the Good Motel Company Pty Limited (In Liquidation) v Rodeway Pacific International Limited (Formerly the Tourist Group Limited) [1988] ACTSC 73 (23 December 1988)

SUPREME COURT OF THE ACT

THE GOOD MOTEL COMPANY PTY LIMITED (IN LIQUIDATION)
v. RODEWAY PACIFIC INTERNATIONAL LIMITED (formerly THE TOURIST
GROUP LIMITED)
S.C. No. 814 of 1987
Contract - Guarantee

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Miles C.J.(1)

CATCHWORDS

Contract - provision that moneys payable "after six months notice in writing" - whether moneys due six months after written notice specifying a shorter period than six months - question governed by terms of contract.

Guarantee - circumstances in which surety entitled to claim indemnity from debtor - whether surety has paid principal creditor pursuant to guarantee or for some collateral purpose.

Guarantee - whether liability of surety to principal creditor survives bankruptcy of debtor - question governed by terms of contract.

McDonald and Another v. Dennys Lascelles Limited [1933] HCA 25; (1933) 48 CLR 457 at pp 471-472

Jowitt v. Callaghan (1938) 38 NSWSR 513

Halsbury 4th ed. Vol. 20 p 101, para. 187

HEARING

CANBERRA
23:12:1988

ORDER

There be judgment for the plaintiff for the total amount of money lent together with interest.

DECISION

This is an action by a company in liquidation against another company for monies lent. The statement of claim, which was endorsed on the writ issued on 10 July 1987, puts the claim in the following succinct terms:
"3. From early 1985 onwards the plaintiff lent to

the defendant and the defendant agreed to
repay, with interest, certain moneys.
Particulars
Principal $664,093.14
Interest 101,851.98
Less amount repaid 117,827.52
Total outstanding to
1 May 1987 $648,117.60"

2. By its defence filed on 2 October 1987 the defendant did not admit the loan, and, further, alleged that if there was a loan then the plaintiff was not entitled to repayment until after six months notice in writing and no such notice had been given. The defendant also relied upon a claim that its liability to the plaintiff had been "extinguished" by reason of payments made by the defendant on the plaintiff's behalf and the assumption by the defendant at the plaintiff's request of certain obligations and liabilities of the plaintiff.

3. The plaintiff is The Good Motel Company Pty. Limited (in liquidation) (Good Motel). It was incorporated under another name on 26 June 1980. The change to its present name occurred on 21 November 1980. At all relevant times the shareholders in Good Motel were the defendant, now Rodeway Pacific International Limited (Rodeway), but formerly and for most of the period under consideration, The Tourist Group Limited (Tourist Group), and another company Chasewater Pty. Limited (Chasewater). Tourist Group held five thousand shares and Chasewater held five hundred shares. Tourist Group was a shareholder also in a number of other companies which it controlled. It was said in evidence, and there is no reason to doubt, that Tourist Group was the vehicle or clearing house through which the financial affairs of the associated or subsidiary companies were organized. Tourist Group was also referred to as the holding company. Some confusion has arisen by references to "The Tourist Group" sometimes meaning the controlling company and sometimes the group of companies which it controlled, including Good Motel.

4. The business of Tourist Group and its associated companies was the ownership and management of motels in various parts of Australia. There was a board of five directors of Tourist Group and three of them were the directors of Good Motel. They were Edward John Shepherd, Harold Cottee and Alan Trevor Angus. Mr. Shepherd was in effect the managing director of both companies.

5. On 5 February 1981 Good Motel purchased the Crown lease of Block 1 Section 34 Division Narrabundah. The land was situated in Jerrabombra Avenue, Narrabundah and on it was erected a motel called The Crestwood Inn. The purchase price was $567,000. Thereafter Good Motel conducted the business of the motel and did so successfully. On 14 March 1983 Good Motel entered into a lease agreement with Advance OPL Rentals Pty. Limited for the hire of laundry equipment and linen for a term of five years from 14 April 1983. Tourist Group on the same date guaranteed the payment of rent by Good Motel. On 10 February 1984 Good Motel entered into a lease agreement with National Westminster Finance Australia Limited (Natwest) for the lease of air-conditioning equipment for a term of 48 months. Tourist Group on the same date guaranteed the payment of rent and the observance of the terms and conditions of the lease agreement by Good Motel. On 23 November 1984 Good Motel entered into a contract for the sale of the Crown lease and the motel business to Dr Brooks and Dr Porter of Adelaide, who were represented by a solicitor in Adelaide, Mr. Minarelli. The contract for sale provided for a sale price of $1.1 million and for a sublease back to Good Motel for a term of twenty years at an annual rental of $137,500 (the sublease). The contract provided further for periodical review of the rent and for a schedule of refurbishments of the motel to be agreed, such schedule to include the specific amount to be expended over a specified period of time.

