CAREY v BALFOUR [2021] SASC 79 (30 June 2021)

Last Updated: 1 July 2021

SUPREME COURT OF SOUTH AUSTRALIA

(Magistrates Appeal: Civil)

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CAREY v BALFOUR

[2021] SASC 79

Judgment of the Honourable Justice Hughes

30 June 2021

GUARANTEE AND INDEMNITY - RIGHTS OF SURETY - AGAINST PRINCIPAL DEBTOR

EQUITY - GENERAL PRINCIPLES - UNJUST ENRICHMENT

RESTITUTION - OTHER CAUSES OF ACTION IN RESTITUTION

PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - ENDING PROCEEDINGS EARLY - SUMMARY DISPOSAL - SUMMARY JUDGMENT FOR PLAINTIFF OR APPLICANT

The appellant appealed a decision of the Magistrates Court to grant summary judgment in the sum of $100,000 to the respondent. The respondent was one of the guarantors of a number of loan facilities of which the appellant was one of the principal debtors. When the principal debtors defaulted on their loan repayments, the creditor sent a letter of demand to the respondent. The respondent negotiated a settlement of $150,000 with the creditor to discharge his obligations as guarantor. The respondent then made a claim for $100,000 against the appellant in the Magistrates Court on the basis of a right of indemnity in contract, implied contract and restitution for making the payment to the creditor.

The appellant’s grounds of appeal asserted that the Magistrate made errors in law in relation to the principles of implied contract, restitution and summary judgment, and errors in fact in relation to the factual conclusions drawn on the evidence.

Held, allowing the appeal and remitting the matter to the Magistrates Court:

1. The Magistrate was in error in effectively presuming that a right arises in the absence of a request by the debtor to the guarantor where the debtor accepts finance that is conditional on a guarantee. Further circumstances must be ascertained before the right can be said to arise in contract.

2. The Magistrate did not err in his Honour’s statement of the law in relation to the claim in restitution.

3. The Magistrate erred in finding that the appellant had not pleaded any facts that would militate against a finding that an implied request had been made. The deficiency in the evidence concerning the purpose of the loan and of the guarantee and the arrangements as between the parties should have led to the result that at that point in time it was not possible to conclude that the defence was not reasonably arguable.

4. The factual conclusions drawn regarding the purpose of the contributions made, the parties’ intentions regarding the respondent’s right to indemnification, and the circumstances of the payments made to the bank upon the bank’s demands, are not sufficiently established to allow the conclusions to be drawn.

Magistrates Court Act 1991 (SA) s 40; Magistrates Court (Civil) Rules 2013 (SA) s 8(1), referred to.

Adelaide Brighton Cement Ltd v Hallett Concrete Pty Ltd [2020] SASC 161; Codelfa Constructions Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221; Roxborough v Rothmans of Pall Mall Australia Ltd [2001] HCA 68; (2001) 208 CLR 516; Coshott v Lenin [2007] NSWCA 153; Alexiadis v Zirpiadis [2013] SASCFC 64; BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20; Ceneavenue Pty Ltd v Martin [2008] SASC 158; (2008) 106 SASR 1; White Industries Australia Ltd v Commissioner of Taxation [2007] FCA 511; (2007) 160 FCR 298; Spencer v The Commonwealth of Australia [2010] HCA 28; (2010) 241 CLR 118; Davies v Minister for Urban Development and Planning & Anor [2011] SASC 87; Proude v Visic (No 4) (2013) 117 SASR 560; [2013] SASC 154; Collins v Djunaedi [2016] SASCFC 48, applied.

Israel v Foreshore Properties Pty Ltd (in liq) (1980) 30 ALR 631; (1980) 54 ALJR 421; Owen v Tate [1976] QB 402; Sisic v Krpo [2008] NSWSC 1086; In re a Debtor [1937] Ch 156; Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313; Anson v Anson [1953] 1 QB 636; Cockburn & Ors v Gio Finance Ltd (No 2) [2001] NSWCA 177, (2001) 51 NSWLR 624; Wayland v Tonkin [2002] SASC 366; Rogers v ANZ Banking Group Ltd [1985] WAR 304, discussed.

03 Capital Pty Ltd v Wy Properties Pty Ltd [2016] WASCA 82; 49 WAR 517; Re Gasbourne Pty Ltd [1984] VicRp 70; [1984] VR 801; State Bank of Victoria v Parry (1990) 2 ACSR 15; Limit (No 3) Ltd v ACE Insurance Ltd [2009] NSWSC 517; Barber v De Prima (2018) 97 NSWLR 932; Moule v Garrett [1872] UKLawRpExch 18; (1872) LR 7 Ex 101; Morrice v Redwyn (1731) 2 BKB 26; Ware v Horwood (1807) 14 Ves 28; Alexander v Vane [1836] EngR 5; (1836) 1 M & W 511; Kearsley v Cole [1846] EngR 1116; (1846) 16 M & W 128; Equuscorp Pty Ltd v Haxton (2012) 86 ALJR 296; [2012] HCA 7; Floreani Bros Pty Ltd v Woolscourers (SA) Pty Ltd (1976) 13 SASR 313; Albion Insurance Co Ltd v Government Insurance Office (NSW) [1969] HCA 55; (1969) 121 CLR 342, considered.

CAREY v BALFOUR

[2021] SASC 79

Civil

Introduction

1. Pursuant to s 40 of the Magistrates Court Act 1991 (SA), the appellant, Mr Carey, seeks to appeal a decision of a Magistrate to grant summary judgment in the sum of $100,000 in favour of the respondent, Mr Balfour. For the reasons that follow, I would allow the appeal, set aside the decision to grant summary judgment, dismiss the application and remit the matter to the Magistrates Court for further directions.

Brief factual background

2. In or around 2004, the appellant, the respondent and Mr Robert Kent entered into an oral agreement and commenced jointly operating an entertainment venue known as the Raglans Hotel located at 109 Waymouth Street, Adelaide. The appellant maintains that he entered into this oral agreement in his capacity as a director of WFC Nominees Pty Ltd which is a company he controlled.^[1] The appellant says that the arrangement was a partnership between the respondent (in his own right and in his capacity as trustee of the Balfour Family Trust), Mr Kent and his wife Mrs Karyn Kent (in their own right and in their capacity as trustees of the Kent Family Trust) and WFC Nominees Pty Ltd (in its own right and in its capacity as trustee of the WFC Family Trust).^[2]
3. To facilitate the operation of the business, a company called Raglans Hotel Pty Ltd was established with the appellant having a 40% shareholding, the respondent a 20% shareholding and Mr Kent a 40% shareholding. The respondent maintains that he financed his 20% contribution with his own funds and paid all amounts due and attributable to him in full.^[3]
4. In 2007, the appellant and Mr Kent obtained a commercial loan facility and a commercial bill facility (together “the facilities”) from the Bank of South Australia (‘Bank SA’). The purpose of the commercial bill facility as described in an unsigned copy of a letter of offer from Bank SA dated 20 February 2007 was “[t]o finance ANZ Bank and reimburse directors for funds spent on renovations of Raglans Hotel Pty Ltd.”^[4] The letter of offer indicated that the facility was for the sum of $1,010,000.^[5] There was a signed guarantee in respect of the facility dated 23 February 2007.^[6] A later unsigned letter of offer from Bank SA dated 26 November 2007 offered the appellant and Mr Kent a further commercial bill facility in the sum of $1,108,000 and its purpose was “[t]o assist in the establishment of a Beer Garden at the Marble Bar Hotel.”^[7] The Marble Bar was the name by which the Raglans Hotel was to be known.^[8]
5. The appellant, through his filed Defence (Revision 1),^[9] maintains that although he is unaware of the final terms of the facilities^[10] they were, at least in part, associated with substantial renovations to the premises of the Raglans Hotel business that were undertaken, or were to be undertaken, for the benefit of the partnership and Raglans Hotel Pty Ltd.^[11]
6. A guarantee for the facilities was provided by:^[12]
   • the respondent in his own right and in his capacity as trustee of the Balfour Family Trust;
   • Mr Kent and Mrs Kent in their own right and in their capacity as trustees of the Kent Family Trust;
   • WFC Nominees Pty Ltd in its capacity as trustee of the WFC Family Trust; and
   • Raglans Hotel Pty Ltd.
7. On 26 February 2010, Bank SA offered a loan facility to the appellant and Mr Kent that comprised a commercial bill facility in the sum of $882,000 and a commercial loan facility in the sum of $72,000. The purpose of the commercial bill facility was “[t]o assist in the renovation of Raglans Hotel” and the purpose of the commercial loan facility was “[t]o assist in the refurbishment of the Beer Garden at the Raglans Hotel.”^[13] The only evidence regarding the relationship between the two facilities is the appellant’s contention that the second was an “extension of the first”.
8. On 24 March 2010, this letter of offer was signed by the appellant, Mr Kent and each of the guarantors to the 2007 guarantee. The opening paragraph to the guarantors’ acceptance section of the letter of offer states, “We acknowledge that the Guarantee and Indemnity signed by us on 23^rd February 2007 covering the liabilities from time to time of Robert James Kent and Wayne Francis Carey to the Bank, is still a subsisting security.”^[14]
9. In or around 2011, Raglans Hotel Pty Ltd commenced the process of voluntary administration and then liquidation with debts due and payable to the business’ creditors.
10. By a letter dated 28 June 2011, representatives of Bank SA sent a notice of demand to Mr Kent in respect of a commercial bill facility in the sum of $834,653.70 and a commercial loan facility in the sum of $99,150.20.^[15] As it was addressed to him in a personal capacity, it might be assumed that this was directed to him in his capacity as borrower.
11. The respondent maintains that he received a similar letter of demand, directed to him as a guarantor, and in or around 2012, the respondent commenced negotiations with Bank SA. The respondent states that he negotiated a settlement with Bank SA to pay $150,000 to discharge, or in the alternative, to discharge pro tanto the debt and liability owed by the appellant and Mr Kent.^[16] The respondent paid an instalment of $50,000 of the settlement sum on 27 July 2012 and a second instalment of $100,000 on 19 October 2012.^[17] In an affidavit filed on 14 November 2019, the respondent exhibits a copy of a bank statement that indicates that these payments were made by him “in trust for SB Family Trust”.^[18]
12. The appellant states that he and WFC Nominees Pty Ltd negotiated with Bank SA and paid an agreed amount to discharge their liabilities under the loan facility.^[19] He, however, can no longer recall any further particulars concerning the agreement that was reached with Bank SA.^[20]
13. The pleadings suggest that by the time that the bank made its various approaches to the debtors and the guarantors, the appellant and the respondent were not communicating with one another and their interactions with the bank were undertaken independently of one another.
14. The respondent filed a claim in the Magistrates Court on 23 August 2018 seeking from the appellant the sum of $100,000 by way of indemnity for the settlement sum paid by the respondent as guarantor of the loan, and to recover various other business debts that he maintained he serviced for the business.
15. The appellant filed an application for summary dismissal. That was ultimately not proceeded with. However, on 14 November 2019, the respondent filed an application to amend his claim and an application seeking summary judgment. It was supported by an affidavit of the respondent dated 14 November 2019 (“the respondent’s first affidavit”). The appellant filed an affidavit dated 17 February 2020 (“the appellant’s affidavit”). The respondent filed a second affidavit dated 13 March 2020 (“the respondent’s second affidavit”).
16. In the Second Claim^[21] filed on 1 May 2020, the respondent forewent any claim in relation to the other business debts however maintained his claim in the sum of $100,000 by way of indemnity. The respondent’s claim discloses three potential bases for a right of indemnity: contract or implied contract and on a restitutionary basis through recoupment.^[22]
17. A Magistrate heard the respondent’s application for summary judgment on 2 July 2020 and granted the application to the respondent on 23 July 2020. The affidavits, along with the pleadings, provide the evidentiary base upon which the Magistrate made his decision on the respondent’s application for summary judgment. The Magistrate found that the appellant did not have a reasonable basis to deny the respondent’s right to indemnity as a guarantor either in contract or in restitution.
18. The appellant appeals the grant of summary judgment.

