Bofinger & Anor v Kingsway Group Limited & Ors [2009] HCATrans 144 (19 June 2009)

Last Updated: 23 June 2009

[2009] HCATrans 144

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S5 of 2009

B e t w e e n -

RONALD JOHN BOFINGER

First Applicant

SANDRA ANNE BOFINGER

Second Applicant

and

KINGSWAY GROUP LIMITED FORMERLY WILLIS & BOWRING MORTGAGE INVESTMENTS LIMITED

First Respondent

REKLEY PTY LIMITED

Second Respondent

JOHN EDWARD SKEHAN

Third Respondent

DAVID JOSEPH LEVI AND JOHN MAXWELL MORGAN JOINT LIQUIDATORS OF B & B HOLDINGS PTY LIMITED (IN LIQUIDATION)

Fourth Respondent

RON TOSOLINI

Fifth Respondent

ADRIAN MATTIUSSI

Sixth Respondent

LOU POLITO

Seventh Respondent

PETER HATHEIER

Eighth Respondent

Application for special leave to appeal

GUMMOW J
BELL J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 19 JUNE 2009, AT 12.34 PM

Copyright in the High Court of Australia

__________________

MR G.J. McVAY: If your Honours please, I appear with my learned friend, MS A. TSEKOURAS for the applicant. (instructed by Warren McKeon Dickson Solicitors)

MR D.R. SIBTAIN: May it please the Court, I appear with my learned friend, MS C.K. AMATO, for the first and eighth respondents. (instructed by Watson Mangioni)

MR C.M. HARRIS, SC: If the Court pleases, I appear with my learned friend, MS A.B. DOUGLAS-BAKER, for the second and third respondents. (instructed by Bransgroves Lawyers)

MR R.J.H. DARKE, SC: May it please the Court, I appear for the fifth to seventh respondents. (instructed by Middletons Lawyers)

GUMMOW J: There is a submitting appearance from the fourth respondent which is the company in liquidation, is it not – or the liquidators. Is there any agreement amongst the respondents as to who has the major carriage or are you wholly in alliance with one another, or is there any division? What is the situation?

MR SIBTAIN: The position is that there is wholly alliance between each of the respondents in relation to one of the issues in relation to the issues of whether there be a trust or a charge. Mr Darke would have the carriage of that.

GUMMOW J: I see. Thank you. Yes, Mr McVay.

MR McVAY: Your Honours, the issue in this case is whether a guarantor who has contributed to paying out the amount of a first mortgage can claim subrogation to the rights of that first mortgagee - - -

GUMMOW J: I do not say it is a problem, but one of the features of this case is that there was a statement of agreed facts, was there not?

MR McVAY: Yes, there is, your Honour – at page 79.

GUMMOW J: Paragraph 9 of the agreed facts on page 80 says that the plaintiffs sold those two properties and – this is the expression – “pursuant to the said guarantees”, paid, et cetera. What does that mean? Was there a call on the guarantee?

MR McVAY: No. I am seeing that for the first time and I am concerned about it. No; there was not a call on the guarantees. That is common ground. It was purely a voluntary payment. No one leaps to their feet, so I must be right.

GUMMOW J: Thank you.

MR McVAY: Thank you, your Honour, for pointing that out. Can the guarantors be subrogated to the rights of the first mortgagee or, alternatively, can it seek an assignment under section 3 of the Law Reform (Miscellaneous Provisions) Act 1965 of the securities held by the first mortgagee in circumstances where the guarantors have given guarantees, either secured or unsecured, to subsequent mortgagee?

GUMMOW J: Given subsequently.

MR McVAY: Given subsequently, yes – well subsequently.

GUMMOW J: There is some reference to transaction by the Court of Appeal.

MR McVAY: They were very well spaced.

GUMMOW J: As I understand it, your submission is that that is a bit of a gloss – that there were temporal steps as further money was needed, I suppose.

