BROOKER v FRIEND & BROOKER PTY LTD & ANOR (No 3) [2008] NSWCA 118 (29 May 2008)

Last Updated: 3 June 2008

NEW SOUTH WALES COURT OF APPEAL

CITATION:
BROOKER v FRIEND & BROOKER PTY LTD & ANOR (No 3) [2008] NSWCA 118


FILE NUMBER(S):
40438/05

HEARING DATE(S):
21 May 2008

JUDGMENT DATE:
29 May 2008

PARTIES:
Frederick Clarkson BROOKER v FRIEND & BROOKER PTY LTD & Anor

JUDGMENT OF:
Mason P McColl JA Basten JA

LOWER COURT JURISDICTION:
Supreme Court

LOWER COURT FILE NUMBER(S):
SC 5181/2000

LOWER COURT JUDICIAL OFFICER:
Nicholas J

LOWER COURT DATE OF DECISION:
29 April 2005

LOWER COURT MEDIUM NEUTRAL CITATION:
[2005] NSWSC 395

COUNSEL:
Appellant: R G Forster SC / M S White
lst Respondent: No appearance
2nd Respondent: R Newlinds SC / B Kremer

SOLICITORS:
Appellant: Jonathan D'Arcy & Co
1st Respondent: None
2nd Respondent: Bull, Son & Schmidt

CATCHWORDS:
PROCEDURE – judgments and orders – in general – other matters – finalising orders after reasons for judgment given – form of declaration –orders giving effect to reasons

LEGISLATION CITED:


CATEGORY:
Principal judgment

CASES CITED:
Woolmington v Bronze Lamp Restaurant Pty Ltd [1984] 2 NSWLR 242

TEXTS CITED:


DECISION:
Appeal allowed.



JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40438/05

MASON P

McCOLL JA

BASTEN JA

Thursday 29 May 2008

Frederick Clarkson BROOKER v FRIEND & BROOKER PTY LIMITED & Ors

(No 3)

JUDGMENT

1 MASON P and McCOLL JA: The sad disputation and mutual distrust between two former friends and business partners has continued to the final stage of the litigation in this Court. Sharply discrepant sets of draft orders were produced (belatedly) in response to the Court’s directions of 7 May 2008.

2 Senior counsel spoke in clarification of the written submissions, contending for the parties’ preferred orders. Fortunately, this narrowed the disagreement, but only partially. What remained were, in part, the reagitation of issues that were intended by this Court to be closed by the published reasons of the majority; and in part, unaddressed matters still requiring to be resolved as the Court moves towards finalising the appeal and the litigation (subject, of course, to the rights of the parties in the already foreshadowed proceedings in the High Court).

3 Lying behind the different sets of orders were the following issues:

(a) The form of declaration to be made

4 Each party proposes a declaration that seeks to encapsulate the right of contribution intended to be vindicated by this Court. The preferred forms differ and it will be seen below that we have chosen one that seeks to give effect to these and our earlier reasons, in consequence of which it differs from that initially proposed by each protagonist.

(b) Was the whole of the SMK loan applied by Mr Brooker to the purposes of the business?

5 Mr Friend has proposed an order (§2(a)) with the effect of referring to the inquiry of an Associate Judge the question whether the totality of Mr Brooker’s 1986 SMK borrowing of $350,000 was paid to Friend and Brooker Pty Ltd (the company) or otherwise used to meet its expenses.

6 We were referred to Mr Brooker’s answer in cross-examination at the trial when he gave the following evidence (Black 55, emphasis added):

HIS HONOUR: Q. Mr Brooker, could I ask you this; going right back to basics. Did the Peterson interest, SMK, write out a cheque to you, or to somebody else, or what was the chain that got from that entity through to your company, yours and Mr Friend’s?

