Friend v Brooker & Anor [2009] HCATrans 38 (5 March 2009)

Last Updated: 5 March 2009

[2009] HCATrans 038

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S475 of 2008

B e t w e e n -

NICHOLAS MACARTHUR FRIEND

Appellant

and

FREDERICK CLARKSON BROOKER

First Respondent

FRIEND & BROOKER PTY LTD

Second Respondent

FRENCH CJ
GUMMOW J
HAYNE J
HEYDON J
BELL J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON THURSDAY, 5 MARCH 2009, AT 10.17 AM

(Continued from 4/3/09)

Copyright in the High Court of Australia

FRENCH CJ: Yes, Mr Newlinds.

MR NEWLINDS: Your Honours, we have brought some copies of the other report of Spottiswoode’s Case, if that is any assistance. They have been printed from Google but they look authentic enough. I think I am handing up seven copies.

FRENCH CJ: Thank you.

MR NEWLINDS: What I thought I would do this morning, your Honours, is firstly try and persuade your Honours that before the equity applies the person applying for relief needs to have paid more than their fair share of the debt; secondly, come to the question of quia timet and try and make good the proposition that there is a clear distinction between what is required for the right and what is required as a matter of discretion; thirdly, to the best I can, to answer Justice Heydon’s question about what the evidence was and what the findings were concerning payments, interest rates and the like, then go back to paragraph 12 and then take your Honours through the way the case was run and the pleadings to make good a submission that, even if everything I have said to date is wrong, the case should not have been decided upon the basis that it was.

GUMMOW J: What about the fiduciary point?

MR NEWLINDS: I was going to wait for reply for that, that being raised on the notice of contention.

HEYDON J: I just do not find that very attractive. You know what is coming.

MR NEWLINDS: I am happy to do it now.

HEYDON J: Is it not better for you to say what you want to say, then you have two chances?

MR NEWLINDS: All right, I will. And number six will be I will deal with the fiduciary. So, firstly dealing with fair share, as a matter of principle, we would - - -

GUMMOW J: Just stopping there, is there not an unjust enrichment claim as well?

MR NEWLINDS: Well, there is said to be.

GUMMOW J: Are you going to deal with that in reply too, are you?

MR NEWLINDS: No, I am going to deal with that when I deal with the pleadings and the way the case was run.

GUMMOW J: I see.

MR NEWLINDS: I am going to say there is no such thing as such thing as such a claim in unjust enrichment. So dealing first with the question of whether the person who is applying for relief has to have paid more than their share of the liability, and to use an example, if you have $100 being the full amount owed to the creditor to joint and several debtors, if one debtor pays $10, it is not the case that that person can go to the other joint debtor and say, can I have five? The position is up until the point until he has paid $50, he has no right to contribution, but from the point when he pays $51 onwards he can recover to leave his liability at 50. As a matter of principle, may I suggest - - -

GUMMOW J: Wait a minute. It may not be as simple as that because the nature of the rights of X may be that there is a periodic accrual of indebtedness.

MR NEWLINDS: Of course, yes. Well, that may bring about a different result.

GUMMOW J: We do not know about this case, do we?

MR NEWLINDS: No, we do not know anything about that. But if there is no periodic obligation to pay, in my submission what I have said is the way it works for two reasons. Firstly, objectively what is fairly to be expected from each joint debtor is they pay half if there are two of them, assuming they are both solvent. So it is not unfair at any point in time when one joint debtor has paid less than half, so there is nothing to adjust. Secondly, as is explained in the Canadian case extracted in Meagher, Gummow and Lehane, if it was any different you would have the spectre of multiplicity of suits. So a person could pay $1 at a time and go back and ask for 50 cents and as a matter of policy, equity turns its face against that.

The way it works once you have paid $51 – and this is what happened in, I think, the Woolmington Case – is you can get relief and you get relief by an order for payment to you of $1 and then a declaration that at any time when you pay anything further you are entitled to recoup, or be indemnified, for that amount from the co-obligor. In certain rare circumstances if the creditor is a party to the suit, you can get a true quia timet order that the co-obligor, the co-debtor, pays directly to the creditor, even if the creditor calls on you.

Can I just take your Honours through – most of these authorities we have already looked at, the first being Wolmershausen v Gullick [1893] 2 Ch 514, which we looked at yesterday, the decision of Justice Wright. Relevantly, at page 520, the paragraph “In the earliest reports”, and if your Honours move down to about the third last sentence of that paragraph:

Nearly every case and textbook refers to his right to contribution as the right of a surety who has paid more than his proportion. In a few cases the ambiguous expression is used, “when he is called upon to pay more than his proportion.”

Now, of course, his proportion is pro rata if there is no other agreement but, of course, that can give way to express agreements if they have agreed to share the lability in particular proportions. Again, if your Honours go through to page 529, his Honour about four lines down: The principal creditor not being a party, I think that I cannot order payment to him –

Pausing there, the Court of Appeal appears to have made such an order in this case without the creditor being a party –

or directly prevent him from enforcing his judgment against the Plaintiff alone. Nor can I at present order the co-surety to pay his half to the Plaintiff, for the Plaintiff cannot give him a discharge as against the principal creditor . . . But I think that I can declare the Plaintiff’s right, and make a prospective order under which, whenever she has paid any sum beyond her share, she can get it back, and I therefore declare -

Can I then just give your Honours a reference to a High Court case called Mahoney v McManus [1981] HCA 54; (1981) 180 CLR 370. It is not on anyone’s list, I do not think. Interestingly enough – and I will come to this when I am dealing with what the evidence is about payments and the like – the only issue between the Justices deciding this case, there was no issue of principle between them, the question was whether as a matter of fact a payment which had physically come from the principle debtor was in fact a payment by direction by one of the co-sureties. So the co-surety said “Well, that payment that was made was in fact a payment by me”.

Justice Gibbs said that that finding should have been made. I think Justices Wilson and Brennan said it should not. When I come to the evidence, that may be an issue that needed to be decided in this case. At page 376 in Chief Justice Gibbs’ judgment, at the very top of the page:

There was no contest as to the principles of law applicable to the determination of the main question that arises in the present case. A surety is entitled to contribution from his co-sureties so that the common burden is borne equally and so that no surety is required, as between himself and his co-sureties, to pay more than his due share . . . The right to contribution arises when a surety has paid or provided more than his proper share of the principal debt, but it may also be enforced by a surety who has not made payment; the circumstances –

and his Honour goes on. Then if your Honours go through to page 387, which is part of Justice Brennan’s judgment, the paragraph at about point 8 or 9 of the page:

That is not to say that the right to contribution arises only when the creditor sues or otherwise takes an initiative to obtain payment. A payment by a surety of more than his just proportion in discharge of a liability resting upon him and his co-sureties suffices.

GUMMOW J: What is more significant is the statement in the middle of 387:

A co-surety’s right to contribution . . . the right to contribution does not arise because the sureties all derive a benefit from the payment made. The right to contribution arises because in the view of equity a creditor ought not exercise his legal rights inequitably, enforcing disproportionate contributions from co-sureties.

MR NEWLINDS: Well, that is right and that goes back to that case we were looking at yesterday.

GUMMOW J: Yes, exactly.

MR NEWLINDS: Although, surprisingly enough, if that be the equity one wonders why it is not enforced against the creditor. I suppose because he or she has a legal right to do what he is doing. The next case is Justice Needham’s decision in the Woolmington – I was calling it the “Brass Lamp Case” yesterday. It is Woolmington v Bronze Lamp Restaurant [1984] 2 NSWLR 242 at 245 and this is the case where his Honour was not prepared to grant relief because there was no imminent payment. But at page 245 the paragraph beside lines B and C, the very last sentence there:

That is clearly predicated upon the basis that the plaintiff will be forced to pay is share of the amount due and that therefore he is entitled to indemnity against the co-surety for the balance.

So the right is for the balance, that being the balance over and above whatever the claimant’s fair share was.

Finally, your Honours, can I just give you a reference or if your Honours have it on the Bench, paragraph [10-100] of the current edition of Meagher, Gummow and Lehane under the heading “The accrual of the right” extracts at some length a decision of Justice Orde in – I think it is the Ontario Law Reports, a case called Tucker v Bennett (1927) 60 OLR 118 also reported in [1927] 2 DLR 42. I will not take your Honours to the passage, but his Honour is pointing to the fact that if it was anything other you would have multiplicity of suits. It concludes with:

This was the very thing which the procedure in equity was intended to avoid, and it seems to me to be clear (contrary to the view which I expressed at the opening of the trial) that the equitable right to contribution could only arise when it could be shewn that one surety had paid or been called upon to pay more than his proportion -

The authors of that text then go on to review some of the authorities that follow that, including Justice Needham’s decision, which I will come back to, and a decision of Justice Owen in the Western Australian Supreme Court called Bond v Larobi.

The controversy in those cases may have been quelled a little and explained by a decision of Justice Basten in the Court of Appeal of New South Wales that postdates both those decisions, where his Honour points out that what Justice Needham was talking about was the need for a finding of imminent threat by the creditor as being an essential part of the right to the remedy and the question of the debtor – the claimant debtor – being ready, willing and able to pay being a factor relevant to discretion and I will come to that.

HEYDON J: What is the name of Justice Basten’s case?

MR NEWLINDS: Justice Basten’s case is called Harpley Nominees v Jeans unreported [2006] NSWCA 176 at paragraphs 36 to 44. But his Honour in his dissenting judgment, being judgment No 1 in this case, at paragraph 202 at page 1205 of volume 3 refers to this case himself. But I will hand it up in a - - -

HEYDON J: I seem to have a copy, so perhaps it has been handed up.

MR NEWLINDS: We do indeed. We have copies now and I will hand it up.

FRENCH CJ: We have copies already, I think, or some of us.

MR NEWLINDS: Thank you. Finally, on the question of whether you have to pay your fair share before the right accrues, in Burke v LFOT 209 CLR Justice McHugh in his judgment at page 294 in paragraph 22, when referring to Justice Kitto’s judgement in Albion Insurance Co says:

In this context, “natural justice” –

So Justice McHugh is referring to the passage where Justice Kitto says that this springs from the rules of natural justice –

requires that if “one of several persons has paid more than his proper share towards discharging a common obligation” –

and I think that is a direct quote from what Justice Kitto said in the Albion Insurance Case, which in turn came from a case called Davies v Humphreys. I am sorry, I withdraw that. That was Justices Gaudron and Hayne’s judgment. So, in our respectful submission, the claimant in this case, Mr Brooker, has no equity and no right to even ask the court to exercise a discretion in his favour unless and until he has made good as a matter of fact that he has paid more than his fair share in this case, his case being that they have an equal obligation to pay this debt. He has to prove that he paid more than 50 per cent.

That is difficult because there is no evidence as to what rests the interest was to be charged upon, what was happening with interest as it went along. There is some evidence of some payments, but it is very unclear who made the payments, and it is very unclear how Mr Peterson dealt with those payments, that is, whether he credited them against principal or interest, and, indeed, whether there was any agreement as to how he would deal with payments. When I come to the evidence I am going to make the submission - - -

FRENCH CJ: The “more than fair share” doctrine depends upon the existence of a co-ordinate liability.

MR NEWLINDS: Absolutely. So step one, you need a co-ordinate liability. I have made the submission that there is not one. Step two, that even if your Honours are against me here, no right to the equity unless he has paid more than his fair share.

FRENCH CJ: But what purchase does the “more than fair share” concept have on the hypothesis that there is no co-ordinate liability?

MR NEWLINDS: None, it is an alternative - - -

FRENCH CJ: I was wondering why it is being put as a kind of fallback argument.

MR NEWLINDS: Well, it is an alternative submission. Your Honours will have noticed when we had Meagher, Gummow and Lehane open that the two headings were at paragraphs [10-100] and [10-110] is the accrual of the right and the loss of the right. What happened in this case is that Justice Einstein at first instance had put before him the decision of Justice Needham, which we have briefly looked at, and a decision of Justice Owen in the Bond Case and was told they were conflicting and that he had to resolve the conflict, and he chose to follow Justice Owen and therefore concluded that there was no need as a – sorry, that it was not a disqualifying factor to the granting of the remedy that the debtor was not ready, willing and able to pay.

What Justice Basten concludes after reviewing all the authorities in this case is that what Justice Einstein had done, and indeed, he had been led into this by counsel by being told that there was a conflict between these authorities, was to elide two different propositions, and the two different propositions are these. In order for the equity to be granted at all it is necessary to demonstrate imminence of payment by the person seeking relief to the creditor.

That can done two ways. It can be proved really as a presumption if the creditor has obtained a judgment, but otherwise it needs to be proved by evidence. So you would call evidence that they are making a demand, they are pressing you, they have told you they are about to see you, or something like that.

GUMMOW J: It is really all about what you mean by quia timet, is it not, in this context and how substantial or immediate the threat or the fear has to be?

MR NEWLINDS: Yes, that is right, except at the moment what I am saying is - - -

GUMMOW J: It is hard to be dogmatic about that.

MR NEWLINDS: It is hard to be dogmatic. Each case turns on its own facts. This case is easily resolved. I will come to the evidence here, but the point I am making at the moment is, there are two separate and distinct concepts. One is, call it quia timet, whether the threat is imminent enough. Another is a discretionary factor which is, is this claimant debtor who is making a claim for contribution him or herself ready, willing and able to pay the debt to the creditor? They are different concepts. So, in other words, there can be a threat from the creditor in the form of a judgment and the sheriff knocking on the door, the strongest evidence you can think of. That satisfies the court of an essential element to give rise to the equity.

But the next step is, because it is an equity, there is always a discretion involved at the last step, as a matter of discretion should relief be withheld because the debtor seeking the relief is not himself ready, willing and able to pay? The point Justice Basten is making is that they are separate and distinct concepts.

GUMMOW J: The other is just an application of principle that people seeking equity have to be prepared to do it, I suppose. We understand the basic mechanics. A lot of this elaborate superstructure seems the work of supererogation.

MR NEWLINDS: Although the superstructure appears to have led a trial judge into error.

GUMMOW J: Well, you may be right or wrong about that.

MR NEWLINDS: Yes, but there is an important distinction if what we are talking about is a discretionary factor on the one hand or a substantive matter that needs to be made out for the equity to be available at all. I will not take your Honour through this case in detail. What his Honour does, with respect, is a very thorough review of the authorities point, extracts the relevant portions of Justice Needham’s decision and Justice Owen’s decision. On the second last page, which is pages 13 of 15 of the printout that I have got, his Honour Justice Basten quotes at length from Justice Owen, at the start of paragraph 44, where Justice Owen said:

In my opinion, the argument advanced by the defendants on this point –

What was before Justice Owen was an application to strike out upon the basis that they said they could prove that the person claiming relief was not ready, willing and able to pay, that person being, I think, insolvent or about to become insolvent:

In my opinion, the argument advanced by the defendants on this point overlooks the distinction between the accrual of the cause of action and the nature of the relief granted. It seems to me, as a matter of general principle, that the right to contribution, in the sense of the cause of action, accrues once there is a judgment against the surety regardless of whether the judgment has been satisfied –

GUMMOW J: Wait a minute. What right of action?

MR NEWLINDS: Contribution.

GUMMOW J: That is not a right of action, it is an equity.

MR NEWLINDS: I am reading from Justice Owen –

regardless of whether the judgment has been satisfied or whether the surety is willing and able to pay it. The circumstances in which [his Honour calls it] the cause of action might accrue before judgement is matter which is not necessary for me to decide.

I interpolate there and say, well, that turns on the evidence in any particular case - - -

GUMMOW J: You can read that, but I am not going to write a judgment that talks about this as being a cause of action.

MR NEWLINDS:

On the other hand, whether the plaintiff is willing and able to pay the debt, or at least his just proportion, is a matter which could be relevant to, and may well govern, the relief which a court will grant. It seems to me that the Woolmington case be explained on this basis and so too can the prospective orders made in the other cases –

So his Honour declined to strike out the case because he said, well, you are attacking a discretionary factor, therefore it is not clear enough. Justice Basten then summarises and agrees with Justice Owen, although he does not use the phrase “cause of action”. At 45:

In the judgment of the primary judge –

that is Justice Einstein –

these separate propositions have been run together and there was no reference to willingness and ability to pay as a relevant pre-requisite. In Woolmington Needham J did not refuse relief on a discretionary basis. The time of accrual of a liability –

and that might be a better phrase, Justice Gummow –

and questions of the appropriateness of any discretionary relief must be kept separate.

What I am going to ask your Honours to find – I am about to move on to what the evidence in the findings is and was about payments, interest and the like and it will not take long because it is sparse – is that in this case, firstly the Court should have found as a matter of fact that there was no imminence of payment – imminence of demand by the creditor. Indeed, in this case, unusually, it is actually possible to make a finding quite comfortably that the creditor was not and has no intention of making a claim. That is the first point. The second point is that also in this case, as a matter of discretion, relief should have been withheld because the debtor claimant, that is Mr Brooker, is not and never has been ready, willing and able to pay this debt himself.

I will make that good by reminding your Honours that there was a time in the history of these gentlemen when they consensually divided up the cash that was left in the company and gave themselves 50 per cent each at a time when the amount that Mr Brooker received was, on Justice Basten’s arithmetic, about $10,000 short of the full amount due to SMK. They did not make any effort to pay SMK. He renovated his house. Since then the evidence is silent as to what he has done. One may infer he has done nothing to try and repay it. Mr Peterson, the creditor, gave the evidence. Can I try and draw a distinction between what the evidence was and what the findings were. Sometimes they are a little bit out of sync and sometimes the evidence goes a little further than the findings.

In a moment I am going to explain to your Honours why the paucity of findings should not be laid as any criticism at the feet of the trial judge by showing you precisely what the trial judge was asked to decide and what he was not asked to decide, because what he was directly not invited to decide was any matter that we are now discussing. He was told, in short, that that would all be a question for the account.

The problem with that is, is that if I am right and if the case is to be decided on equitable contribution, it was an essential matter for it to be found, for example, that Mr Brooker had paid more than his fair share of a co-ordinate liability. When we come to look at the pleadings, what your Honours will not see is a plea of co-ordinate liability other than the case that was run and lost, which was it was a loan jointly to the two men. You will certainly not see a plea that Mr Brooker has paid or was about to pay more than his fair share, which may well explain, apart from what the judge was told in opening and closing, why it is that he did not make findings on such matters.

So the clearest evidence is Mr Peterson’s affidavit. This evidence does not necessarily find its way into a finding and implicitly some of what Mr Peterson said on another topic was rejected by the trial judge because he did come along to say that it was a joint borrowing, or a joint lending from his perspective. This is at appeal book volume 1, page 283, and it is paragraph 15 of Mr Peterson’s affidavit and what Mr Peterson told the court:

The settlement of the claims against the Eurobodalla Shire Council took much longer than originally anticipated and although substantial payments of interest on the loan were made in 1993, 1995, 1996 and 2000 being –

and he sets them out –

an amount of $1,349,423.48 remains outstanding as at 8 November 2004.

So may I withdraw what I said before. At least Mr Peterson asserts that the payments that had been received on those dates were credited against interest, but may I observe what Mr Peterson does not say is who made the payments. Now, that piece of evidence finds itself into the finding by the trial judge at paragraph 76, in volume 3 of the appeal books, page 966.

Remember, of course, in the way of these things, Mr Brooker’s case has done a complete about-face since he was before Justice Nicholas because at that time he was running a case that this was a joint lending to “the business” and so it suited him at that time to try and prove that it was the company who was making repayments to Mr Peterson, and that submission was made. His Honour at this stage of the judgment is rejecting as a proposition of fact that the loan was a loan to the two men and he says:

In reviewing the evidence concerning the SMK loan I have not overlooked that on 30 June 1993 Mr Friend agreed that the company should pay SMK the sum of $250,000.00 in partial repayment of Mr Brooker’s borrowing.

Pausing there, that is the finding, that is, that the $250,000 which is the first of the payments referred to by Mr Peterson in paragraph 15 of his affidavit of $250,000 was made by the company. We do not know anything more as to what happened as between the company and Mr Brooker.

HAYNE J: Which is the correct year? The affidavit speaks of July 31, 1983, the trial judge speaks of 30 June 1993. As I understand it, you are suggesting that is a - - -

MR NEWLINDS: I think it is 1983 and I think that is just - - -

HEYDON J: The affidavit says both 1993 and 1983.

HAYNE J: 1993 in the affidavit, as Justice Heydon points out as well.