MR McVAY: Precisely. The corporate borrower borrowed from the first mortgagee. That money ran out. It borrowed from another, second, mortgagee; that money ran out. Then it borrowed from a third mortgagee in order to complete the project. Your Honours, it is an important question, given the commonplace use of guarantees of moneys borrowed by corporations.

GUMMOW J: Yes, but it is not commonplace for guarantors to gratuitously pay these things out, is it?

MR McVAY: Well, it is, with respect. A guarantor has that ability at any time to pay out the encumbrance that it guarantees, for any commercial reason. It is important also - solicitors all over this State and no doubt all over the country – if your Honours go to guide card 10, behind the bundle of cases that was sent up, above the lady with the umbrella – it is a little bit dark - is the Law Society Journal. That is the May 2009 edition. Your Honours will see that this case has already been circulated to the solicitors of this State. It is easy to imagine the solicitors now who advise on guarantees drafting all sorts of clauses to get over or to in some way deal with this case.

I will just say this while I am on it. I will come to it, but Justice Handley has acknowledged that one of the cases that is central to the whole appeal – Otter v Lord Vaux – was decided in 1856, and despite its long history, has never been referred to in any text either in Australia or in England in relation to the law of guarantees, nor has it been the subject of any recorded decision in the law of guarantees. This is an opportunity for this Court to decide whether or not Otter v Lord Vaux - - -

GUMMOW J: It is usefully discussed in Professor Sir Humphrey Waldock’s book on the law of mortgages, published in 1950 at page 437. It has an explanation and discussion of Otter v Lord Vaux which I do not think is consistent necessarily with the Court of Appeal’s treatment of it, to leave it at that.

MR McVAY: Your Honour has an advantage on me in that I do not know about that. The three judges in the Court of Appeal dismissed the appeal on three different grounds – Justice Giles on the basis that – although he did not use the word “waiver” it is clear that he held that giving the subsequent guarantees - - -

GUMMOW J: He also used the expression “conventional estoppel”, I think.

MR McVAY: That was Justice Handley.

GUMMOW J: Yes.

MR McVAY: That a conduct of giving subsequent guarantees waived not only the equitable right of subrogation but also the statutory right under section 3. For a person to waive any right there has to be a sort of deliberate and clear intention to do so.

GUMMOW J: It is hard to work out a question of waiver on a statement of agreed facts.

MR McVAY: The point is there is nothing in the agreed facts which would even contemplate, would even come near the issues of waiver.

GUMMOW J: There is a mental element often in waiver, is there not?

MR McVAY: Precisely. No one sought to include any mental element whatsoever in the agreed facts. The same can be said for unconscionability. There is nothing in the agreed facts which indicates that anybody was particularly vulnerable in the whole series of transactions.

GUMMOW J: But I think the merits, if there are merits, put against you are that this was all brought about by the presence of the later mortgages and the guarantees under the later mortgages. There was some – to put that bluntly – sharp practice involved.

MR McVAY: Yes. One wonders how that can be so. If I can take your Honours to - - -

GUMMOW J: Sharp practice to prejudice the subsequent mortgagees.

MR McVAY: One wonders how that can be so when each mortgagee has been represented by solicitors, each mortgagee had access to all of the documents of the preceding mortgagee. It really is a case of mortgagees looking after their own interests the way that the guarantors look after their own interests. If I can take your Honours to the actual guarantee form itself at page 82 of the application book – perhaps I will take you to 7.1 on page 89. This is a clause which, although it does not use the word “subrogation” it clearly preserves the guarantors right to be subrogated until the guaranteed money is paid in full – and that happened.

GUMMOW J: The reason why people have drafted, I think, clauses like 7.1 is to negative the possibility that you get partial subrogation – you pay a bit and then you get a bit of subrogation. This says you have to pay the lot.