6. The contract for sale and purchase provided further in what appears to be clause 1(d) of the Special Conditions: "The lease to be guaranteed by the Tourist Group Limited". Tourist Group was not a party to the contract but a deed of guarantee was executed by Tourist Group on 11 January 1985. A letter from Tourist Group to Mr. Minarelli of the same date, to which reference will be made later, stated that:

"Our company agrees that the guarantee given to
your clients in relation to rent and property
will also extend to cover the improvements which
the abovenamed company (Good Motel) has agreed to
implement over the next three years."

7. Following the sale, Good Motel was left with about $470,000 for which it had no immediate need. These funds were transferred to Tourist Group. It is undisputed that the money was advanced by Good Motel to Tourist Group as an unsecured loan. At the time of the advance there were no terms as to repayment or as to interest. It was the practice of Tourist Group and its associated companies to transfer monies within the accounts of Tourist Group and the various companies from time to time and to reconcile such transfers at the end of each financial year. Insofar as a transfer of funds from one company to another was regarded as a loan, there was no provision for interest, nor for repayment. A term that the loan be repayable on demand was implied.

8. Although not admitted on the pleadings, there is no dispute that the surplus funds resulting from the sale of the motel were lent by Good Motel to Tourist Group at some time before the middle of 1985. The exact date is unknown but it was before 30 June 1985. The exact amount is unclear. The balance sheet of Good Motel as at 30 June 1985 includes an entry amongst current assets of:

"Loan - Tourist Group Limited$449,333"

9. Draft managerial accounts and balance sheets for 30 June 1986 prepared in January 1986 show a figure of $471,743.95 which presumably includes anticipated interest.

10. On about 14 November 1985 Good Motel entered into arrangements with a financier, Alliance Acceptance Co. Limited (Alliance), whereby Alliance advanced monies to Good Motel and the whole of the assets of Good Motel were made the subject of a debenture in favour of Alliance. On that date Good Motel executed a mortgage of the sublease to Alliance, and Tourist Group executed a deed of guarantee in favour of Alliance. (The deed of guarantee is not in evidence but it is referred to in a deed of 30 October 1986. It was clearly a guarantee of Good Motel's liability to make payment pursuant to the debenture and mortgage in favour of Alliance.)

11. On 29 November 1985 the Corporate Affairs Commission wrote to Good Motel expressing concern about the absence of minutes relating to the creation and existence of the loan and the fact that no interest was charged.

12. On 2 December 1985 the directors of Good Motel resolved that the terms and conditions of the loan to Tourist Group be altered to provide for guarantees from companies known as The Camel Farm Pty. Ltd. and Phoenix Motel Pty. Ltd., that interest of twelve percent per annum from 1 July 1985 be required and that repayment be required from proceeds received from the disposal of assets of The Camel Farm Pty. Ltd.

13. These proposals were embodied in a deed to which Good Motel Tourist Group and others were a party executed on 2 December 1985. It contained, amongst other provisions, the following:

"1. The borrower (Tourist Group) will pay the
principal sum together with all interest
then owing thereon to the lender (Good
Motel) on the giving of six months notice in
writing delivered to the borrower at its
registered office.
2. Until such repayment the borrower shall pay
to the lender in such manner and at such
times as the lender may direct, interest at
twelve percent per annum on the principal
sum calculated on monthly rests from 1 July
1985."