MR NEWLINDS: It has to be 1993 because the loan happens in about 1986.

HAYNE J: I see.

HEYDON J: So is this the position? On 30 June Mr Friend agreed that the company should repay 250,000 and it actually happened on 31 July according to Mr Peterson?

MR NEWLINDS: That is the combination of that evidence and that finding, the point being, it is not a payment by Mr Brooker, it is a payment by the company. That does not help Mr Brooker because he is seeking equities assistance to recover an amount that he has paid. Now, one can speculate and wonder, well, I wonder whether that was a debit to his loan account with the company, but we do not know. No evidence was given and no finding was made. We could speculate as to whether if – well, one could be confident that the company would have a claim against Mr Brooker, because this being Mr Brooker’s debt, if the company has paid his debt at Mr Brooker’s request, which is the finding because they both agreed that it does not, then it would have a claim back against Mr Brooker for paying his debt at his request. But that does not help Mr Brooker on his claim for contribution because he has not made the payment.

HEYDON J: To what evidence was the judge referring when he said that on 30 June Mr Friend agreed that the company should pay?

MR NEWLINDS: I think I am going to come to that. The next piece of evidence is in Mr Brooker’s affidavit, which is at appeal book volume 1, page 183, and it is paragraph 171 of his affidavit:

Since in or about 1994 I have repaid a total of $575,000 to SMK. In doing I have incurred borrowing costs of approximately $600,000 in interest and other charges. The balance of the SMK loan has been accruing interest since that time and now stands at approximately $1,100,000.00.

The next piece of evidence - - -

FRENCH CJ: What was the relevance of the borrowing costs? Did they turn up any findings?

MR NEWLINDS: I think Mr Brooker’s case was that he wanted an equalisation of all contributions and all costs of contributions.

FRENCH CJ: So they were to be brought into the account.

MR NEWLINDS: They were brought into account, which is a strange feature of his claim because he says that not only does there have to be an equalisation – if we are just talking money – of money they contributed, you have to look behind that money and work out what it cost each person in terms of borrowing costs to get hold of that money and also bring that to account, he, of course, having reached this agreement with Mr Peterson to pay a very high interest rate. The 171 statement does not really find itself into a finding - - -

GUMMOW J: Just going back to 183 for a moment. That figure is at 25 November 2002, is it not?

MR NEWLINDS: Yes.

GUMMOW J: That is the date of that affidavit.

MR NEWLINDS: That is right.

GUMMOW J: That does not seem all that out of kilter with the figure appearing at 283 in November 2004 of 1.3.

MR NEWLINDS: No, they seem roughly consistent. In a moment I will take your Honours to a schedule prepared by Mr Peterson. I think I should now ask your Honours to go to page 931, which is in volume 2. This is Mr Brooker’s written submissions at trial, so this is a finding that he sought. Paragraph 22 of the written submissions, this is the finding sought:

In about April 1992 Mr Brooker and Mr Friend decided to apply $250,000 of the funds of the business received from the litigation with the Council in partial repayment of the $350,000 SMK Investments Pty Ltd loan.

So that is consistent with the finding, although it does not expressly say that that payment was made by the company. We have looked at the finding at paragraph 76 and there are no other relevant findings by the trial judge.

FRENCH CJ: Informing that proposition is the perhaps not subliminal view that a company is to be disregarded for the purpose of determining the obligations inter se of Mr Brooker and Mr Friend.

MR NEWLINDS: Correct.

FRENCH CJ: It is really just a joint venture and the company is there as a way of limiting liability and other conveniences.

MR NEWLINDS: That is right. But also it is explicable because his primary case was this was a joint borrowing by the two of us; it is really a joint venture or a partnership; forget about the company. So the fact that the company repaid part of the money was actually evidence that he deployed to assist that primary case. There is a schedule prepared by Mr Peterson that was tendered - - -

GUMMOW J: Where is that?

MR NEWLINDS: It starts at page 285 in volume 1. This is evidence. He was not cross-examined on this, it was not in issue, and of course it did not find its way through to any findings. It was the evidence that was before the trial judge – but it is the best we have. At page 292 - - -

GUMMOW J: It is attached to paragraph 2 of the affidavit at 281, is it not?

MR NEWLINDS: Correct; it was annexure A. It is a running account. It charges interest. This certainly tells us what Mr Peterson’s view of the terms of the loan insofar as interest was concerned and it records what payments he had – he accepts he has received. There is a payment at the top of page 292. Mr Walker reminds me this also includes some earlier loans.

HEYDON J: I have to get this straight. Paragraph 7 on page 281 says a “loan was advanced on 1 July 1982”. Annexure A concerns the details of this loan. But that loan is not the loan we are presently concerned with. We are concerned with the 1986 loan, are we not?

MR NEWLINDS: That is entirely correct, your Honour. Mr Kremer assists me and tells me that at page 290 we are looking at a schedule relating to the third loan because it is the $350,000; that it was advanced on 23 December, 1986.

HEYDON J: That is what Mr Peterson speaks of in paragraph 13 on page 282 – $20,000 on 8 November and $330,000 on 23 December.

MR NEWLINDS: Yes, and the interest rate varies throughout this document, the point being he does record some repayments. At page 292, if your Honour looks at the comments side of the table, there is a repayment of $1,376.70 from what is called a special $40,000 loan. Then over the page, at 294, we see a repayment of $250,000 on 5 July 1993. So that seems to fit in with the evidence elsewhere.

HEYDON J: It is a secured loan. What was it secured against?

MR NEWLINDS: It was secured against Mrs Booker’s property, we think. So there we have the 200 - - -

HEYDON J: 4 Selwyn Street, Artarmon and 12 Milner Street, Mosman?

MR NEWLINDS: I think so.

GUMMOW J: Were these registered? Were they mortgages? Were they registered mortgages?

MR NEWLINDS: I do not know.

GUMMOW J: Is it a deposit of title deeds, what was going on?

MR NEWLINDS: I do not know, except I do know this. Mr Peterson, when he was asked, “Well, why aren’t you pursuing Mr Brooker for the debt?”, he said, “Well, I don’t want to throw him out on the street.” So that inferentially seems to suggest that he has a mortgage over the property.

BELL J: The payment on 5 July 1993 is in relation to a loan at 12.5 per cent and you took us earlier at 290 to a loan at a rate of 19.5 per cent.

MR NEWLINDS: Yes, the loan rate varies.

HAYNE J: See page 283, line 3 of the affidavit, about line 13 of the page, interest rate was 19.5, interest capitalised, after six months it was investment loan rate plus 2.

MR NEWLINDS: But if I can stray and make a submission in the course of taking your Honours through this riveting material, that $250,000, even if it was a payment by Mr Brooker, on Mr Peterson’s account, was made at a time when the total amount of principal and interest outstanding was 824. So it does not come close, even at that point in time, to paying his fair share. There is no finding about the $420,000 payment.

FRENCH CJ: I am sorry, can I just go back for a second to 294? Is the figure on the left-hand side - does this relate only to the loan in issue as it stood at that time, or is this a kind of running account picking up the other advances?

MR NEWLINDS: I believe it is the loan we are talking about because it is common ground that the other two were repaid, although I am not sure when.

HAYNE J: Well, we get to a nil balance at page 289, do we?

MR NEWLINDS: That is right.

HAYNE J: We then start again in 1986 with 20,000 and that is amplified to 350,000. Is that the way it works, or am I misreading it?

MR NEWLINDS: That appears to be the case. In any event, that is Mr Peterson’s not business records, a document he created for the purpose of the case, I think, from his computer, from what he said was his computer record. Now, on appeal Justice Mason makes a finding at paragraph 3 in volume 3 at 1124, about line 4:

$250,000 was paid to SMK on account of outstanding interest in July 1993 when the company, at the joint direction of the appellant and the respondent, forwarded this sum directly to SMK . . . The appellant appears (without reimbursement from the company) to have paid some additional money out of his own funds to SMK. But a large and growing sum remains outstanding to SMK. With the accrual of interest, the balance of the appellant’s indebtedness to SMK stood at approximately $1.3 million in November 2004.

Justice McColl at paragraph 159 of the judgment, page 1189, at the bottom of the page:

In 1995 the balance of the loan was approximately $1 million –

Now, the reference to “Blue 3/536”, that is the schedule we have just been looking at, Mr Peterson’s document, which is at AB volume 1, page 295 –

The appellant repaid $420,000 in December 1995, apparently from the proceeds of the sale of a property he had constructed. Other payments of $80,000 and $75,000 in reduction of the loan were made in 1996 and 2000 respectively, presumably by the appellant.

HAYNE J: What is the reference in the third line of paragraph 159?

MR NEWLINDS: “AT 62”, that would be to the transcript.

FRENCH CJ: Is that appeal transcript, is it?

MR NEWLINDS: No, that will be the trial transcript, I think, and it is in our appeal book, so at appeal book 3, 1104.

HAYNE J: Thank you.

MR NEWLINDS: But if I may say so, it gets as vague as other payments of 80,000 and 75,000 in reduction of a loan were made in 1996 and 2000 respectively, presumably by the appellant.

HEYDON J: Let us just look at that. The position is this. The trial judge said 250,000 was paid by the company. That is the first of four payments. Justice McColl says the appellant repaid 420,000. What is the basis for the view that it was the company or the appellant or anyone? Where is the evidence underlying that finding?

MR NEWLINDS: Unless it is at the transcript page 62, which is an appeal transcript so it is unlikely to be evidence, there is not any.

GUMMOW J: Page 1104?

MR NEWLINDS: It may well be a submission.

GUMMOW J: About line 35.

MR NEWLINDS: As far as we call tell, there is no evidence. I should say to your Honours, there were 25 folders of assorted documents tendered before the trial judge. He was expressly asked not to look at anything that he was not taken to because he was told - - -

HAYNE J: What on earth was happening when they were tendered? This notion of tendering acres of documents and saying to a judge “Do not bother looking at them”, is a notion that has to be extirpated.

MR NEWLINDS: I think the information was put before him just to demonstrate that there was a lot of information that would have to be looked at on the taking of accounts in a case where he was told, “The only decision you have to make is, should all these pieces of paper be sent off to some poor master or referee to take an account?”. Your Honour, it was not my side that tendered them, but it is true that my side did not object. The answer to Justice Heydon’s question is, I do not think there is any evidence unless it is in those 25 folders but it certainly was not referred to the Court of Appeal.

HEYDON J: Mr Forster said at line 45, taking the big numbers:

The evidence suggests that the larger amount of 420 was paid out of the sale of one of the houses on the property.

Who owned the property and how can you sell a house separately from a property?

MR NEWLINDS: You usually cannot.

HEYDON J: What property is that? Which number, which street, which suburb?

MR NEWLINDS: We think it was a subdivision of the Mosman property which may explain how you can sell a bit of the property without the house.

GUMMOW J: What happened is, counsel made some general statements purportedly based on counsel’s understanding of what was in these boxes.

MR NEWLINDS: But to be fair to Mr Forster, he made those statements at a point in the argument on appeal when he was making it entirely clear that this was a case about whether there should be a full account or nothing and so - - -

GUMMOW J: What I am putting to you, I guess, is that it is difficult now at this stage of the litigation to be satisfied that there is the necessary framework for a contribution claim.

MR NEWLINDS: Absolutely, and may I say this. The finding by the trial judge that the 250,000 was paid by the company was not the subject of any challenge in the notice of appeal and the lack of a finding by the trial judge that there had been a payment of 450, as observed by Justice McColl, was not the subject of a complaint in the notice of appeal. So it was not in play at the trial and it was not in play in the appeal, which brings me to my next and penultimate topic. I would like to show your Honours how the case was run to explain why none of this should be seen as criticisms of the trial judge and, indeed - - -

HEYDON J: Just forgive me. Justice Nicholas - - -

MR NEWLINDS: Line 40.

HEYDON J: Which paragraph? This agreement with Mr Friend, we were looking for the evidence about that. Yes. On 30 June Mr Friend agreed that the company should pay. You said you were going to come to the evidence about that.

MR NEWLINDS: Yes.

HAYNE J: In the chronology given to the Court of Appeal, see page 1004 and following, the chronology prepared by the appellant in that court, you find at page 1023 items 78 and 79. Are those items that relate to the 250,000 that we are now concerned with or is this some other sum?

MR NEWLINDS: I am sorry, Justice Hayne, I do not believe there is any evidence to support that statement in the chronology.

GUMMOW J: There was some documentation from Mr Foulsham’s firm, though, was there not, some correspondence in evidence?

MR NEWLINDS: From Mr Foulsham’s? Yes, there was.

HEYDON J: The dates are wrong. They do not fit in with Mr Peterson’s dates. Mr Peterson said the payment was on 31 July, not 5 July.

MR NEWLINDS: I am sorry, your Honour?

HEYDON J: Mr Peterson said the payment was on 31 July 1993.

MR NEWLINDS: Yes.

HEYDON J: These chronology entries suggest that it was made on 5 July.

MR NEWLINDS: 1993, and that is what Mr Peterson’s statement shows, but that may well be consistent with a cheque being sent through, with it being recorded at one date by the payor and one by the payee. I think it is certainly safe to assume that it is one and the same payment.

GUMMOW J: It would be helpful if we have at some stage translated into this appeal book those references opposite items 78 and 79 on page 1023.

MR NEWLINDS: Yes, we can do that, your Honour.

HAYNE J: Can you add to that shopping list then the subsequent items that seem to deal with subsequent payments? I have in mind items such as item 99.

MR NEWLINDS: Yes, your Honour, and we will also draw your attention that there appear to have been some later draw downs about which there is no evidence. Can I remind your Honour that, of course, Mr Friend’s position is that not all of the money borrowed from SMK went to the company. Mr Brooker accepts that, but he says most of it went to the company.

FRENCH CJ: And there was some of it used to pay business expenses which he said he had incurred in relation to the company, but there was an undefined residue.

MR NEWLINDS: Correct, which he accepts did not go to the company. So another thing the poor old Master will have to do on taking this account is work out how much of the SMK loan actually went for the business, because on the Court of Appeal’s reasoning it is the fact that the business got the benefit of the money that triggers the liability. It is common ground it did not get benefit of all the money. There is an issue about how much did not go to the business. Can I go back to Justice Heydon’s earlier question. The basis, I think, for the finding by Justice Nicholas that the 250 was paid by the company - - -

HEYDON J: Agreed to be paid.

MR NEWLINDS: Agreed to be paid by the company, is at paragraph 76.

HEYDON J: That is the finding at 76, yes.

MR NEWLINDS: That is the finding is it? Sorry.

HEYDON J: Item 77 on page 1022 contains some Court of Appeal references. Perhaps they can be translated into High Court appeal book references.

MR NEWLINDS: Thank you. Mr Walker kindly helps me. At page 158 there is an affidavit of Mr Brooker where he sees that Mr Friend and he went through a list of people to be paid and that Mr Friend made some markings on that list. The list is at page 361 and the very last item says SMK changed from 350 to 250.

GUMMOW J: Which page?

MR NEWLINDS: That is a combination of 158 and 361.

GUMMOW J: Page 361?

MR NEWLINDS: Yes. So what has happened is, money is coming in from the Eurobadalla case and they are sitting down saying, “Well, who are we going to pay?”. Now, all of this is very unsatisfactory - - -

HEYDON J: True.

MR NEWLINDS: But, and I am about to explain why it should have never come to this, because what the trial judge was told was, “You don’t have to decide any of these issues. We are here, we and Mr Brooker are here, to persuade you there is an account to be had and all you have to decide is that there is and then someone else will do the account and all questions such as we are now grappling with will be dealt with by the account taker”. Which is why, we would respectfully suggest, the Court of Appeal had no warrant whatsoever to invert that case into a case about a specific transaction and selectively deal with that transaction based on incomplete untested evidence.

I will come to the pleading last, and we looked at the pleading yesterday, but for the purpose of the first submissions let us assume that the case as dealt with by the Court of Appeal is within the pleadings. The submission I am about to make is that there was a very clear understanding between the parties and the trial judge that on that hypothesis the case was being run on a much narrower basis. The starting point, and I will try and get this in chronological order, is some letters that were written between the solicitors prior to the hearing before the trial judge - and this is all in volume 2. I am sorry, the letters are in volume 3 – that is right at the start – at page 1228.

Now, what is happening is that the trial is scheduled to start, I think, around 6 December and my side, Mr Friend’s side, has served an expert’s report hopelessly in default of the timetable. The other side, Mr Brooker’s side, has served a few affidavits and there is a discussion between the solicitors as to what should happen with this expert’s report. Mr D’Arcy - Jonathan D’Arcy & Co, as Mr Brooker’s solicitor, is writing to Mr Friend’s solicitor on 11 November 2004. The Dolman Bateman report is the late served expert’s report:

We are given to understand that our respective Counsel have discussed the report of Dolman Bateman and have agreed that the report would be more appropriate to any issues arising out of the taking of accounts. The taking of accounts would occur after the liability hearing. Accordingly we consider that it would be unnecessary, and premature, to consider that report in detail with a view to articulating objections to it at this juncture.

Then over the page, 1229 and 1230, a further letter from the same solicitors on 25 November noting that the matter was fixed for hearing on 6 December and that five days had been set aside:

We understand it to be common ground that the scope of this hearing is limited to determining issues of liability. In the context of the dispute between the parties, those issues are essentially whether, as Mr. Brooker contends, he is entitled to the taking of accounts as between him and Mr. Friend with a view to obtaining orders which would result in appropriate orders being made to adjust the losses incurred by them in relation to the “business” (to use a neutral term) so as to make them equal, or whether, as Mr. Friend appears to contend, such losses must lie where they have fallen with neither party having any right to an accounting between them.

It seems clear that if your client’s contention is ultimately upheld, that is the end of the matter. On the other hand, if our client’s contention is ultimately upheld, then accounts will need to be taken, and once that has occurred, appropriate substantive orders will need to be made.

Lest there be any uncertainty as to how we see these proceedings going forward, we enclose for your consideration a draft Notice of Motion which we propose to file and move on at the commencement of the hearing.

That draft notice of motion seems to have disappeared into the ether. No such application was made. If your Honours go over to page 1230, against line 40 – and this is important, because this is common ground between the parties at least that these are the parties’ respective contentions as to what would happen if accounts were taken:

Finally, we note that in paragraphs 77 and 127 of his affidavit of 3 November 2003, your client –

that is, Mr Friend –

has sworn that as at 30 September 1994 the first defendant owed Mr Brooker the sum of $1,043,025 –

the first defendant being the company –

and Mr Friend the sum of $2,087,807 (that is to say $1,044,782 more that it owed Mr Brooker). If the Court finds that to be the case, then, on the taking of accounts, we would expect that Mr Friend would be entitled to recover some amount from Mr Brooker.

Mr Brooker of course does not accept Mr Friend’s calculations and claims that, on the taking of accounts, Mr Friend will be obliged to make a payment to him.

In the circumstances –

and then there is some discussion about what I think was the final version of the statement of claim. So that correspondence goes between the parties. Then the directions hearing was actually slightly prior to the two letters. So the matter comes on for a pre-trial. This is a “Is the matter ready” type directions hearing. At line 20, Mr White, appearing for Mr Brooker - - -

FRENCH CJ: What page is this?

MR NEWLINDS: Page 1292, your Honour. Mr White starts off saying, “We” – that is, Mr Brooker – “have some last affidavits. We have served them. We want to rely on them. These two affidavits are all that the plaintiff wishes to place on in terms of affidavit evidence”. Then over the page, 1293, Mr White says:

Last night we were served with an expert’s report by an accountant from my friend’s side of the Bar table. I’m not sure how he is raising that because it is not referred to in his short minutes. I object to that. I can explain if it is something that the second defendant wishes to press.

Mr Norton, who was appearing for Mr Friend, said:

We do [not] wish to press the report. Perhaps the best course to take is that we file and serve the report - - -

FRENCH CJ: It says, “We do wish to press the report”.

MR NEWLINDS: I am sorry, your Honour:

Perhaps the best course to take is that we file and serve the report and it is a matter for the hearing whether or not we would be permitted to –

use it. If your Honours then move down to line 40, Mr White makes this fundamental objection:

The objection is more serious than that. I can deal with this quite briefly. You only really need to look at this one page which is the question that this expert addresses. There has never been a direction for expert’s evidence to be put on in these proceedings. The reason for that is that it is an action for an order for account between former joint venturers so the actual accounting is something that will be done later on by the Master. All we seek is that the plaintiff is entitled to an account. I will just hand this up.