MR McVAY: Yes. Well, the lot has been paid. The whole moneys of the first mortgagee has been paid. So upon the payment out of the first mortgagee the guarantors are entitled, under 7.1, to claim subrogation. That was a clause that everybody knew about – when I say “everybody”, the second and third mortgagees knew about or had the access to knowing about it – at the time they lent their money. This area of the law has traditionally been one where parties negotiate with each other about the content of guarantees and the content of mortgages. The solicitors for the mortgagees will say, “I want this clause taken out as a condition of making the advance” and that is how it is done. But no one sought to have that clause taken out and the guarantors, voluntarily, paid their money to pay out the first mortgagee and there was nothing in the subsequent documentation which said that they cannot claim subrogation.

With respect to the judgment of Justice Giles, his Honour did not explain how giving subsequent guarantees could in any way be inconsistent with giving the first guarantee because subrogation arises as a result of giving a guarantee. That is how it is created. It is questionable to say that the very document that gives rise to the right of subrogation can take it away – that is giving a later guarantee – especially when no attempt is made to take out a provision which specifically preserves the right.

GUMMOW J: Are you saying there could be no equitable defences to an assertion of a right of subrogation?

MR McVAY: Not at all, your Honour. Well, none at all absent any sharp practice or absent any unconscionable weaker position – and none of that is involved here – there is no room for equitable principles. It is purely how four business people, a guarantor and three mortgagees, negotiate their terms. To start bringing in equitable principles as has been done – and the Court of Appeal went to extraordinary lengths. Justice Handley, as I have said, relied upon a case which has always been – for 150 years – restricted to mortgages; to mortgagors and mortgagees. He called it a slight extension of principle but it is really an avalanche of extension to take that principle and extend it to guarantors. The whole basis of subrogation – and it is set out in Drew v Lockett which I will take your Honours to - - -

GUMMOW J: We know about Drew v Lockett.

MR McVAY: Everybody knows about Drew v Lockett - is that subsequent mortgagees are indifferent to whether or not it is the guarantor who is ahead of them or the first mortgagee, because the amount of money is limited. Whether it is the first mortgagee or the guarantor who exercises the powers of sale does not affect in any way the second mortgagees and the third mortgagees. As a result of this judgment rights that a guarantor has had for many years are now at risk because the judge has missed the point, I say with respect, that the second and third mortgagees are in no way prejudiced by the guarantors claiming subrogation.

As it is a statutory right, Justice Giles was quite right in saying – and I ask your Honours to go to page 35 of the application book – in paragraph 7, line 10:

Where s 3 applies, debate over the doctrinal basis for subrogation in relation to securities is truncated, as it must be applied according to its proper construction; also truncated is modification of the entitlement to subrogation according to perceived unconscionability –

When you have a statutory right, if it applies - - -

GUMMOW J: What is the ancestry of section 3 of the 1965 Act?

MR McVAY: Justice Handley talks about it, your Honour.

GUMMOW J: It has quite an ancestry, has it not, or am I wrong?

MR McVAY: It does. It gives effect to the equitable right but it extends it because there were some debts that, if they were paid out, extinguished the right, so it was preserved.

GUMMOW J: It is derived from imperial legislation, is it not?

MR McVAY: It is. You will find that at application book page 48, paragraph 56 of Justice Handley’s judgment. I accept that statutory right can be surrendered by contract or waived, but certainly not in this case where all parties advanced their moneys on the knowledge of the content of clause 7.1.

GUMMOW J: I think we will hear from the opponents, Mr McVay.

MR SIBTAIN: The reasons why special leave should be refused are that, contrary to the applicant’s contention, it is the conventional application of the doctrine expressed in Cochrane v Cochrane that, if there is an occasion which gives rise to the implication of - - -

GUMMOW J: What was happening in Cochrane v Cochrane? That was Justice Kearney’s decision, was it not?

MR SIBTAIN: That was Justice Kearney’s decision which was accepted to indicate that the report had a corrigendum. I do not know whether the Court has the corrigendum from the front of the New South Wales Law Report. The proposition is stated that it is not open to doubt that:

Where a mortgage is paid off by a third party, the third party is presumed, unless the contrary appears, to intend that the mortgage shall be kept alive for his benefit.

The question is whether or not a contrary intention has appeared.