14. On 6 December 1985, Mr. Shepherd wrote in reply to the Corporate Affairs Commission. The letter bears the letterhead "Crestwood Inns" at its central office in Adelaide with a notation, "Operated by the Tourist Group Limited" and commences, "Your ref. The Good Motel Co. Pty. Limited". It states amongst other things the following:

"We did not believe it was necessary to minute
loans to or from the Tourist Group as the Good
Motel is a subsidiary company of the Tourist
Group.
No interest is charged on any inter-company
loans.
Unless circumstances require funds to be repaid
to the Good Motel, we see no reason for the debt
to be repaid and in fact it is being used in
terms of developing additional properties for the
holding company.
We believe the directors have used reasonable
care in relation to such loans."

15. The letter is signed by Mr. Shepherd as director, but does not state expressly whether he is writing as a director of Tourist Group or Good Motel or both. Insofar as it is relevant, I find that the letter was written in his capacity as director of both companies.

16. At about the same time a dispute arose between Tourist Group and the minority shareholder in Good Motel, Chasewater. The nature of the dispute is of no direct concern. It appears to have arisen following a change in directorship of Chasewater. Chasewater became concerned about the interest free loan by Good Motel to Tourist Group and petitioned the Court to wind-up Good Motel on the ground of oppressive dealing towards a minority holder. In an affidavit sworn 1 August 1986 in the winding-up proceedings commenced by Chasewater, Mr. Shepherd admitted the loan of $470,000 to Tourist Group and that the loan was repayable with interest, although he claimed that it would be repaid on the sale of Northern Territory property by The Camel Farm Pty. Ltd.

17. On 25 August 1986 Mr. Shepherd and Mr. Angus met in Adelaide as directors of Good Motel. According to a somewhat elaborate set of minutes drawn up to record what happened at the meeting (exhibit 15) "Mr. Cottee was present by telephone due to short notice of meeting". The minutes, which are unsigned and undated, record concern at the possible impending winding-up of Good Motel on the petition of Chasewater and purport also to record the acceptance by Tourist Group of responsibility "for substanial claims relating to shortfalls" expected to occur in the event of the liquidation of Good Motel. The minutes continue as follows:

"Directors confirm and acknowledge the following
claim from the Tourist Group Ltd. for reimbursement
by way of set off against credit funds previously advanced:
1. Landlord
(a) Provision for unpaid or rental adjustments,
upon termination of lease through liquidation
of company.
(b) Claims for incomplete improvements and renovations
to property outstanding at date of termination of lease.
2. Chasewater Pty. Ltd.
(a) Reimbursement of costs associated with
settlement negotiations re loan account.
(b) Reimbursement of management fee directly
associated with settlement of loan:
1983 7,500
1984 8,000
1985 10,250
1986 15,000 $40,750
3. Guarantees to Financiers
(a) Shortfall on equipment leases covering
laundry equipment and airconditioning units,
Nat West Finance Ltd.
(b) Shortfall on fixtures and fittings under
debenture to Alliance Acceptance Ltd.
4. Expenses Incurred by The Tourist Group Ltd.
(a) Running costs associated with motel covering
insurance, legal, advertising.
(b) Adjustment of interest relating to outstanding
loan account.
Due to the issue of a petition to wind up The
Good Motel Co. Pty. Ltd. the directors recognise
the need to reimburse The Tourist Group Ltd. for
guarantees entered into on behalf of the company
and are prepared to accept a claim by The Tourist
Group Ltd. of 2% per annum acceptance fee on all
guarantee facilities provided.
The directors acknowledge that interest is being
paid to the company by The Tourist Group Ltd. on
any credit loan accounts."

18. On 5 September 1986 Alliance acting in accordance with its rights under the deed of debenture appointed a receiver of Good Motel. On 10 September 1986 the receivers wrote to Tourist Group giving notice of their appointment and making demand for repayment of the sum of $644,625 payable by Tourist Group to Good Motel by 5 p.m. on Friday, 12 September 1986 at the Adelaide office of the receivers. The sum demanded represented the amount of the loan together with interest and what the liquidator alleges are shown as "further advances" in the books of Good Motel. The demand for payment was not met and on 12 September 1986 the receivers issued a notice under s.364 of the Companies Act 1981.