Then at the top of page 1294 Mr White continues on, and then at line 15 his Honour says “It is irrelevant.” Just above that Mr White had said:

There is no expert evidence from our side of the Bar table from an accountant or anyone saying what the ultimate accounting will be because that is a part of what will be determined at the hearing -

I think that should say “that is not part of what will be determined at the hearing” –

so we object to the evidence on question –

because it is, and his Honour comes in and says because “It is irrelevant.” Moving on down the page between lines 40 and 45, his Honour says to counsel – what his Honour is really saying is “Look, I am not going to deal with this, you sort out between yourselves what is really in issue” and that is what he says at line 42:

You need to just clear up as between yourselves what the real issues before me are. I will adjourn and invite the parties to consider the question further.

Then those letters passed between the solicitors. Now I need to go to the opening. We then pick up the story at the opening before the trial judge which is in volume 2, page 770. This is Mr Forster opening the case on 6 December. There is reference on page 771, line 35 to the SMK loan, but in the context of the dispute being brought to a head because of the status of the SMK loan. Then at line 40 on page 772:

The plaintiff –

that is Mr Brooker:

says that there should be an accounting between Mr Brooker and Mr Friend in two respects; one is to account for what, in fact, they had all contributed and what, in fact, they had all received from the business, in the sense that one takes accounts in a partnership.

This next bit is important:

There is probably no dispute that the amount contribute[d] by each of Mr Brooker and Mr Friend were contributed at different times, in different amounts. There may be some dispute as to whether Mr Brooker contributed more or Mr Friend contributed more or, indeed, Mr Friend’s calculations suggest, on an accounting, he would be entitled to a million dollars, or thereabouts. Mr Brooker claims that, in fact, he is owed a substantial amount. That dispute is not for your Honour to determine today.

Mr Brooker seeks an accounting as to the right to their respective entitlements from each other, in relation to their contributions and assets, both generally, in terms of what has been contributed over the years and what has been received over the years and, as a part of that or, specifically, what happens to the SMK loan.

As we understand it, the defendant, Mr Friend says, that this is not an event for any accounting between the parties; they were shareholdings in a company or series of companies, Friend & Brooker Pty Ltd, in particular. They were directors, the company has no further assets. Effectively, the loss lies where it falls. If Mr Brooker has contributed more, well, that is unfortunate.

The plaintiff says it is not as simple is that. Mr Brooker says that the relationship between the parties was a partnership, or joint venture . . .

We also say it was always in their contemplation from the word go that they would carry on the business equally; that they were [to] participate in profit equally and ultimately, would contribute to all losses equally.

So that is an accounting from 1977 to date. Then at the bottom of the page, line 55:

That is the broad area of dispute, or broad context in which this dispute arises.

Your Honour will recall your Honour won’t be looking at an accounting at this stage. What I would propose today is this.

Justice Hayne will not like this bit:

Your Honour knows there is a vast amount of material that has been produced which would be part of what I propose to tender. I note what your Honour said on the last occasion; your Honour doesn’t feel compelled to look at any document that your Honour isn’t taken to. That is fully understood. Most of the documents are, in effect, in support of propositions put, or they are primary materials for accounts. Realistically, your Honour probably won’t be bothered to look at 95 per cent of what will be tendered. If the matter goes on to an accounting, the work will have to be done. If it doesn’t go to an accounting, too bad.

Now, can I then move forward to page 806, which is counsel for Mr Brooker’s closing submissions. At about line 15 his Honour asks Mr Forster a question, about four lines up:

would not one expect to see some evidence –

and what his Honour is saying is, well, if you say they were conducting this as a joint venture partnership, where the partnership accounts of our question –

would not one expect to see some evidence to say, well, hang on, there will be occasions where the company won’t be the only borrower and a different situation will need to be considered by us and agreed upon to govern that.

FORSTER: There are scattered through the affidavit . . . a number of acknowledgments –

Then down to line 36 his Honour says:

HIS HONOUR: I suppose when you say at the end of the day (whenever that may be) it will all be equalised, then I suppose what does that reasonably involve, what will be equalised.

FORSTER: What will be equalised will be the total overall loss suffered by each of them as a result of the business carried on by them through the company.

Then at page 810, line 15, Mr Forster is anticipating a submission will be made, well, this is just the company and the people were just directors:

We say that over the top of them there is a basic agreement between these two men that whatever ultimately comes out of it, be a gain, be it a, loss will ultimately end up equal in their pockets.

Then at page 819, this is important, they are now talking about the fiduciary relationship case, and his Honour at line 27 says:

HIS HONOUR: If it is not a partnership pursuant to which there be an obligation to repay, then, by reason of their fiduciary relationship, there is an obligation to repay?

FORSTER: Effectively, yes. It is an alternative way of putting it.

HIS HONOUR: It all comes down to this, whatever else happens, you are putting that there is an obligation to repay.

FORSTER: Yes, and in order to work out how much one has to repay, there needs to be an accounting.

HIS HONOUR: But your case is 50/50?

FORSTER: Yes, it is. But what does that mean in dollar terms? It is not just the SMK loan. There is an obligation going back to 1977 to do a full accounting between the partners. It is not just a simple question of saying, yes, you have to share the repayment of the SMK loan. That loan is obviously an important factor but it is not the only factor.

Then over the page at 820, line 12, his Honour:

At the end of the day, I am just wondering what relief you would be seeking.

At line 27 the answer is, the last sentence:

The appropriate course is to have accounts taken between them and then for an order that one party pay the other.

Then at the very top of page 821 Mr Forster said:

Could I deal with the third SMK loan which forms a significant part of the accounting but is not the only aspect of it.

Then at page 822, line 35:

In our submission the ultimate liability for the repayment of that loan –

That is the SMK loan –

should be borne equally by the two gentlemen and there should be some form of accounting taken to assess how much be contributed by each of them so as to render equal the losses incurred by them in this unfortunate venture that lasted overall some 18 years.

Then at page 823, line 30:

HIS HONOUR: Once one assumes you got the declaration in paragraph 6 or any of the others, then the next thing that would follow would be the ordering of accounts?

FORSTER: Yes, and that is all we would say should be the actual order in this case.

HIS HONOUR: I would not be pronouncing on liability.

BELL J: Just taking you back, Mr Newlinds, for a moment to 821 at line 3 there is a reference to paragraph 31 which I take be a written submission?

MR NEWLINDS: It is. I will show your Honour where they are. They are in these books as well.

BELL J: Yes, in the second judgment in the Court of Appeal the President acknowledged that it had always been the primary case that this was for a general accounting. But he said that in the written submissions at orange 74 to 76 the narrower case was articulated. Is that a reference to the submissions around paragraph 31 at 821?

MR NEWLINDS: I believe the answer is yes and at page 899 - - -

GUMMOW J: This is the submissions?

MR NEWLINDS: Outline of plaintiff’s submissions, yes.

GUMMOW J: To the primary judge?

MR NEWLINDS: That is right. So these are when we are talking about paragraphs 27, 28, 30 on pages 820 and 821 those paragraphs start at about 897.

FRENCH CJ: This is a joint loan submission.

MR NEWLINDS: That is correct. A joint loan to the business submission.

FRENCH CJ: For Friend and Brooker. At 35:

Mr Petersen believed he was lending the funds to Mr Friend and Mr Brooker.

MR NEWLINDS: Yes, and when we look at the pleadings – well yes, that is right. But I understand the President acknowledges that the case was run upon the basis that I am saying it is run and I understand what he says is, well this narrower case was articulated in some written submissions. I understand that, but that does not take away from the proposition that the case was run upon the basis that I say it was run. Self-evidently cross-examination on topics which we are now all interested to know the answer to did not happen; Mr Friend did not give evidence. But more importantly, Mr Brooker did not give the evidence necessary to make out the case that he now seeks to support.

But if you go to the end of those written submissions, Justice Bell, at 900, the conclusion, the very last submission is:

The only mechanism suitable for such “equalization” of the loss is an order for the taking of accounts.

So what counsel was saying to the trial judge was, “I might win on fiduciary duty, I might win on joint loan, I might win on overarching agreement that we equalise the loss”. Some of those would sound in damages, some of those would sound in other remedies, but in the circumstances the ultimate relief would be the same. There has to be an accounting because the fundamental case was not directed to one transaction.

GUMMOW J: Is the President of the Court of Appeal fixing on paragraph 38 on page 900 as a proto-contribution case?

MR NEWLINDS: He might be, but in - - -

GUMMOW J: Does he refer to any paragraph numbers?

BELL J: He speaks of “Orange 74-6”. This is at paragraph 35 of the second judgment.

MR NEWLINDS: We have got that. We will just cross-reference that. Orange 76 is the last page of the submissions, which is page 900. In fact, I think you can almost see the 76 stamp. So Justice Gummow’s suggestion – it is paragraphs 37 and 38. But my submission is in the context of everything else the judge has been told it is obvious that it is part of the case that the SMK loan should be equalised, but that is in the context of a broader case that everything has to be equalised and an acknowledgment, without any suggestion that Mr Friend’s position has been put in bad faith, that Mr Friend’s case is that on taking of accounts he will come out in front – even taking into account the SMK loan.

HEYDON J: Perhaps you have a fallback position. The first position is the Court of Appeal did not attend to the issue at the trial.

MR NEWLINDS: Correct.

HEYDON J: But perhaps there was this narrower case that the President has defined. An answer to the Court of Appeal on that would be it was so inadequately dealt with at trial for some reason or other that it was not open to the Court of Appeal to overturn the trial judge, or do things the trial judge had not regarded it as his function to do.

MR NEWLINDS: Correct, but it really would not have - - -

GUMMOW J: It is a bit more than a Suttor v Gundowda point, perhaps.

MR NEWLINDS: It is. But it could never have been put with a serious face that the trial judge had made an error in light of the way the case was conducted in front of him and what he was asked to do. You would have fallen flat on your face if you complained to the Court of Appeal that the trial judge had not made findings about the SMK loan when you were the person who urged him not to do so.

GUMMOW J: What is the paragraph in the second reasons in the Court of Appeal again that picks up - - -

BELL J: Paragraph 35.

MR NEWLINDS: So the submission is that the Court of Appeal ought not have decided the case upon the single transaction and that submission I make simply upon the basis of the way the trial was conducted and what the trial judge was asked to do and asked not to do, because - - -

HEYDON J: I mean, the fact is there was no order propounded on pages 8 and 9, and what the President is endeavouring to do is to say that issues can change independently of the pleadings.

MR NEWLINDS: Yes, and they can, of course. People can certainly conduct cases off the pleadings by widening the issues, but equally they can narrow the issues. Indeed, judges are forever urging practitioners to narrow the issues to real issues, which is what the judge told the parties to do.

HEYDON J: Usually a judge is told at some stage before the end what order should be made.

MR NEWLINDS: Yes, and the moving party in this case told the judge he should make one of two orders, “You should dismiss my claim or you should make an order for a full accounting”. It was an all or nothing case. So that is the way the case was run. In my submission, a proper reading of the pleading does not find the case within it either because the first three-quarters of the pleading are all premised on the unproved assumption that there was either a partnership or a joint venture. Let me go back to volume 1.

HEYDON J: Why limit yourself to three-quarters? Why not the whole? Because 23 says, “In the further alternative”, but it concentrates on the joint venture or partnership, and so does paragraph 24. One says no joint venture or partnership but only a corporation.

MR NEWLINDS: The reason I said three-quarters is because I thought I was going to have to deal with paragraph 24 with the unjust enrichment plea attached to it.

GUMMOW J: Yes, but the question then is you have to untangle 24 as to work out what was being said was unjust and what was the enrichment, and what happens if you disentangle 24?

MR NEWLINDS: What happens when you disentangle it?

GUMMOW J: Yes.

MR NEWLINDS: You come back to a step along the way to the unjustness, being the fact that they were joint venturers or partners, in my submission. Unless you read the phrase “unjust enrichment” as alerting the reader of the pleading to a claim for equitable contribution in relation to the SMK loan and we just do not accept that you can.

HAYNE J: On the face of the pleading in paragraph 24 in particular, is it possible to identify what is meant by that first limiting phrase:

To the extent that the SMK loans were expended by the plaintiff to repay debts and pay expenses on behalf of the joint venture and partnership -

that is to say, can you work out the ambit or reach of that limiting phrase without the account elsewhere prayed for in the pleading?

MR NEWLINDS: We cannot. But that is an acknowledgement by Mr Brooker. To be fair to him, he never hid the fact that he accepted that not all of the 350 went into the business.

GUMMOW J: Yes, and that is the reason for the phrase “To the extent”.

MR NEWLINDS: That is right.

GUMMOW J: The pleader may have been a bit worried about that residue.

MR NEWLINDS: He says it is not very much, but still, if you are going to equalize you have got to work out - - -

FRENCH CJ: Nobody ever said how much.

MR NEWLINDS: No. Mr Kremer says it boils down it saying that Mr Friend was enriched because Mr Brooker lent money to the company and the company had not repaid it. That may be oversimplifying things because really what Mr Brooker is saying is ignore the company, there is this overarching arrangement either as the result of an express agreement between the parties or that would be imposed by equity either by way of a fiduciary duty or otherwise. But the ultimate result being he is not seeking relief in relation to a single transaction.

FRENCH CJ: We certainly do not know enough about the position as between the two of them over the years to infer that a general accounting would have collapsed to this single transaction.

MR NEWLINDS: Absolutely not, and, indeed, as we pointed out to the Court of Appeal on recall, we said there was evidence, well, there is an unpaid loan to one of Mr Friend’s family and friends by Mr Friend, and the Court of Appeal teased out and said “No, no, we think we can work out that that has been repaid”. There they were, we say impermissibly, delving into an item which would have been but just one item in the whole account. Of course, if I can now move back to paragraph 12, which is the SMK loan was the only outstanding external debt, all of this ignores the absolutely accepted fact that both Mr Brooker and Mr Friend had contributed lots of money to the company, which came from their own funds, which they have not been repaid.

Everyone accepts that. The Court of Appeal accepts that, but they draw a distinction between money that was advanced by Mr Brooker that he borrowed himself from SMK as against other money that he advanced that he got out of his own bank account and other money that Mr Friend advanced that he got out of his bank account but did not borrow from an external person. As I said yesterday, there is just no logic in drawing that distinction. If equity is about substance over form, there is just no substantive difference at all. It is all a contribution of a financial type.

HAYNE J: Is there any single document or group of documents that conveniently records the state of the directors’ loan accounts at a relevant time that was in evidence below?

MR NEWLINDS: I do not believe so. There is evidence that at one point in time Mr Brooker did a separation of loan accounts, but there is no evidence of what the state of the loan accounts were and because of that, there is no evidence that that 250 paid undoubtedly to SMK by the company, whether that was dealt with in Mr Brooker’s loan account. It might have been and then it would be a payment by him.

GUMMOW J: Where are the books and records of the company?

MR NEWLINDS: Probably in the 24 folders that Justice Nicholas was asked not to look at and that the Registrar would not let us put in the appeal books, some of them, but, of course, this goes back to 1977. Some of us were at school then. It is ancient history and as a discretionary matter we did plead laches acquiescence and delay and one would have thought, and perhaps your Honours would have to send this back to the trial judge really, but we would suggest your Honours could deal with it yourselves, it is just too late in circumstances where the parties have not kept records that would allow the taking of accounts to order a taking of accounts going back some 32 years.

GUMMOW J: What was the reason why the Court of Appeal took that view you have just put?

MR NEWLINDS: Where it gets really twisted is in judgement No 3 when we went back and said, well, can we at least set off some advances Mr Friend has made to Mr Brooker that had nothing to do with the company, but they are moneys that are owed. The Court of Appeal said, well, you cannot do that because that has foreclosed because the accounting case has been rejected. We would embrace Justice Basten’s reason for why as a discretionary matter an account would not be ordered, which is not just delay. It is the conduct of Mr Brooker when he received that money from the company in choosing not to pay his own debt and allowing it then to build up to a million-plus dollars because he chose to renovate his own house.

GUMMOW J: I have not understood the distinction between the second and the third return to the Court of Appeal.

MR NEWLINDS: The second was an application to recall the reasons and the third was an argument about what orders should be made.

FRENCH CJ: Quite different drafts have been brought in?

MR NEWLINDS: Quite different drafts and there were arguments about what findings had or had not been made, what findings should be inferred and, of course – and this really does go to the ultimate discretion – precisely what was being referred to the Master, the Associate Justice because, as we put in our written submissions, we say that all these hard questions have been swept under the carpet by the Court of Appeal simply by saying, well, the person taking the account can work out all these things. And, of course, between the three judgments we do observe that the date for the accrual of the equity does move around and the Master is left with nothing better than it is in 1995.

How one is meant to take an accurate account with no starting point is something that we did invite the Court of Appeal to give some direction on. When on the working out the interest rate charged as between Mr Peterson and Mr Brooker should be seen to be the appropriate rate or not as a matter of appropriate relief was left to the Associate Justice to work out. Now, in my submission, that had to be dealt with by the Court deciding whether, as a matter of discretion, the order should be made and giving some direction. But that explains why there were three arguments.

GUMMOW J: But Justice McColl at 1344 and 1345 dealt at some length with this point, the SMK loan being the only one outstanding.

MR NEWLINDS: Yes, we say in a wholly unsatisfactory way based on incomplete, untested evidence. I do not have leave to appeal the finding of fact, but I say again it is a finding bereft of meaning because so what if it is the only external debt? What about the other debts? I will move to the fiduciary case.

HEYDON J: I just do not understand paragraph 87 on 1345, doubtless it is my fault:

The proposition that SMK was the only remaining creditor was also the case for which the appellant contended at trial –

refers to paragraph 47. Paragraph 47 then sets out some evidence of Mr Brooker, that it was his wish to pay SMK, being the one remaining creditor. It does not say anything about the appellant because you were the appellant in the Court of Appeal.

MR NEWLINDS: Correct. That is right, we were the appellant in the Court of Appeal. No, we were not. We were the respondent. We won before the trial judge.

HEYDON J: Yes, that is right. Mr Brooker was the appellant. But how does that - - -

MR NEWLINDS: It is a summary of the evidence.

HEYDON J: How does that affirm or deny the proposition and objective fact that there was only one external creditor?

MR NEWLINDS: It does not. And the proposition that there was no cross-examination or no evidence led against it is entirely explained by the ambit of the dispute between the parties. That was all going to be done at the taking of accounts. Can I just point out, there is a real trap in the use of this phrase “external creditors” because there are external creditors of the company, which is all creditors except the directors, and there are external creditors of the individual directors, which are their family and friends from whom from time to time they borrowed money themselves and then advanced to the company. The question set out in paragraph 87, in our respectful submission, is a clear reference, when it says “other creditors, external creditors”, to external creditors of the company, not external family and friend creditors of either Mr Friend or Mr Brooker.

HEYDON J: An external creditor is someone other than a family member or a friend.

MR NEWLINDS: An external creditor of the company is someone other than a director, but an external creditor of a director is a family or friend who has lent money which has been on-lent into the company. The phrases can be, and I would suggest were, used interchangeably. But there is no doubt that what happened when they got the Eurobodalla money in is they paid all of the external creditors of the company except SMK, which was not paid in full.

GUMMOW J: But it was not an external creditor company.

MR NEWLINDS: No, but Mr Brooker was running a case that it was. This is where the confusion comes in. It was Mr Brooker’s case that that was an external creditor of what he called the business.

FRENCH CJ: The joint venture, partnership.

MR NEWLINDS: The joint venture, the partnership, not the company. But, your Honour, to say, well, here is some evidence that it was not cross-examined on in light of the issues that were put before the trial judge is just an observation which takes us nowhere.

HAYNE J: But also the analysis by reference to whether SMK was the one remaining creditor is an analysis that takes as its premise that the previous transactions relating to this entity called “the business” have themselves yielded equality between the businessmen.

MR NEWLINDS: Correct, and it also assumes as its premise that the two men’s financial contribution has to date been equal, other than - - -

HAYNE J: That was the point I sought to articulate.

MR NEWLINDS: That is right, and that is why we say that paragraph 12 just does not advance things. We say so what if SMK is the only external creditor? What about Mr Friend and Mr Brooker? What if the position is that Mr Friend has put in $2 million of his own cash and Mr Brooker has put in only the SMK loan? Why on earth would Mr Brooker get relief? Yet the Court of Appeal makes no finding one way or the other as to what the position is and just says there is some strange distinction between “external creditors”, and I suppose the opposite would be internal creditors.