The Magistrate’s reasons in brief

19. After setting out some of the above background, the Magistrate directed himself as to the test for determining summary judgment.
20. The Magistrate did not have the benefit of Doyle J’s analysis of the principles underlying summary judgment in Adelaide Brighton Cement Ltd v Hallett Concrete Pty Ltd.^[23] In any event, the Magistrate directed himself in a manner consistent with that decision, and the parties took no issue with the exposition of the test.
21. The Magistrate proceeded to an analysis of the respondent’s right to be indemnified. He found that a request by the appellant and Mr Kent to the respondent and the other guarantors to give their guarantees to Bank SA could be inferred to have been made from the appellant’s acceptance of the terms of the bank’s offer. His Honour found that a contract arose between the appellant and the respondent an implied term of which was that the appellant indemnified the respondent for any payment made under the guarantee in satisfaction of the appellant’s debt.^[24]
22. The Magistrate considered that if he were wrong about the contract having been created between the appellant and the respondent, the respondent was nevertheless entitled to recover on restitutionary grounds.
23. The Magistrate described his task as determining whether there was a reasonable basis for the defence, by considering the pleaded cases and the undisputed facts, to ascertain whether there might be circumstances such as to make recoupment^[25] inequitable. If not, the Magistrate directed himself that he should conclude that the defence had no reasonable basis and grant the application for summary judgment.^[26]
24. The Magistrate found that a right of indemnity will usually apply where the payment by a guarantor was made under compulsion of law, it was reasonably necessary in the interests of the debtor or guarantor or both, and the payment discharged the liability of the principal debtor, and it is not inequitable to grant rights of recoupment or contribution.^[27] He found that the circumstances of this case met those requirements.
25. The Magistrate found that the appellant “clearly knew of the bank’s requirement for a guarantee from [the respondent] and with that knowledge, requested the bank to provide him with finance.”^[28] Further, the respondent had met his own obligations under the broader agreement between the appellant, respondent and Mr Kent, and therefore the payment could be inferred to be to the appellant’s benefit and not in satisfaction of any of the respondent’s obligations to the company. The Magistrate also found that the respondent had “provided ongoing support to Messsrs Carey and Kent ... over a period of years.”^[29]
26. In rejecting the appellant’s case, the Magistrate found that the Defence contained nothing that provided the appellant with any reasonable basis for denying that he had, by implication, requested the respondent to sign the guarantee.^[30] The Magistrate concluded that, on the pleadings and affidavit material, it was established by the respondent’s assertion and the failure of the applicant to deny it, that there was no outstanding obligation by the respondent to the business that might make a claim of recoupment inequitable. The Magistrate concluded that the uncontentious evidence showed that three men agreed to operate a business together with agreed contributions towards capital costs. The respondent paid his financial contribution and, by reason of his guarantee, a “not insignificant part of” the appellant’s as well.^[31]
27. The Magistrate rejected the appellant’s claim that, because the appellant obtained a release from the bank upon payment for an amount less than the whole of the debt, the appellant received no benefit from the respondent’s payment. He found that when the appellant reached a settlement with the bank, the respondent’s payment reduced the amount owed by the appellant to the bank.^[32]
28. Having found that the defences raised by the appellant were not reasonably arguable, the Magistrate granted summary judgment to the respondent.

Grounds of appeal

29. The appellant asserts numerous grounds of appeal^[33] that may be summarised as follows:
    • The matter was not suitable for summary judgment because of the uncertainty attending the evidence and because of the undecided nature of the legal test for a guarantor’s right to indemnity in the absence of an express agreement;
    • The Magistrate misdirected himself as to the law applicable to implied contract creating a right of indemnification;
    • The Magistrate had wrongly rejected various factual propositions in the Defence relevant to the respondent’s claim to a right to be indemnified;
    • The respondent had not adequately established he had met an essential pre-condition to indemnification, namely that he had made a payment under the guarantee in his own right;
    • There was insufficient evidence upon which to conclude for the purposes of summary judgment, that the respondent had made out the circumstances of the loan and from which the parties’ rights could be discerned;
    • The Magistrate misdirected himself in relation to the right of a guarantor to recover on restitutionary grounds where the guarantor has made a payment under the guarantee.

The appellant’s arguments on the right to indemnity under contractual principles

30. The appellant’s case in respect of the Magistrate’s conclusions regarding the respondent’s right to be indemnified under contract was that the Magistrate had misdirected himself as to the law. The appellant complained that the Magistrate reasoned that where a principal debtor requests a guarantee, the guarantor will “usually” have a right of indemnity arising as an implied term in contract as between the debtor and the guarantor.^[34] The appellant submitted that an implied contract is not axiomatic. The appellant argued that, contrary to the Magistrate’s reasoning, the authorities do not support the proposition that, upon a lender making a loan conditional on a guarantee being provided, a request by the principal debtor to the guarantor for the guarantee will be inferred from a principal debtor’s mere awareness that a guarantee was being provided. Further, from the contract thereby impliedly created, that it will be an implied term of the request for and acceptance of the guarantee that the principal debtor will indemnify the guarantor in the event that the guarantor pays a sum to the creditor under the guarantee.
31. The appellant submitted that whether there is an implied contract, and whether the guarantor’s payment leads to a right of indemnification, are matters to be determined from all of the circumstances of the particular case. The appellant relied upon the High Court’s decision in Israel v Foreshore Properties Pty Ltd (in liq),^[35] and other decisions that considered the right of indemnity such as O3 Capital Pty Ltd v Wy Properties Pty Ltd,^[36] Owen v Tate^[37] and Sisic v Krpo^[38] in support of his contentions. The appellant submitted that these authorities disclose the need to consider the circumstances of the giving of the guarantee before it might be concluded that an implied term of an indemnity arises. In particular, the appellant submitted that the Magistrate was wrong to have distinguished Sisic v Krpo^[39] and ought to have found the facts sufficiently similar for the reasoning to have been followed.
32. Sitting behind the appellant’s challenge to this aspect of the Magistrate’s reasoning are two further contentions. The first is that, on the evidence as available to the Magistrate, the implication of a contract could not confidently be made. The factual issue will be considered later in this decision. The second was that the erroneous reasoning regarding the respondent’s right to indemnity led to what was effectively a reversal of the onus of proof whereby the Magistrate approached the application for summary judgment on the basis that the appellant was required to establish his defence in circumstances in which the respondent had not established his claim, and in which the appellant had foreshadowed that the process of discovery would be critical to any assessment, even on a preliminary basis, of the parties’ respective cases.

The appellant’s grounds relating to the Magistrate’s statements as to the law of restitution in relation to guarantees

33. The appellant’s second primary argument regarding errors of law was that the Magistrate carried over from his analysis of the respondent’s contractual rights into his consideration of the respondent’s restitutionary claim, a displaced presumption in favour of a finding of an entitlement in restitution.
34. Counsel for the appellant argued that the Magistrate erred in his articulation of the restitutionary principles of recoupment when his Honour concluded that the right of indemnity will “usually” apply where the guarantee is given unless exceptional circumstances exist. It was submitted that the existence of a right of indemnity is dependent upon whose interests were served by the giving of the guarantee, the circumstances of the making of the payment, and whether it is just and equitable for the debtor to be required to indemnify the guarantor for the guarantor’s payment.
35. The appellant relied on an English authority, Owen v Tate,^[40] as support for the proposition that consideration of all of the material facts including the manner in which the guarantee arose and the payment that was made by the guarantor, is necessary to found a claim of indemnity under restitutionary principles. It was submitted that the Magistrate erred when he concluded that Owen v Tate was distinguishable as it turned “on its own particular facts rather than operating in opposition to the general rule.”^[41] Counsel for the appellant argued that the principles in Owen v Tate have gained support in other state Supreme Courts^[42] and should be adopted by this Court. It was also argued that the Magistrate failed to acknowledge that the right to indemnity is less straightforward where, as in this case, the guarantor has only discharged part of the debtor’s liability. Further, in reliance on Re Gasbourne Pty Ltd,^[43] whether the case under consideration comes within an exception to a straightforward case may require consideration of the circumstances in which the guarantee was given, the debtor’s default and the guarantor’s payment.
36. The appellant argued that the state of the law was uncertain in that there is little by way of binding authority identifying the circumstances in which recoupment under a guarantee arises, such as to make a grant of summary judgment inapt. The appellant submitted that the only certain proposition was that the state of the evidence was required to be sufficiently clear for either an implied contract or a claim in restitution to be made out, and the evidence did not meet that standard at the time when the application for summary judgment was determined.

The respondent’s case in relation to the Magistrate’s statements of law on the right to indemnity arising from contract

37. The respondent argued that the Magistrate correctly identified the principles governing the respondent’s claim in contract. The respondent argued that a contract was properly inferred from the circumstances of the acceptance of the loan on conditions that included the provision of the guarantee, relying upon In re a Debtor.^[44]
38. It was submitted that the existence of the right in implied contract or as an implied term in contract is particularly apposite where the borrowing and guarantee occur in a single transaction such as the loan in the present case. Accordingly, this was an ordinary case and the application of general well-established principles was appropriate.
39. The respondent argued, relying upon Barber v De Prima,^[45] that a guarantor’s right to recover from a principal debtor by way of implied contract or implied terms in contract endures notwithstanding that a restitutionary approach has been favoured in recent years. Relying on Israel v Foreshore Properties Pty Ltd (in liq),^[46] counsel for the respondent argued that it was not strictly necessary to determine whether a claim is characterised as arising under implied contract, implied terms in contract or restitution, as each recognises that a right of indemnity exists where a guarantee has been discharged.
40. The respondent submitted that no reasonable defence to the existence of an implied contract had been raised in the Defence and accordingly it was not appropriate to await non-party discovery to determine whether a defence might emerge from that process.

The respondent’s case on the Magistrate’s statement of the law on restitution in relation to guarantees

41. The respondent defended the Magistrate’s premise that a finding of a right to indemnity arising from a written guarantee being “usual”, as well-settled and incontrovertible. It was argued that the Magistrate had correctly stated the relevant principles of the restitutionary basis for the right of indemnity. He said that there was no error demonstrated in the description of these principles as a number of authorities such as Karacominakis v Big Country Developments Pty Ltd,^[47] In re A Debtor,^[48] Israel v Foreshore Properties Pty Ltd (in liq)^[49] and Limit (No 3) Ltd v ACE Insurance Limited^[50] indicate that the right of indemnity will apply where the guarantee has been entered into at the express or implied request of the principal debtor and the guarantor makes payment under the guarantee.
42. The respondent maintained that Owen v Tate,^[51] in which a guarantor was found not to be liable to indemnify the principal debtor, is distinguishable on its facts in that it concerned the rights of a guarantor who, unlike the respondent, was not involved in the arrangements as between the lender and the borrower but entered the arrangements at a later stage.

Consideration – the right to indemnity under implied contract

43. The principles governing a guarantor’s right to recover from a debtor after the guarantor satisfies the debt were set out in In re a Debtor,^[52] which drew together the principles from a number of earlier United Kingdom cases.^[53] The Court considered the circumstances of a debtor who had borrowed money from a bank accompanied by a guarantee offered by a guarantor. When the debtor defaulted on her repayment of the loan, the bank called upon the guarantor to pay under the terms of the guarantee. After discharging the debt in accordance with the terms of the guarantee, the guarantor obtained default judgment against the debtor. In considering the claim for indemnity, Sleeser LJ stated:^[54]

There is no doubt that a surety paying a debt is entitled to recover against the principal, as for money paid to his use: Morrice v Redwyn; Woffington v Sparks; in the words of Cozens-Hardy, M.R., in In re Richardson, “It is settled at common law that, given a contract of indemnity, no action could be maintained until actual loss had been incurred. The common law view was first pay and then come to the Court under your agreement to indemnify.” This is the basis of an implied promise to pay.