19. On 7 October 1986 the Court made an order winding up Good Motel and appointing the liquidator.

20. On 24 October 1986 Mr. Minarelli, on behalf of the sublessors, on being informed or misinformed about the winding-up of Good Motel and the acquisition of fixtures and fittings, plant and equipment by or through Tourist Group, wrote to Asian Pacific International Limited (API) a company which had become a shareholder in Tourist Group, indicating that the sublessors would be prepared to enter into a new sublease to API or its nominee upon the same terms as the sublease to Good Motel upon payment of arrears of rent and subject to other appropriate conditions.

21. By deed executed on 30 October 1986 Alliance entered into arrangements with API and Port Lincoln Motel Pty. Limited (Port Lincoln), a company which was controlled by Tourist Group. Amongst the various arrangements provided for in the deed Alliance transferred and assigned to Port Lincoln all the plant, equipment, furniture and fittings (excluding leased air-conditioning, laundry equipment and photocopier) and stock-in-hand within the ambit of the debenture and then located at the Crestwood Inn, discharged the mortgage of the sublease, released Good Motel from further liability to it for monies owing and released Tourist Group from liability to it under the guarantee of 14 November 1985. In return API agreed to pay Alliance certain sums of money and to obtain certain bank guarantees.

22. The following day, 31 October 1986, Port Lincoln took over the operation of the motel, apparently with the consent of the sublessors. (There is also a suggestion that Port Lincoln had assumed the operation of the motel from 7 October but nothing turns on that.)

23. Tourist Group paid the rent due under the sublease in November and December 1986 and continued to pay it thereafter under its new name, Rodeway.

24. On 3 February 1987 Good Motel transferred the sublease to Port Lincoln. The transfer was registered on 30 June 1987. The transfer is on the conventional printed form. Tourist Group is not a party to it. There is no guarantee given by Tourist Group in respect of the obligations of Port Lincoln to pay rent due on the sublease or to comply with any of the other covenants in the sublease.

25. At this stage it is appropriate to summarise my findings as they relate to the issues so far:

1. Between 1 July 1984 and 30 June 1985 Good Motel
advanced $449,333.00 to Tourist Group by way of
loan.
2. By deed executed 2 December 1985 between Good
Motel and Tourist Group the loan became repayable
after six months notice in writing and Tourist
Group became liable to pay interest at 12% per
annum.
3. Notice in writing requiring repayment was given
on 10 September 1986. Good Motel became entitled
to repayment on 11 March 1987.
4. By 30 June 1986 further advances had been made to
Tourist Group by Good Motel and the total
outstanding, including interest was in excess of
$640,000.
5. Tourist Group guaranteed the obligations of Good
Motel as follows:
a) to pay rent under the sublease;
b) to pay instalments due under the mortgage and
debenture in favour of Alliance, such
obligation commencing on 14 November 1985 and
being discharged on 30 October 1986;
c) to pay rental due on the rental agreement
with Advance OPL Rentals Pty. Limited for the
hire of laundry equipment and linen, dated
14 March 1983;
d) to pay rent due on the lease agreement with
Natwest for the lease of air-conditioning
equipment, dated 10 February 1984.

Defence: Lack of Notice of Demand

26. The first matter raised by way of defence is that the loan is not repayable until after a notice in writing requiring repayment at the expiration of six months after the delivery of such notice and that no such notice has been given. To establish that defence Tourist Group relies on clause 1 of the deed of 2 December 1985. The only notice given was that given by the receiver of Good Motel in the letter of demand dated 10 September 1986. That was a notice which demanded payment by 12 September 1986, that is to say, within a period of two days, and not six months. It was submitted on behalf of Tourist Group that the lapse of more than six months from the giving of the notice together with the fact of non-payment does not amount to compliance with the condition that the loan is not repayable until the lender has given six months notice in writing delivered to the borrower at its registered office in accordance with clause 1 of the deed of 2 December 1985. On the other hand, it is submitted on behalf of Good Motel that this clause on its proper interpretation means that so long as the borrower gives notice that it requires repayment of the loan, then the monies lent become repayable at the end of six months after the notice. Neither party sought to rely upon any judicial authority, and it may well be that resort to other cases is of little assistance. The nature of a notice to quit in the law of landlord and tenant, for instance, is not to the point. It seems to me that the interpretation of clause 1 of the deed urged on behalf of the plaintiff is the preferable one. If the letter of demand had contained words to this effect, that "the lender gives notice to the borrower that repayment of the loan is required", then it is hard to see that it would be arguable that the monies lent did not become repayable six months after the giving of the notice in accordance with clause 1. The notice that was in fact given purported to require payment after the expiry of two days, something to which the lender was clearly not entitled. However, in my view, that did not make the notice invalid. The borrower was entitled to pay at any time during the six months. The lender was not entitled to sue for recovery of the money lent until the expiry of six months. In my view the document is to be read as a notice calling upon the borrower to make repayment of the monies lent in accordance with its obligations under the deed and that obligation was to pay at the end of six months after the receipt of notice in writing. The notice in writing was given, six months expired, and the lender became entitled to repayment and the borrower became liable to repay.
Defence of Set-off