GUMMOW J: Cochrane v Cochrane is all about a third party paying off, is it not?

MR SIBTAIN: It is.

GUMMOW J: It is not a case about guarantors.

MR SIBTAIN: Well, in this case, as your Honour Justice Gummow observed, this was not a payment pursuant to a guarantee.

GUMMOW J: That is the question.

MR SIBTAIN: It was a payment that was made voluntarily in contemplation of a guaranteed right.

GUMMOW J: Yes, that is the question. It had a consequence, though, of releasing a liability.

MR SIBTAIN: It did.

GUMMOW J: So you could not say it was a voluntary payment.

MR SIBTAIN: No. Again the doctrinal basis for the notions of subrogation are otherwise – otherwise the person paying off would be treated as a volunteer. The right arises to prevent that occurring in good conscience preventing the mortgagor from then asserting a right inconsistent with that. What is critical in this case is that there is a fourth party involved, as Justice Giles observed, and that is the fourth party being the second mortgagee. What has happened is that in terms of the order of events, regardless of whether or not these were agreements that were entered into contemporaneously, the only critical consideration - - -

GUMMOW J: These are registered mortgages, are they?

MR SIBTAIN: Yes.

GUMMOW J: Torrens land?

MR SIBTAIN: Yes.

GUMMOW J: Reregistered mortgages?

MR SIBTAIN: Yes.

GUMMOW J: No secrecy about the term?

MR SIBTAIN: No. The only consideration is the fact that on 14 March 2003 there was a guarantee given to the second mortgagee and in the payment out - - -

GUMMOW J: That you took with notice, that subsequent mortgagees took with red-blooded notice, as it were.

MR SIBTAIN: Yes; that is so.

GUMMOW J: Why do they complain if this works out this way?

MR SIBTAIN: Because the transaction that occurred in 2003 prior to the payment out was a transaction which was guaranteed by the very same property. It is in that sense that if not explicit, then implicitly – and it is accepted that there may be a waiver of a right of subrogation, either expressly or implicitly, and if by that conduct there is an implicit waiver of the right to obtain priority – because it would not be against conscience for that to occur.

GUMMOW J: You may be right.

MR SIBTAIN: That obtains whether it be founded upon unjust enrichment or indeed on unconscionability, but we say that in any event on the facts this is not an occasion for the consideration of that dispute.

GUMMOW J: I think notions of contribution are so well established that the ordinary practitioner does not think about the conscientiousness of what is going on. Bankers do not puzzle over that when they take a guarantee – whether it is going to be unconscionable to enforce it.

MR SIBTAIN: The critical difference in this case from the ordinary situation which might apply to either a guarantor or someone who voluntarily pays out – it does not matter in our submission whichever is the case.

GUMMOW J: All I am saying to you is that there are some equitable principles of doctrines that are so well settled that they do not require, for their application, an analysis by reference to particular conscience in the particular circumstances unless you can go so far as to say there is some equitable defence.

MR SIBTAIN: Yes, and the defences that might be available to someone in the position of the second mortgagee or the third mortgagee or, indeed, in the case of the first mortgagee in answer to a claim for breach of trust would be that the applicants are estopped from relying upon their right of subrogation by reason of the express guarantee that was given, prior to the payment out to the second mortgagee, a guarantee which was secured by the very properties, the subject of their claim. What is critical, in our submission, in relation to this case is that the giving of the guarantee to Rekley displaced the priorities that would have, but for the existence of that contract, otherwise obtained. We do not take issue with the fact that they would otherwise have obtained. It is to that extent that the application - - -

GUMMOW J: The guarantee instrument, is that in evidence?

MR SIBTAIN: The guarantee instrument is at page 193 of the application book. Critically the provision at 199, at paragraph 7.1, in our submission, includes the express waiver of the right on the part of the guarantor to enforce any right of subrogation, ahead of in respect of any estate or any of the property. Now, that is not a matter upon which the Court of Appeal concluded this case. However, it is another basis upon which it could be sustained.

GUMMOW J: And the mortgage instrument?