... But though no question arises that there is no enforceable debt at law which can be enforced by the surety until the surety, being liable and obliged to pay, does pay the creditor (an event which here happened after the passing of the 1935 Act), it by no means follows that the obligation of the principal does not in appropriate circumstances arise by an implied agreement at the time of the giving of the guarantee that the principal, if and when the guarantor is called upon to pay, will indemnify the guarantor, though the event which gives rise to the enforceability of the promise falls later. Such a request may be implied by law from “the fact of entering in the engagement”: per Lord Campbell in Batard v Hawes.

(footnotes omitted)

44. In re a Debtor^[55] concerned an express request by the principal debtor to the guarantor to give the guarantee and an implied request to pay on the guarantee where the creditor demands payment, enlivening a right of indemnity from the principal debtor to the guarantor. Greene LJ said:^[56]

It is, in my opinion, settled beyond possibility of dispute that where “A” at the request of “B” guarantees payment of “B’s” debt to “C”, the law implies an undertaking by “B” to indemnify “A” in respect of any sums which he properly pays to “C” under the guarantee. This is merely a branch of a wider rule which is laid down in numerous authorities. I may quote as examples Brittain v Lloyd, where Pollock C.B. says, “It is clear, that, if one requests another to pay money for him to a stranger, with an express or implied undertaking to repay it, the amount, when paid, is a debt due to the party paying from him at whose request it is paid, and may be recovered on a count for money paid ...... The request to pay, and the payment according to it, constitute the debt; and whether the request be direct, as where the party is expressly desired by the defendant to pay, or indirect, where he is placed by him under a liability to pay, and does pay, makes no difference”; and Batard v Hawes, where Lord Campbell said, “To support the action for money paid, it is necessary that there should be a request from the defendant to pay, either express or implied by law. Where one party enters into a legal liability for and at the request of another, a request to pay the money is implied by law from the fact of entering into the engagement; and, if the debt or liability is incurred entirely for a principal, the surety, being liable for him at his request, and being obliged to pay, is held at law to pay on an implied request from the principal that he will do so”: see also notes to Lampleigh v Brathwait.

(citations omitted)

45. Since In re a Debtor,^[57] however, there have been developments in the approach to the right of indemnity in both the United Kingdom and Australian courts that have tended to characterise a guarantor’s right as deriving from equity following an assessment of all the circumstances between the principal debtor and the guarantor from which the indemnity is said to arise. The approach in Anson v Anson^[58] is an example. The debtor’s husband had provided a guarantee for an overdraft of a housekeeping expenses account in the debtor’s name. After the parties divorced, the bank sent a written demand for the outstanding balance on the account which the debtor refused to pay. Her husband paid the amount under his obligations as guarantor and pursued a claim against her for reimbursement of this amount. Pearson J canvased the relevant authorities and found two potential legal bases for an indemnity: in implied contract or an implied term in a contract, on the one hand, and on the other on the basis that indemnification is shown to be just and reasonable in the circumstances. In respect of the contractual right, his Honour said:^[59]

There are two possible legal bases for the right of reimbursement by a surety against the principal debtor left open by the authorities. The orthodox or more usual basis upon which it can be placed appears from In re a Debtor, where the Court of Appeal had to consider what was the origin or essential nature of this right of reimbursement. ...

... For that purposes the Court of Appeal had to consider what was the nature of the right, and the answer was in the main that in the normal case where a guarantee is given by a surety at the request of the principal debtor the right of reimbursement is of a contractual character and arises from an implied contract. Sleeser L.J. referred to it as “the implied undertaking of the principal debtor to repay the money paid on her behalf.” It appears therefore that the right can be placed on that basis of presumed contract or implied contract or, I am tempted to say, actual contract, because in the normal case what occurs, expressly or impliedly, is that A, who wishes to overdraw, or has an existing overdraft, says to B: “Will you please give a bank guarantee of my overdraft?”, and B says: “Yes, I will”, and proceeds to do so. That is an agreement between the two of them, the terms of which can be worked out on ordinary contractual lines, applying the principles with regard to implied terms. The intention as between the two of them normally is that the principal debtor shall remain the principal debtor; it is his debt and his obligation and he is expected to pay it. If the surety is called upon to pay and does pay, that for the time being defeats the intention of the parties that the debt shall be and remain that of the principal debtor. In order to put that position right, and to restore it to the position intended between the two of them by their original contractual intention, it is necessary that the right of reimbursement should be read in the contract or inferred to be one of the terms of the contract. The essence of the matter is that the principal debt is primarily the obligation of the principal debtor, while the liability of the surety is only a secondary liability, and it is the intention as between the surety and the principal debtor that that position should be preserved. That is the explanation on contractual lines of the implied term which confers the right of reimbursement.

46. What is evident from that analysis is that it is relevant to the right in contract that the parties can be said to have intended the preservation of the primary and secondary liabilities on the debt, such as to give rise to a right of reimbursement in the guarantor if the arrangement is disturbed by the creditor compelling a payment under the guarantee. His Honour went on to consider an alternate basis for the right, again derived from In re a Debtor,^[60] as follows:^[61]

It is of some interest to observe that in the judgment of Greene L.J. in that case there is an indication of a second possible foundation for the right of reimbursement, which throws some light on the present case. Greene L.J. said:

“Now where, as in the present case, the implied request for payment is referable to a request to give a guarantee, the contractual basis of the action is apparent, and the difference between the old form of action of indebitatus assumpsit and an action on a special contract to indemnify disappears for all practical purposes. The question whether or not the subsection applies cannot, in my opinion, be affected by the fact that it would have been open to the plaintiff to bring his action on an indebitatus assumpsit instead of declaring on the implied undertaking to indemnify.”

He referred to Crampton v Walker, and Hamilton v Goold, and continued:

“A question may arise as to the application of the subsection in a case where a guarantee is given without any antecedent request on the part of the debtor. That case is merely one example of a number of cases where the law raises an obligation to indemnify irrespective of any actual antecedent contractual relationship between the parties. A quite recent example of a case where the law raises such an obligation irrespective of antecedent contract is to be found in a case decided in this court of Brook’s Wharf and Bull Wharf Ltd v Goodman Brothers.”

Brook’s Wharf and Bull Wharf Ltd v Goodman Brothers was a case in which importers had put imported goods into a bonded warehouse and the warehouse men were compelled to pay out of their own moneys the appropriate customs duties, although there had been no prior request from the importers to do so, because it was an obligation imposed on them by law. The warehousemen reclaimed the sum paid by them from the importers, and it was held that their claim succeeded. Lord Wright said:

“Under these circumstances the plaintiffs claim that they are entitled to recover from the defendants the amount which they had paid to the Customs in respect of duties due on the defendant’s goods. They make their claim as for money paid to the defendants’ use on the principle stated in Leake on Contracts. The passage in question is quoted in the Exchequer Chamber by Cockburn C.J. in Moule v Garrett, and is in these terms:

‘Where the plaintiff had been compelled by law to pay, or, being compellable by law, has paid money which the defendant was ultimately liable to pay, so that the latter obtains the benefit of the payment by the discharge of his liability; under such circumstances the defendant is held indebted to the plaintiff in the amount.’

This passage remains, with a slight verbal alteration, in the eighth edition of Leake on Contracts at p. 46. The principle has been applied in a great variety of circumstances. ... These statements of the principle do not put the obligation on any ground of implied contract or of constructive or notional contract. The obligation is imposed by the court simply under the circumstances of the case and on what the court decides is just and reasonable, having regard to the relationship of the parties.”

That is a possible alternative basis of the right of reimbursement, and I think the passage cited from Leake on Contracts is of interest as tending to confirm the explanation which I have sought to give of the way in which the relations of the parties are worked out on the contractual basis.

(footnotes omitted)

47. The above analysis highlights that a distinction is drawn between those cases in which an antecedent contract, or a term of an express contract to pay on the guarantee, can be inferred, and those in which the guarantor, in the absence of a request to give the guarantee, pays upon an obligation and benefits the debtor. In the latter situation, the guarantor’s right to indemnity is determined by what is “just and reasonable, having regard to the relationship of the parties”.
48. A further twenty years later, in Owen v Tate,^[62] the High Court of England considered a claim for indemnity where a guarantor had undertaken a guarantee as a volunteer. Mr Owen had made a payment under a guarantee of a sum owed to the bank by Mr and Mrs Tate. The debt was secured by title deeds on property owned by Miss Lightfoot. Mr and Mrs Tate defended the claim for reimbursement on the basis that they had neither requested Mr Owen to give the guarantee nor to discharge it, and Mr Owen had only provided the guarantee so that Miss Lightfoot’s deeds could be returned to her. Scarman LJ considered two general rules that were applicable to the case: the first being in relation to payments made voluntarily and the second concerning the right of indemnity. In outlining the first general rule, his Honour stated:^[63]

The first is conveniently set out in Chitty on Contracts, 23^rd ed. (1968), vol. 1, para. 1736, on which Mr Stephenson, for the defendants, naturally strongly relied. There it is said: “If the payment is regarded by the law as voluntary, it cannot be recovered.” The editors then quote a passage from the judgment of Swinfen Eady J in In re National Motor Mail-Coach Co Ltd [1908] UKLawRpCh 97; [1908] 2 Ch 515, 520. I quote from that judgment one sentence. The judge said: “If A voluntarily pays B’s debt, B is under no obligation to repay A.” That is the first of the two general rules.

49. In considering the second general rule, Scarman LJ found that the source of the right of indemnity was primarily in restitution:^[64]

When one turns to the second general rule, namely, the rule that where a person is compelled by law to make a payment for which another is primarily liable he is entitled to be indemnified, notwithstanding the lack of any request or consent, one again finds that the law recognises exceptions. This rule has been subjected to very careful treatment in Goff and Jones, The Law of Restitution (1966), p. 207. The authors say, after stating the rule in general terms:

“To succeed in his claim, however, the plaintiff must satisfy certain conditions. He must show (1) that he has been compelled by law to make the payment; (2) that he did not officiously expose himself to the liability to make the payment; (3) that his payment discharged a liability of the defendant; and (4) that both he and the defendant were subject to a common demand by a third party, for which, as between the plaintiff and the defendant, the latter was primarily responsible.”

In the present case we are very much concerned with the first two of those conditions: whether the plaintiff had been compelled by law to make the payment, and whether he did or did not officiously expose himself to the liability to make the payment.

The editors, at p. 214, discuss the exceptions to the general rule which fall under their second condition, namely, the officious assumption of a liability to make the payment. If they are right – as I think they are, and as I think the cases show that they are – then there are exceptions to the second general rule; that is to say, the law does recognise that there may be exceptions, even when a man is legally liable to pay the debt of another, to the general rule that he has a right to an indemnity.

... A right of indemnity is a right of restitution. It can arise as the cases reveal, notwithstanding the absence of any consensual basis. ...

These cases, to my mind, amply support the proposition that a broad approach is needed to the question whether in circumstances such as these a right of indemnity arises, and that broad approach requires the court to look at all the circumstances of the case. It follows that the way in which the obligation came to be assumed is a relevant circumstance. If, for instance, the plaintiff has conferred a benefit upon the defendant behind his back in circumstances in which the beneficiary has no option but to accept the benefit, it is highly likely that the courts will say that there is no right of indemnity or reimbursement. But (to take the other extreme) if the plaintiff has made a payment in a situation not of his own choosing, but where the law imposes an obligation upon him to make the payment on behalf of the principal debtor, then clearly the fundamental question is whether in the circumstances it was reasonably necessary in the interests of the volunteer or the person for whom the payment was made, or both, that the payment should be made – whether in the circumstances it was “just and reasonable” that a right of reimbursement should arise.