27. The other matter raised in defence is that the obligation or liability to repay monies lent which may have existed on the part of the defendant after the giving of proper notice "has been extinguished by reason of the payment of monies by the defendant at the request of the plaintiff for and on behalf of the plaintiff and the assumption by the defendant at the request of the plaintiff of obligations and liabilities of the plaintiff".

28. The plea that the defendant is not liable to repay the monies lent because "of the payment of monies by the defendant at the request of the plaintiff", does not, in my view, raise a matter in defence in law, but a counterclaim which is to be treated as an equitable set-off. The plea that the defendant is not indebted to the plaintiff by reason of "the assumption by the defendant at the request of the plaintiff of obligations and liabilities of the plaintiff" is ambiguous. It may, on the face of it, amount to some sort of counterclaim or set-off, or it may, on the other hand, amount to a plea of waiver or variation of the agreement upon which the plaintiff sues. Particulars of the defence were furnished by the defendant's solicitors by letter dated 6 November 1987. I do not read those particulars to contain an allegation that there was any waiver of the plaintiff's rights under the original loan agreement or variation of the original loan agreement and accordingly I would regard the whole of paragraph 2 of the defence as alleging a counterclaim and equitable set-off. In this respect the onus is on the defendant to prove the matters alleged to constitute the counterclaim, and equitable set-off.

29. I shall deal with the matters raised on behalf of the defendant as they are set out in the letter of particulars of 6 November 1987. It may be observed that to some respect those particulars mirror and expand the claims made in the unsigned and undated minutes purporting to record the meeting of the directors of Good Motel on 25 August 1986.
Rent due on the sublease

30. I find as a fact that the rent due on the sublease was paid by Tourist Group as follows:

10 November 1986 $13,442,93
23 December 1986 $13,442.93

31. Thereafter rent due on the sublease was paid by Tourist Group after its change of name to Rodeway. There were seven monthly payments of $13,480.83 each from 9 January 1987 to 31 July 1987, a payment of $14,104.79 on 21 September 1987 and a final payment of $14,559.03 on 24 September 1987. The total rent so paid was $149,909.89.

32. Tourist Group claims that the rent so paid was paid "at the request of" Good Motel. This raises what is sometimes called a common money count, the essence of which is the payment of money by one party at the request express or implied of the other where the circumstances imply an obligation on the part of the requesting party to reimburse the paying party. There is no dispute that a guarantor who pays the principal creditor pursuant to a guarantee may claim reimbursement from the principal debtor on a count alleging money paid at the principal debtor's request. That is what is claimed in this case. Tourist Group relies upon its rights as guarantor or surety to seek recourse from the principal debtor: there is no allegation or any actual promise express or implied on the part of Good Motel.

33. It is essential, however, that the surety show that the payment to the principal creditor was paid pursuant to the guarantee for, generally speaking, a person is not entitled to create a creditor/debtor relationship with another simply by paying off the other's debts without invitation. In the present case Good Motel asserts that the payments of rent from 23 November 1986 to 31 August 1987 made by Tourist Group were not made pursuant to the guarantee.

34. Good Motel went into liquidation on 7 October 1986. No request was ever made by the sublessor or the liquidator that Tourist Group pay the instalments of rent on the sublease. The sublease was assigned to Port Lincoln on 3 February 1987. The assignment, however, did not terminate the liability of the assignor to comply with the covenants of the sublease and to pay rent to the sublessor and so long as that liability continued so too continued the potential liability of the guarantor to be called upon to indemnify the sublessor in respect of the sublessee's breaches.