MR SIBTAIN: The mortgage instrument appears at 209 and 214 of the application book.

GUMMOW J: Does that make clear that it is a mortgage in support of a guarantee?

MR SIBTAIN: No, but that was a matter that was considered. Certainly, at first instance, it did not feature in the Court of Appeal’s decision, but there was no appeal from that.

GUMMOW J: What was the decision at first instance?

MR SIBTAIN: The decision at first instance was that it did and that is to be found at application book 14, paragraph 27. So, even to the extent that section 3 is relied upon, section 3 does not elevate the matter any further for the applicants. All that it requires is the absence of consideration of notions of unconscionability, but nevertheless the implicit waiver is still capable of occurring by reason of, for example, the execution of a guarantee. Both Justice Giles and Justice Handley recognise that at application book 38 and 48, paragraphs 17 and 56 respectively.

The effect of giving priority to the right of the applicants is to convert the second mortgagee, and indeed any mortgagee that follows, in effect to being an unsecured creditor because the consequence of the release or, should I say, the motivation of the release of the mortgages that were given by the applicants to each of the second and third mortgagees - - -

GUMMOW J: But what did they take? When you say they had a second mortgage, what did they have? They had what was left on one view of it after the working out of whatever was the legal relationship between the mortgagor and the first mortgagee, including the exercise of any subrogated rights.

MR SIBTAIN: But had they not consented to the release of those mortgages what would have happened is, as I have addressed in paragraphs 9 and 10 of my outline of submissions, that in permitting the applicants to sell the properties they did so implicitly on the basis that the fund available to it, namely to the applicants from the sale of the borrower’s property, would not be diminished.

GUMMOW J: Now, is there an agreed fact about that?

MR SIBTAIN: No, there is no agreed fact. But what one would have expected is that, had the consent not been provided then the most probable outcome would have been that the borrower’s properties would have been sold and applied entirely, but not sufficiently to the debt owed to the first mortgagee and that would have produced, as a consequence, a call by each of Kingsway and Rekley in that order upon the guarantees that had been given by the applicants to each. The entitlement to Rekley – then the second mortgagee – would have been to retain the surplus. So, the timing does not adjust the priorities and nor should it, in my submission. I will sit down to leave my learned friend some time.

GUMMOW J: Yes, I thought you might be eating into their time.

MR HARRIS: Your Honours, can I take you back to the actual terms of the guarantee which are at page 199 of the application book and to paragraph 7.1(2)? When the applicants executed this guarantee they agreed that they would not claim or enforce any right against the borrower’s property until the second mortgagee had been paid in full. In other words that they would not, amongst other things, make a claim for subrogation in respect of the borrower’s property until Rekley had been repaid in full. They were, by executing this document, expressly waiving any equitable or statutory right to subrogation that they had. That was what his Honour Mr Justice Young found at first instance. It was not really dealt with by the Court of Appeal, except Mr Justice Handley mentions it at page 48 of the application book, but not in a way which really addresses it in any detail.

GUMMOW J: Well, this is what I am getting to. If there were a grant of special leave would that bring a notice of contention on your part?

MR HARRIS: Yes.

GUMMOW J: I see and do we have any written submissions from the applicant foreshadowing a response to this?

MR McVAY: Yes, your Honour.

GUMMOW J: Whereabouts, Mr McVay?

MR McVAY: In response, they are 282. That is for Mr Harris, yes 282.

GUMMOW J: Yes, so really paragraph 4 on page 282?

MR McVAY: Paragraph 4 and over to 5.

GUMMOW J: Going over to 5? All right, thank you. Yes, Mr Harris.

MR HARRIS: Your Honour, next we say that the position of the applicant is to assert, in effect, that the mere payment by a guarantor of a borrower’s debt creates a right of subrogation which can be enforced, unless either it has been released in some way, or unless the applicant has acted in some way which is unconscionable. We say that that is to misconceive, in a subtle way, the way in which subrogation operates and to approach it as though it were effectively a common law right, which arose merely on the payment of money and which could only be lost through contract, or as a result of equitable intervention.