50. Stephenson LJ, concurring with Scarman LJ, said:^[65]

There may be cases where a guarantee given without any antecedent request by the debtor gives rise in law to an obligation by the debtor to repay the guarantor. Greene L.J. in In re a Debtor [1937] Ch. 156, 166 and Pearson J. in Anson v Anson [1953] 1 Q.B. 636, 642-643 clearly thought so. But I wish that they had indicated what those cases were. Perhaps they were cases of necessity as indicated by Goff and Jones, The Law of Restitution (1966), p. 214.

There may be cases where it is obviously unjust that the debtor should be enriched by accepting the benefit, though unasked and even unneeded, of a guarantor’s payment of his debt without indemnifying his benefactor, and the court may be able to do justice by compelling the debtor to make restitution to the guarantor. I shall imitate the reticence of Greene L.J. and Pearson J. and give no instances. But I cannot see in the circumstances of loan and guarantee as far as they emerged at this trial any sufficient reason for imposing that obligation to indemnify on this debtor in favour of this guarantor.

51. The analysis in Owen v Tate highlights the significance of the factual basis of the claim for indemnification in the English line of authority. Where no request to give the guarantee is established, a right which arises is likely to be restitutionary in character. On either basis, the circumstances of the giving of the guarantee and the making of the payment are critical to the establishment of the debtor’s obligation to pay.
52. Against that background, the High Court decided Israel v Foreshore Properties Pty Ltd (in liq).^[66] The proceedings concerned a claim for indemnity by a mortgagor who had agreed to secure a debt. Mitta Investments Pty Ltd, Mr Israel and Mr and Mrs Carpenter were liable to pay a debt that was secured by a guarantee in the form of a second mortgage from Foreshore Properties Pty Ltd. Foreshore Properties Pty Ltd paid a sum of money to the creditors and sought for this sum to be repaid to it by Mr Israel. In considering the source of the right of indemnity, Aickin J (Gibbs, Stephen, Murphy and Wilson JJ agreeing) said:^[67]

Whether a right of indemnity in circumstances in which one party makes a payment or incurs an obligation at the request of another party without consideration depends upon the common law, general equitable principles or upon an implied contract, or an implied term in contract, will depend upon all of the circumstances. It is not necessary in this case to decide which is the appropriate basis though it appears generally to be regarded as based on an implied term.

...

A person who acts on such a request to pay, or who accepts the role of surety in that manner and who pays the debt, is entitled to an indemnity from those who made the request to pay or to act as surety. This is trite law as appears from Rowlatt on Principal and Surety, 3rd ed, (1936) pp 182-8, especially at 184, and the cases there cited. As long ago as 1799 Lord Kenyon CJ said in Exall v Partridge (1799) 8 Term Rep 308 at 310; [1799] EngR 764; 101 ER 1405 at 1406: “I admit that where one person is surety for another, and compellable to pay the whole debt, and he is called upon to pay, it is money paid to the use of the principal debtor, and may be recovered in an action against him for money paid, even though the surety did not pay the debt by the desire of the principal ...” The same general principle applies to a case of money paid by one party at the request and for the benefit of another.

53. Israel v Foreshore Properties Pty Ltd (in liq) confirms the existence of the right to indemnity where the request to give the guarantee and pay in accordance with it are not in dispute. Since the statements in Israel, there have been two significant developments in the contract law bearing upon the appropriate framework within which to consider a guarantor’s claim of indemnity and its relevant considerations. The contractual framework of implied terms is now described in language of reasonableness, demanding a consideration of the factual circumstances surrounding the formation of the contract: Codelfa Constructions Pty Ltd v State Rail Authority (NSW).^[68] More significantly, since Pavey & Matthews Pty Ltd v Paul^[69] there has been a distinct leaning in favour of an approach which adopts the restitutionary framework in preference to a finding of right derived from implied contract. Deane J (Mason and Wilson JJ agreeing) said:^[70]

It is not necessary to pursue here the question whether, now that the common law is released from the controls of the old forms of action, there is a continuing need for or utility in the traditional approach that any claim which would in previous times have been asserted by a common indebitatus count must be seen as lying either in contract or quasi-contract: see, e.g., the discussion of the subject by Lord Wright, op. cit., and by W.S. Holdsworth, "Unjustifiable Enrichment", Law Quarterly Review, vol. 55 (939), p. 37. It suffices to say that, even accepting that traditional approach, it is clear that the old common indebitatus count could be utilised to accommodate what should be seen as two distinct categories of claim: one to recover a debt arising under a genuine contract, whether express or implied; the other to recover a debt owing in circumstances where the law itself imposed or imputed an obligation or promise to make compensation for a benefit accepted. In the first category of case, the action was brought upon the genuine agreement regardless of whether it took the form of a special or a common count. It follows from what has been said above that the cases in which a claimant has been held entitled to recover in respect of an executed consideration under an agreement upon which the Statute of Frauds precluded the bringing of an action should be seen as falling within the second and not the first category. In that second category of case, the tendency of common lawyers to speak in terms of implied contract rather than in terms of an obligation imposed by law (see, e.g., per Salter J., Scott v. Pattison) should be recognized as but a reflection of the influence of discarded fictions, buried forms of action and the conventional conviction that, if a common law claim could not properly be framed in tort, it must necessarily be dressed in the language of contract. That tendency should not be allowed to conceal the fact that, in that category of case, the action was not based upon a genuine agreement at all. Indeed, if there was a valid and enforceable agreement governing the claimant's right to compensation, there would be neither occasion nor legal justification for the law to superimpose or impute an obligation or promise to pay a reasonable remuneration. The quasi-contractual obligation to pay fair and just compensation for a benefit which has been accepted will only arise in a case where there is no applicable genuine agreement or where such an agreement is frustrated, avoided or unenforceable. In such a case, it is the very fact that there is no genuine agreement or that the genuine agreement is frustrated, avoided or unenforceable that provides the occasion for (and part of the circumstances giving rise to) the imposition by the law of the obligation to make restitution.

To identify the basis of such actions as restitution and not genuine agreement is not to assert a judicial discretion to do whatever idiosyncratic notions of what is fair and just might dictate. The circumstances in which the common law imposes an enforceable obligation to pay compensation for a benefit accepted under an unenforceable agreement have been explored in the reported cases and in learned writings and are unlikely to be greatly affected by the perception that the basis of such an obligation, when the common law imposes it, is preferably seen as lying in restitution rather than in the implication of a genuine agreement where in fact the unenforceable agreement left no room for one. That is not to deny the importance of the concept of unjust enrichment in the law of this country. It constitutes a unifying legal concept which explains why the law recognizes, in a variety of distinct categories of case, an obligation on the part of a defendant to make fair and just restitution for a benefit derived at the expense of a plaintiff and which assists in the determination, by the ordinary processes of legal reasoning, of the question whether the law should, in justice, recognize such an obligation in a new or developing category of case: see Muschinski v. Dodds; Goff & Jones, op. cit., p. 11ff. In a category of case where the law recognizes an obligation to pay a reasonable remuneration or compensation for a benefit actually or constructively accepted, the general concept of restitution or unjust enrichment is, as is pointed out subsequently in this judgment, also relevant, in a more direct sense, to the identification of the proper basis upon which the quantum of remuneration or compensation should be ascertained in that particular category of case.

(footnotes omitted)

54. Mason and Wilson JJ made the following observations in agreement with the Deane J’s analysis:^[71]

Deane J., whose reasons for judgment we have had the advantage of reading, has concluded that an action on a quantum meruit, such as that brought by the appellant, rests, not on implied contract, but on a claim to restitution or one based on unjust enrichment, arising from the respondent's acceptance of the benefits accruing to the respondent from the appellant's performance of the unenforceable oral contract. This conclusion does not accord with the acceptance by Williams, Fullagar and Kitto JJ. in Turner v. Bladin (at p 474) of the views expressed by Lord Denning in his articles in (1925) 41 Law Quarterly Review p 79, and (1939) 55 Law Quarterly Review p 54, basing such a claim in implied contract. These views were a natural reflection of prevailing legal thinking as it had developed to that time. The members of this Court were then unaware that his Lordship had, in his judgment in James v. Thomas H. Kent & Co. Ld. (1951) 1 KB 551, as reported in the authorized reports, discarded his earlier views in favour of the restitution or unjust enrichment theory. Since then the shortcomings of the implied contract theory have been rigorously exposed (see Goff and Jones, The Law of Restitution 2nd ed. (1978) pp.5-11) and the virtues of an approach based on restitution and unjust enrichment, initially advocated by Lord Mansfield and later by Fuller and Perdue (see "The Reliance Interest in Contract Damages" (1936-37) 46 Yale Law Journal 52, 373, esp. at p.387), widely appreciated (Goff and Jones, op cit. at p.15 et seq.; and see Deglman v. Guaranty Trust (1954) 3 DLR 785, at pp 794-795). We are therefore now justified in recognizing, as Deane J. has done, that the true foundation of the right to recover on a quantum meruit does not depend on the existence of an implied contract.

55. Although the statements of Deane J, and Mason and Wilson JJ were made in respect of a claim for quantum meruit, these statements are apposite in relation to a guarantor’s right of indemnity. In circumstances where there has been an express request for the guarantee to be provided for no consideration and where a term of the agreement may be implied that the guarantor is to be indemnified for a payment made under the guarantee, there may be little difficulty in establishing the guarantor’s right in contract to be indemnified. Where the circumstances surrounding the request for the guarantee and the agreed compensation for a guarantor’s payment made under the guarantee do not lend themselves to the finding of a contract, or of the implication of a term concerning indemnification, a right of indemnity may nevertheless arise within the framework of restitution if the circumstances are such that it is just and reasonable to confer it.
56. However, it is desirable to consider whether the factual circumstances give rise to an enforceable contract first and to assess what the implied terms of that contract were, even if those terms do not support the indemnification of the guarantor.^[72] The restitutionary framework should not be viewed as overlapping with the contractual framework such that a person can opt for a restitutionary claim to subvert or undermine an effective contract that is already in place.^[73] This principle was enunciated in Alexiadis v Zirpiadis.^[74] In that case, the Full Court considered an appeal of a decision that found a defendant had been unjustly enriched by the delivery of cheques from the plaintiff. Upon an assessment of all of the evidence, the primary judge did not accept any basis pleaded or the evidence given by the plaintiff and the defendant, for the delivery of the cheques. Although a claim in restitution had not been pleaded, the primary judge treated the claim as one for money had and received, and awarded the claim on a restitutionary basis. In allowing the appeal, Kourakis CJ stated:^[75]

Only rarely will the law of restitution operate in the context of an effective contract. If the cheques were delivered as a loan with a promise of future repayment, the advance was not conditional and Alexiadis was entitled to treat it as his own. Restitution is not available as an alternative to an action on a loan agreement.

The rules of restitution were developed to fill gaps in the law and not to assist litigants who fail to prove, by evidence, available causes of action which are capable of providing redress for the alleged wrong.

...