35. An initial question that needs to be considered and which was not addressed by counsel, is whether the obligation of a guarantor survives the bankruptcy of the principal debtor or, where the principal debtor is a company, its liquidation. A suggestion that the surety is not liable on the guarantee after the principal debtor becomes bankrupt is suggested in the following passage from the judgment of Starke J. in McDonald and Another v. Dennys Lascelles Limited [1933] HCA 25; (1933) 48 CLR 457 at p 471-472:

"A surety, however, is not liable on his
guarantee where the principal debt cannot be
enforced, because the essence of the obligation
is that there is an enforceable obligation of a
principal debtor (De Colyar on Guarantees, 3rd
ed. (1897), p 210). A surety is discharged where
the principal debtor is released without his (the
surety's) consent. Again, where the principal is
entitled to a set-off against the creditor's
demand, arising out of the same transaction as
the debt guaranteed and in fact reducing that
debt, the surety is entitled to plead it in an
action by the creditor against the surety alone
(Bechervaise v. Lewis (1872) LR 7 CP 372).
But the generality of the rule is subject to some
modifications. A release in bankruptcy does not
discharge a surety, for that is the act of the
law (Ex parte Jacobs; In re Jacobs (1875) LR 10
Ch 211; In re London Chartered Bank of Australia
(1893) 3 Ch 540. Again, a person who becomes
surety for another under a known disability may
be treated as the principal debtor (Wauthier v.
Wilson (1911) 27 TLR 582 - the case of an
infant), and a person who becomes surety for the
repayment of money borrowed by a company beyond
its powers has been held liable (Yorkshire Rail-
way Wagon Co. v. Maclure (1881) 19 ChD 478;
Garrard v. James (1925) Ch 616), either because
"the obligation of a mere guarantee for a debt
can be satisfied by payments by the surety, who
may be considered as prepared to lose his right
over against the corporation, if the law forbids
it to pay" (Rowlatt, Principal and Surety, 2nd
ed. (1926), p 166, note (d), or because the
surety's liability arises from the failure or
omission of the company, from whatever cause, to
meet its obligations (Garrard v. James). The
present case, however, stands clear of these
modifications of th rule, for there has been no
discharge of the obligations of the contract, in
bankruptcy or analogous proceedings, and no
question of disability or incapacity arises. The
principal debt cannot here be enforced owing to
the acts of the parties in rescinding the
contract of sale."

36. After reviewing the facts, his Honour went on to put the question, "But do these facts make it inequitable for the sureties to rely upon the fact that the principal debt is no longer recoverable owing to the rescission of the contract?" and concluded that they did not.

37. However, in Jowitt v. Callaghan (1938) 38 NSWSR 513 the High Court's decision in McDonald's case was not referred to. In the New South Wales case, Jordan C.J. said at p 520:

"If the contract guarantees the performance of
the whole of the debtor's obligations, and is in
the form of an ordinary contract of guarantee,
subject to no special qualifications, it is
conceived that neither the making of a
sequestration order against the debtor nor his
obtaining an order of discharge releases the
guarantor from his obligations to pay both
principal and interest. But it is in every case
necessary to examine the contract and ascertain
whether it is a true contract of guarantee and if
so whether it contains any special provisions."
Later, at p 521 Jordan C.J. said:
"But a particular contract may by its language
indicate that it is intended to guarantee payment
only of such interest as may be legally exactable
from the debtor by the ordinary process of law,
or, on the other hand that it is intended to
promise payment of any interest which is not paid
by a particular person whether it ever becomes
legally exactable from him or not."