FRENCH CJ: There seems to be a kind of unstated premise – perhaps that is what Justice Hayne has just put to you and what I put to you I think earlier – that the general accounting will yield only this.

MR NEWLINDS: That is right. There is no need for a general accounting because it will boil down to one transaction.

HAYNE J: The boil down can occur if, but only if, all other transactions have been treated in a way that yields equality.

MR NEWLINDS: Correct, or by an enormous coincidence they just happen to be equal. But we know that is not anyone’s position because Mr Forster opened the case by acknowledging that Mr Friend’s position, which he did not say was put forward in bad faith, is that if there is an accounting Mr Friend would win. Mr Brooker’s case is if there is an accounting he would win. No one came forward and said, “Technically this is a claim for an account, but there is only one matter left to resolve. There is no need to order a full account. If you resolve that issue that is the end of the matter”, which the courts have a discretion to do. But the court has to be absolutely satisfied that there is only one matter left to resolve. Indeed, Mr Brooker could have brought in an account and said, “Here is the account I bring in. You will see that the only matter that is out of kilter is the SMK loan. If that’s common ground, let’s have a case about the SMK loan”.

HAYNE J: The difficulty is: an account of what transactions? The plaintiff’s case at trial was an account of the transactions of the business, this large, overarching entity.

MR NEWLINDS: From 1977 to date, one of those transactions being the SMK loan but not the whole of the SMK loan – only the part of the SMK loan that was injected into the business.

Can I then deal with the fiduciary relationship case and make these submissions. There is no doubt that Mr Friend and Mr Brooker were fiduciaries; they owed fiduciary duties to the company, no doubt about that. Whether or not they owed fiduciary obligations to each other, the answer is probably not. Their duties of fidelity and good faith if properly discharged to the company would protect the interests of the other directors and shareholders of that company. In my submission, as an absolute starting point, unless one again just ignores the fact that there is a company involved here, the duties required to ensure that the gentlemen acted honestly and did not put their interests in front of the other person’s interest and did not take secret profits and the like, are all adequately dealt with by the well-understood duties that directors owe to their company.

HEYDON J: Some principle that equity does not not apply fiduciary relationships beyond necessity.

MR NEWLINDS: Well, that would be my submission. Well, equity does not impose fiduciary relationships and certainly does not impose particular fiduciary duties unless there is a need to do so. That is the first point. The second point is, none of the usual indicia that found fiduciary type relationships can be found between these two fellows. I mean, they are old friends, they are both men, they are both about the same age, no one seems to be smarter than the other one.

FRENCH CJ: Would their gender have made a difference?

MR NEWLINDS: Well, I do not know. Not any more. They can both read.

BELL J: A nice save.

MR NEWLINDS: Thank you, your Honour. They are both engineers, they both went to university. No one is in a position of power over the other. No one has a position of special advantage over the other. If I may say so, it seems to rise no higher than, well, they were both directors of a company – I am not clear whether we ignore the company or not - - -

GUMMOW J: But there was legal advice taken before the company was formed, was there not?

MR NEWLINDS: Well, yes. The trial judge found that it was a deliberate commercial decision to enter into the company structure, so none of the usual indicia that would give rise to a fiduciary relationship. But, more importantly, as I think Justice Gaudron used to regularly admonish people in tort type cases, it is no good saying there is a duty of care, it is no good saying there is a fiduciary relationship, it is about whether the particular fiduciary duty that is sought, and in this case found, existed. It comes down to this, the duty that is found is a duty to equalise all losses that they make in their particular venture. Now, the fiduciary obligation, as we understand it, is an obligation not to take unfair advantage of some position:

equity imposes on the fiduciary proscriptive obligations – not to obtain any unauthorised benefit from the relationship and not to be in a position of conflict. If these obligations are breached, the fiduciary must account for any profits and make good any losses arising from the breach. But the law of this country does not otherwise impose positive legal duties on the fiduciary to act in the interests of the person - - -

GUMMOW J: It is all set out in Pilmer v Duke [2001] HCA 31; 207 CLR 165 at 197 to 198, amongst other places, which repeats I think verbatim what was said by Justice Gaudron and Justice McHugh in Breen v Williams.

MR NEWLINDS: Which I just reading from at page 113.

GUMMOW J: All I am saying to you, Breen v Williams is blessed by four members of the Court. In Pilmer v Duke [2001] HCA 31; 207 CLR 165 at 197 to 198, paragraph 74, it is the law in Australia, and if someone wants to persuade us to the contrary, they are in trouble now. But your opponent seems to get out of it, as he would say, by recasting the duty found by Justice McColl in a negative form in some way. What do you want to say about that? It is a pity that the Court of Appeal does not seem to have committed sufficiently to mind what was said in Pilmer v Duke, which is not written to float in the air.

MR NEWLINDS: The basal duties of honesty, good faith, fidelity and to not take advantage of one’s position are not breached by entering into a business venture with another person which happens to make a loss and the loss does not fall equally. That is the submission. Each of these cases boils down to its own facts, but that is what happened here. You have two people. The Court of Appeal says they trust each other. Well, that is good, but that is not enough that they trust each other. They like each other. They repose trust and confidence.

GUMMOW J: But do you not have to go to the submission that is put against you as to the reformulation of the duty? What do you then say about that? I think it is paragraph 57, is it not?

MR NEWLINDS: Yes:

not to prefer his own interests to those of the first respondent in managing disbursement of the second respondent’s funds to repay debts, including loans to the second respondent.

The first point is the decision they made to manage the debts in the way the debts were managed by the company was made jointly. So how can it be a breach of duty by Mr Friend if the very decisions that are under attack were made jointly by him and Mr Brooker? Another reason for saying, well there is no position of advantage or taking advantage between the two gentlemen.

Secondly, at the risk of sounding like a broken record, it is the company who suffered the loss and if the company has a cause of action against its former director for breaching a duty to the company that caused the company to make a loss, well that is a different case. But it is a very strange state of affairs if, in circumstances where a company has failed and the two people behind the company have lost different proportions of money, there is an obligation imposed by equity that they equalise those losses.

In my submission, the real nub of it is every time you articulate it; it sounds a lot like a contract – a contractual obligation. That is the primary case that was run and lost. Of course, if they had agreed that that was the state of affairs - - -

GUMMOW J: Or it sounds like a partnership really.

MR NEWLINDS: Or it sounds like a partnership.

GUMMOW J: In which event the fiduciary question is attached into the partnership clause.

MR NEWLINDS: Of course. So it would have attached if the contract was made good, but there would be no need for equity to step in because the contract deals with it. If it was a partnership the law deals with it. If it was a joint venture the partnership law deals with it. So all our learned friends are trying to do is to come in by the back door and get the exact same result they tried to get in a contract case, and failed, teasing it out of concepts such as equality, trust, no one expected the business to fail. In our respectful submission it is not enough apart, of course, from the fact that such a case was never pleaded at trial, never run at trial, not the subject of a notice of appeal, not run before the Court of Appeal – so Suttor v Gundowda. It does come back to the concurrent finding at page 1181 – and I will sit down after this – page 140 of Justice McColl’s judgment:

it was open to the primary judge to conclude that the para 8 conversations demonstrated a common intention in 1977 to cease carrying on business in a relationship which exposed the parties to personal liability for trading debts, and to replace it with a corporate structure under which there was no such exposure. His Honour was entitled to conclude it was inherently improbable that two young men embarking on a business and agreeing to use a corporate structure to avoid exposure to personal liability for trading debts, should nevertheless agree that should the company be unable at some indeterminate time to repay all its debts, they would be personally liable to contribute equally to making the business’ losses good. There was no suggestion in 1977 that the parties contemplated the personal debts –

We just emphasise that because this is the contract case which was run and lost. This is the paragraph 8 case which is run or lost. I suppose that sometimes specific fiduciary duties might look a lot like an expressed agreement but it is unlikely, in my submission. This sort of specific arrangement is either the subject of an agreement or not and would not be seen to be the product of a breach of the fiduciary obligation. The breach, of course, is failing to make good the account.

Now, it gets a little bit difficult here because, of course, if the duty is you have to account so that there is equality, there is no finding by anyone that there is not equality and the pleading that would support such a case would include assertions of material fact to the effect that the upshot of the relationship is that Mr Friend has lost less than Mr Brooker. The trial judge would have had to make that finding to vindicate the proposition that there has been a breach of the duty as formulated. He did not because he was not asked to. So how do our learned friends at a stage where there is no finding that Mr Brooker is worse off make good a case that depends on that fact as the very breach of the duty that he poses? So, in our respectful submission, for all those reasons, the case posed in the notice of contention should fail as well.

GUMMOW J: I am just looking at the notice of contention. There does not seem to be any contention utilising the reference to unjust enrichment in paragraph 24 of the fifth statement of claim, does there? That is as I understand it. Is that as you understand it?

MR NEWLINDS: I would not.

HEYDON J: Mr Newlinds, you will remember Justice Gummow took you to paragraph 57 of the respondent’s written submissions?

MR NEWLINDS: I do.

HEYDON J: And he drew your attention to, I think, the second sentence. What do you say about the third sentence:

The appellant breached that duty by preventing the second respondent’s funds being used to reduce the burden of the major borrowing –

MR NEWLINDS: I answer that by saying that fact has not been found and it is contrary to all the evidence. The company’s funds - - -

HEYDON J: It would be contrary to Justice McColl’s reasoning in paragraph 140 too, or an assumption inherent in that reasoning.

MR NEWLINDS: He did not prevent anything happening. They got the money in from the Eurobodalla Shire Council case, they sat down with a list of creditors and they together decided who they would pay. So they did it together.

Mr Kremer points out, of course we have concurrent findings that SMK is not a creditor of the company. So once again we are still locked in the mindset that really SMK was a borrowing by either the company or the business. It was not. So a breach of a duty to prevent the company from repaying a debt that it did not have, in my submission, does not fly. Those are my respectful submissions, your Honours.

FRENCH CJ: Thank you, Mr Newlinds. Yes, Mr Walker.

MR WALKER: May it please the Court. Your Honours, the answer to the question whether we can maintain the result in our favour in the Court of Appeal does direct attention in the first instance to what relief we obtain. Could I take your Honours to that, please, in volume 3 at page 1363. I hope by this means to give some point both to what I am attempting and the challenge involved in it in picking up some of the more recent matters that my learned friend has raised. I will map the way in which we wish to proceed in a moment.

What we are trying to defend is found in particular on page 1363 in the declaration numbered 3 and the order for a reference for proceedings in the nature of an inquiry in order 4. The point about declaration 3, which is plain to demonstration, is that it is specific to the SMK loan and the point, relevantly, is that of course we do not maintain the heresy of a partial account. So there is the contrast on the appellant outcome in our favour with the statements multiplied effectively by my friend this morning, set out well and truly in the record as to the prayer for a general accounting, at least as its terms appear to be recorded at first instance.

However, the order for reference requires some further consideration as to the nature of that SMK specific contribution and that is because the combination of (a) and (b) picks up in particular references to interest made by Justice McColl – I will come back to them later – and it would appear it leaves room for matters of assertion by Mr Friend that it would not be just for him to be ordered to pay SMK Investments.

That reference to a payment to SMK Investments is one that your Honours may have noticed in our written submissions. We attempt to justify by some authorities, in particular some reasoning of Mr Justice Goff, to which we will come later, but for present purposes may I observe that there appears to be by a combination of 4(b) and 5 an order contemplated for payment of a sum yet to be determined in the event it be adjusted to order any sum to be paid directly to SMK.

GUMMOW J: Your side brought in these orders, did it not?

MR WALKER: Yes. Contra proferentem and everything else, yes. But I am drawing to attention what it is we seek to defend, otherwise there is a danger, perhaps already courted in this case at several levels, of generalisation.

FRENCH CJ: Does (b) leave open the quantum of the payment? It speaks simply of the conditions under which it is just that that money should be - - -

MR WALKER: Order 4(a) seems to be the sum and that appears by the reference to being in accordance with the reasons of President Mason and Justice McColl, we understand – perhaps I should say I understand – among other things, to include the statement Justice McColl made about the need for the Master, the Associate Justice, to consider questions of interest, including when it should run, et cetera. So the amount, including by reference to interest, will be picked up under 4(a) and then something else, which goes to the justice of an obligation is in 4(b).

That is not an account, of course, but it does include matters which, in our submission, answer some of the more expansive claims of potential injustice that my learned friend has raised today. In a nutshell, there has never been, either by a whisper of cross-examination to Mr Brooker or any evidence, testimony or documentary on the part of Mr Friend, nor any protest in the Court of Appeal when the SMK specific relief became a subject of debate, there has never been a position taken in any of those ways on behalf of Mr Friend to the effect that there was anything analogous exposing him to loss such as exposes Mr Brooker to loss at the behest of SMK.

While on that question, I will need to make this good by some detail to which I will come, I hope, in the order I wish to address things somewhat later. But I should say in advance that this nomenclature of external creditors is one which needs to be understood in the way in which (a) the expressions were deployed in the proceedings and (b) the way in which these two gentlemen organised the affairs of this company – and I stress “of this company”. The way they organised its affairs was that they raised capital, mostly in the nature of working capital from time to time, in a variety of ways and, if they will forgive me, in such a way as to perhaps make one tremble to be one of their friends. Because there was a widespread calling on their family and acquaintances over the years in different ways, sometimes apparently producing direct loans by those third parties to the company but usually, it would appear, by arranging borrowings in which one or other of the gentlemen, depending upon, as it were, the pool being called on, would be the borrower with the obligation as debtor and sole debtor to repay; the proceeds of the loan, being of course Mr Friend’s or Mr Brooker’s, as the case may be, being on-lent to the company.

GUMMOW J: One can see why the friends of each would prefer to deal with that person.

MR WALKER: Quite.

GUMMOW J: One to one, as it were.

MR WALKER: Quite, not least why subject yourself to statutory insolvency administration if you had the benefit of the person who in another way of dealing things would be a guarantor. Why go through the company route if you have got the natural person. Plus, as a friendship and family connection it makes sense that it was done at the level of natural persons. In any event, for whatever reason and with whatever regrets may now be felt long after the event, that is how they had behaved for many years, and continued to behave through and including 1986 when the SMK loan was made to Mr Brooker.

It does not matter – to pick up my learned friend’s grievances about the accounting question – what disparate amounts were raised by that indirect fashion – what is sometimes called in the case the “on-lending approach” – so long as the directors’ loan accounts were appropriately credited at the outset and debited as the company paid.

In fact, as we shall show soon, part of the relationship which we call in aid for the equity of contribution includes conduct by which the company, so long as it was generating money either by actually receiving payments from happy clients or by compelling payments in an arbitration from an unhappy client, as turned out to be their last big piece of business, so long as the company was generating revenue of that kind and so long as the company produced the amounts which repaid the respective director who then repaid what I will call the “external creditor” – different from trade creditors the hardware shop, et cetera – then there was equality. It did not matter what disparate amounts were reflected from each of the respective directors under what was, I regret to say, a consolidated directors’ loan account in the accounts.

Now, I think Justice Gummow and Justice Hayne have both asked about the way in which this company accounted. On my understanding of the record before your Honour – I will give you the references after lunch so as to compress them - so far as what might be called truly books of the company are concerned as opposed to schedules prepared for the purpose of this litigation – and there is an important distinction – it would appear that directors’ loan accounts appeared without discriminating between one or the other director.

GUMMOW J: But they do not appear to have reflected an equality between the two amounts of the loan account.

MR WALKER: At any given time it would appear that they were capable of being wildly disparate – if I can put it this way – depending upon whose turn it had been to tap trade, financial sector or family or friends’ sources of funds.

As they needed funds, they went to money lenders, they went to banks, they went to family and friends. I will not say it was turn and turn about, that is not the point. That disparity did not matter so long as the company in which they were 50/50 – now that is a loose statement that I need to explain but it is accurate for all present purposes. It is a loose statement because acting upon, no doubt, the same kind of legal accounting and taxation advice as had produced their decision to move from partnership to incorporation in the first place, they had shareholdings through corporations which were themselves trustees under settlements which, to put it bluntly, made them or theirs beneficiaries.

It is in that indirect fashion, as the parties have always run this case, that they were 50/50 in the company – and we rely upon the statements to which we have referred, not merely the so-called paragraph 8 statements that we have set out giving references to our written submissions, but also subsequent statements to which I will give some reference later – between the two gentlemen, where there were professions of mutual trust and reliance on this 50/50 approach along the lines of “thank goodness we can rely on each other”.

That 50/50 element, the 50/50 in the equity of the company, their satisfaction as to their efforts mutually meant that disparity from time to time of which director had funnelled in by this unlending the working capital requirements of the company from what are called external creditors, meant that there was no need ever for accounting to be taken so long as the music did not stop. This is really a musical chairs case. The music stopped in a way I will explain in a moment, leaving his turn, as it were, my client owing SMK – that is something I now say without qualification. Your Honours appreciate it sweeps away the litigious history and the issues we have lost. What I maintain is, it left my client owing SMK, SMK being the company owned and controlled by the Petersons whose names you have heard – and left owing SMK when, as it were, the business was half done with SMK.

In a way that we wish to explain soon and by brief reference to the evidence, it is crystal clear that the SMK borrowing by Mr Brooker was done with the conscious assent, indeed, encouragement, as I will show, of Mr Friend, and for excellent reason. Not least because one of the disbursements of the proceeds of that borrowing which placed Mr Brooker at personal risk at the suit of SMK, was the payment out by the company of somebody within his acquaintance from whom Mr Friend had arranged a borrowing. A borrowing from a friend who, a bit like the Petersons, was a repeat benefactor. That is Mr Ashton, to which I will come.

There was also, highly significantly, from the SMK loan paid out by the company a borrowing from Trade Credits secured over property owned by Mr Friend. So the very borrowing – which now Mr Friend comes to court to say is entirely to Mr Brooker’s account, entirely at his risk and at his cost – was, in fact, used in part, while the music was still playing, for paying back one of the contributions that Mr Friend had contributed by this on-lending by dint of the directors’ personal obligations as debtors to so-called external creditors.

I stress there is no suggestion, never has been by cross-examination, by any evidence of any kind, nor by any intervention by counsel in the Court of Appeal – something noted in the Court of Appeal – there has never been any suggestion on Mr Friend’s behalf that he has been left holding an obligation he owes as one of these on-lending conduits in the same way that Mr Brooker has undoubtedly been left holding the SMK liability.

In theory, everything my learned friend said this morning – of course in an accounting you would have to look at all of that – is, with great respect, well founded in principle. It just lacks any basis in the facts of the forensic contest between these parties and, in our submission, your Honours can and should put that firmly to one side from among the more than one reasons that my learned friend has advanced in support of his ground of appeal No 6, which you will recall is the one that says if there should have been any relief, it should have been in accounting. But in discretion there should not have been an accounting.

Now, your Honours, the way in which we wish to proceed in our argument to vindicate what resulted from the Court of Appeal is firstly to set out some facts, salient features of the dealings and relationships of these two men in relation to their dealings with the corporation they controlled 50/50 so as to present a basis for the argument that we wish to put concerning the applicable principle.

What is the applicable principle? It may be summarised, borrowing from Mason v Ashhurst, as an approach which fastens upon cases of common design where the maxim qui sentit commodum sentire debet et onus applies, and we are going to submit that it does so where there is not in any sensibly recognisable way a co-ordinate liability or a common debt. Now, I say any sensibly recognisable way because one choice would have been, as it were, to torture that concept so as to invent something notional. We are not going to do that, we embrace the proposition, for which we rely upon Justice Cooper’s analysis of the authorities.

HEYDON J: Your statement of principle either was not a statement of principle – that is to say, you were coming to it shortly – or it is one which assumes the answer to the question.

MR WALKER: Yes, it does.

HEYDON J: It is the latter, is it?

MR WALKER: Yes.

HEYDON J: What is the principle?

MR WALKER: The principle, we say, is that where by common design one person has incurred risk or liability so as to advance the common end or purpose of those involved in the common design, then in the absence of contract to the contrary an equity of contribution arises. In the statement of that principle the significance of “contract” is more than simply that this operates only in the absence of a contract to the contrary, and I will come back to that later.

HEYDON J: Now, if it is an equity of contribution, do we attract the principles about imminent peril and that sort of thing?