GUMMOW J: Well, I think that is the ground for debate.

MR HARRIS: Well, your Honour, the cases show quite clearly, in our respectful submission, that subrogation is an equitable remedy and it is only applied to prevent unconscionability. It does not arise merely on the payment by the guarantor of a borrower’s debt, and indeed the demonstration of that is that until the debt is paid out completely it does not arise at all. There must be, in our respectful submission, something more than the mere payment.

GUMMOW J: You may be right, but it seems to me that is an area of debate. You may be right in the end, but all I am saying is at this level of the special leave that seems to be a question.

MR HARRIS: Well, your Honour, in the present case - - -

GUMMOW J: I may be wrong, but I think it would cut across a certain amount of commercial perception around the city. Maybe that is a good thing - - -

MR HARRIS: Your Honour, in the present case, the reason why we would say that there is no unconscionability and that the decision of the judge at first instance in the Court of Appeal was undoubtedly correct is because in this case there was a direct contract between the sureties who are claiming subrogation and the parties against whom they are attempting to enforce it, which is a factor that is not normally found in cases in which subrogation is applied and that takes it out of the usual subrogation case and it also means that - - -

GUMMOW J: You may be right about that too, but that is another question.

MR HARRIS: Then, your Honour, if I can just then pass on to the third thing that I was going to address, but I do not think I need to do it in any great detail. There is no reason, in our respectful submission, why the principal in Otter v Vaux ought not apply in the present case. One is dealing here just as much as one was in a case of successive mortgages with successive guarantees and there is no reason – or rather a party who enters into successive guarantees ought not be able to claim through the first guarantee to defeat the rights of the party who is entitled to the second guarantee. The extension of the rule was something which admittedly came late in the case but when considered there is no reason, in our respectful submission, why it ought not be extended in that way.

GUMMOW J: I think Otter v Lord Vaux is about derogating from grant.

MR HARRIS: Well, if one looks - - -

GUMMOW J: The mortgagor is not allowed to derogate from a grant to the first mortgagee by dealing in this way with the second mortgagee.

MR HARRIS: Your Honour, by analogy, a guarantor who provides a guarantee in favour of a lender and secures his assets to support that guarantee ought not be - - -

GUMMOW J: Well, you might be right about that too, but that is another question, I think.

MR HARRIS: Well, I think I have said about all I can - - -

GUMMOW J: I do not think we can say it is clearly right or wrong at this level.

MR HARRIS: Yes. Thank you.

GUMMOW J: Yes, Mr Darke.

MR DARKE: If it please the Court. Your Honours, the separate question dealt with in this case was whether certain surplus proceeds of sale and some, as it were, surplus securities were held on trust at the relevant time. That matter was said to arise as a consequence of the asserted right of subrogation. His Honour Justice Young dealt with the matter by rejecting the right of subrogation and the finding was that it had been given away by contract - in our respectful submission, that is plainly correct - but secondly, went on to consider in the course of dicta at paragraphs 47 to 50 of his judgment at page 19 of the application book, that in any event, even if he had found that there was a right of subrogation, he would not have found that there was a trust arising in favour of the applicants. Now, this matter was not dealt with at all by the Court of Appeal.

GUMMOW J: Has there been another notice of contention?

MR DARKE: Yes, your Honour, there are two notice of contention points. In my respectful submission, your Honour, the answer put in the written submissions by the applicants against the construction of clause7.1 really offers no reason to construe 7.1 in any way other than that it stands squarely against the exercise or purported exercise by the applicants of the right of subrogation that they claim. Your Honours, a surety’s right of subrogation - - -

GUMMOW J: This is 7.1 at page?

MR DARKE: Page 199, your Honour. The guarantee taken by the second mortgagee at a time prior to the payments which are said to have found the subrogation right claimed in this case. Perhaps before going to 7.1, could I take your Honours briefly to, in the same instrument, back to page 196. Your Honours will see the definition of “mortgage” which is the mortgage your Honours were taken to at page 214. Then Clause 2.1:

The lender enters into the Mortgage (“Mortgage”) with the Borrower at the request of the Guarantors and in consideration of the Guarantors entering into this deed.