The encroachment by restitutionary claims on other well established legal and equitable actions, which have not been sufficiently proved on the facts, undermines the coherence of the law. It also undermines the taxonomical approach to unjust enrichment recently emphasised in Equuscorp Pty Ltd v Haxton.^[76]

(footnotes omitted)

57. However, both approaches require a consideration of the circumstances. Within the contractual framework, this factor is reflected in the requirement that implication of the term be ‘reasonable and equitable’ as described in Codelfa^[77] and BP Refinery (Westernport) Pty Ltd v Hastings Shire Council,^[78] and in the restitutionary framework it derives from consideration of whether a party has been unjustly enriched by a payment or transfer.
58. The Magistrate found that a request to give the guarantee could be inferred because the appellant as principal debtor was aware that a guarantee was a condition of the loan and proceeded to accept the lender’s offer. In those passages dealing with the right of indemnity arising from contract, the Magistrate did not acknowledge the need to consider all of the circumstances to determine whether a contract should be inferred. There was no reference to the existence or otherwise of whether, as the appellant asserts, there was a reasonable possibility that the respondent assumed the role of guarantor for the benefit of the loan to the company of which he was a director and its business in operating the hotel.
59. The Magistrate rejected the appellant’s reliance on Sisic v Krpo.^[79] In that matter, the Supreme Court of New South Wales found that the debtor’s awareness of the giving of the guarantee was not sufficient to imply a request to pay on default and give rise to a right on the part of the guarantor for indemnity. Rather, the broader circumstances of the relationship between the parties and the arrangements in which they participated were relevant to determine whether a contract with such a term could be inferred. Mr Sisic and Mr Krpo were co-directors and equal 50% shareholders of a company that owned and operated a restaurant. A bank loan had initially been obtained by the company however this finance arrangement was subsequently altered at Mr Sisic’s initiative so that Mr Krpo would be the principal debtor and Mr Sisic the guarantor of the loan. The Court found that no express request was established by the evidence.
60. The Magistrate distinguished Sisic v Krpo on the basis that the issues in that case were confined to a claim that an express request had been made and not an implied request.^[80] However, that distinction does not bear close scrutiny. The circumstances in Sisic v Krpo were in many relevant respects similar to those in this matter. In Sisic v Krpo, the evidence as to the interactions between the parties in the lead up to the giving of the guarantee were in dispute. The guarantor’s case was that he had been expressly requested to give it. The debtor denied this. The Court found that no express request had been made. It found that it was possible that the guarantor had not turned his mind at all to the issue of indemnification when giving the guarantee. If his mind was turned to it, he assumed that there would be a right of indemnification. There was no evidence of the debtor’s awareness of such an assumption and no evidence of the debtor inducing the guarantor to assume that a right of indemnification arose.^[81] Against that background, Ward J said:^[82]

...where a guarantor gives a guarantee at the request of the debtor the courts will readily imply an obligation on the part of the debtor to indemnify the guarantor. It is by no means clear from [the cases] that such an obligation will be implied as a matter of law in the absence of a request (express or implied) by the debtor for the guarantee to be provided.

Those circumstances make it difficult in my view to imply any request for the provision of a guarantee solely from the fact that Mr Sisic entered the guarantee. I do not understand the authorities on which Mr Sisic relies to stand for the proposition that in all cases such a request must be implied.

I do not think that the facts that Mr Krpo was aware that Mr Sisic would have to provide a guarantee of his borrowings if the bank were to proceed with the loan and that Mr Krpo ultimately may be said to have accepted or obtained the benefit of that guarantee, are sufficient of themselves to give rise to an implied request by Mr Krpo for the provision of the Guarantee in circumstances where this occurred in the context of the mutual unwinding of a business relationship; the fact of entry by Mr Sisic may equally have been referable to other aspects of the overall arrangements between the parties; and where there was no evidence that Mr Krpo was aware of any belief or expectation by Mr Sisic that if he entered into the Guarantee he would be indemnified.

61. I consider that the appellant was entitled to assert that Sisic v Krpo lent support to his argument as to how the Magistrate should approach the question of whether the respondent has a claim in contract. However, irrespective of whether the Magistrate was correct to distinguish Sisic v Krpo, the Magistrate was in error in effectively presuming that a right arises in the absence of a request by the debtor to the guarantor where the debtor accepts finance that is conditional on a guarantee. Further circumstances must be ascertained before the right can be said to arise in contract. The Magistrate misstated the law at [23] of his reasons in this regard:

Although a request cannot be assumed, it will be inferred in cases such as the present where the principal debtors, Carey and Kent, are offered the finance on the basis that other parties guarantee its repayment and they accept the offer. Obviously, in such a case the borrowers can’t be heard to say: ‘I accepted the bank’s offer but I did not want the guarantees from those who gave them’. If any part of the offer (the requirement for a guarantee for example), is not acceptable, the whole must be rejected. And if the guarantees are desired by the borrowers, then they must be taken to have, by implication, requested them.

62. Accordingly, grounds 7 and 8 of the appellant’s grounds of appeal are made out.
63. Although an error has been disclosed in the Magistrate’s statement of the law with respect to the circumstances in which a right to indemnification will be implied in contract under a guarantee, his Honour did not find only that the respondent had established a basis for a claim in contract to which a reasonably arguable defence had not been raised. The Magistrate proceeded to find that even if a contract could not be implied as between the parties, the respondent had established a right under principles of restitution to which no reasonably arguable defence had been raised.

The respondent’s right of indemnity in restitution

64. In addition to finding that the respondent had a right of indemnity in contract, his Honour found that the respondent had a restitutionary right in recoupment. The Magistrate’s reasons referred to the New South Wales Supreme Court’s decision in Karacominakis v Big Country Developments Pty Ltd & Ors,^[83] in which Giles JA cited with approval the following passage from Mason and Carter’s Restitution Law in Australia:^[84]

Rights of contribution and recoupment derive from a single source, namely the injustice of the defendant having had its burden relieved by the plaintiff. But a right of recoupment differs in its application from contribution because there is no ‘equality’: rather the respective positions of P and D are such that it is just that P should throw the whole burden of P’s liability to X upon D’s shoulders. If it were otherwise, D would be seen to have received an unjust benefit (that is, the effective release of the burden to X) at the expense of P who bore it. [Cf Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221 at 256-7 per Deane J.] Thus, in the standard guarantee situation a guarantor (P), who is forced to meet the creditor’s (X’s) claim, is entitled as against the principal debtor (D) to recoupment in full for the outlay, this is one example of a broader principle, as Lord Wright MR demonstrated in Brook’s Wharf and Bull Wharf Ltd v Goodman Bros: [(1937) 1 KB 534 at 544, cited with approval by Walsh JA in Armstrong v Commissioner of Stamp Duties (1967) 69 SR (NSW) 38 at 47. See also The Pindaros [1983] 2 Lloyd’s Rep 635.]

65. Similarly, in considering a claim for contribution, Mason P in Cockburn & Ors v Gio Finance Ltd (No 2)^[85] made the following observations:^[86]

Contribution and its sibling recoupment are common law and equitable rights, although equitable remedies quia timet are available in proper cases (Wolmershausen v Gullick [1893] UKLawRpCh 73; [1893] 2 Ch 514). Contribution is "bottomed and fixed on general principles of justice" and "founded on equality" (Albion at 351, citing Dering).

The injustice prevented by an award of contribution or recoupment is the enrichment of the defendant at the expense of the plaintiff actually or imminently liable in part (contribution) or whole (recoupment): see generally Bonner v Tottenham & Edmonton Permanent Investment Building Society [1898] UKLawRpKQB 198; [1899] 1 QB 161 at 174 per Vaughan Williams LJ, Armstrong v Commissioner of Stamp Duties (1967) 69 SR(NSW) 38 at 47 per Walsh JA, Mahoney v McManus [1981] HCA 54; (1981) 180 CLR 370 at 388 per Brennan J. On this basis, the concept of unjust enrichment has been seen as the underlying principle.

The right of contribution depends on matters of substance, not form. ...

66. There is limited South Australian authority concerning a claim of recoupment. In Wayland v Tonkin,^[87] the right of indemnity in restitution was acknowledged, obiter, by Doyle CJ (Perry J agreeing) when his Honour considered the restitutionary claim of contribution:^[88]

Mr Hayes submitted that a guarantor loses the right to claim indemnity from the principal debtor where the creditor releases the principal debtor from liability to pay the debt. Applied to the present case, the submission is that the Mutual release, in releasing the principal debtor Wag from the debt, extinguished the rights of the plaintiff and the defendants as guarantors, to claim indemnity from Wag in respect of any sum paid by them or one of them in satisfaction of the debt. Mr Hayes seeks to rely on the submission to relieve the first defendant of any liability to contribute to the payment made by the plaintiff to National Mutual, on the basis that the first defendant would be prejudiced by having to contribute in circumstances where he had been deprived of his right to claim indemnity from Wag.

I reject the submission. If accepted, the submission would mean that a guarantor who discharges a debt would have no right to claim indemnity from the principal debtor where the creditor accepts the guarantor’s payment and releases the principal debtor from the debt. It would mean that the Mutual release extinguished the plaintiff’s right to claim indemnity from Wag for his payment of $235,000 to discharge Wag’s debt to National Mutual. The authorities advanced in support of the submission do not support it. They support the proposition that the release of the principal debtor also releases the guarantor from any claim by the creditor, so that the creditor cannot then pursue the guarantor and the guarantor in turn claim an indemnity from the principal debtor. But the release of Wag, the plaintiff and the defendants from their liability to National Mutual did not extinguish the plaintiff’s and the defendants’ rights to claim indemnity from Wag, or their rights to claim contribution from one another, in respect of a payment made to National Mutual to discharge the debt.

67. In Rogers v ANZ Banking Group Ltd^[89] the Supreme Court of Western Australia found that guarantors had a right in equity in circumstances in which the borrowers were aware of, but had not asked for, the guarantee. In that case, a bank loan was provided to a company and the plaintiffs Mr and Mrs Rogers, who were major shareholders of the company, gave personal securities including guarantees for the loan. Mr Rogers was one of the directors of the company at the time the loan was acquired and he had negotiated the loan arrangement with the bank. The other directors of the company argued that they were unaware that a guarantee had been provided by Mr Rogers however the Court preferred the evidence of Mr Rogers and found that the directors this were aware that this was the case.^[90] Shortly after Mr Rogers stepped down from the Board, the plaintiffs sought to have a declaration from the company that it was required to indemnify the plaintiffs for the property that had been put up as security under the guarantee. In finding in favour of the plaintiffs, Burt CJ stated:^[91]

The action as between the plaintiffs and the company, to which I think the bank is a necessary party, is essentially simple. The plaintiffs claim that being guarantors of the company’s debt to the bank, it being the amount owing as at 31 August 1984 and interest accruing upon it, it can in equity call upon the company to discharge the debt so as to protect the plaintiffs from being first required to pay it out. The existence of that equity is now well established. See O’Donovan & Phillips: Modern Contract of Guarantee at p 429 and the case there cited.

...

On the facts it is the case that there was no formal request made by the company by a resolution of its directors that the plaintiffs should guarantee the payment by the company of its debt to the bank. But in my opinion, each Sekold and Hobday knew that the plaintiffs intended to do so before they signed the guarantees and the securities. Without putting too fine a point on it, the plaintiffs by their guarantees and by their securing repayment of the bank debt, rescued the company which in all probability would otherwise have failed and would have been wound up. It could not at that time have continued without additional bank finance and bank finance could not otherwise be obtained. And as the company by at least the majority of its directors knew what the plaintiffs intended to do and stood by and allowed them to do it and thereafter took the benefit of what they had done, it is not now open for the company to say that the debts were not guaranteed by the plaintiffs at its request.

68. The test to be applied in respect of claims for recoupment in restitution as outlined in the seminal texts of O’Donovan & Phillips’s Modern Contract of Guarantee and Mason & Carter’s Restitution Law in Australia may be summarised as follows:^[92]
    • the guarantor must be legally compelled to make payment in relation to the debt and not merely morally compelled;
    • the payment was reasonably necessary in the interests of the principal debtor or the guarantor or both of them;
    • the guarantor’s payment must have benefited the principal debtor by resulting in an absolute or pro tanto discharge of the debt that the principal debtor was primarily and ultimately responsible for; and
    • enforcement of the right to indemnity must not be inequitable in the circumstances.
69. In light of the grounding of a claim of contribution in considerations of equity and justice,^[93] the similar restitutionary basis of both the claim of contribution and recoupment, and the High Court’s preference for grounding restitutionary actions in the unifying concept of unjust enrichment,^[94] a claim for recoupment requires a consideration of the extent to which the principal debtor has obtained an unjust benefit from the guarantor’s discharge of the liability against the circumstances of the parties’ interactions. Accordingly, the factual circumstances surrounding the formation of the purported agreement, the giving of the guarantee and the extent to which a benefit was unjustly gained by the principal debtor determine whether a claim of recoupment is made out.
70. The Magistrate did not err in his Honour’s statement of the law as to what was required of the respondent to make his claim in restitution. The Magistrate referred to the texts and the relevant principles described above at para 68. The Magistrate acknowledged that all of the circumstances must be considered in order to determine whether the indemnity arises.
71. Accordingly, grounds 18-20 of the grounds of appeal asserting a misstatement of the restitutionary principles do not succeed.
72. Nor is it correct to assert, notwithstanding the extent of submissions and authority that were put before the Court, that the principles of law are insufficiently settled to make summary judgment appropriate. What has exercised the parties and the Court in this matter has primarily been a function of the state of the evidence rather than any significant doubt as to the state of the law.
73. What remains to be considered is whether the Magistrate fell into error in finding that the evidence was sufficiently clear to enable a conclusion that the appellant raised no reasonably arguable defence to the claim.