38. Perhaps McDonald's case and Jowitt's case are reconcilable upon the proposition that in every case the position is governed by the contract between the principal creditor and the guarantor. Even where the contract of guarantee on its true analysis might not be enforceable against the guarantor after the debtor's bankruptcy, it may be that the parties think that it is enforceable and the principal creditor makes a demand on the surety which is met. It may be that the surety who pays in those circumstances can recover from the trustee in bankruptcy. But those are not the facts in the present case. In the present case counsel for Tourist Group relied to some extent on the demand by the solicitors for the sublessors in a letter dated 8 April 1988 in which they make formal demand for the instalments due for March and April 1988 from Tourist Group and threaten thereafter "to vigorously prosecute both Rodeway Pacific International and the Tourist Group Limited for all damage suffered as a result of the various defaults" in relation to the sublease. However, the payments of rent which Tourist Group in fact made did not go beyond September 1987. I am not satisfied that any demand had been made on behalf of the sublessor at that stage.

39. The point was not argued but it appears that a surety who pays off the principal creditor without demand by the principal creditor does not have the immediate right to indemnity from the principal debtor which a surety has who has paid off the principal creditor after default by the principal debtor and demand by the principal creditor. Halsbury 4th ed. Vol. 20 says at p 101, para. 187:

"At any time after the debt is due the surety may
apply to the creditor and pay him off, and then,
on giving a proper indemnity for costs, he may
sue the principal debtor in the creditor's name,
or, apparently, in his own name, should he obtain
an assignment of the guaranteed debt. There does
not, however, seem to be any reported instance in
which a surety has ever, in practice, exercised
this right, and certainly the cases in which a
surety makes use of it must be rare, Swire v.
Redman (1876) 1 QBD 536 at 541."

40. In any event, the ultimate question appears to be, in the words of Starke J., whether it is equitable in the circumstances that the surety who has paid the principal creditor after the debt has become unenforceable should have recourse against the principal debtor. In the present case there was no action on the part of the liquidator to encourage Tourist Group to pay or to continue to pay the rent on the sublease. When the liquidator procured the assignment of the sublease to Port Lincoln there was no attempt to obtain a guarantee from Tourist Group of the liability of Port Lincoln to pay rent, and no guarantee was given. It was clearly in the interests of Tourist Group to preserve the asset constituted by the business of the motel, an asset which from 3 February 1987 was in the hands of Port Lincoln, another of Tourist Group's subsidiaries. Payment of the rent helped preserve that asset, which was endangered. I am not persuaded that, as a matter of fact, the payments of rent made by Tourist Group from November 1986 onwards were made pursuant to the guarantee. Nor am I persuaded that those payments should be regarded as made in such circumstances as make it equitable for Good Motel to reimburse Tourist Group.
Air-conditioning Equipment

41. Although the evidence is meagre, it is consistent with the hypothesis that between 23 November 1986 and 31 August 1987 Rodeway paid the rental instalments due by Good Motel to Natwest, a total of $6,917.56. But for the same reasons which I have given in relation to the payments of rent due under the sublease, I am not satisfied that these payments of rent on the air-conditioning equipment made by Tourist Group were made pursuant to the guarantee agreement between Natwest and Tourist Group nor that it is equitable to require Good Motel to reimburse Tourist Group for such payments. In any event, the evidence is at least equally open to the conclusion that payments after November 1986 were not by Tourist Group or Rodeway but by Port Lincoln. Payments by Port Lincoln simply cannot be regarded as payments by Tourist Group.
Laundry Equipment and Linen

42. I will assume that the evidence establishes that between 25 November 1986 and 31 August 1987 Tourist Group paid $15,970.68 representing instalments due on the lease agreement relating to laundry equipment and linen. However, for the same reasons as those relating to the lease of air-conditioning equipment, I am not satisfied that Tourist Group has made out its case. In any event, the evidence is consistent with payments after January 1987 being made by Port Lincoln.
Mortgage Repayments

43. Tourist Group claims that between 2 December 1986 and 29 December 1987 it paid Alliance a total of $208,396.40 in discharge of Good Motel's indebtedness to Alliance in respect of the mortgage given over the real estate and the debenture over the assets of Good Motel. I am not satisfied that these payments were in fact made by Tourist Group, or if they were, whether they were paid by Tourist Group to Alliance. The deed of 30 October 1986 provided that the amounts outstanding on the mortgage and the debenture were to be paid to Alliance by API and not by Tourist Group. Tourist Group was not a party to the deed, although the deed provides that in consideration of the payment of API of all outstanding sums Alliance releases Tourist Group from liability to it under the guarantee. Even if it is established as fact that Tourist Group paid API so that API could pay Alliance, I am not satisfied either that such payment to API was pursuant to the guarantee or that it is equitable that such payment should entitle Tourist Group to have recourse to Good Motel.
Miscellaneous Payments