A. I believe there were cheques written by Mr Peterson’s solicitors from his trust account, and I presume that these were funds which had been contributed by Mr Peterson to Trade Credits Limited, a company creditor or a business creditor; Alcon Investments, a business creditor; Mr and Mrs de Bakker, and a small sum was paid into my personal account, which was then in part used to pay business debts

7 It was not indicated whether there was any other evidence that might cast light on the size of the “small sum” paid into Mr Brooker’s personal account (presumably in 1986) that was only used to pay business expenses “in part”. Nor was it clarified whether the part that was not used to pay business expenses went into Mr Brooker’s pocket, as distinct from being applied towards some other company purpose.

8 As far as we are aware, there were no findings on this question by the primary judge. But the matter has well and truly been addressed in this Court. We refer to the reasons of Mason P of 20 December 2006 (the original judgment) at paras 47 and 55 and of 7 May 2008 at para 42. It is, in our view, too late to reagitate it in the course of resolving the form of final orders.

(c) Proposed set-off of cash advances

9 Mr Friend’s proposed order 2(d) is in a similar category. It seeks to extend the Associate Judge’s inquiry to include:

“the amount to be set-off between the appellant and the second respondent in respect of cash advances from the second respondent to the appellant and the interest accrued thereon at Supreme Court rates.”

10 Mr Friend points to a statement by Mr Brooker referring to a list he prepared of “direct cash transactions” between the two men (Blue 28, 123).

11 The list covers the period between 1986 and 1992. Assuming its accuracy, it represents only one aspect of the extensive dealings between the partners. It contains no entries referable to the SMK transaction. More importantly, it is an aspect of the wider accounting exercise sought by Mr Brooker that Mr Friend successfully blocked. There is no justification in isolating this document. To give it effect in our final orders would be to reopen a door closed by the unanimous judgment of this Court on the general accounting issue and that of Nicholas J.

(d) The accrual of interest with respect to Mr Brooker’s SMK indebtedness

12 Mr Friend next seeks to include in the inquiry the determination of the amount of interest that accrued between the date of the SMK loan and 8 February 1995 (§2(c)). His submissions disclose that this is intended as an instruction to the Associate Judge that interest is not to be calculated beyond 8 February 1995, at least at the rates of accrual stipulated in the SMK loan itself. It is stated that:

This is to protect Mr Friend from the interest charged by SMK after that date in light of Basten JA’s analysis of what occurred then and thereafter, in line with paragraph 162 of McColl JA’s reasons.

13 Paragraph 162 was the penultimate of McColl JA’s reasons in the original judgment. In it, her Honour stated:

In my view neither the passage of time nor the appellant’s receipt of a distribution from the company instead of insisting on its payment to SMK prevents the Court from granting the appellant equitable relief. The respondent has been on notice of the appellant’s claim since at least 1995. He could not, in my view, properly have thought that it had been abandoned. While the respondent might be said to suffer detriment to the extent that interest has accrued on the SMK loan, any such detriment can be met by formulating terms as to, for example, the interest rate and the period for which the respondent should bear liability.

14 In the concluding paragraph 163 her Honour states:

Since preparing these reasons I have read Mason P and Basten JA’s draft judgments. I agree with Mason P that the principles of contribution are an alternative route to the outcome I propose. I also agree, with respect, with his Honour’s analysis of Basten JA’s judgment and with the relief his Honour proposes.

15 The reasons of Mason P in the original judgment included the following:

4. It is not suggested by the respondent that the SMK mortgage debt is statute-barred or otherwise unenforceable. It is secured by mortgages. I interpret the trial judge’s finding that SMK is not “presently proposing to claim against [the appellant] for repayment of the SMK loan” as a statement that the creditor is not pressing, not as a statement that the creditor has released the debt. The passage from Mr Peterson’s evidence set out by Basten JA includes the statement: “I’m not planning to execute against him at the moment....”. The lender would appear to have a right to immediate payment from the appellant (cf Mahoney v McManus [1981] HCA 54; (1981) 180 CLR 370 at 376).

...

16. ... there was nothing to indicate that the terms of the SMK borrowing (originally sanctioned by the respondent) were improvident or that the appellant had undertaken to discharge it within any time frame. Nor was it established that the appellant had ever disabled himself from paying off the balance of the loan. He simply lacked the cash resources to do so, having regard to various commitments. The respondent was not kept in the dark on this matter.