The appellant’s account of the evidence upon which summary judgment was granted

74. The Magistrate’s factual findings were relevant to the establishment of the respondent’s claim and whether the appellant had raised arguable defences. Those defences were:
    • that there was no implied request by the appellant to the respondent to provide the guarantee and no contractual right in the respondent to be indemnified by the appellant;^[95]
    • the monies paid to the bank by the respondent were derived from a source other than the respondent, relevant to his claim for indemnification;^[96] and
    • the financial contributions to the company and other financial arrangements between the parties, Mr Kent and the company, were insufficiently apparent or did not support a grant of relief in equity.^[97]
75. The appellant maintains (by way of pleading or affidavit on the application) that the evidence establishes or will be shown to establish:
    • the facilities were obtained two to three years after the venture commenced;^[98]
    • the renovations to which the facilities were applied benefited the partnership and the company;^[99]
    • there was no request made by the appellant for the respondent to provide the guarantee or to make a payment under the guarantee;^[100]
    • the guarantee was given by the respondent in his capacity as a partner of the partnership and director of the company for the benefit of each;^[101]
    • the appellant reached a settlement with Bank SA regarding his liability but has no documents or recollection as to when this occurred or in what amount;^[102]
    • the payments made to Bank SA by the respondent were made by another entity, the SB Family Trust;^[103]
    • the circumstances of the borrowing and of the financial activities of the company and of the three partners may become more apparent upon non-party discovery by Bank SA and the liquidator.^[104]
76. The appellant does not admit that the respondent had financed his 20% contribution to the business and paid all amounts that were due and attributable to him. It was pleaded by the appellant that the respondent’s guarantee may have been given as the “price” for his benefit from the loan facilities as a partner of the business.^[105] It was further put in submissions on the appeal that it was open to the Magistrate to find that the evidence was consistent with the purpose of the loan being to enable the appellant and Mr Kent to on-loan the moneys to the company for the renovations which would have the effect of the appellant being a creditor to the company and the respondent obtaining the benefit of the arrangement at the price of his guarantee.
77. The appellant maintains that the state of the evidence was inadequate for reaching conclusions relied upon by the Magistrate to grant summary judgment including those concerning:
    • the value and timing of each partner’s financial contributions to the business;
    • the purpose of the finance obtained by the appellant and Mr Kent, and of the guarantee;
    • whether the appellant desired the guarantee;
    • whether the facilities were for the benefit of the appellant and Mr Kent as opposed to the partnership and the company.^[106]

The facts as asserted by the respondent upon which summary judgment was properly granted

78. Counsel for the respondent argued that various incontrovertible facts emerged from the pleadings and the evidence. Firstly, that the appellant and Mr Kent were the principal debtors in respect of the facilities. It was submitted that the evidence in the appellant’s affidavit constituted an acknowledgement of that fact, and it is also confirmed in the signed loan facility that was furnished in the affidavit evidence.^[107] Irrespective of the purposes of the loan facilities, it was said that the appellant and Mr Kent had benefitted from the loan as they were its only recipients.
79. The second factual proposition was that the loan required a guarantee from the respondent. This was also confirmed by the executed loan agreement put before the Court in the proceedings before the Magistrate.
80. The third proposition was that the appellant and Mr Kent had accepted the loan or loans on terms that required a guarantee. The appellant was therefore aware that a guarantee was going to be provided by the respondent and still accepted the loan.
81. The fourth proposition was that the bank made a demand for payment from the respondent under the guarantee. This fact was admitted by the appellant in the defence pleading.
82. The fifth proposition was that the respondent reached a compromise with the bank to discharge his liability under the guarantee by making a payment of $150,000. In relation to this proposition, counsel for the respondent submitted that the Magistrate was correct to conclude that the source of the payment from the SB Family Trust did not have any bearing upon the restitutionary claim. He stated that the claim in restitution is made on the basis of rectifying an unjust benefit to the appellant and not on the basis of a loss suffered by the respondent.

Consideration of the facts

83. The appellant admits that he and Mr Kent obtained a commercial loan facility and commercial bill facility with Bank SA with the account numbers pleaded by the respondent.^[108] The appellant was a primary debtor. He admits that guarantees were provided in the sum of $1,010,000 by the respondent in his own right and in his capacity as trustee of the Balfour Family Trust, Mr and Mrs Kent in their own right and in their capacity as trustees of the Kent Family Trust, WFC Nominees Pty Ltd in its capacity as trustee of the WFC Family Trust, and Raglans Hotel Pty Ltd.^[109] It was also admitted that the guarantees were provided in the terms outlined in the signed agreement dated 23 February 2007.^[110] There is currently insufficient evidence to conclude the purpose of the loan that was sought three years into the venture. There is scant evidence currently available that sheds light on the operation of the business between 2004 and its insolvency in 2011 except evidence of debt to various creditors in 2011. The evidence in its current state is not capable of supporting an inference of a contract between the parties with a term of indemnification by the principal debtors to the guarantors. In the framework used in Anson v Anson,^[111] the evidence currently does not allow a conclusion that the parties intended that the appellant would indemnify the respondent in the circumstances that arose. The evidence is quite unclear or incomplete as to both the parties’ intentions at the time the guarantee was given.
84. Bank SA issued a letter of demand to the appellant and Mr Kent for the sum of $933,803.90^[112] that was dated 28 June 2011. Approximately one week later, the bank claimed the same amount from the guarantors. The appellant pleads that he and WFC Nominees Pty Ltd (being a guarantor) negotiated a settlement with Bank SA that entailed the making of a payment to Bank SA which discharged the liability of WFC Nominees Pty Ltd and the appellant to the bank. He does not plead the source of the payment as himself or the company.
85. The appellant admits that the respondent made payments totalling $150,000 in the amounts and on the dates in 2012 referred to in the Second Claim. The amount and date of the payment made by the appellant and/or WFC Nominees Pty Ltd is not known but it is evident that it occurred on a date after the respondent’s payment.
86. The appellant disputes the capacity in which the respondent made these payments.^[113] He further asserts that such payments were made without his request or knowledge.
87. Uncertainty attends the issue of the nature, effect, amount and timing of the payments to the bank and whose liability was discharged. Those circumstances are relevant to a claim that rests on an inferred contract, and in restitution. The factual substratum upon which the respondent asserted the appellant had failed to raise a reasonably arguable defence is not sufficiently established.
88. It is possible that those circumstances would become apparent following discovery and a process of non-party discovery.
89. Against that background, it is possible to assess whether the Magistrate erred in granting summary judgment.

The legal principles of summary judgment

90. The parties did not take issue with the Magistrate’s articulation of the principles governing summary judgment. Rule 8(1) of the Magistrates Court (Civil) Rules 2013 (SA) provided that the basis for a grant of summary judgment was a finding that there is “no reasonable basis for the ... defence.”
91. At the time of the decision, the principles were the subject of consideration in the authorities of the Full Court’s decision in Ceneavenue Pty Ltd v Martin,^[114] the Federal Court’s decision in White Industries Australia Ltd v Commissioner of Taxation^[115] and the High Court in Spencer v The Commonwealth of Australia^[116] and Davies v Minister for Urban Development and Planning & Anor^[117] in which Bleby J analysed the conflicting statements of the Full Court in Ceneavenue and the High Court in Spencer.
92. The Magistrate summarised his findings on the law and the test to be applied for summary judgment as follows:^[118]

In his submissions, [counsel for the defendant] was at pains to say that the right of indemnity/recoupment depended upon all the circumstances. That is certainly true but that does not mean I should conclude that because all the facts are not known to me I cannot determine the matter summarily. If that were true r8, and its equivalent in other jurisdictions, would serve no purpose at all.

I must determine if there is a ‘reasonable basis for the defence’ by considering if, upon the pleaded case, having regard to the undisputed facts and in the light of the passages in Spencer’s case set out above, there might be circumstances warranting recruitment (sic: recoupment) inequitable. If not, then I should conclude that the defence has no reasonable basis and allow the applicant’s application.

93. That approach is consistent with that taken by Doyle J in Adelaide Brighton Cement Ltd v Hallett Concrete Pty Ltd subsequent to the Magistrate’s decision:^[119]

By way of summary of the approach articulated in Spencer v Commonwealth, it can be said that the power to determine a claim summarily should not be exercised lightly. Exercise of the power requires a practical assessment of whether the applicant has real, as opposed to merely fanciful, prospects of success. While the Court need not be satisfied that the claim is hopeless or bound to fail, nevertheless it must be cautious not to do a party injustice by summarily determining an action, particularly where there are disputed issues of fact or law or mixed fact and law, merely because the Court considers that the claim is unlikely to succeed. However, beyond these very general guidelines, the Court should focus upon the words used in the rules and avoid applying any judicial gloss.

Related to the requirement that the Court undertake a “practical” assessment is the notion that the Court should not embark upon a ‘mini trial’ of the claim. Rather, the claim should be assessed in a summary manner, while being cognisant of the incomplete nature of the evidence upon which the Court’s decision must be based. Adversarial argument may assist, and indeed may result in the emergence of a sufficiently clear answer to a complex issue that summary judgment is appropriate. On the other hand, the need for prolonged argument may be indicative of a reasonable basis for the claim.

(footnotes omitted)

94. Clearly, the Magistrate need not be apprised of all of the facts and to have received all of the evidence concerning the facts before granting summary judgment. To succeed in an application for summary judgment, the applicant need not show that any defence would inevitably fail or is hopeless. Looking at it from the other perspective, to successfully defend against a summary judgment application a party need only demonstrate that there is a “reasonable basis” for their action or defence. They are not required to show that the action or defence pursued will ultimately be successful on the balance of probabilities.
95. The mere fact that the appellant sought to contest particular parts of the claim but did not yet have an opportunity to provide further evidence to support his contentions, did not preclude the Magistrate from granting summary judgment. However, where there is an absence of evidence to support a defence raised, the Court is required to account for the fact that it has not had the benefit of fulsome argument and evidence. The Court must account for the possibility that the defence may be successful unless it has been established that there is no reasonable basis to draw such a conclusion.
96. Furthermore, as observed by Blue J in Proude v Visic (No 4)^[120] the “no reasonable prospect” of succeeding test differs from the “no reasonable basis” test. The former is directed at a future assessment of the success of a claim or defence whereas the latter is directed at a present assessment of the nature and circumstances of the claim and the defences raised:^[121]

Section 31A(2)(b) bears a similarity to Rule 232(2)(b). However, the Federal Court provision refers to “no reasonable prospect of successfully prosecuting the proceeding”, whereas this Court’s rule refers to “no reasonable basis” for the claim. The inquiry in the Federal Court is directed to the future and to an assessment of the prospect of success, whereas the provision in this Court is directed to the present and to the basis for the plaintiff’s claim. While there is no equivalent in this Court’s Rules to section 31A(3), the Full Court decided in Ceneavenue that it was not a pre-condition for obtaining summary judgment that a proceeding be demonstrated to be hopeless or bound to fail.

...

What is a reasonable basis for a claim will vary depending upon the nature and circumstances of the particular claim. I consider whether there is a reasonable basis for the claim separately and independently in relation to the causes of action of breach of duty of care and breach of statutory duty and separately again in relation to the CFS’s defence of statutory immunity from civil liability.