MR WALKER: Unquestionably, and your Honour anticipates an issue to which I have to come. May I come to that in the mapping out in a moment. Yes, is the answer, unequivocally, and it is obviously a serious issue.

GUMMOW J: What is the force of the phrase “common” and the phrase “design” where there is a corporate structure which is the object of the design and a whole body of law attending to the treatment of the corporate structure?

MR WALKER: The force of the word “common”, as I will seek to develop, is that it involves conscious assent. It is not common in the broader sense of common debt where the significance of the co-ordinate liability branch of contribution includes the capacity to get contribution from somebody who did not know about you, and about whom you did not know till later, and who was not involved in any, as it were, consciously co-operative exercise.

GUMMOW J: What is the source of the equity?

MR WALKER: The source of the equity is ultimately the natural justice or general principles of justice which have been - - -

GUMMOW J: Well, this phrase “natural justice” is used in its particular historical sense in - - -

MR WALKER: Quite, natural law sense, yes.

GUMMOW J: - - - the 18th century. We are not going to get very far just by repeating it in the 21st, to my mind.

MR WALKER: No, having uttered it, as it were, once and I will come back to it with the authorities - - -

GUMMOW J: It runs through Moses v Macferlan too, to some extent.

MR WALKER: Yes. Well, your Honours, I wish to make clear, if there is any force in what we put about why is there an equity it is cognate with why contracts are enforced. It is that broad. Now, that is not going to produce an answer either in a particular case or even as to whether this principle exists. However, in our submission, why the equity arises is because of the common interest and common burden, the correlation of the looked for benefit and the risk or liability – the looked for benefit of more than one and the risk or liability of just one which in our submission is one of the meanings or applications of the Latin maxim and - - -

GUMMOW J: The Latin maxim is not the principal law either. They love Latin maxims too, the 18th century.

MR WALKER: I said one of the meanings because there are other meanings that are more numerously - - -

GUMMOW J: There is a Latin maxim that says you should not use your property to harm someone else. Well, that is not enough for the law of tort, as Sir John Latham pointed out on one occasion, I think.

MR WALKER: Your Honour, I am trying to answer your question as to why.

GUMMOW J: I am just trying to find how the equity springs out?

MR WALKER: I am starting at the beginning with the most general statements, after all - - -

FRENCH CJ: And to whose conscience does it attach?

MR WALKER: After all, Lord Chief Baron Eyre thought it appropriate to start with such generalisations. Now, it may be that the point about Dering v Winchelsea is not the reasoning exposed in it, but the antiquity and respectability of it as precedent constantly thereafter applied. But what is applied and what is there still to be applied is the question. In our submission, it is not simply common debt.

Now, there is another cognate area, not just contract, but rather closer to the equities involved which one can see in cases such as Muschinski v Dodds 160 CLR 597 and 598. I am not now talking about the constructive trust outcome of that case, but quite differently talking about what Chief Justice Gibbs regarded, where the matter of contribution is raised in a case where there had been the defeat of a common, perhaps naïve and optimistic intention that if one of them paid the purchase price for the property being bought by them both and the other contributed in kind or labour, then that would be in accordance with their common understanding; an understanding the premise of the case being sufficiently informal or personal as not to have produced an enforceable contract.

All of these cases have premise that there is no contract. Equity of contribution, as has been protested from the beginning of its modern enunciation, stands apart from contract. They are either identical or extremely similar impulses which, in our submission, produce the equity in this case, as produced the equity that Chief Justice Gibbs was speaking of in that passage in Muschinski v Dodds.

HEYDON J: You are somewhat exaggerating the strength with which the Chief Justice put the possibility. He said the parties did not discuss whether the appellant would have a wider contribution.

MR WALKER: I hope I am not exaggerating anything, your Honour.

HEYDON J: He was not putting the full weight of his mind behind the idea. I am looking at the very bottom of page 597 and the first four lines of 598.

MR WALKER: I was thinking of the sentence:

No doubt it was intended that if the respondent fully contributed to the improvement of the property, he would be under no obligation to contribute to the common debt for the purchase price.

Then the next sentence, “However” is what I perhaps over summarily was referring to by their naivety or optimism.

HEYDON J: I read that simply as flagging something but not saying anything about its merits because the parties did not give any attention to its merits.

MR WALKER: It is in the first full paragraph on 598 that Chief Justice Gibbs expresses what the equities are from that situation. In these circumstances it appears that the appellant is entitled to contribution from the respondent to the extent to which she paid more than one half of the purchased moneys.

GUMMOW J: I do not think Sir Harry is breaking loose. If you look at page 596, does not this discussion start with the lamentation:

What appears to have been overlooked . . . They were under a common obligation to pay the debt –

and it carries on from that?

MR WALKER: Yes. That is continued throughout. It is both on 597 and in the particular passage on 598.

GUMMOW J: You are postulating no common obligation.

MR WALKER: My case is no common obligation, but I am saying that the same impulse arises here. This man, the understanding was, that if he worked, as it were, he does not have to pay the price. That is defeated in the circumstances. It does not happen in the circumstances. In short, it was not a simple case of two people named as purchasers and subject to the same legal obligation, which they plainly were, to pay, that being the end of the story. If that was the end of the story, this would have been the simplest of cases.

GUMMOW J: But design, if there was a design, has as a critical step, the creation of the company loan account to directors, does it not?

MR WALKER: Yes, it does.

GUMMOW J: The postulate which must be that that indebtedness would not at all times be equal in amount.

MR WALKER: Yes, unquestionably so, and their practice shows that as well.

GUMMOW J: What it then seeks to do is to fix upon the cause of that indebtedness of each.

MR WALKER: That is the desire – this is the commodum in question, the interesting question – the desire to keep their 50/50 company going and what that 50/50 company, when it is still kept going, while the music was still playing, it produced proceeds which the history shows was inexorably, that is, always, applied to meet not only trade creditors, not only direct lenders to the company, but also those who were indirect in the sense that the directors had severally borrowed, thereby creating a loan account severally for them, unfortunately consolidated in the accounts but they were several, and so the money would go out via, as it were – and I am not making a statement about where the cheques were drawn but the loan accounts operated so that the money from the company, the product of the 50/50 exercise, would come out to the respective director who had been the conduit for the capital and then out to the external creditor.

That is why disparity from time to time, while the music was playing, did not matter because it was perfect arithmetic equality produced by that approach. In our submission, it is the defeat of that by – it is Mr Friend’s conduct which raises the equity. My learned friend says apropos our attempt, perhaps late in the day, to devise a proscriptive content to the fiduciary obligation, he says of that, but factually nothing ever occurred. That is simply not correct. Factually he stymied any payments out other than those with which he agreed.

That is the point about a 50/50 company. Unless there is unanimity on the board, nothing is going to happen. He refused, and as your Honours know, in October/November 1995 he rebuffed the claim by Mr Brooker to have the balance of the SMK loan dealt with in the same fashion at the end of the disbursement exercise for the last part of the arbitration process. He refused to have it go in that fashion. That raised the equity.

Now, could I then just continue to sketch where we are going to go after I have tried to adumbrate this applicable principle based on common design? We wish then to go to the three or four cases upon which without any doubt we found our case so far as authority is concerned. In this case, of course, the point of referring to it as authority is simply to remove from us the awkward badge of complete novelty. We say this is not at all novel and that it was recognised in the 19th century.

GUMMOW J: If you are looking at the cases over lunchtime you might look at, if you have not already, at Norris v Cottle [1850] EngR 791; 2 HLC 647, 9 ER 1238 at 1246 where Lord Brougham records a submission that a party joining others in an adventure or other concern may become liable in equity to them although not liable at law, et cetera, et cetera, and then deals with that very broad submission.

MR WALKER: I do not think I am going to be able to support anything so broadly and unqualifiedly stated.

GUMMOW J: The argument seems to have been run that these promoter gentlemen were to go on the list of contributors.

MR WALKER: As if they were partners in modern terms.

GUMMOW J: Yes, it seems to be so, but there was a fallback position that even if they are not partners it is enough that you have this elusive idea.

MR WALKER: Your Honours, for our case, we do rely on the circumstances in which, which include the prior dealing and relationship in the 50/50 company, Mr Friend encouraged Mr Brooker to undertake this risk to assume a liability. It would have been a liability as harmless for him as ultimately the Trade Credits one was for Mr Friend if in due course there had been a refinancing – perhaps from Mr Friend this time around – that had seen the SMK loan paid out. As I say it is because the music has stopped and he has said “I will not help to bear this risk that has materialised” that the equity arises. That is when the equity arises. It did not arise when the company was incorporated.

GUMMOW J: In the admiralty cases, which they do talk about, is there lacking the common demand?

MR WALKER: Yes. Now, facetiously, who is Mr X in those cases? Neptune? The captain is the one who makes the choice, the choice, the chance of which may produce inequitable contribution, but there is no demand or obligation or liability or debt, to use the words which understandably from the authorities my learned friend dwelled on in his opening address and, with respect - - -

GUMMOW J: That seems to be what influenced Justice Cooper, and he being an admiralty expert that may be not surprising.

MR WALKER: Yes, and, with respect, his Honour was in a tradition, a tradition which can be seen in and from Dering v Winchelsea, namely, that the impulse, the basal impulse that produces the equity comes from the common interest, the common burden. Common interest and common burden, which is the English used by Lord Chief Baron Eyre, for the Latin maxim, very happily fits the general average case. The common interest is that some of the cargo gets home. The burden is that some other of the cargo may have to be thrown overboard in order to produce that happy event. Whose will come home, whose will be thrown overboard – there is the burden.

The burden is that someone must lose and if you do not share it then by the chance of the storm and the choice – it may not be quite so chance, bearing in mind where you stow may be where cargo is first taken from - those are matters which, in our submission, show that the principle is bottomed on – I repeat – natural justice and general principles which do not necessarily require for the same equity to arise, always a common debt or that they are all debtors, to use the old language.

GUMMOW J: I just want to mention this to you before lunch, in framing this principle, what is the significance, if one goes back to the order at 1363 that it was, “to equalise the burden borne by” your client “since 1995”? Why 1995?

MR WALKER: The significance of that is – may I now come to a question that - - -

GUMMOW J: It is 10 to 1.

MR WALKER: I am terribly sorry. Would your Honour like - - -

FRENCH CJ: You might like to respond to that question after lunch, Mr Walker.

MR WALKER: May it please, your Honour.

FRENCH CJ: We will adjourn until 2.15 pm.

AT 12.54 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.17 PM:

FRENCH CJ: Yes, Mr Walker.

MR WALKER: Your Honours, Justice Gummow asked a question. It relates to the significance in the order we seek to defend of the notion of equalising the burden borne by my client in relation to the SMK loan since 1995. There are a number of matters that are raised by that. One of them is apropos the important issue that Justice Heydon had raised with me a bit earlier, namely, the rightness of a claim for contribution, bearing in mind the degree of payment.

Going back one step, however, your Honours will have noticed in the trial written submissions to which attention was given, I think, in the second judgment in the Court of Appeal when protest was being unsuccessfully made so as to have reasons recalled, attention was given this morning to paragraphs 38 and 39 found in the document of volume 2 of the appeal book, page 900. I do not need to dwell on them in detail now. It suffices to note that paragraph 38 relates and relates only to the SMK borrowing and the financial burden of that which but for contribution will be borne by my client alone.

Paragraph 39 which my friend, with respect, correctly pointed out sought an accounting, is, however, sought by language which, at least on its face, refers back to paragraph 38, so that the equalising is being done by means of a general account, but the equalising is in relation to the SMK borrowing.

HAYNE J: Is the obligation asserted there but not found to render an account, an obligation that is rooted in the partnership submission or where lies the obligation of Mr Friend to account to Mr Brooker?

MR WALKER: If your Honour is asking me historically at the time that submission was put, I think the answer to your question is, yes, in partnership, yes, in what I am going to call joint venture, but also in the paragraph 24 claim. Your Honours are familiar with paragraph 24. I will come back to that later. Certainly the document does not enable one to discriminate, at least on my reading of it. It is not possible to say it is only one of those.

In our submission, what has happened is that the Court of Appeal has attended to matters which fell out both at trial and on appeal in relation to what I am going to call this state of accounts of the company – and I stress “of the company” – and have held in what is a narrowing, we would submit, rather than a shifting of issues that a general account is not appropriate, bearing in mind that it was common ground. Indeed, in an adversarial fashion it was a fact that was wielded against Mr Brooker by Mr Friend at trial that all liabilities of the company had been settled, all liabilities of the company, had been settled except for what was conveniently called the SMK loan, namely, the loan to the company by Mr Brooker of the proceeds that he had borrowed from SMK, the on-lending by him.

It is for those reasons, in our submission, that in accordance with section 63 of the Supreme Court Act 1970 to which we make reference in our written submissions and by dint of debate in the Court of Appeal between Bench and Bar which, in the manner narrated in the second, and to a degree, third judgements in the Court of Appeal, produced what the majority regarded as an understanding of the issues being debated in the Court of Appeal during that debate, the real issues between the parties were finally determined, as section 63 requires, not by an entirely unnecessary from 1977 onwards general accounting, but in light of the evidence presented and the argument put, the positions taken by the parties, both at first instance and on appeal, concentrating on the only outstanding liability of the company which represented the burden but for contribution borne only by Mr Brooker, which had clearly provided in their common interest the benefit when it had been on-lent to the company originally.

It is for those reasons, in our submission, that the argument which goes to appeal ground 6 in this Court should be rejected. I stress, the answer to the contribution relief which was given in the Court of Appeal which is being put by our learned friends does not include, as we understand it, an objection to the lack of a requisite amendment to the pleadings, an amendment to which might be said should have been done for the sake of good order in the Court of Appeal. As we understand it, that is encapsulated within the grounds proposed for special leave to appeal which were quite exactly left out of the grant of special leave.

FRENCH CJ: I am sorry, is there embedded somewhere in that the proposition that somehow the claim for contribution is the sort of collapsed residue of the general account claim?

MR WALKER: I think I have to say yes. When I agree with embedded, I do not mean that I am trying to hide it.

FRENCH CJ: No.

MR WALKER: I think yes, your Honour. When I talk about narrowing a relief which was sought by way of a general account as the remedial response to the unequal sharing of the burden in relation to the SMK borrowing, I am saying that the order for contribution is a narrowed or more reticent or more focused resolution of the real issues in dispute between the parties pursuant to section 63 of the Supreme Court Act by the Court of Appeal in an appeal by way of rehearing.

FRENCH CJ: It rests on a different legal foundation, does it not, from that upon which general account was sought?

MR WALKER: No, your Honour, a party may be held to be an accounting party in equity because, for example, there is an obligation inter se to contribute and the dealings of the parties are such, be they multifarious or have some other aspect, that makes the appropriate remedy in accounting, for example, rather than money order there and then. So, no, there is no different juristic basis. We say this is still, because there is an obligation to contribute and an equity to contribute, notwithstanding the whole of the SMK loan has not been paid and this comes to my next part.

HAYNE J: Just before you come to that, is the premise for this set of propositions you have just advanced, namely, that the only outstanding transaction to be considered is the SMK transaction, is the premise for that that the only relevant transactions are transactions by and with the company?

MR WALKER: No. Of necessity when we talk about SMK, we are talking about transactions between a director and a third party, namely, SMK.

HAYNE J: So by and with - - -

MR WALKER: Well, SMK is not - - -

HAYNE J: SMK is not, but the relevant - - -

MR WALKER: So that is why I say no, they are not – it is not only by and with the company. That, I suppose, half refer to the story. The other is Brooker and SMK and then, of course, Friend and Brooker, but that is the end game. So we have SMK to Brooker, Brooker to the company, the company to Brooker or the company at Brooker’s direction to SMK and those are the transactions that are relevant.

HAYNE J: And the common design of which you spoke as relevant in the formulation of the general principle is the common design of conducting business as engineers, is it?

MR WALKER: No, that is too general, your Honour.

HAYNE J: Yes, what is it then?

MR WALKER: The common design focuses on the financing of that business and the common design is the procurement of finance for the corporation whose business they are interested in in the equity financial, that is, as ultimate shareholders.

HAYNE J: So, ascent - - -

MR WALKER: I have not quite finished the answer, sorry.

HAYNE J: Yes, I am sorry.

MR WALKER: The common design is the procuring of finance for that business from time to time by assuming individually the liability and risk of borrowings of money, which is then on-lent to the company, and from time to time they do it, each of them. That is the common design. The common design is to ensure the ongoing operations of the company from which they or their families derive distributions of what I will call loosely profit; at least one hopes it was profit.

GUMMOW J: Well, I think this had better be written down and given to us tomorrow morning so Mr Newlinds knows precisely what he has to reply to.

MR WALKER: Well, your Honour, of course I do not for a moment disagree with that. I was trying to answer Justice Hayne’s - - -

GUMMOW J: I realise that.

MR WALKER: - - - question and I did not have a piece of paper with the answer written on it before I had heard the question. But the common design is certainly not, cannot be – we are talking about equity of contribution here. It is all about money and it is all about what, if any, dictates of conscience attach to the state of affairs in relation to money now.

While it might be the start of this sad story that they were in business as quasi partners – that is an expression that comes from the other side as much if not more than it comes from us – that is only the very beginning. The common design has to do with the way in which the finance was procured, the common end or purpose being the ongoing operation of the company because it would appear from the material which is common ground that it teetered on the edge of insolvency quite frequently. No doubt that is why financing by director’s loans is legally a good idea, bearing in mind what forbearance on that count may do to matters of insolvency.

HAYNE J: So the common design is distinct from a common design to carry on business together with a view of profit?

MR WALKER: That, of course, would have informed both their original plain vanilla partnership plus, in a slightly extended sense, their later acceptance of the advice on the basis of limited liability and tax apparently to have the business incorporated and to become merely controllers or shareholders.

HAYNE J: Common design relevantly is to procure finance for a company in which they are both interested.

MR WALKER: Yes.

HAYNE J: The commonality of design lies not in contract but in assent, is that right?

MR WALKER: Yes, and, as your Honours have heard before lunch, the common design also has the specific occasion of necessity each time one of these on-lendings occurs. So we have the words of encouragement that lead to the SMK indebtedness being incurred by Mr Brooker, to which I will come in just a moment.

They are all in accordance with this common design to have the necessary finance procured and the equality is bespoken by the 50/50 (a) expectation from way back in the beginning, repeated throughout, mutual murmurings of reliance on each other, and then significantly the fact that so long as the company provided the money, the revenue, to pay back these so-called external borrowings, then of course there would be arithmetic 50/50 equal sharing of the burden.

GUMMOW J: Where do we find this (a) pleaded, (b) deliberated upon by Justice Nicholas, (c) advanced in the Court of Appeal, (d) dealt with by the Court of Appeal?

MR WALKER: Your Honour, I wonder if I might give an extended answer to that because there are quite a few references I need to go to.

HEYDON J: Let us start with the number of the paragraph in the statement of claim.

MR WALKER: Yes. If it is pleaded, it is in paragraph 24. Justice Gummow asked and Justice Hayne pointed to the opening words of paragraph 24 which are found at line 40 on page 7 of volume 1 of the appeal book, the language of which may explain why general accounting was sought. In fact, it was not in doubt by the end of the first instance hearing – and I will come to the references in a moment – but to the dollar and cent, the devotion of that money, entirely to the purposes of the company was spelled out in uncontested evidence. So 100 per cent is the content of that phrase at the beginning of 24.

GUMMOW J: You are postulating a common design distinct from a joint venture or a partnership, I think.

MR WALKER: Your Honour, the common design - - -

GUMMOW J: Although a joint venture or partnership might be a species of the genus, but you say there is a wider genus. I am looking for the genus in paragraph 24.

MR WALKER: Yes. I think the only answer I can really give to your Honour is sort of, yes. I have to work with what I have got. At page 3, lines 15 to 25, there is the language which I offer to your Honours in an attempt to answer Justice Gummow’s question before the break, well, how do you unravel 24? There you see the defined term “joint venture”. Of course, that raises the point that Mr Brooker and Mr Friend might have, as a matter of lay English, been carrying it on but not as a matter of anything that matters in the world of money, their liability or tax or profit. That is why ii is important:

A company would be incorporated –

and then your Honours see the slightly wince-making language –

to be the corporate vehicle through which Mr. Brooker and Mr. Friend would operate the Joint Venture -

But that provides - it certainly is a matter of colloquial English - an understanding of what was being said. There was an enterprise that involved the ingenuity and energies of two men. It had been done in their own right as partners. That same enterprise was now going to be conducted by them in different guise, not as partners, but as controllers of shareholders and directors and working directors furthermore in the business owned by a corporation. The corporation needed working capital and in our submission the reference in paragraph 24 is to the working capital being expended:

on items from which the Joint Venture . . . has materially benefited - - -

HAYNE J: The joint venture, as defined, is the natural persons carrying on a business.

