the Court in rejecting the claim. The position is not changed if the trustee, for reasons of his own, decides that it is in the best interests of the insolvent administration to assign the husband’s right of action to a third party. The agreement as to the price is a commercial matter between the trustee and the assignee, and is of no concern to the Court or the first defendant.

Conclusion

1. [272]

   The plaintiff is entitled to succeed in these proceedings, and is also entitled to an order that the first defendant pay her costs.

2. [273]

   I invite the parties to consider these reasons for judgment, and to bring in short minutes of order to give effect to them. If agreement cannot be reached, the matter should be relisted by arrangement with my associate.