44. Evidence was given by Mr. Shepherd about certain payments made between December 1986 and August 1988 by Rodeway. There was no claim pursuant to any guarantee, but as I understand it, the claim was that these payments were made in discharge of debts owed by Good Motel and that it was just and equitable that Tourist Group be reimbursed. Some of the payments turned out to be made by Port Lincoln. There was no request for payment on the part of Good Motel. I am not satisfied on the evidence that the debts were owed by Good Motel rather than by some other company within the group.
Miscellaneous Claims

45. It was claimed that various amounts were owing to Tourist Group by Good Motel for time spent by Tourist Group executives on Good Motel business, and also for amounts paid by Tourist Group to the shareholder API for time spent by its officers on Good Motel business. The evidence on these matters was vague, and bearing in mind the relationship between the companies, their officers, and the lack of corroborative documentary material, I am not satisfied that these claims have been established.
Guarantee Fees

46. Tourist Group claimed $38,125.00 as a fee for guaranteeing the liability of Good Motel during the period of the sublease, the lease agreements relating to the air-conditioning and laundry equipment, the Westpac loan (presumably meaning the Alliance mortgage and debenture) and some transaction relating to Mr. H. Cottee. Why the last item was included I do not know. The claim, in any event, was not based on any agreement but simply upon a commercial usage, by which it is usual for a person providing the security of a guarantee to receive a commission of two and a half percent per annum on the sum guaranteed. This may be so in certain commercial dealings, for instance when a customer obtains a guarantee from a bank. But I am not convinced that there is any such usage in transactions such as those under consideration where one company guarantees the indebtedness of an associated company. But in any event it is trite to say that commercial usage does not necessarily constitute a term of a contract or confer a right of action. The minutes of the meeting of 25 August 1986 record that the directors of Good Motel "confirm and acknowledge ..... 2% acceptance fee on all guarantee facilities provided". In view of the conflict of interest between the role as director of Good Motel and directors of Tourist Group, I am not prepared to find that any such resolution by Messrs Shepherd and Angus constitutes an admission that is binding on the company Good Motel, particularly in the light of the impending liquidation of Good Motel which was known to both men. Indeed, I am not prepared to make a positive finding that such a resolution was passed in view of the incomplete nature and form of the minutes.
Refurbishment

47. I have already referred to the letter of 11 January 1985 from Tourist Group to Mr. Minarelli. The contract for the sale of the sublease of that date included the following special condition:

"The vendor and purchasor agreeing to a schedule
of refurbishment of the improvements situated on
the land such schedule to include the specific
amount to be extended over a specified period of
time and the specific purpose for which the
agreed amount shall be extended."

48. I am not satisfied that the vendor and the purchaser, Good Motel, ever entered into an agreement for refurbishment as contemplated. On 20 August 1986 the manager of the Crestwood Inn, who I find was authorised to write on behalf of Good Motel but not Tourist Group, wrote to Mr. Minarelli setting out the items and amounts which the "Property owners" (presumably Good Motel) "agreed to spend" on certain proposed refurbishments and what they had already spent on refurbishments. The letter also purported to set out what Tourist Group had spent and proposed to spend on refurbishments.

49. However, the evidence does not establish that any agreement was ever reached between the sublessors and Good Motel on the matter of refurbishments and if Tourist Group paid any money on such items then it has not been established that such payment was made in pursuance of any guarantee. There is also the question of whether the contract of guarantee insofar as it is evidenced by the letter of 11 January 1985 is supported by consideration moving from the promisee. In any event, I am satisfied neither that Tourist Group spent any money on refurbishments nor that if it did the circumstances establish an obligation that Good Motel reimburse Tourist Group for any such expenditure.

50. The cross-claim fails as does the defence. The plaintiff is entitled to judgment for the total amount of money lent together with interest. I shall refrain from directing the entry of judgment until the parties have had a chance to try to agree on the total amount. If agreement cannot be reached, I shall hear futher submissions.