MR WALKER: Yes, your Honour, but - - -

HAYNE J: They did not. At no point, no relevant time, did the natural persons carry on this business.

MR WALKER: Your Honour, I cannot possibly dispute that. The whole point of our case is that the company was carrying on a business that needed working capital. Let me apologise. The whole point of the way I put it now is that the company was carrying on a business; it needed working capital for that purpose. The two men who were the moving forces of this corporation in its business, both as directors, as working directors and as the controllers of the shareholders provided that working capital by the modus operandi I have described, over many years. SMK loan just happens to be the last one, happens to be the only one to which anyone ever took any objection to the company’s revenue being used to pay it. That is the only reason there is dispute between these parties.

So I have to ask your Honours to contemplate the propriety of the Court of Appeal having read the reference to joint venture in 24, bearing in mind the way it is dealt with in v and bearing in mind the way that the real issues had emerged upon the failure to establish personal borrowing by two men from SMK, not appealed against and obviously the fact that there was no partnership subsisting at the relevant time. The move from partnership was actually part of the pleading in the statement of claim. That is what paragraph v, in effect, pleads.

One sees that the joint venture inures after the partnership because that is the meaning of the language at line – about 30 or so – on page 3 of volume 1 of the appeal book:

the corporate vehicle through which Mr. Brooker and Mr. Friend would operate the Joint Venture -

So the joint venture is language being used in this pleading to describe what I have called an “enterprise”, after it became the enterprise of the corporation, having once been the enterprise of the partnership.

As I say, that is what there is and in paragraph 24 accordingly, the notion that the loans were expended to repay debts, pay expenses, et cetera, expended on liabilities and on items for which the joint venture has materially benefited – your Honours will notice that I have left out what we submit are immaterial words of paragraph 24 – is therefore appropriately conveyed by that pleading. The rest of paragraph 24 is, in our submission, not something from which the parties or the Court of Appeal, or one of the parties in the Court of Appeal, moved during the Court of Appeal hearing and it remains our position. That does not mean this is the uniquely correct or best way of pleading this equity of contribution, but there has been a failure of recoupment contribution or accounting, that much is clear.

By the way, your Honours, I slipped before lunch, it was not October 1995 of course, it was October 1994 where the claim was rebuffed. It goes through to October 1994 to January 1995. I apologise for that. That is what happened in October 1994, the failure to recoup or make contribution and as a result of which Mr Friend has been unjustly enriched. That is not, if it ever was, it is not now, by me, claimed to be any separate conceptual head of claim, called restitution or anything else. It is rather, to call in aid exactly the same kind of language, as your Honours will recall, from the joint reasons of Acting Chief Justice Gaudron and Justice Hayne in Burke v LFOT [2002] HCA 17; 209 CLR 282 at paragraph 22 and similar expressions by Justice McHugh, paragraphs 41 and 48.

They are language which, with great respect, goes back to the late 18th century and 19th century understandings of the equity of contribution and it conjures up the notion that by the failure to recoup, somebody has been left unjustly aggrandised in their worth compared to the plaintiff who has been unjustly diminished in their worth by the unequal bearing of the burden assumed either as liability or risk for the common interest. That is my answer to the first part of Justice Gummow’s - - -

HEYDON J: Can we just pause there. Your reliance on Mr Justice Cooper may turn out to be well founded, but it does depend on a close analysis of old authority. It is all rather capable of surprising a modern lawyer. The purpose of pleadings is to avoid surprise. Paragraph 24 does not alert the reader to that type of liability, I flatly assert. Just to jump perhaps a little further ahead, was that line of authority put to Justice Nicholas for his consideration?

MR WALKER: Your Honour, I do not think so. There is no trace of it. Justice Cooper’s reasons are referred to in the Court of Appeal, but I cannot answer your Honour’s question. If I am wrong in the answer I have just ventured, I will try and correct that.

GUMMOW J: Bart Cummings’ Case, was that submitted by counsel to the Court of Appeal or did it just appear in the judgment?

MR WALKER: I understand it is the latter, your Honour, but that is the first time I was aware of that.

FRENCH CJ: The whole question was really raised by the court itself, was it not?

MR WALKER: More than just Cummings v Lewis.

FRENCH CJ: Yes, the whole question of equity of contribution.

MR WALKER: This way of putting an equity of contribution was certainly raised by the court. Now, in our submission, there is nothing wrong with that so long as what follows thereafter treads a proper path of appropriate opportunity to deal with the matter, and it is sufficiently within the area which - the boundaries of the area that may be covered by a Court of Appeal in light of principles of fairness such as are illustrated in the decision of Suttor v Gundowda. There is the broader concept, I think intended to be referred to by Justice Gummow this morning, that you will see discussed in this Court’s decision in Coulton v Holcombe - the parties, to put it in a very general unqualified sense, being bound by the way in which they have run a case.

So long as those have been observed – and in our submission, the reasoning in the Court of Appeal, passages in transcript to which reference has been made, not only in addresses so far but also in the written submissions exchanged, make it clear that in the Court of Appeal this matter was well and truly canvassed. In our submission, that there was the common interest of keeping this company going and that it was unthinkable that Mr Brooker would have put his head on the block to SMK for all this money without the same equality of contribution, as had occurred both in his and Mr Friend’s favour for exactly similar exercises in the past, that plainly was very much dominating the argument in the Court of Appeal.

HAYNE J: Is that last proposition any more than that it is not to be supposed someone will lend to a company believing it will not be repaid?

MR WALKER: Yes, it is much more than that, it is much more than that, because of the turn and turn about but in uneven and arbitrarily disparate amounts, but the history shows that the two directors had from time to time contributed by borrowings where they bore the legal risk alone. In our submission, the notion that the company would continue to ensure by its funding of those repayments thus the equality goes far beyond simply an expectation that a company will repay. It is an expectation that things will continue – so long as there are funds, of course – in such a way as to amount to equality.

In my attempt to answer Justice Heydon’s question, I am driven to referring to the traditional language of “unjustly enriched”, to the foot of paragraph 24. I say “traditional” to these contribution claims, that is. I certainly point to the material benefit, which one sees is alleged to flow to the second defendant, that is, Mr Friend, because of his interest in the corporation. In our submission, paragraph 24 sufficiently raises, for the purposes of proper litigation – that is, proper in the sense that its result is not apt to be set aside for impropriety – of the question as I have now formulated, namely, that there was here a common design for the common end or purpose of serving their common interest, as explained in my answer to Justice Hayne’s question, and that the risk or burden was undertaken by my client by that common design, both as a matter of the general history and specifically for the undertaking of risk or burden. The common interest is plainly served.

Indeed, we go further and add the piquant fact that the common interest was served, including by freeing Mr Friend from just such a personal risk or liability that had attached to him at that very time. It is for those reasons that we submit that, accepting fully the strictures that Justice Heydon has drawn to attention, namely, that we have moved away from ambush and pleadings as the principle means we attempt to do so, that in this case the line has not been crossed, that there was sufficient joinder of issue by the combination of the trial, the necessary and quite ordinary adjustment of issues when somebody accepts a loss on some matters, as we did when we went to the Court of Appeal - - -

HEYDON J: If there was a sufficient joinder of issue, do you submit that the trial judge erred in failing to deal with it?

MR WALKER: I may not have caught your Honour’s last word. In failing to deal with it?

HEYDON J: In failing to deal with the controversy created by the joinder of issue.

MR WALKER: Your Honour, I do not think it is possible logically to say that when there is – let me reconsider. The trial judge in this case was not asked, it would appear from the record, to deal with anything other than a general account. I do not have answering passages. You would not expect answering passages because they would suggest hopeless contradiction.

However, in an appeal by way of rehearing, the error having been detected – and Justice McColl does this most comprehensively – of the judge failing to deal with, in particular, the dealings that led up to and produced the SMK borrowing – the trial judge refers to them and seems to find that they occur but does nothing about them – perhaps if I can just tag them for useful convenience the paragraph 160 conversation, encouragement to the borrowing – that error having been shown, what flows from it raises the question what should be done.

By reason of the matters that were drawn to counsel’s attention at the outset of the hearing in the fashion the Chief Justice has just noted, that was done in a way that produced general account as an exorbitant remedy and an order for determination of what amount, if any, was required to equalise contributions for SMK being the appropriate remedy, bearing in mind that was the only liability that the parties were furiously agreeing was in question.

That, in our submission, is why there is no crossing of the line, there is no procedural impropriety that requires this Court, let alone with any of the grounds of appeal for which special leave was granted, to overturn what happened in the Court of Appeal.

HEYDON J: What exactly should the trial judge have found that you say he failed to find? What would the paragraph or two of his judgment be on these factual questions?

MR WALKER: There should have been a holding to the effect that the liability under the SMK loan was incurred by Mr Brooker on the encouragement of Mr Friend for the intended benefit of the company, that is, its continued trading so as to produce the common prosperity for the two men and, as it happens, to produce there and then a benefit for Mr Friend.

HEYDON J: I could be wrong about this, but on pages 898 to 900 we find the written submissions of Mr Brooker to the trial judge, paragraphs 31 to 38, that deal with the third SMK Investments loan. Is there anything in there alerting the trial judge to the need to make a finding about encouragement?

MR WALKER: The matter I have been referring to is that which is urged in paragraphs 31 and 32, but it produces no answer in response in the trial judge’s reasoning about the right to contribution.

HEYDON J: It says Mr Friend agreed to the business accepting. It does not say anything about encouraging it.

MR WALKER: Your Honour, that is counsel’s paraphrase of the evidence. It is an agreement. It is not a contractually binding one. It does not mean that. There is an agreement. I have used the word “assent”. You can use the expression “common design”. All of those words describe - - -

HEYDON J: You have used the word repeatedly “encourage”.

MR WALKER: Yes.

HEYDON J: Where is the evidence that there was encouragement?

MR WALKER: It is in paragraph 160 of Mr Brooker’s main affidavit, which your Honours will find at page 180 of your volume 1.

HEYDON J: You call that encouragement?

MR WALKER: Yes, very much so, “Well then, we should do it”.

HEYDON J: You do not call that assenting to a proposition that Mr Brooker was advocating?

MR WALKER: It is both.

HEYDON J: Well, if that is what you mean by encourage I understand your submission.

MR WALKER:

If we do not accept there is no way we can repay Alcon or the De Bakkers or maintain the Trade Credits loan.

The Trade Credit loans were loans for which, among others, Mr Friend had given security by way of mortgage and had given his personal guarantee, as you will see from the documents - I do not need to take you to them - in volume 1 of the appeal book 259 and volume 2 of the appeal book, page 659.

GUMMOW J: Where do we see the exhibit attached to paragraph 161, the letter of settlement?

MR WALKER: It is the letter of settlement - - -

HAYNE J: It should be at 704 or thereabouts.

MR WALKER: It starts at 694 in volume 2.

HAYNE J: That is surprising - - -

GUMMOW J: I thought it was at 301.

HAYNE J: FCB20 starts at 704. Other than that, you have got about four cards in the air at the moment, Mr Walker.

MR WALKER: Well, I am sorry, your Honour, your Honour was asking me about the letter – “A copy of the letter of settlement of the loan is exhibited”?

GUMMOW J: Yes. Whatever FCB means.

FRENCH CJ: That is Brooker’s initials, I think, is it not?

HAYNE J: FCB20 starts at 704.

MR WALKER: Your Honours, certainly what I have shown you at 694 and following is a letter of settlement of loan.

HAYNE J: I suspect it may be the letter at 712, is it?

MR WALKER: Yes, there is a letter at 712 - - -

HAYNE J: Mortgage to Peterson, see page 713.

MR WALKER: - - -which has as item 7 on 713 – it may be an inexact reference in the affidavit because, in fact, the document at 694, line 25 starts, “We confirm that this matter was settled”, so it looks like a settlement letter. They are talking about the same suite of transactions, that is, new money coming in to pay out old money and my present point is the old money included money for which Mr Friend was liable. There is also a letter in advance of settlement. I think Justice Gummow may have noticed this in volume 1, starting at page 301, that is in advance of settlement. That records the agreement for loan and, in particular, the mortgages.

Going back to what Justice Heydon asked me, in our submission, bearing in mind the state of affairs in the company which one sees in the immediately preceding paragraph, page 179, paragraph 159, line 40, “another large debt to Trade Credits Ltd which we cannot service”. So in paragraph 160 is the reference to “take the pressure off until we finalise the claim”. Now “we finalise the claim”, that is the two gentlemen for their company. The “pressure” is the pressure on the company. Mr Friend asks, “What do you think?” Mr Brooker says, “We do not have a choice.” It has never been suggested that that was a misrepresentation or an exaggeration. Either Mr Friend or Mr Brooker had to find some refinance:

If we do not accept there is no way we can repay Alcon or the De Bakkers or maintain the Trade Credits loan.

All of those, of course, are being used for the enterprise conducted by the company in which they had a common interest by their shareholdings, including, as it happened, a particularly acute interest from time to time, for each of them from time to time, of being repaid loans that they had made to the company from borrowings they had on-lent to the company.

GUMMOW J: Anyhow, the payments were made by direction on settlement by the look of it from 694.

MR WALKER: In an entirely orthodox and unremarkable fashion.

HEYDON J: You are really complaining perhaps not so much that the trial judge did not deal with something properly, but that he simply came to a conclusion with which you disagree. This evidence on 180 was put on to support the pleaded case, and Justice Nicholas deals with it in 75 and 76 on pages 965 to 966.

MR WALKER: Yes, your Honour.

HEYDON J: He simply gives the conversation a different construction and, for the reasons set out in paragraph 75, he considers there was no evidence of joint liability, ie of a Friend/Brooker dealing with SMK.

MR WALKER: Yes.

HEYDON J: Your non-pleaded case, if you will forgive me calling it that, does perhaps rest on the judge’s failure to find certain things but he was not asked to find that particular factual structure.

MR WALKER: I can put it no higher than what your Honours have seen by the combination of the written submission and our reference to paragraphs 38 and 39 of the written submission at trial. It is clear there was a failed case of a borrowing by both men from SMK. It was put, it failed. What was held was there was a borrowing by one of them and, in our submission, that is what paragraph 24 was apt to address in terms of an equity of contribution.

HEYDON J: One possibility is this was raised in the manner you are contending, the second possibility is that it was not, but that it was legitimate for the Court of Appeal to do so. You embrace both of those?

MR WALKER: No, your Honour, I am saying paragraph 24 - that was at trial. Mr Hammerschlag for Mr Friend understood that as your Honours will see from the way he put one of the alternative parts of the case in volume 2, page 791, just after line 15 in the Supreme Court transcript:

Then it is pleaded in the further alternative that the plaintiff –

that is Mr Brooker –

incurred a further liability to pay SMK personally with the knowledge and consent of the defendants –

that includes Mr Friend –

for the purposes of the joint venture –

et cetera. Now that is paragraph 24 that Mr Hammerschlag is venturing an understanding of there, and so in our submission, yes it was in play at trial and though - - -

HEYDON J: That is the only way you put it. You are not saying that there was some point available for the Court of Appeal to be taken which did not depend on the calling of any further evidence and therefore could legitimately be taken?

MR WALKER: There was no Suttor v Gundowda point available, in our submission, in the Court of Appeal against us.

HEYDON J: You only worry about Suttor v Gundowda if the point was not raised at trial. You are saying it was raised at trial, so there was no - - -

MR WALKER: Yes. It was in paragraph 24. It was understood by Mr Hammerschlag that that was a way in which the case could be put. It is in the alternative, obviously, as he understands, because that is Mr Brooker personally liable, nor Mr Brooker and Mr Friend personally liable, which was my client’s primary claim, unsuccessful at first instance, not persisted in in the Court of Appeal, not least, as your Honours have noted, because the paragraph 160 conversation does not lend itself to being conclusive on Mr Friend undertaking a contractual liability, that is, an obligation in debt.

However, in our submission, it certainly does lend itself to the common design, that is, the knowledge of the risk or burden that Mr Brooker was undertaking, a willing acceptance of the benefit of that burden immediately by the discharge of his mortgage and guarantee liabilities to Trade Credits, and of course the longer term acceptance and enjoyment of the benefit of the company continuing to be in business by reason of the working capital provided. It is that that is appropriately and fairly conjured by the unjust enrichment for failure of recoupment which was the claim put in paragraph 24. It is by reason of the paragraph - - -

HEYDON J: What Mr Hammerschlag was talking about at 791, lines 18 to 24, was, I think, paragraph 23. That is word for word paragraph 23, not paragraph 24. I suppose the two have to be taken together.

MR WALKER: Yes, I did not read on, your Honour. Your Honour sees at about line 23, “Then to the extent that the SMK loans were”, et cetera.

HEYDON J: That is 24.

MR WALKER: Paragraphs 23 and 24 are, of course, in the context of the pleading which included, back on page 6 of volume 1 of your Honours’ books, the pleading in paragraph 14 about an agreement that the joint venture borrow 350,000 from SMK. Then 14, 15, 16, 17 and 18 appear all to be premised on this notion of the joint venture, which we have seen is defined as a business. Borrowing from SMK will only in the most charitable sense, or lay or colloquial sense could that be understood, but plainly it was understood as meaning the money which SMK lends to Mr Brooker for immediate and understood on-lending to the company.

The conversation at paragraph 159 of Mr Brooker’s affidavit, which leads to the paragraph 160 conversation for the common design or assent of Mr Friend to the borrowing, shows that Mr Peterson, for SMK, understood the money he was in fact in law lending to Mr Brooker was to tide the company over pending its receipt of the money from the council as the opposed party in the arbitration.

So there was no mystery about this and no mystery among any of the four or five players necessary: the Petersons, SMK, Mr Brooker, the company and Mr Friend. Against that background, none of which is unnatural between these parties, in our submission, that pleading well and truly allows an understanding of paragraphs 23 and 24. Mr Hammerschlag appears to have grasped that when answering the claim at first instance, at page 791.

Your Honours, it is those circumstances which make the October 1994 through to January 1995 rebuff by Mr Friend of Mr Brooker’s attempt to have the company deal with its available funds by payments out so as to permit what he called the Petersons, meaning SMK, to be paid, against conscience and enlivening the equity of contribution. That then brings me, apropos Justice Gummow’s question just before the break concerning the form of the relief – namely, equalising the contributions – to the matter that Justice Heydon had raised concerning what I am calling the ripeness of any such claim, assuming that one can get off the ground at all.

The difference between the parties in this Court appears to be that, on the one hand, we are united that this is a claim in equity, and, therefore, full payment of the so-called liability – that is, what is due to SMK – is not necessary, as it would be at law. Then the question is what is the law? What does the law require in relation to the amount of payment or the demonstration of readiness, willingness, and ability for the claim to be good in equity?

I do not wish to repeat simply what we have put in our written submissions, but by way of emphasis, your Honours will recall that in Mahoney v McManus 180 CLR at 376 point four or thereabouts, Chief Justice Gibbs, without a full discussion, and I am emphasising this because of the clarity of the statement, simply says:

it appears that he may at least do so as soon as the creditor has acquired a right to immediate payment from him.

He is there talking about a surety – see three lines up – who has not made payment.

So it is not correct that as a matter of principle the difference between law and equity has to do with 100 per cent and just over 50 per cent, and that is really the doctrine that my learned friend was putting to you today. The only difference between law and equity is law requires 100 per cent, equity requires just over 50 per cent. That is in the paradigm case of two equal contributors.

Now, in our submission, there is no case that says it quite so starkly, but that the full exploration of the difference, if any, between the approach taken by Chief Justice Gibbs and the approach taken by those authorities that talk about paying more than your share, or having paid more than your share, need not be determined in this Court for this reason, at least in this case for this reason.

First, Mr Brooker has paid, and he has paid very considerable sums, and this is not a matter of probably or it appears or maybe, there is no doubt about who it is, and presumably is an appropriate adverb to use with respect to it. There was uncontested evidence, volume 1 of the appeal book, page 183, paragraph 171. There has never been any doubt about it. Certainly, one would laugh away any suggestion that it was Mr Friend who paid and it was not the company that paid. Mr Brooker said he has paid, it was not contested, there it is.

