John Anthony Jeans v John Richard Bruce [2004] NSWSC 539

This matter involved two groups of claims: claims relating to contribution in relation to guarantees and claims in relation to heads of agreement.

The first issue to be determined in this case was the proposition that contribution between co-sureties depends on the underlying legal relationship. At paragraph 249, his Honour quoted extensively from Rowlatt on Principal and Surety, Fifth Edition, Gabriel Moss Q.C. and David Marks, Sweet & Maxwell.  In Rowlatt it was said that “Where a co-surety pays the debt, or more than is proportion of it and the principal is insolvent, the co-surety is entitled to contribution from his fellow co-sureties. It makes no difference whether the co-sureties are bound jointly or severally or jointly and severally.” Rowlett goes on to describe “a surety for the surety”, a concept that was approved of by Gummow J in Street & Halls v Retravision (NSW) Pty Ltd (1995) 56 FCR 588 at 589. This is where “where the surety’s guarantee provides that he cannot be sued unless the other sureties may default, no right to contribution arises against him”. Rowlett then outlined the need for communication between co-sureties; “If there is any doubt as to whether the sum is due, the surety should give notice to the co-sureties to defend, make terms or pay their proportions. If the co-sureties do not take any such action, the co-sureties will not be entitled to claim that the surety paid improperly”.

His Honour then turned to the issue of the release of one co-guarantor releasing all others. “in the case of sureties, joint suretyship is the essential condition of liability of each surety, or as sometimes put, is “part of the consideration of the contract of each” . This is supported by Walker v Bowry (2004) 35 CLR 48. In Walker, the appellant was insolvent. The judgment creditor released the appellant from the judgment debt, accepting a payment of £800. The release of the appellant from the judgment debt effectively discharged the other sureties as well.

His Honour cited the judgment of Campbell J in Belan v Casey (2003) 57 NSWLR 670 who said “it is a fundamental requirement for the availability of equitable contribution that the person claiming it has actually paid, or is about to be required to pay, an obligation from his own money… The onus of establishing that the circumstances exist which warrant the making of an order for contribution is on the person who seeks such an order”.

His Honour proceeded to interpret the indemnity provision of the heads of agreement between the parties. In that regard, his Honour relied on Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 in which Mason J found that there may be situations where the actual intention of the parties should be allowed to prevail over their presumed intention. Mason J found that in some cases “evidence of mutual intention, if amounting to concurrence, is receivable so as to negative an inference sought to be drawn from surrounding circumstances”.

His Honour, at para 275 – 274 noted that “a surety, against whom the creditor has obtained judgment on the guaranteed debt, is entitled to contribution from a co-surety before the surety has paid that debt”, this being apparent from Wolmershausen v Gullick [1893] 2 Ch 514.

His Honour noted at para 276 that there seems to be contradictory authority in relation to “whether or not a surety, who has not paid, and is not able to pay, the guaranteed debt, is entitled to contribution from a co-surety”. His Honour compared the two approaches of Woolmington v Bronze Lamp Restaurant Pty Ltd [1984] 2 NSWLR 242 and Bond v Larobi Pty Ltd (1992) 6 WAR 489. In Woolmington it was held that “the plaintiff would be entitled to the declaration and order only if he had paid the full amount…or…was willing, able and prepared to pay that amount”. Owen J in Bond considered previous case law, including Woolmington and concluded that “I can see no reason in principle why a demonstration of willingness and ability to pay should be a condition precedent to the accrual of the cause of action [for contribution]”. At para 279, his Honour followed the Bond approach and also noted at para 280 that “Where there is no real prospect of the surety making payment, no relief may be granted”.

From para 300, his Honour dealt with a range of estoppels issues.

At para 303, his Honour noted the consistency of the application of the doctrine of res judicata over the centuries. The contemporary definition of the operation of res judicata estoppels was cited by his Honour, as it appears in Spencer Bower, Turner and Handley [Spencer Bower, Turner and Handley, The Doctrine of Res Judicata, Third Edition, Butterworths, London, 1996; ““Where a final judicial decision has been pronounced on the merits by an English [court] with jurisdiction over the parties and the subject matter, any party to such litigation, as against any other party (and in the case of a decision in rem, any person whatsoever, as against any other person) is estopped in any subsequent litigation from disputing such decision on the merits, whether it be used as the foundation of an action, or as a bar to any claim, indictment, affirmative defence or allegation, provided the party entitled raises the point at the proper time.” His Honour noted that this has been the approach in Australia for several years.

Res Judicata involes three distinct categories of estoppels: ‘cause of action estoppels’, ‘issue estoppel’ and “Anshun estoppel’.  Each of these is described in para 304.

  • ‘cause of action estoppel’; where an action has been brought and judgment has been entered in that action, no other proceedings can thereafter be maintained on the same cause of action.” ;quoting Jackson v Goldsmith (1950) 81 CLR 446 at 466
  •  ‘issue estoppel’; citing Hoysted v Federal Commissioner of Taxation(1921) 29 CLR 537 at 561, “differs from a cause of action estoppel in that the scope of its operation is not confined to the final conclusions of law reached in the prior proceedings.”
  • ‘Anshun estoppel’ takes its name from the case from which it is primarily associated ie Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589, “that parties and their privies will be estopped from presenting a claim or defence in subsequent proceedings when, although not actually raised in the first action, that matter was “so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it.”

Where a res judicata estoppel applies, its application is confined to the parties and those in a relationship of privity with the parties; para 306, following Parker v Lewis (1873) LR8ChApp 1056 at 1059-60.

At para 310, his Honour distinguished res judicata estoppels with ‘true’ estoppels, such as promissory estoppels, estoppels by convention etc.

His Honour then considered “one overarching doctrine of estoppels” as discussed in Commonwealth v Verwayen (1990) 170 CLR 394. In relation to ‘true’ estoppels, all forms share two common features, firstly “rests upon some words or conduct of a party that has the effect of affirming a proposition” and secondly “that the estoppel is thereby activated by the fact that the affirmation of that proposition has induced another to act to his/her detriment such that it would be ‘unfair’ or ‘unconscionable’ to permit the first-mentioned person to deny its truth”.

As mentioned above, his Honour dealt with the scope of res judicata as being limited to the parties and their privies. However, at para 319, his Honour identified an apparent exception to this rule, namely the ‘indemnifier’s exception’.  That is, where a non-party is contractually bound to indemnify a party for liability the subject of the original proceedings; Duffield v Scott (1789) 100 ER 628 (in obiter). Subsequent cases have, however, taken the contrary view. At para 331, his Honour said “the ‘estoppel’ referred to … in Duffield is no estoppel at all”. His Honour went on to say, at para 338 that “this case…makes the beginning of a further move away from any notion of the Duffield estoppels as arising from anything other than the contract of indemnity itself”. His Honour went onto consider whether Duffield estoppels can arise from the conduct of the indemnifier rather than the contract of indemnity as was the case in Gracechurch Holdings Pty Ltd v Breeze & Anor (1992) 7 WAR 518. His Honour concluded at paragraph 368 that “the ‘estoppel’ referred to in Duffield has been inexorably latched onto the contract of indemnity rather than any conduct of the indemnifier in the operative nature of the true estoppels”.  At paragraph 369 his Honour clarified the position by saying “the ‘indemnifier’s exception’ to the general rule that only parties and their privies are bound by a res judicata is of dual provenance, being (a) the contract of indemnity; and (b) the words and conduct of the indemnifier, understood in the context of the general law relating to estoppel by representation of fact.”

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