So the second mortgagee has come to the position where there was obviously a prior encumbrance, but has done so on a particular basis with these guarantors. It has at their request entered into the mortgage, its second mortgage, and it has extracted various covenants from the guarantors in this instrument. Apart from 7.1, there is 3.1 where the guarantors guarantee performance of all the obligations. Clause 5.1 provides for an indemnity, admittedly only operating where the guarantee is not for some reason effective. That is said to be a principal obligation. Then clause 7.1 itself.

Your Honours, the very purpose of a surety’s right of subrogation is to aid the enforcement of its right of indemnity against the debtor. That is the very thing that is sought to be done, and that is plainly, in my respectful submission, captured by the fairly expansive terms of clause 7.1, whereby the guarantors promise not to in any way make a claim or enforce a right against obligated person, who includes the debtor company, make any claim or enforce a right against any obligated person or against the property. That is exactly what the applicants have sought to do in this case.

For those reasons, in my respectful submission, the decision of the courts below was plainly correct to reject the subrogation argument. The other question that arises, but would only arise in the event that the subrogation right was established, is the question whether the surplus funds and surplus securities were held on trust. There is no decision that I am aware of in this country which deals with it squarely as the basis of a decision.

There is a comprehensive discussion of the question by Justice Giles in the commercial division of the Court in which he discusses, in particular, Lord Napier and Ettrick in the context of insurance subrogation and concluded that had he found a right of subrogation in the case before him, which was a guarantee case, he would not have granted relief by way of trust, but would have confined the equitable relief to charge.

In my respectful submission, that matter not dealt with in the courts below, except to the limited extent in Justice Young’s judgment is another reason why it is not a particularly suitable vehicle for special leave and

there are very good reasons, as Mr Justice Giles put it in that case, why it would be unnecessary and inappropriate to impose trust obligations on the first mortgagee in cases such as this.

Your Honours, the equity of a surety who pays the debt is well known and well established in an ordinary case but this is not an ordinary case because of the particular facts surrounding the giving of the later mortgages and guarantees. Those are my submissions, may it please the Court.

GUMMOW J: Mr McVay, do you want to say anything about clause 7.1 on page 119?

MR McVAY: Yes, your Honour.

GUMMOW J: And what Mr Darke just said about it.

MR McVAY: He addressed on 7.1 and 7.2, I think.

GUMMOW J: Yes, that is right.

MR McVAY: Now, there is only one guarantee in this case that is relevant and that is the guarantee between the guarantors and the first mortgagee. The only claim for subrogation is to the rights of the first mortgagee, not to any other lender. Clause 7.1 deals in each case with the rights of subrogation against that lender, first, second and third. We are only concerned about subrogation to the first mortgagee and whatever appears in any other guarantee is irrelevant because that only relates to a claim for subrogation against those second and third lenders, not against the first lender.

Clause 7.2, subrogation – I refer to it in my submissions – subrogation is not making a claim or enforcing a right. The purpose of that is to prevent somebody from say calling in a loan from an obligated person and thus reducing the assets of the person available for splitting up between the mortgagees. Subrogation does not do that. It has no effect whatsoever on the size of the pot available for everybody else. But 7.1(2) goes to reducing the size of the pot available. Your Honours do not need to be concerned about the trust matter because - - -

GUMMOW J: We do not need to hear that statement in reply. There will be a grant of special leave in this matter. I think it should be allowed one and a half to two days actually, there are some complex questions involved in this, and it can be expected that there will be two notices of contention as indicated. Very well, so there will be a grant of special leave in this matter. It will be a two-day appeal. How soon could it be got ready, gentlemen?

MR McVAY: Not the August sitting.

GUMMOW J: No, I think not actually. We will adjourn until 2.15.

AT 1.18 PM THE MATTER WAS CONCLUDED