...

44. There is no injustice in requiring the respondent to contribute towards exonerating the appellant as to half of the true cost of the borrowing. Interest-free loans outside family arrangements are rarities. The conversation between the two men that preceded the relevant SMK transaction gave notice, if notice were required, that the borrowing was going to be made. I infer that SMK required the appellant to pledge his credit and to provide the security of two mortgages because it was unwilling to advance money directly to the near-insolvent company. I also infer that the respondent always knew that the SMK borrowing involved interest obligations.

...

53. This is not to say that there may be no outstanding issues as regards quantifying the sum which the respondent should be ordered to pay. For one thing, the current balance of the SMK obligation will need to be ascertained. That will involve an inquiry as to the present state of the appellant’s indebtedness to SMK having regard to the terms of the mortgages, any renegotiation of its terms that has occurred, and such payments on account of capital or interest as have been made.

54. I do not, however, see the appellant’s claim being pegged by reference to the internally negotiated loan account arrangement. After all, the cost of the borrowing was always higher, and the company has (with the participation of the respondent) incapacitated itself from repaying the appellant’s loan account. The balance of the SMK loan has climbed rapidly since and at least partially in consequence of the respondent’s refusal to make contribution when first asked to do so in 1994.

55. I have already indicated why there is, in my view, no need to make allowance for what Basten JA describes as the personal use by Mr Brooker of the $345,000 repaid by the company, which was not used by him in immediate reduction of the SMK loan.

...

58. For these reasons the appellant is, in my view, entitled to a declaration that the respondent is required to contribute equally to the discharge of the outstanding obligations under the SMK loan arrangements, with consequential orders for payment of the appropriate sum. The parties should be directed to file agreed short minutes no later than 10 February 2007. If agreement cannot by then be reached the parties should, within a further 14 days, exchange written submissions detailing their outstanding differences and indicating why their preferred orders should be made. Hopefully, this Court will be able to resolve any outstanding issues without the need to refer the matter to an Associate Justice.

16 These reasons and proposed orders left no room for a continuing debate about Mr Brooker’s entitlement to contribution in relation to his actual indebtedness under the SMK loan at the date of its ultimate discharge.

(e) Allowance for payments made by Mr Brooker since 1995 in reduction of the SMK indebtedness

17 In the two earlier sets of reasons we indicated why, in our view, the burden of Mr Brooker’s obligations under the SMK borrowing were relevantly distinctive from the multifarious dealings that would have been involved in a general accounting had one been ordered by the Supreme Court or this Court. We were also at pains to indicate that Mr Brooker’s successful claim for an equitable contribution referable to that borrowing depended on significantly more than events occurring at its inception in 1986 (see esp 7 May 2008 reasons of Mason P at [14]-[18]).

18 The equitable cause of action that the majority has vindicated in this appeal accrued in the mid 1990s. By this date the company had ceased to trade. $250,000 was apparently repaid to SMK in July 1993 at the direction of the two men from the proceeds of the Eurobodella litigation. But the company coffers were by then effectively cleaned out and it was a series of conversations and events commencing in 1994 that generated the right to contribution that we intend to vindicate. We refer, in particular, to paras 13-22, 31, 37, 45 and 47 of the original judgment of Mason P. It is there pointed out that, by 1995, the parties were drawing smallish sums in equal amounts from the available scraps, but in circumstances that have been found to support Mr Brooker’s claim to equal contribution referable to the outstanding SMK loan.

19 Mr Brooker raised a claim for contribution in relation to the continuing burden of the SMK borrowing upon him as early as 1995.

20 Recently filed submissions by Mr Brooker point to evidence that he made partial repayments of the SMK loan after 1995, using money he borrowed or obtained from the sale of his assets.

21 There was evidence of these matters at first instance (Blue 60-1) and they are adverted to in the original reasons of Mason P at [3].
22 We emphasise that we make no findings on these matters. But there was no suggestion that Mr Brooker’s assertions in this regard were groundless.

23 Mr Brooker wishes to be credited, in the limited accounting that is to take place, with having made these outlays and to receive (by an award of interest) a just recompense for the cost of having done so when he did so.