What he paid amounts to sums that can be plainly, and without any need to go to any obscure material, put as follows. The history of payment of the SMK loan does start with what is called an agreed payment, that is, a payment assented in by Mr Friend. We rely upon that as part of the previous dealings before he had rebuffed in October 1994, we rely upon that as raising the equity. He agreed to the company in the established method which had applied in his favour in the past to the company paying a quarter of a million dollars from one of the receipts from the arbitration in June 1993. The references are volume 1 of the appeal book pages 157 to 158, paragraph 106, pages 249 and 250, paragraphs 5 to 7 and in the transcript, that is, page 88 of the book, transcript 96, point 1 to point 7.

Your Honours have already seen the document, volume 1 of the appeal book page 361, where you have actually got the agreement to $250,000 recorded at the foot of that page, according to the uncontested evidence of Mr Brooker, by Mr Friend writing on that proposed list of disbursements prepared by Mr Brooker – here are the partners dealing about what is going to happen – and he substitutes 250 for 350. Now, that was 250,000 off, and it is plain from - - -

FRENCH CJ: The “FCB” the precedes that would be Mr Brooker, would it not?

MR WALKER: Yes, your Honour. There were then payments totalling $575,000 which are Mr Brooker’s payments. That evidence is found not only in paragraph 171 to which I have gone, but also volume 1 of the appeal book, a table at page 295, as well as Mr Peterson’s evidence showing that it was appropriated to interest, volume 1 of the appeal book, page 283, paragraph 15. There were findings in the Court of Appeal about that by the President at volume 3 of the appeal book, 1178, paragraph 132 by Justice McColl, volume 3 of the appeal book, 1189, paragraph 159.

The arithmetic can be worked out then from the table that one finds at page 295 of volume 1 and it goes like this. There was $1,116,795 outstanding which includes the $350,000 principal. That left $766,795 on account of interest. Interest was to be paid quarterly. The terms of the loans are found, relevantly, as to that quarterly payment, volume 2 of the appeal book, page 697, paragraph 13 of Mr Peterson’s affidavit, volume 1 of the appeal book, pages 282 to 283 and the monthly accruals, that is the rest of the month, payments at a quarter, volume 1 of the appeal book, pages 290 to 297 prepared by Mr Peterson.

So you have 50 per cent of that outstanding interest at those dates of payment as being about $383,397, but, of course, my client had paid more than that. He paid $575,000 and the $420,000 is shown in the tables to which you were taken by my learned friend. So he has paid not principal, has not paid any principal, but as to quarterly repayments of interest falling due, he has paid more than his share.

HEYDON J: What was the total of interest then? You were concentrating on the last - - -

MR WALKER: $766,795, which by the simple subtraction of the then outstanding sum, 1,116,795 minus the principle of 350,000. That is all. That is the reasoning of that and it is for that - - -

GUMMOW J: Why did not the order submitted to the Court of Appeal crystallise this? Why did it leave order 3 on page 1363 in that elliptical form if, as you say, this material seems to be here it could have been crystallised.

MR WALKER: Your Honour, I do not know but it is true that those two orders – the combination of the orders – would permit the equalising. Perhaps they should have, your Honour. I do not have a cross-appeal.

GUMMOW J: Well, order 3 says since 1995, page 183 says “Since in or about 1994”.

HEYDON J: Mr Peterson says 31 December, 1995 for the 420.

MR WALKER: Yes. It may be that what has just fallen from your Honours is a reason, or at least an explanation as to how this came about, namely, that there was regarded as too much evidentiary – what will I call it – “room to move”.

GUMMOW J: Exactly, yes.

MR WALKER: I say this with the greatest of respect to trial and intermediate appellate benches, that is a good reason to consider an inquiry. It may not reflect brilliantly on every step that has been taken in the litigation to date on the part of the parties, or one of them, but in the administration of justice, in our submission, when a serious matter of an unequal contribution where there should be equality of contribution emerges and the evidence shows well and truly there is something to be ascertained in terms of an amount, though obviously it would have been better if there could have been there and then a money order to equalise the unequal contribution to date, with a declaration for future equality of contribution in the event of any further payments - - -

GUMMOW J: Well, you want a declaration that up to a certain date this particular party had paid so much by way of interest and charges on this loan.

MR WALKER: Now, your Honours, we would embrace what Justice Gummow is asking me to consider. We would embrace that as something that the Court of Appeal could have done. It illustrates, in fact, the propriety of what they did do, that is there is a narrowing and shaping to a refinement of the issues and what might be called an improvement of the capacity to do justice by a judicial order. True it is, a general account was asked for, but that would have been an extraordinarily blunt instrument to have wielded, given that it had emerged that this was the only liability to be attended to.

GUMMOW J: There has been some slippage in specificity and declarations, I am afraid, and this is an illustration of what arises when that happens.

MR WALKER: Yes. In our submission it is not, however, a ground for my client to lose the benefit of what might be called the practical outcome, namely, that there has been an inequality of contribution where there should have been equality. The order – though not the only way it could have been done – will enable that to be worked out and for those reasons, in our submission, even if it be accompanied with observations on the undesirability of what has happened, the relief should stand in order to enable justice to be done between the parties.

If your Honour would excuse me one moment. Several times I have referred to the position being accepted by Mr Friend’s counsel below in relation to all debts being paid except the SMK loan, subject to the $6,000 left in the bank account. Your Honours, there are references in the transcript at appeal book volume 1, page 89, transcript 97 point 8 to point 12, volume 2 of the appeal book, page 792, transcript 23 point 24 to 25.

There is also the evidence in volume 1 of the appeal book, page 165, paragraph 124. It is common ground; it marries up. Similarly, it was Mr Hammerschlag who said, in effect, on behalf of his client, Mr Friend, that he did not understand what Mr Brooker wanted with respect to any debts other than the SMK debt; volume 2 of the appeal book, the passage I have referred to, page 792. It is probably no other debts, just the loan accounts to the directors.

My learned friend in suggesting that there are items of account that would lift, as it were, out of account by the specific order in relation to the SMK loan made by the Court of Appeal, referred to time spent. I think he referred to time spent in and about the arbitration which became the big earner for the company. That was actually addressed by Messrs Friend and Brooker at the time of the arbitration when a very important document was prepared; volume 1 of the appeal book, page 159, paragraph 109; page 160, paragraph 112; and then one goes to the document at page 383 to 389 in volume 1 of the appeal book. It is quite plain that they had taken those matters into account. There was no dispute between them. Only a glance at that will show how that is being done.

There is another document in this connection that I should show your Honours in volume 1. The evidence shows this was prepared – the evidence is at page 250, paragraph 8 – by Mr Friend. It was prepared for the purpose of the arbitration. It was prepared for the forensic purpose of allaying a fear that there might be overcompensation being allowed to the company, bearing in mind its financial position, its borrowings.

It is prepared, I stress, by Mr Friend, and you will see on page 266 in his handwriting. He is putting this to the arbitrator, this aggrandises or at least preserves a quantum of damages to be given to the company, the company in which he is a 50/50 interested person, and it includes the loan from SMK. In our submission, it is disingenuous in the extreme given those fingerprints on the matter for Mr Friend to be in this Court saying, “What is this about SMK, I do not owe SMK anything”.

SMK is not owed anything by the company. A noli-me-tangere about a transaction which he encouraged, he assented to, he benefited from immediately, he benefited from in the longer term, and he drew to the arbitrator’s attention as if it were a creditor of the company, which effectively in economic terms it was, for the purposes of bolstering the company’s claim. There was nothing improper about doing that, it was economically relevant to the measure of damages the company was claiming in the arbitration, but it was economically relevant precisely because it had been entered into by the common design of the two men for their common interest.

It is for those reasons, in our submission, that the principles that ought to be held by this Court to be engaged in such cases plainly justified the outcome in the Court of Appeal. The principles can be reconciled with what might be the far more numerous case of co-ordinate liability in the following way. With cases of co-ordinate liability, even though you do not know of each other, there is no common design or assent, so long as you are on what is now described as the same level of liability. That is the Scholefield Goodman and Sons v Zyngier expression [1986] AC 575, and an analysis precisely to that effect was engaged in by Justice Gummow in Street v Retravision [1995] FCA 1197; 56 FCR 588.

Even if they are different causes of action, BP v Esso [1987] SLT 345 moving on in an understanding of what the equity requires from what was once the position taken, for example, by Justice Isaacs in Cock v Smith 9 CLR 831 - he said it has to be the same, not good enough to be similar. The examination by the courts of those different kinds of cases to see whether there is an equity of contribution arising from a common law co-ordinate liability or debt can be seen to share something in common with the general average, which can be seen to share something in common, both of them, with what I am calling the common design cases, of which this is one.

That is that they are all what is common to those three categories, raising the equity of contribution is the common vulnerability of the class of contributors to relevant external forces. The external force in the common co-ordinate liability case is the choice of the creditor, “Who will I sue? Who will I not sue?” The external force in the cargo overboard case is obvious, be it the storm or the captain or the combination.

The external force in the common design case is, in cases such as the present, the vicissitudes of business that lead to the cessation of the capacity for that ongoing business being funded by the common design to produce the money which would 50/50 by equality recoup the individual borrowers who on-lend to the business. In our submission, in that manner the principle sits satisfyingly with its sources in the basic tenets of fairness that one sees in Dering v Winchelsea and there is nothing to the contrary in the case law.

As to the case law that my learned friend commenced with, in our submission, it is not a proper reading of Burke v LFOT to see anything, for example, in paragraphs 14, 38 or 48 relied upon by my learned friend as being holdings by this Court precluding what the Court of Appeal did in relying upon Cummings v Lewis or precluding the argument we now put, that is, precluding as a matter of stare decisis. There are a number of reasons for that. The first is that in none of those statements in fact is it said that these are the only ways in which contribution can come. What it says is that when certain state of affairs be true, then there is contribution. That is not logically the same as saying it is only when these certain state of affairs be true there is contribution. In our submission, it would be against the tradition - - -

GUMMOW J: There is another problem, is there not? Contribution exists in various circumstances, in various parts of the legal system.

MR WALKER: Yes.

GUMMOW J: There are some common law cases, there are some admiralty cases.

MR WALKER: There is statute.

GUMMOW J: What the Chancery judges are saying is this is the sort of situation in which we act, namely, common obligation.

MR WALKER: Yes, that is why I am going to go to the 19th century cases.

GUMMOW J: What stimulates us is the desire to avoid the consequences of the capricious exercise of the rights of the holder of those rights against the common obligees.

MR WALKER: Your Honour, I am not concerned to contest a syllable of that but - - -

GUMMOW J: Non constat that they were saying “and we are going to do it whenever we can see it looks like an admiralty case”, which is what you are trying to do.

MR WALKER: I do contest that part, though. I was about to say I do not contest any of what your Honour first put to me but, we say, the books do not show – in the passages – I do not need to read them, they have been read already – from Burke that I have just specified, they do not say those are the only occasions when Chancery imposes an equity of contribution. They are certainly describing what I might regard as the paradigm almost obvious case, but bearing in mind the traditional root of the equity, one would have to dismiss, as it were, the vestige of Rhodian law as some kind of anomaly, and it is not seen as an anomaly by Lord Chief Baron Eyre. It is seen as an illustration of the principle in action.

There is no Mr X, there is no third party creditor, there is no common obligation liability or debt in the general average case, but there is common interest, there is common burden flowing accordingly. It is for those reasons, in our submission, that quite plainly equity has in mind something which will attach very obviously in cases of truly co-ordinate liability, but none of these statements say those are the only times and places it can attach.

The first thing to be said is, that issue was not before the Court in Burke. It was not raised in Burke that this was not a common liability or obligation case. Rather, your Honours will recall, as I certainly do, that it was the rather tawdry nature of the obligation in question which wholly defeated the notion of the equity in that case, the nature of the obligation being one to refrain from misleading and deceiving and the nature of the claim for contribution being, as it were, the burglar wanting to share the pain with the nightwatchman.

That was a case which was as remote as can be imagined from what has happened in this case where there is no similar notion of wrongdoing on our part from having entered into the SMK loan as there was in the case of those parties in Burke v LFOT. There was, therefore, not presented to this case either the authorities or the principle upon which the Court is asked to pass in this case. It is for those reasons that there is no question of stare decisis on orthodox grounds.

HEYDON J: It could have been decided per incuriam and still been an authority, one, perhaps, that it might be fairly easy to overrule.

MR WALKER: I am certainly not putting that it was per incuriam.

HEYDON J: Your arguments in this little area might have a lot more force if you did not keep talking about an equity to contribution because the Acting Chief Justice and Justice Hayne said “the principle of equitable contribution requires” et cetera. You are outside their conditions. It is a question of construction, but throughout there does seem to be an assertion of exclusivity in relation to doctrines of equitable contribution.

MR WALKER: May I withdraw and apologise. My argument does not involve splitting equity and common law in relation to contribution except as to the time when the claim may be made.

HEYDON J: In terms of as yet unpaid - - -

MR WALKER: That is right, your Honour, and I apologise if I have given that impression, and, your Honour, with respect, I have used the expression “the equity of contribution”. Perhaps it is using the word “equity” in an older sense more general than meaning the jurisdiction of chancery.

HEYDON J: It is the word “contribution” that collides with the passages in Burke’s Case.

MR WALKER: Yes, but, your Honour, be it common law or equity, it is contribution and, in our submission, Burke does not stand as authority for the reasons I have put, that it can only be had where there is co-ordinate liability, debt or obligation with a third party obligee capable of exercising, as it were, the caprice of choice. That is of course a paradigm case and that is a case which makes it understandable that people who do not know about each other may get contribution. Our submission is that an extra element is added like with common design when our, by definition, only people who know about each other. The same thing at least generically is true of people who lodge their cargo on the same ship to have suffered the same perils of sea. At least generically they know of each other having cargo. It is for those reasons, in our submission, that there is a unifying feature. I have referred to as the vulnerability to external forces which can bring about unfair suffering of burden, unfair in the sense that it denies the equality which the nature of the dealing relationship would otherwise indicate.

GUMMOW J: The question is how external is it when what goes wrong is the operations of their business in their company. That is “not Neptune".

MR WALKER: No, it is a question. I think I called it the vicissitudes of business. That will include something that is not just abstract, in this case there was a customer, a big customer, who refused to pay and who was over years - of what your Honours will have gathered from the material, must have been excruciating work - these two gentlemen managed to obtain for their company very considerable recompense for that bridge. Those are the vicissitudes of business which can notoriously lead to the collapse of limited liability enterprises and that is why I have used earlier the metaphor of musical chairs. Unlike natural persons, who may keep living modestly and et cetera et cetera, the company is put to death after a while.

In our submission, that was the kind of emergency, the kind of attempt to avoid external forces which is precisely analogous to the accidents of fate that lead to the contribution being enforced in equity – now I am mixing the metaphors because the judges do – when the cloud appears. You are entitled to remove the cloud when the liability becomes known and there is no question about the liability being known in this case. This account is from month to month.

GUMMOW J: I need to know whether you accept the formulation of principle by Justice Cooper at page 598 of Cummings in 41 FCR?

MR WALKER: If it is the passage I am thinking of, your Honour, no, there is an excessive generality.

GUMMOW J: It is about line 10 on page 598.

MR WALKER: I apologise. Page 598:

the persons involved were all parties to a common design to achieve a common end and that in furtherance of the attainment of the common end one party has with the knowledge and concurrence of the others done an act which has resulted in that person incurring expense or suffering loss.

I need to add one thing, in circumstances where it is not to be expected that the person should be left in that position. Could I go back there is one passage at - - -

GUMMOW J: The circumstance in which it is not to be expected that?

MR WALKER: That the person should be so left. That will include - - -

FRENCH CJ: What is the principle in forming the expectation or the value in forming the expectation?

MR WALKER: Well, that will normally be from their prior dealings and the nature of their relationship. Here it is the 50/50 shareholding and the fact that this way of dealing with their disparate on-lending had been honoured right up until Mr Friend reneged.

FRENCH CJ: That is informed by agreement, arrangement or understanding, to use a term from another - - -

MR WALKER: Yes, quite, and it includes, of course, that there is an absence of contract to the contrary. Contract to the contrary may be an actual capping arrangement. Now, your Honours, there is a passage at 593 about one inch down. One of the questions his Honour asks during the course of this discussion:

will contribution be ordered in any circumstances where those circumstances give rise to an equity in favour of a person who has suffered a loss because of an act intended to benefit others?

That is not his Honour’s last word on the topic, obviously, but we would simply say and with great respect that that is not a formulation which the Court would find useful. It requires far too much qualification and really obvious qualifications, including not least charity, in order to have any chance of being correct. We would not suggest that that is a way forward, but we do not suggest that leads to any error in forming his Honour’s conclusions.

There is a passage at 599 in 41 FCR, the first full paragraph commencing “Where there is a common design” that we do rely upon, but I should point out that his Honour, and no doubt highly self-consciously, with great respect, there notes apropos the older law, the notion of a request to perform the act and a promise to do, et cetera, the implied contract idea. That, in our submission, is being done by his Honour in order to fit it within the intellectual tradition that he has been expounding and, with respect, appropriately.

Yesterday I think your Honour Justice Gummow referred to what might be seen in Wolmershausen v Gullick [1893] 2 Ch 514 at page 524. Your Honour, I think, invited attention particularly to the notion of not in contract and referred to its relation that the common money counts. It is, of course, significant that what his Lordship Mr Justice Wright was there referring to was the well-known passage by Lord Redesdale, itself referring back to Dering v Winchelsea, but using, as you see about an inch and a half from the bottom of page 524:

The question depends upon equity, not upon contract; and in this case a contract is to be implied.

That last expression is not, of course, a self-contradiction. It is a reference to the old juristic way of analysing, indeed, a number of the common money counts, the implied promised area of quantum meruit, for example. That is an explanation for what might otherwise seem to be an odd reference to the language of promise in Mr Justice Cooper’s analysis. In our submission, it is an appropriate and proper way for his Honour to have pointed out why it is that the springs of natural justice produce the impulse, the requirement, for contribution in such cases.

Can I then come to the authorities which, in effect, my learned friend yesterday, we think, finished by putting to your Honours ought really be seen – my words, not his – as having been misunderstood by their authors because they really were all common debt or co-ordinate liability cases.

In our submission that is not correct. Their authors correctly understood what they were doing. Mr Justice Cooper has correctly read them, with respect, and they do stand to be considered for their correctness by this Court to be sure, but nonetheless as a matter of authority they stand as precedents for the approach taken in this case.

Before coming to Spottiswoode’s Case, the earliest of the three in question, I should come to one which preceded them, namely Norris v Cottle to which Justice Gummow drew attention just before the adjournment. This was another of the results of the annus horribilis of 1845, another collapsed railway enterprise with a reference in Spottiswoode to the panic of 1845. This was the Wolverhampton, Chester and Birkenhead Junction Railway Company which again was sought to be promoted in 1845 and achieved provisional registration but the project had been abandoned after the breathtaking expense of ₤12,000 in preparation. I think not just engineers, maybe the odd parliamentary agent, your Honours.

The question arose, rushed up in vacation with Lord Brougham, “the only law lord then in town” as the report says, to the House of Lords to determine it in light of its importance. The issue came about because Mr Cottle’s name was to be or not to be on the list of contributories – with devastating financial effect – depending, it seems, only upon his being a member of the management committee. I stress depending only on that. In 9 ER, the passage in question is at the top of page 1245, in 2 HLC it is halfway down page 665. His Lordship starts off by saying:

I say the only question here relates to the effect of a party being, with his consent, a provisional committee–man; for although in the argument a good deal was said about the prospectus, we have not that document before us,-nor had the Master . . . Therefore the question is quite general, and in that consists its importance. It relates to the effect of a person allowing himself to be named one of the provisional committee in such a concern -

and then three very important words –

without anything more.

Now, those three words then led to Mr Cottle being dealt with by His Lordship as a person who had not, on principles of law, made himself liable for any of these debts.

GUMMOW J: No, but they are construing the notion of contributory within the meaning of the Winding-up Act, were they not?

MR WALKER: Yes, quite. Exactly.

GUMMOW J: In the circumstances where the Winding-up Act in one of these cases was treated as applicable to these provisional registrations which collapsed before final registration was ever achieved.

MR WALKER: Yes.

GUMMOW J: So they are trying to mesh some awkward statutory provision together.

MR WALKER: The word “contributory” is unfortunate.