97. However, in considering Blue J’s remarks in Proude v Visic (No 4), Kourakis CJ (with Stanley and Parker JJ agreeing) found in Collins v Djunaedi^[122] that it was unlikely that the two tests would practically lead to different results:^[123]

For my part I doubt that the ‘prospective’ and ‘present’ foci, of the FCA Act and DCR 232 respectively, will ever lead to different results. There cannot be a reasonable prospect of future success in prosecuting or defending a claim unless there is a presently existing reasonable basis upon which to prosecute or defend it. Nor can it be said that a claim or defence which has a reasonable basis does not have a reasonable prospect of success.

98. The Chief Justice went on to say:^[124]

In the case of a summary judgment application, there is a reasonable basis for a claim, or a positively pleaded defence, when there is an evidential foundation for facts upon which arguable propositions of law would result in judgment for the plaintiff or the defendant as the case may be. In cases in which the defendant merely denies the claim, there must be reasonable grounds on which to contend that the plaintiff will not discharge its onus of proof or make good the propositions of law on which it relies. In the case of a SCR 232 application, the evidential basis or grounds must at least be pleaded.

99. The Magistrate was not required to speculate as to the appellant’s possible defences. However, the requirement to exercise caution and to ensure that granting summary judgment does not cause an injustice make it necessary for the Court to consider whether a defendant has been afforded a reasonable opportunity to plead the basis for the defences that they seek to rely upon. It is a “practical assessment”.^[125] In the present case, the first claim was filed on 23 August 2018. At the point at which the Magistrate considered the application for summary judgment, the claim was in its second iteration, the defence pleading was also in its second iteration, and the Court had received six affidavits in support of the appellant’s case and two affidavits in support of the respondent.
100. The appellant was afforded sufficient opportunity to outline the basis for the defences raised and he did in fact do so in his Defence (Revision 1) pleading. The Magistrate did not err in his articulation of the legal principles of summary judgment, in the process of scrutinising the defence pleading, or in identifying that he was not required to be apprised of all of the facts before granting summary judgment.

Did the Magistrate misapply the test for summary judgment?

101. The Magistrate conducted an assessment of the appellant’s Defence (Revision 1) filed on 2 June 2020 to ascertain if a reasonable basis for a defence could be found.^[126] His Honour’s reasoning is founded upon various findings of fact necessary for the grant of summary judgment.
102. The following findings by the Magistrate were made in circumstances in which there was a dispute over the facts and insufficient evidence to safely reach the conclusion drawn:
     • the respondent’s guarantee was given on the inferred request of the appellant;^[127]
     • the respondent gave ongoing support to the appellant over a period of years;^[128]
     • the appellant clearly knew of the bank’s requirement for a guarantee from the respondent and with that knowledge, requested the finance;^[129]
     • the respondent paid all amounts due to him by way of contribution to the venture in full;^[130]
     • the contributions of the respondent in the amount of 20% and the appellant in the amount of 40% to the business were for capital costs;^[131]
     • the agreement between the parties entailed an implied agreement by the appellant to repay the respondent any amount the respondent paid to the bank in respect of the appellant’s capital contribution amount.^[132]
103. From the conclusion that the above factual findings (“the impugned findings”) were not safely reached, consideration can be given to the Magistrate’s reasoning in relation to each defence. This allows for a conclusion as to whether the Magistrate’s rejection of the defences is flawed.
104. The Magistrate rejected the appellant’s argument that the respondent had not shown that he made the payment in his capacity as guarantor but as trustee of the SB Family Trust. It was rejected on the basis that the letter from Bank SA in the respondent’s affidavit sworn on 14 November 2019 evidenced that an agreement had been reached for a settlement with the bank which was signed personally by the respondent. The Magistrate stated that the settlement was paid in accordance with the agreement and discharged the respondent’s obligations as guarantor and that the respondent’s source of funds was irrelevant to his right of indemnification.^[133] The respondent compromised the bank’s claim and arranged the payment to the benefit of the appellant.
105. The evidence was sufficient and it was open on the evidence for the Magistrate to reject this particular defence insofar as the respondent’s case was pleaded in contract. It was irrelevant to the existence of a contractual right of indemnity if the guarantor paid under a compulsion using another’s funds. It did not rely upon one of the impugned findings of fact.
106. The second ground of defence asserted that clause 4.5(c) of the guarantee document^[134] precluded the claim. That clause provides that the guarantor “shall not until the Moneys Payable have been satisfied in full make any claim or enforce any right against the Debtor or any Transaction Party or their respective property”.
107. The Magistrate said, in relation to this defence:^[135]

Clause 4.5(c) of the guarantee document precluded the plaintiff from making a claim against the defendant until the facilities were satisfied in full. I reject this contention. Clause 4 of the guarantee document deals exclusively with the bank’s rights and does not create covenants between the guarantors. Accordingly, the clause does no more than regulate the nature of Mr Balfour’s obligations as guarantor. Furthermore, Mr Carey signed the document on behalf of WFC Nominees Pty Ltd but not his personal capacity and was therefore, not even a party to it.

108. Reliance by the appellant on this clause of the contract as creating a reasonably arguable defence was properly rejected by the Magistrate, and it was not pressed on the appeal as a primary ground of defence. Clause 4.5(c) is contained in a guarantee agreement between the creditor and the guarantors and governs their relationship, not that of the debtor and the guarantors. This ground of defence did not rely on any of the impugned findings of fact but it may also be observed that the question of whether the debt was satisfied in full, and if so by whom, has not yet been the subject of evidence that would enable the questions to be answered.
109. The third argument, that the Second Claim filed added a new cause of action in the respondent’s name in a fresh capacity, was rejected as the Magistrate found that the respondent brought the claim in his personal capacity as guarantor, the amendment was not objected to and the cause of action arose from the same facts as originally pleaded.^[136] Again, this was not pressed at the appeal and it was open to the Magistrate to conclude that this defence was not reasonably arguable.
110. The fourth argument asserts that that an implied request can only be assessed with regard to all the circumstances of the case. The Magistrate found that the appellant had not pleaded any facts that would militate against a finding that an implied request had been made.^[137] The Magistrate also found that “the known facts are entirely unexceptional raising no suspicion of a possible bar to an indemnity by means of equitable recoupment.”^[138] These conclusions were, in my view, not open to be drawn. The Magistrate misdirected himself as to the law in respect of the respondent’s contractual claim, as described earlier in these reasons. On a correct statement of the law, the circumstances of the entering into of the loan and the provision of the guarantee would have required closer examination to determine whether a contract could be implied. The impugned factual conclusions were an important part of the Magistrate’s error in this regard. The deficiency in the evidence concerning the purpose of the loan and of the guarantee and the arrangements as between the parties should have led to the result that at that point in time it was not possible to conclude that the defence was not reasonably arguable. It would also have been apparent that the situation might change following discovery including non-party discovery.
111. Much the same conclusion can be drawn in relation to the appellant’s defence of the respondent’s claim in restitution. Whilst the legal principles were correctly stated, the Magistrate erred when he determined that it was possible to reach the impugned findings on the evidence, with the effect that the appellant had no arguable defence to the claim in restitution. The factual conclusions drawn regarding the purpose of the contributions made, the parties’ intentions regarding the respondent’s right to indemnification, and the circumstances of the payments made to the bank upon the bank’s demands, are not sufficiently established to allow the conclusions to be drawn. The processes of discovery may or may not render the respondent’s case stronger, and the appellant’s case weaker, such that the defences are not sustainable. Conversely, evidence may be discovered, or led at trial, that weakens the respondent’s claim and supports the appellant’s defence. However, neither point has yet been reached and the Magistrate was premature in his grant of the respondent’s claim by way of summary judgment.
112. The fifth argument concerns the assertion that the loan was to support the business that the respondent was to benefit from. The Magistrate found there to be an absence of evidence in support of the proposition.^[139] The Magistrate accepted that there may have been certain circumstances where particular business dealings between partners would make it inequitable to grant indemnity however the parties must raise such a matter first before evidence can be given to support it. The respondent stated that he had paid all debts attributed to him as part of the business and the appellant did not raise any examples of outstanding obligations that had not been paid by the respondent. His Honour stated, “Not only is there an absence of an arguable case in this regard, there is an absence of any case at all.”^[140] The difficulty with this conclusion is that whilst the appellant might fail to establish it at trial, the appellant’s case is that the circumstances of the loan and the various payments made by the partners will be relevant to the respondent’s right to recover, either in contract or restitution. The appellant has not yet obtained non-party discovery. Neither of the parties has a sufficient memory of the events or sufficient documentation to draw conclusions regarding their business dealings.
113. The purposes of the various loan facilities exhibited in the affidavit evidence were to finance renovations or reimbursements for the business. In the signed loan facilities agreement dated 24 March 2010 which is exhibited to the appellant’s affidavit, the purposes of the loan facilities are described as being “To assist in the renovations of Raglans Hotel” and “To assist in the refurbishment of the Beer Garden at the Raglans Hotel”.^[141] The purpose of the unsigned loan facility dated 20 February 2007 is described as being “[t]o finance ANZ Bank and reimburse directors for funds spent on renovations of Raglans Hotel Pty Ltd.”^[142] The purpose of the unsigned loan facility dated 26 November 2007 is described as being “[t]o assist in the establishment of a Beer Garden at the Marble Bar Hotel.”^[143] The evidence was ambiguous as to the purpose of the loans and did not incontrovertibly establish that the loans were to the benefit of the principal debtors alone.
114. Further, as pleaded by the appellant, the guarantors described in each of the loan facilities were the partners of the business and the company established for the business. Although this evidence alone does not prove that the loans were in fact acquired for the business and therefore to the respondent’s benefit, it demonstrates that there is a basis on which to advance the defence that the respondent’s guarantee may have been provided as part of his contribution to the business. Evidence adduced following discovery may inform as to whether the respondent’s payment under the guarantee could be said to have conferred an unjust benefit on the appellant.
115. The evidentiary deficiencies in support of the claim and the defence make the respondent’s action unsuitable for summary judgment. Whilst the Magistrate’s criticism of the appellant’s inability to establish any of his arguments in defence may be well-made, so too may it be observed that the respondent’s claim is currently poorly supported by evidence. The respondent’s original claim asserted that the business venture started in 2007, and the account of the loan was advanced as if it attached to the appellant’s contribution to the start-up of the business. Following receipt of the defence, the respondent amended his claim to accord with the appellant’s case that the business venture commenced some three years earlier in 2004. Neither of the parties has documented or retained documents in relation to the many decisions relating to the operation of the business in those years and the period between 2007 and the company’s insolvency in 2011. The Magistrate was required to take into account any evidence that may reasonably have been adduced at trial and its effect on the ultimate orders made on the substantive claim including the possibility that factual disputes may be resolved in the appellant’s favour following a trial.^[144] The reasons for decision do not indicate that this occurred. The absence of evidence to establish the claim, as well as to establish the defence, mean that the proceedings were not amenable to summary judgment.
116. The sixth argument raised by the appellant was that the respondent obtained a release from the bank upon payment of less than the full amount which would preclude the respondent’s claim for indemnification. This was rejected on the basis that the respondent’s payment reduced the appellant’s liability to the bank.^[145] The respondent’s payment was made under the obligations of the guarantee and because the appellant had failed to honour his obligations to the bank. However, evidence of the factual circumstances or consequences of the payment to the bank by the appellant or WFC Nominees Pty Ltd are inadequate at this point in time. On the assumption that some payment was made by a person and it had the effect of discharging the appellant’s liability, and assuming that this occurred subsequent to a payment made by the respondent to the bank pursuant to the guarantee, the Magistrate was correct to observe that on the balance of probabilities, the respondent’s payment had the effect of reducing the appellant’s liability. It was open to the Magistrate to reject the defence that payment of less than the full amount of the loan facilities by the respondent precluded an action in contract and restitution.
117. Even though it was open to the Magistrate to conclude as a matter of law that if the evidence was the only evidence available, certain of the defence assertions were not made out, it was not open to the Magistrate to conclude that all of the defences raised were unarguable. Upon reaching the conclusion that some of the defence propositions disclosed arguable points, it was appropriate in light of the wholly deficient state of the evidence to dismiss the application for summary judgment as premature.