24 These claims are entirely within the spirit of our findings about the basis for contribution referable to the burden of the SMK borrowing as it stood in 1995. The opening sentence of para 53 of the original judgment of Mason P (reproduced above) shows recognition that the accounting referable to the burden of the SMK loan is to be in aid of the vindicated right to equitable contribution; and that Mr Brooker may already have been required to pay more than his share of the SMK debt as it stood in 1995.

(f) Ensuring that each partner pays what is found to be due

25 We previously indicated our intention to make an order to the effect that Mr Friend pay to SMK his share of the sum found to be due (see para 58 of Mason P’s original reasons). The authority there cited shows that equity may make such an order quia timet in a range of circumstances, including where the plaintiff satisfies the court that he is willing, able and prepared to pay his share (Woolmington v Bronze Lamp Restaurant Pty Ltd [1984] 2 NSWLR 242 at 245. As to an order that the defendant pay a third party who is a creditor see also the cases cited at 243-4.)

26 Responding to Mr Newlinds SC’s submission, we observe that the universal risk that a party whose right to recoupment or contribution is to be vindicated by an equitable remedy might subsequently go bankrupt is no basis for withholding the remedy as of course. In many cases, the remedy is the means of avoiding or reducing that risk. Nevertheless, Mr Friend has through his senior counsel indicated in the clearest of terms that he fears the possibility of some arrangement between the controller of SMK and Mr Brooker the effect of which could be that Mr Friend pays his share in full only to find Brooker not being required to do so.

27 It is not possible at this stage to assess the strength or even the genuineness of Mr Friend’s concerns. Nevertheless, the imminence of the retirement of Mason P and the importance of bringing this litigation to some closure makes it appropriate to make the orders proposed.

28 Given these matters and that considerable time has elapsed since the proceedings were commenced we shall refer to the Associate Judge the devising and (if necessary) supervising of a just method of acquitting the ultimate liability owed (at law) by Mr Brooker to SMK.

(g) Costs issues

29 The costs referable to Mr Friend’s unsuccessful application for this Court to recall all of the reasons of Mason P and nominated paragraphs of the reasons of McColl JA were awarded to Mr Brooker on 7 May 2008. We will not permit Mr Friend to revisit this issue.

30 The costs of the proceedings at first instance culminating in the judgment of Nicholas J call to be determined afresh in light of our partial reversal of his Honour. Mr Brooker has argued in favour of an order that he receive 50% of the costs of the proceedings in the Equity Division. We reject this submission, for the reasons stated by Mason P in para 66 of his reasons of 7 May 2008.

Disposition

31 The following orders should be made:

1. Appeal allowed.

2. Set aside orders of Nicholas J of 20 April 2005.

3. Declare that the second respondent is required to contribute so as to equalise the burden borne by the appellant since 1995 of the appellant’s obligations under the borrowing of $350,000 from SMK Investments Pty Ltd made in 1986.

4. Refer the proceedings to an Associate Judge of the Equity Division to determine (a) the sum due under the said declaration and in accordance with the reasons of Mason P and McColl JA delivered on 20 December 2006, 7 May 2008 and 29 May 2008; and (b) the conditions under which it is just that the second respondent should be ordered to pay to SMK Investments Pty Ltd the sum found to be due by him.

5. Order the second respondent to pay the said sum within 28 days of being served with a minute of the determination of the Associate Judge.

6. Liberty to apply to the Equity Division.

7. No order as to the earlier costs of the proceedings in the Equity Division.

8. Second respondent to pay appellant’s costs of the appeal and to have a Certificate under the Suitors’ Fund Act 1951 if qualified.

9. Upon the second respondent undertaking to file an application for special leave to appeal to the High Court of Australia and to prosecute such application with diligence, stay the implementation of these orders until the determination by the High Court of the application or any subsequent appeal.

32 BASTEN JA: I adhere to my original judgment and have nothing to add, except that I concur in the stay proposed in Order 9.

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LAST UPDATED:
3 June 2008