GUMMOW J: It has nothing to do with common design. Everyone was agreed that once you got on that list as contributories there was contribution between you.

MR WALKER: Well, everyone was not agreed, though. That was, I think, Lord Brougham’s point, and he refers to his private communication with Lord Cottenham. Yes, Besley’s Case, which is referred to in HLC 656, the foot of ER 1241:

the provisional committee appoint a committee of management, and expences which are incidental to the commencement of such proceedings, are necessarily incurred -

et cetera. Then top of the next page:

“But then comes this fact: it is by your name remaining, coupled with the fact of your knowing it, that your liability arises, and you act on that liability, and pay.”

Then Lord Brougham refers to that House of Lords Case about page 668:

We have thus the clear and unhesitating opinion of all the Judges of the Common Law Courts against the liability at law; and we have now to see how far that has been held on the other side of Westminster Hall, as either doubtful in a legal view, or insufficient to negative the liability of the provisional committee-man in equity and on equitable views. With this purpose we are referred to Lord Cottenham’s decision in Besley’s Case . . . But on a full consideration of what his Lordship said when he gave his judgment, I must deny that he intended . . . In the course of the argument he certainly evinced a leaning towards that opinion; but this was early in the discussion, and he prefaces his judgment –

et cetera. At the foot of that page, 670:

Because his Lordship expressly says, “Had those special circumstances occurred in the cases at law, and had those cases at law decided against the liability at law, I should not so have decided Besley’s Case.” I reckon that to be a most important circumstance, and therefore I felt myself authorised, and indeed bound, to state it openly as the opinion of his Lordship. I have been favoured with his Lordship’s own note upon the subject. Therefore, my Lords, no aid whatever is derived from Besley’s case, in any way in which it can be regarded –

et cetera. Then his Lordship says there is no liability at law and therefore no liability in equity and there is, as Justice Gummow says, no discussion whatever of any common design.

In short, that without anything more, which are the key words in the description of the general case lending this authority in its author’s views its importance, means there was none of the paragraph 160 type dealing which triggers the contribution in this case. There was no common design and it is for those reasons, in our submission, that that case - - -

GUMMOW J: But wait a minute, look at page 1247 about three-quarters of the way down:

The case was ingeniously put in the argument here, of a joint or common adventure, as of a voyage –

et cetera. Then he says, no, that has nothing to do with it because there you have an implied contract.

MR WALKER: Yes, of course, that is rather a different nautical misadventure example from the general average that Lord Chief Baron Eyre - - -

GUMMOW J: Well, there was a view in the 19th century that the general average depended on an implied contract, I think.

MR WALKER: This does not seem to be general average at all. This is one agreeing to find the ship, another the cargo, a third the stores and then the thing not going ahead. It is not a general average matter and that, in our submission, adds absolutely nothing to an understanding of what, if anything, this case says about what I will call the common design contribution. It does not attend to it, it was not before the Court.

GUMMOW J: You see at the top of page 1248, what he is trying to wrestle with is, is the respondent a contributory within the meaning of the Acts and he says no he is not and he is asking himself, well, which of these committee members get on the list and which do not and the answer is, they do not all get on the list unless you can say what appears at the very bottom of 1247. That their inequity can be raised - - -

MR WALKER: Authorised his companions.

GUMMOW J: That is right.

MR WALKER: Yes. That is what we will call action. As he points out, why would you bother about equity? You have got law there. The principle is liable.

GUMMOW J: This is all about getting on the list under the Acts.

MR WALKER: Yes, it is. Your Honour, I am not urging this case I am trying to deal with - - -

GUMMOW J: That is not what Justice Cooper thinks it is about, despite what we thought.

MR WALKER: Spottiswoode’s Case, however, goes more broadly than simply getting on the list of - - -

GUMMOW J: Well.....if you are put on the list, then as between those people there is a right of contribution, surely? Once you are on the list, once the Master puts you on the list as one of that class, he would just say there would be a contribution.

MR WALKER: I am not intending to resist that at all, your Honour, of course not. That would follow - - -

GUMMOW J: In respect of these liabilities of the company.

MR WALKER: Quite. It is not only those old contributors you list. The same thing would be true for tortfeasors ordered to pay statutory contributions. It seems to be the nature of contribution that you should contribute.

HEYDON J: Can I just get one thing straight, Mr Walker. This common design doctrine, how do you fit in it? Is the common design a 1986 transaction or is it the whole of the incorporation of the company, et cetera?

MR WALKER: It is the 1986 transaction which comes in the setting. The common design is shown by the paragraph 160 statement which has a meaning that we give it by reason of the antecedent, as it happens, subsequent actions in accordance with equal contribution.

HAYNE J: Just going back to Norris v Cottle at the moment and the notion of “contributory” as used in the Winding-up Act of 1848, 11 & 12 Vict c 45. “Contributory” was defined as including every member and also every other person liable to contribute to the payment of any of the debts, liabilities or losses thereof, that is, of the company – some examples are given – or otherwise howsoever. So the question is, was Cottle a person liable to contribute to the payment of any of the debts, liabilities or losses of the company? That was the immediate question at issue, was it not? If he was, he was going to go onto the list; if he was not, he was not on the list.

MR WALKER: That is right. After the three words “without anything more” the way Lord Broughan puts it at HCL 665:

Now, first, let us consider what is the legal liability which this allowed nomination –

that is, to the provisional committee –

imposes, for if it makes the party liable at all to those who contract with the committee, past all doubt, he is a contributory, within the third section of the first act.

It is precisely, with respect, as Justice Hayne has just put it. If it be true that simply being named makes him liable, then because he is liable he must be put on the contributories list.

GUMMOW J: That is correctly answering the question of construction of the winding-up section which Justice Hayne put to you by reference to the position under the Joint Stock Act.

MR WALKER: It was a statutory question.

GUMMOW J: At both ends really.

MR WALKER: Yes, particularly because Lord Brougham said if there is no legal liability of this gentleman, then – and I know I keep repeating it – without anything more than having been named, that is an end of what – Justice Heydon’s correction of me earlier – his Lordship called the equity. So that case, in our submission, certainly adds to an understanding of the 1848 Act but does not preclude at all, indeed, does not pass upon, the right to contribution which we seek to vindicate. However, Spottiswoode’s Case does pass on it and, in our submission - - -

HAYNE J: Again, can I just interrupt you a moment, just to follow it out further and, I hope, my own better understanding. There seems to have been floating around at the time of Norris v Cottle and subsequently the notion that if you joined the provisional committee of one of these bodies you were somehow entering a partnership.

MR WALKER: Yes.

HAYNE J: That idea was scotched and its scotching was finally recorded, I think, in Bright v Hutton 3 HLC – yet another of the - - -

MR WALKER: Bright v Hutton [1851] EngR 657; 3 HLC 341 and then there is - - -

HAYNE J: Yes, particularly at HLC 368 which is 10 ER, particularly at 144.

In the case of provisional committees, or the projectors of a company, it is now perfectly well settled law, and acted upon in every court of law in Westminster Hall, that there is no partnership between them; no common power of binding each other merely by such a relation; each binds himself by his own acts only.

MR WALKER: Including the act of authorising the others, of course, yes. Quite so. It is for those reasons that there lacked, we submit, anything in the nature of the common design of the kind we have. In any event, it is not authority, as I say, against us. I certainly cannot call it in aid for us. Spottiswoode’s Case, however, we can do, and, in our submission – all I want to add to the discussion that was had yesterday about it and to the written submissions concerning it, is to emphasise what Justice Cooper emphasised about it Could I pick it up at De G M & G 371 which is 43 ER 1277, a paragraph, the convolution of which actually makes crystal clear our point and Justice Cooper’s point. It starts:

It was said, however, on the part of Mr Spottiswoode, that even looking at the case in this point of view - - -

GUMMOW J: Wait a minute, what was happening? Spottiswoode is trying to get himself off the list?

MR WALKER: He is trying to get himself off the list but, as my learned friend had pointed out, this was a case of enough is enough. He had been on the list. He had actually bought shares the better to be able to, as it were, put his hand up and be heard. He had actually paid considerable sums, but I suppose he was really saying far too much is enough.

GUMMOW J: But everyone had read the House of Lords cases so they all knew that he should not be on the list unless he had been actively engaged in the sense of the authorities.

MR WALKER: Yes. In this paragraph he says, Look:

Bright v Hutton, the creditors could resort only to those who had contracted with them, and that, if he was at all to be considered as a member of the committee of management before the 11th March 1846, he was, at all events, a non-acting member of that committee up to that period –

and not acting had the significance in law raised by the matters that Justice Hayne has recently drawn to attention –

and had not before that time entered into any contract –

ditto –

or come under any obligation on the part of the company. This, I think, appears to have been the case. I see no evidence to fix Mr Spottiswoode with having personally acted in the affairs of this company before the 11th of March, 1846. But, giving him the full benefit of not having so acted, I do not think it follows that he would not have been originally liable –

and this notion of the expression “original liability” seems to have later significance –

to the creditors of the company, and much less do, I think, that it follows, that he could not have been made liable to creditors upon proof that he had adopted or sanctioned the proceedings of the parties by whom the debts due to those creditors were contracted. The case of Bright v Hutton does not seem to me to touch the question of the liability of directors for the acts of their co-directors, and certainly does not warrant the conclusion that directors who have sanctioned contracts, entered into by their co-directors, could not be made liable at law in respect of those contracts.

So he gives with the one hand, almost takes away with the other but then in the very important passage says –

It is not, however, necessary for us to decide any such question in the present case. The question before us is one, not of original liability to creditors –

So, here is the author saying, “In my language this is not a co-ordinate liability, common debt or obligation case –

but of contribution and questions of contribution often depend not upon contract - - -

GUMMOW J: What is he meaning when he says “a contribution”?

MR WALKER: It must be Dering v Winchelsea because the next words really do conjure up just that:

but of contribution, and questions of contribution often depend not upon contract -

That is quite precisely the passage:

but upon the general principles of equity. The law -

Equity, with respect, apropos what Justice Heydon was pointing out to me earlier, presumably means more than just the principles admitted by Chancery. It is presumably more cognate with natural justice.

GUMMOW J: This is all leading up to directors of companies, is it not?

MR WALKER: Yes, but when he is talking about contribution, he is not just talking about this obligation that flows from being a statutory contributory on a list settled by the Master. He is talking about a Dering v Winchelsea contribution. He makes that explicitly clear.

FRENCH CJ: Going back for a moment to the statutory list, I just want to make sure I understood the effect of the exchanges you had previously with the Bench. Is the inclusion on the list of contributories dependent upon liability derived from some anterior source other than statute?

MR WALKER: It is all for the purpose of and within the meaning of the statute, and seems to come from acting, which appears to include authorising. Acting appears to include actually incurring the debt. So presumably you are the person who goes to the engineer and says “Draw me a viaduct”. The company only being provisionally registered, you have incurred the liability.

FRENCH CJ: The liability of that person to contribute is then created by the statute.

MR WALKER: Yes.

FRENCH CJ: There is no anterior liability upon which it rests in relation to that person.

MR WALKER: No. There probably is, your Honour.

GUMMOW J: It has to come out of the Joint Stocks Act, surely.

MR WALKER: There probably is.

GUMMOW J: That is why you have got these committees of members. They are trying to find out who they are.

MR WALKER: Yes, they have to be named.

GUMMOW J: No, but what these creatures are. They are being treated by the Court in Spottiswoode’s Case as being something like directors, which, by the 1850s - - -

MR WALKER: They are also something like pre-incorporation promoters.

GUMMOW J: That is right. It is all very murky.

MR WALKER: Yes, it is. I think I should give more attention to the Chief Justice’s question than I have. Your Honour, as we read these cases, for the purpose of the statutory status of being a contributory – which then brings its own statutory liabilities – a gentleman must have acted in a particular way at one stage, wrongly thought, allowed himself to be named as a member of the provisional committee, later established, if he was merely named – and the emphasis must be on the word “merely” – not enough. Hence the significance of Lord Brougham in Norris v Cottle, “without anything more”.

GUMMOW J: And to the great relief of a number of gentlemen in the army and navy club, I should imagine.

MR WALKER: During the holidays. Yes, your Honour. He sat in diem per diem, according to the report.

HAYNE J: But do we have then to understand all of this against sections 27 and following of the Joint Stock Companies Act 7 & 8 Vict c 110.

MR WALKER: Yes, your Honour. They impose the consequences of being on the list of contributories.

HAYNE J: Paragraphs 27 and following are the powers and duties of directors of joint stock companies. These are questions, they are not interrogative statements, Mr Walker.

MR WALKER: Your Honour, yes is the answer to all of those. However, again I do not think I have quite attended to the Chief Justice’s question. What these reports do not require, we think – they certainly do not reveal the necessity of, for example, attributing common law liability for the conduct which is the conduct that puts you on the list of contributories. So a pre-incorporation contract question, do you incur liability by saying to the engineer “Draw me a viaduct for this company as yet only provisionally registered”. The cases do not analyse whether the person who made that expansive invitation thereby rendered himself – quite regardless of collapse of the company – personally liable.

I think that is what your Honour is asking me about anterior liability. It is not to be supposed that one would be anteriorly liable at law regardless of the company in such a circumstance because in those such conversations the engineer would be as much taking the risk of the enterprise going ahead as the man on the provisional committee. Everyone is hoping the Act of Parliament will go through, the capital will be raised and the navvies will swing into action. Under our common law nowadays, such a pre-incorporation approach may or may not produce a liability in the absence of corporation.

Those matters were not explored because the statute simply required – statute as judicially construed – simply required something more than merely being a name, this acting or authorising. Now, where does that fit in relation to the notion of a Mr X? We do not think it is the viaduct engineer that one would put in a position of Mr X. We think it is those who through the, in effect, liquidator are calling on the so-called contributories. Now, they may or may not include the viaduct engineer, but certainly not directly because it has been done under the statutory milieu.

Now, your Honours, it is after the passage to which I have referred in Spottiswoode’s Case, that is, in De G M & G 372 that the two utterances follow that your Honours are well familiar with, attention was drawn to them yesterday. I am bound to accept, as the Chief Justice pointed out yesterday in observation, they are couched in very general terms. The terms which we submit ought to be the principle pronounced by this Court are those I have already put, but they are simply a refinement of the language in 372:

They are united together for the purpose of effectuating the objects for which the companies are formed-

is plainly an unfortunately general, perhaps, if I may say so, with respect, woolly, way of putting it. Of course, in one way that simply describes people being directors together in a board room, or if they have been subscribers, subscribing to the memorandum. But it is the words that follow that really matter:

and so far as they have acted together, or have adopted each other’s proceedings –

now, there is the common design element, in our submission. So Spottiswoode is certainly not to be dismissed as a common liability case, co-ordinate liability case, misunderstood as not being so by Justice Cooper to the contrary.

GUMMOW J: He is said to be a director, is he not?

MR WALKER: He is said to be a managing director, indeed, because he is on the managing committee. There is more than one managing director, apparently.

GUMMOW J: In that sense a trustee of the property of the company.

MR WALKER: Now, that of course introduces this question of trusteeship because of two possibilities that might be another explanation of some of these cases.

GUMMOW J: The whole of this case is all about there is a whole lot of Mr Xs out there who want to get paid.

MR WALKER: Yes, your Honour.

GUMMOW J: And the question is by whom?

MR WALKER: The principle as referred to here - - -

GUMMOW J: I know. We can go over it over and over, but what I am saying to you is that that is what the litigation is all about.

MR WALKER: Yes. Could I move to another one of these 19th century company law ramifications, namely, ultra vires acts of the company, directors treated as trustees in default but liable to and entitled to contribution inter se. I think it might have been suggested yesterday that there was some flavour of an explanation of one or other of these cases in that regard. In our submission, for the reasons I am going to put, that is not so.

There is another way in which trusteeship came up and that particularly arises in relation to Ashhurst v Mason where there was a trust. It seems to be an illegal trust, though that obtains no discussion at all, namely, putting the company’s own shares acquired from someone who was tired of them to be held in trust by two - one poor servant and another man – no doubt to be realised for the company’s benefit if and when that became possible with God knows what level of secrecy.

In any event, the court was at pains to acquit anybody of dishonour or wrongdoing and illegality does not seem to have informed any of the analysis. But there was a trust in question. You see that. I am now talking about Ashhurst v Mason and Ashhurst v Fowler (1875) 20 LR Eq 225 and I am going to the opening words of the reasons of Sir James Bacon, the Vice-Chancellor at page 233 and one sees the trust there:

The gentlemen composing the board were of opinion that to take them –

That is Mr Brockett’s shares –

and hold them in trust for the company would be a very good thing, and they arrange a plan by which it can be done.

Now, the trust at that point, of course, is a trust under which the gentlemen in question – Leyland and Ashhurst – are the trustees. But the cestuis que trust is the company and it does not seem to be proposed – one is not talking here about a Hardoon v Belilios indemnity by a trustee against a cestuis que trust, or at least we do not think so. This again, in our submission is a red herring.

That kind of claim to indemnity, as it happened, rather than contribution by a trustee does not falsify the explanation of these cases by Justice Cooper. The explanation of the case by Justice Cooper is, with respect, entirely correct and in particular, in our submission, when one sees the passage at page 234, which, in our submission, presents ready analogy with what happened in this case, the shares it is to be recalled are being called on. Mr X is the officer calling on the shares. There is a liability on the shares. There is a liability at law. It is not a liability with respect of a company:

Whether he paid for them does not appear. It is clear no money passed. No pecuniary advantage was to result to any of the persons connected with that transaction, and it having been done by the common assent of the gentlemen who were present at the meeting, it is impossible, in my opinion, to resist the conclusion that they are all equally liable to bear any burden that has ensued thereupon.

Now, those gentlemen are not, with respect, co-trustees in the trust in question and they are not the cestui que trust of the trust in question. They are being made liable not because or notwithstanding they are not liable on the call, that is, there is no common obligation or debt due by them under the shares on the call. They are made liable because it was by their common assent, and obviously for what they regarded as a very good thing to be done for the company, that these two gentlemen, or this one gentleman as things fell out, was left holding the risk to bear the burden unless they contributed.

HEYDON J: Vice Chancellor Bacon seems to regard it as determinative when he says:

“You will stand by me,” and they say, readily, “Yes.”

There is no equivalent in the evidence in this case.

MR WALKER: We submit there is in the material to which we have referred in our written submission and which I have referred to compendiously today. The material from paragraph 8 conversations onwards, including the statements of mutual trust between these gentlemen, are said during the time when all of these debts - - -

HEYDON J: These expressions of mutual trust, are you speaking of November/December 1986?

MR WALKER: Before then, your Honour.

HEYDON J: Now, you see, we keep sliding. One minute we have a common design for November/December 1986 - - -

MR WALKER: Your Honour, there is no slide in me saying the common design is in the setting which goes right back to pre-incorporation, paragraph 8. They were 50/50, these young engineers, in their partnership.

HEYDON J: I raise this question, I do not wish to burden other people listening with any waste of time about this, but let me just indicate that at the moment I do not see any equivalent to a statement “You will stand by me”, “Yes.”

MR WALKER: Your Honour, I understand. What I am saying is, my answer is, the equivalent of that is the long practice by which that is exactly what happened. They stood by each other. Mr Friend’s debts incurred in order to on-lend to the company were time and again discharged by the company. That is the standing by. But may I make it clear, we entirely accept what Justice Heydon puts at the beginning of that question, namely, that does appear important to his Lordship, yes, it is important to his Lordship. There is a 1984 conversation, for example, to which we draw attention, volume 1 of the appeal book, pages 142 to 143, paragraph 52. Your Honours, before I leave Ashhurst - - -

HEYDON J: We know nothing of what Justice Nicholas made of “we can rely on each other”, do we?

MR WALKER: No, we do not.

HEYDON J: It is rather important factually.

MR WALKER: Could I then come to a case which in large parts the reasons were devoted to an explanation of an understanding of Ashhurst v Mason and that is Jackson v Dickinson [1903] 1 Ch. 947. There are a couple of things that one should point out in the statement of facts at page 948, apart, I think, from those to which your Honours have already been taken by my friend. I am sorry, before I go there, your Honours, I note the time - - -

FRENCH CJ: We might adjourn now, Mr Walker, and we will resume, if it is convenient to counsel, at 10 o’clock tomorrow morning.

MR WALKER: May it please the Court.

AT 4.20 PM THE MATTER WAS ADJOURNED
UNTIL FRIDAY, 6 MARCH 2009