Conclusion

118. The Magistrate erred when he failed to recognise the significance of the circumstances in which the guarantee was given to the question of whether the respondent is entitled to be indemnified. Had that significance been appreciated, the application for summary judgment would have been recognised as being premature. The pleadings and the affidavits disclose a sufficient dispute as to the circumstances relevant to a determination of the respondent’s right to indemnity for such an order to be inappropriate. The quality of the evidence, advanced by both parties, regarding the events relevant to the arrangements that the respondent now seeks to litigate, is poor. The process of discovery may improve the quality of the evidence.
119. I would allow the appeal, set aside the decision to grant summary judgment and dismiss the application for summary judgment. As the matter is still in its preliminary stages, the proceedings will be remitted to the Magistrates Court for further determination.

^[1] Defence (Revision 1) filed 2 June 2020 at [3.1].

^[2] Ibid at [3.2].

^[3] Second Claim filed 1 May 2020 at [5].

^[4] Affidavit of Stephen Balfour dated 14 November 2019 at exhibit SB1.

^[5] Affidavit of Matthew Selley filed 20 September 2019 at exhibit MS2.

^[6] Affidavit of Wayne Carey filed 17 February 2020 at exhibit WC1.

^[7] Ibid at exhibit WC2.

^[8] Ibid at [5.1].

^[9] Filed on 2 June 2020.

^[10] Defence (Revision 1) filed 2 June 2020 at [7A.2].

^[11] Ibid at [6.6].

^[12] Second Claim filed 1 May 2020 at [7]-[7A]; Defence (Revision 1) filed 2 June 2020 at [6.4].

^[13] Affidavit of Wayne Carey filed 17 February 2020 at exhibit WC3.

^[14] Ibid.

^[15] Affidavit of Stephen Balfour filed 14 November 2019 at exhibit SB2.

^[16] Second Claim filed 1 May 2020 at [13]. Also see, Affidavit of Stephen Balfour filed 14 November 2019 at exhibit SB3.

^[17] Second Claim filed 1 May 2020 at [13A].

^[18] Affidavit of Stephen Balfour filed 14 November 2019 at exhibit SB4.

^[19] Defence (Revision 1) filed 2 June 2020 at [11].

^[20] Ibid at [11.4].

^[21] The “Second Claim” is an amended version of the first Claim filed on 23 August 2018.

^[22] Applicant’s Summary of Argument dated 2 July 2020 in proceedings AMCCI-18-2750 at [5]-[12].

^[23] [2020] SASC 161.

^[24] Reasons for Decision of Magistrate Milazzo dated 23 July 2020 at [22]-[23].

^[25] In the judgment, the word is “recruitment” but this must be an error.

^[26] Reasons for Decision of Magistrate Milazzo dated 23 July 2020 at [46].

^[27] Ibid at [40]-[44].

^[28] Ibid at [39].

^[29] Ibid at [30].

^[30] Ibid at [47].

^[31] Ibid at [48].

^[32] Ibid at [47].

^[33] The final set of appeal grounds is contained in a document entitled Appeal Grounds (Revision 1) which is annexed as CS 1 to the affidavit of Caitlin Smith affirmed on 10 November 2020 in respect of which leave was granted at the hearing on 17 November 2020. There were 26 grounds.

^[34] Reasons for Decision of Magistrate Milazzo dated 23 July 2020 at [22]-[23].

^[35] (1980) 30 ALR 631; (1980) 54 ALJR 421.

^[36] [2016] WASCA 82; 49 WAR 517.

^[37] [1976] QB 402.

^[38] [2008] NSWSC 1086.

^[39] Ibid.

^[40] [1976] 1 QB 402.

^[41] Reasons for the Decision of Magistrate Milazzo dated 23 July 2020 at [34] and [39].

^[42] See, Re Gasbourne Pty Ltd [1984] VicRp 70; [1984] VR 801, 843-849; State Bank of Victoria v Parry (1990) 2 ACSR 15, 27-28; Limit (No 3) Ltd v ACE Insurance Ltd [2009] NSWSC 514 [288], [293], [294] and [308].

^[43] [1984] VicRp 70; [1984] VR 801.

^[44] [1937] Ch 156.

^[45] (2018) 97 NSWLR 932 (Equity Division, Robb J).

^[46] (1980) 30 ALR 631; (1980) 54 ALJR 421.

^[47] [2000] NSWCA 313.

^[48] [1937] Ch 156.

^[49] (1980) 30 ALR 631.

^[50] [2009] NSWSC 514.

^[51] [1976] QB 402.

^[52] [1937] Ch 156.

^[53] In re A Debtor [1937] Ch 156; Moule v Garrett [1872] UKLawRpExch 18; (1872) LR 7 Ex 101; Morrice v Redwyn (1731) 2 BKB 26; Ware v Horwood (1807) 14 Ves 28; Alexander v Vane [1836] EngR 5; (1836) 1 M & W 511; Kearsley v Cole [1846] EngR 1116; (1846) 16 M & W 128.

^[54] In re A Debtor [1937] Ch 156, 160-161.

^[55] [1937] Ch 156.

^[56] Ibid 163.

^[57] [1937] Ch 156.

^[58] [1953] 1 QB 636.

^[59] Ibid 641-643.

^[60] [1937] Ch 156.

^[61] Anson v Anson [1953] 1 QB 636, 642-643.

^[62] [1976] QB 402.

^[63] Ibid 406-407.

^[64] Ibid 407-410.

^[65] Ibid 412-413.

^[66] (1980) 30 ALR 631; (1980) 54 ALJR 421.

^[67] Ibid 634-636.

^[68] (1982) 149 CLR 337.

^[69] [1987] HCA 5; (1987) 162 CLR 221. Also see, Barber v De Prima (2018) 97 NSWLR 932 at [39] (Robb J).

^[70] Ibid 255-257.

^[71] Ibid at 227-228 [10].

^[72] See, for example, Equuscorp Pty Ltd v Haxton (2012) 86 ALJR 296; [2012] HCA 7 at [29]- [34].

^[73] Roxborough v Rothmans of Pall Mall Australia Ltd [2001] HCA 68; (2001) 208 CLR 516 at [75], [95] and [166]; Coshott v Lenin [2007] NSWCA 153 at [10]- [16].

^[74] [2013] SASCFC 64.

^[75] Ibid at [19], [20] and [29].

^[76] (2012) 86 ALJR 296; [2012] HCA 7 at [28]- [36].

^[77] Codelfa Constructions Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337.

^[78] (1977) 52 ALJR 20.

^[79] [2008] NSWSC 1086.

^[80] Reasons for the Decision of Magistrate Milazzo dated 23 July 2020 at [24]-[30].

^[81] Sisic v Krpo [2008] NSWSC 1086 at [42].

^[82] Ibid at [43]-[45].

^[83] [2000] NSWCA 313 at [239].

^[84] (LexisNexis Butterworths, 3^rd ed, 2016) at [625].

^[85] [2001] NSWCA 177, (2001) 51 NSWLR 624.

^[86] Ibid 631 at [23]-[25].

^[87] [2002] SASC 366.

^[88] Ibid at [57]-[58].

^[89] [1985] WAR 304.

^[90] Ibid at 308 (Burt CJ).

^[91] Ibid at 312-313 (Burt CJ).

^[92] O’Donovan & Phillips, Modern Contract of Guarantee, (LBC Information Services, 3^rd ed, 1996) at [12.110]; Mason & Carter, Restitution Law in Australia, (LexisNexis Butterworths, 3^rd ed, 2016) at [642]-[647]. Referred to in Reasons for the Decision of Magistrate Milazzo dated 23 July 2020 at [40]-[42].

^[93] See, Floreani Bros Pty Ltd v Woolscourers (SA) Pty Ltd (1976) 13 SASR 313, 320 (Bray CJ); Albion Insurance Co Ltd v Government Insurance Office (NSW) [1969] HCA 55; (1969) 121 CLR 342, 351-352 (Kitto J).

^[94] Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221, 227-228 [10] (Mason and Wilson JJ).

^[95] Defence (Revision 1) filed 2 June 2020 at [22.2]-[22.11].

^[96] Ibid at [13]-[13A].

^[97] Ibid at [23.2]-[23.3].

^[98] Ibid at [3.1] and [6].

^[99] Ibid at [22] and [23].

^[100] Affidavit of Wayne Carey filed on 17 February 2020.

^[101] Defence (Revision 1) filed 2 June 2020 at [7] and Second Claim filed 1 May 2020 at [7].

^[102] Affidavit of Wayne Carey filed on 17 February 2020.

^[103] Defence (Revision 1) filed 2 June 2020 at [13]-[13A].

^[104] Transcript of appeal hearing on 17 November 2020 at p 44 (lines 8-32).

^[105] See, Defence (Revision 1) filed 2 June 2020 at [6.7]; Transcript of appeal hearing on 17 November 2020 at pp 31 (line 23) – 32 (line 3).

^[106] Appellant’s Written Submissions dates 10 November 2020 at [58].

^[107] Affidavit of Wayne Carey dated 17 February 2020 at exhibit WC-3. Also see, Defence (Revision 1) filed on 2 June 2020 at [6].

^[108] Defence (Revision 1) filed 2 June 2020 at [6].

^[109] Ibid at [6.3] and [7]. Also see, Second Claim filed 1 May 2020 at [7].

^[110] Defence (Revision 1) filed 2 June 2020 at [6.4].

^[111] [1953] QB 636.

^[112] Ibid at [11.1] and [11.2].

^[113] Ibid at [13A.2].

^[114] [2008] SASC 158; (2008) 106 SASR 1.

^[115] [2007] FCA 511; (2007) 160 FCR 298, 309 [47] (White J).

^[116] [2010] HCA 28; (2010) 241 CLR 118.

^[117] [2011] SASC 87.

^[118] Reasons for Decision of Magistrate Milazzo dated 23 July 2020 at [45]-[46].

^[119] [2020] SASC 161 at [59]- [60].

^[120] (2013) 117 SASR 560; [2013] SASC 154.

^[121] Ibid at [16] and [19].

^[122] [2016] SASCFC 48.

^[123] Ibid at [16].

^[124] Ibid at [17].

^[125] Adelaide Brighton Cement Ltd v Hallett Concrete Pty Ltd & Ors [2020] SASC 161 at [59].

^[126] Reasons for the Decision of Magistrate Milazzo dated 23 July 2020 at [47].

^[127] Reasons for Decision of Magistrate Milazzo dated 23 July 2020 at [22]-[23].

^[128] Ibid at [30].

^[129] Ibid at [39].

^[130] Ibid at [47].

^[131] Ibid at [48].

^[132] Ibid at [49].

^[133] Ibid.

^[134] Exhibit WC 1 to the Affidavit of Wayne Carey filed on 17 February 2020.

^[135] Reasons for Decision of Magistrate Milazzo dated 23 July 2020 at [47].

^[136] Ibid.

^[137] Ibid.

^[138] Ibid.

^[139] Ibid.

^[140] Ibid.

^[141] Affidavit of Wayne Carey dated 17 February 2020 at exhibit WC-3, p 054.

^[142] Affidavit of Stephen Balfour dated 14 November 2019 at exhibit SB1.

^[143] Affidavit of Wayne Carey filed 17 February 2020 at exhibit WC2.

^[144] Proude v Visic (No 4) [2013] SASC 154; (2013) 117 SASR 560 at [103] – [109] (Blue J).

^[145] Reasons for the Decision of Magistrate Milazzo dated 23 July 2020 at [47].