Attorney-General (Cth) v Alinta Ltd

• Jurisdiction: Australia Federal only
• Court: High Court (Australia)
• Judge: Gummow,Hayne,Kiefel JJ,Kirby J,Heydon J
• Judgment Date: 11 December 2008
• Neutral Citation: [2008] HCA 57,2008-1211 HCA A
• Docket Number: S180/2008
• Date: 11 December 2008

[2008] HCA 57

HIGH COURT OF AUSTRALIA

Gummow, Kirby, Hayne, Heydon and Kiefel JJ

S180/2008

Agricultural and Rural Financepty Limited

Appellants

and

Bruce Walter Gardiner & Anor

Respondents

Representation

B W Walker SC with C J Bevan for the appellant (instructed by Evangelos Patakas & Associates)

R M Smith SC with M A Jones for the first respondent (instructed by Clayton Utz)

G P Ellis SC with F F Salama for the second respondent (instructed by Colin Biggers & Paisley)

Agricultural and Rural Finance Pty Limited v Bruce Walter Gardiner

Contracts — Interpretation — Where indemnity agreement provided that indemnity effective and enforceable if borrower ‘punctually paid’ amounts under related loan agreement — Meaning of ‘punctually’ — Whether context of agreement required departure from dictionary meaning — Whether conduct of lender in accepting late payment could render such payment ‘punctual’.

Contracts — ‘Waiver’ of contractual right — Meaning of ‘waiver’ — Waiver distinguished from contractual variation and promissory estoppel — Whether doctrine referred to as ‘waiver’ exists in form of election between inconsistent rights, common law doctrine of forbearance, or abandonment or renunciation of right — Whether any other residual form of ‘waiver’ exists — Whether acceptance of late payments under loan agreement and other conduct constituted ‘waiver’ by lender and indemnifier of condition for indemnity taking effect, that the borrower have ‘punctually paid’ amounts under loan agreement.

Contracts — Election between inconsistent rights — Point at which choice between inconsistent rights arises — Whether indemnifier faced with choice between inconsistent rights.

Contracts — Forbearance from exercising contractual right — Relationship with estoppel — Influence of Statute of Frauds.

Contracts — Abandonment or renunciation of contractual right — Point at which time comes for abandoning or renouncing right — Whether time had come for lender or indemnifier to abandon or renounce right to insist on punctual payment under loan agreement.

Equity — Equitable doctrines — Election — Distinct character and application.

Words and phrases — ‘abandonment’, ‘approbate and reprobate’, ‘election’, ‘forbearance’, ‘punctually’, ‘renunciation’, ‘waiver’.

ORDER

• 1. Appeal allowed.

• 2. Set aside paragraphs 1–3, 7 and 8 of the order of the Court of Appeal of the Supreme Court of New South Wales made on 6 September 2007, and in place thereof order:

  • (a) appeal allowed in part;

  • (b) set aside paragraphs 1, 2, 4, 5 and 6 of the order made by Young CJ in Eq on 11 April 2006;

  • (c) appellant have judgment in the sum of the amounts owing under the relevant loan agreement for principal and interest on the first, second and fourth loans (‘the sum’); and

  • (d) first respondent to pay the appellant's costs in the Equity Division of the Supreme Court of New South Wales and in the appeal to the Court of Appeal.

• 3. The parties have 21 days from the date of this order to agree upon the sum, and in default of agreement the matter be remitted to the Court of Appeal for determination of the sum.

• 4. First respondent to pay the costs of the appellant and the second respondent in this Court.

1 Gummow, Hayne, and Kiefel JJ. Between October 1997 and May 1999, the appellant (‘ARF’ or ‘the Lender’) made four loans to the first respondent (Mr Gardiner or ‘the Borrower’). In each case the loan agreement required periodic repayments and provided that the whole of the principal outstanding was immediately repayable, at the option of the Lender, ‘if the Borrower defaults in the due and punctual payment of interest … or any repayment instalment’.

2 Each loan agreement was made contemporaneously with an indemnity agreement which, like the loan agreements, took substantially the same form in each case. The Lender, the Borrower, and a company associated with the Lender (the second respondent, ‘OAL’ or ‘the Indemnifier’) agreed, in consideration of the Borrower paying a flat fee, that if the Borrower punctually paid amounts due under the related loan agreement, and if, as a result of certain events, the Borrower ceased to carry on the business to which the money lent was to be applied, the Indemnifier would indemnify the Borrower against any demand by the Lender for repayment under that loan agreement and the Lender would look only to the Indemnifier for repayment of the loan.

3 Mr Gardiner did not pay certain sums due under three of the four loan agreements on the day appointed. ARF accepts that the third loan agreement Mr Gardiner made with ARF, in June 1998, was performed punctually. It is not now disputed that the indemnity agreement made in respect of the third loan is effective and enforceable and that, as a result, ARF may look only to OAL for repayment of the third loan. The third loan may be put aside from further consideration.

4 ARF obtained judgment in the Court of Appeal of the Supreme Court of New South Wales (from whose orders this appeal is brought) for the amount it claimed in respect of the fourth loan agreement. Mr Gardiner has not sought to cross-appeal against that judgment. The fourth loan may also be put aside from further consideration.

5 When payments due under the first and second loan agreements were made otherwise than on the day appointed, ARF accepted late payment and did not choose to accelerate repayment of the whole of the outstanding principal. Mr Gardiner later ceased to carry on the relevant business as a result of an event of a kind specified in the indemnity agreements.

6 There are two issues in this appeal. First, even though the Borrower did not pay on the day fixed by the agreement, did the Borrower nonetheless pay ‘punctually’ the amounts due under the first and second loan agreements? Secondly, if he did not, can the Lender and the Indemnifier rely on the failure to make payment punctually as failure to satisfy a condition for the related indemnity agreements being ‘effective and enforceable’? Or did the Lender's acceptance of late payments, or what was said or written to the Borrower about the late payments (or some combination of those matters) ‘waive’ compliance with the condition that the Borrower had punctually paid amounts due?

7 There was a lively controversy about whether the relevant statements and letters were made or written on behalf of the Lender or the Indemnifier, or both. But as these reasons will later show, these and other aspects of the factual controversies between the parties in this Court need not be resolved. There was also an issue as to whether the Indemnifier was released from liability in respect of the first and second loan agreements by reason of acceptance by the Lender of late payments by the Borrower. In its written submissions in chief the Lender contended for such a release but subsequently withdrew the submission.

8 These reasons will show that the Borrower did not pay ‘punctually’. The indemnities relating to the first and second loans were not ‘effective and enforceable’. The Borrower's argument that there was a ‘waiver’ should be rejected.

9 The issues in this appeal arise in litigation stemming from a failed agricultural investment scheme that was marketed as having taxation advantages for investors. It is necessary to say something more about the scheme, the agreements, and the litigation.

The scheme

10 In April 1997 OAL invited participation in a project described as ‘the Port Macquarie Tea Tree Plantation’. The invitation was to subscribe for or buy ‘prescribed interests’ and was therefore regulated by Div 5 of Pt 7.12 of the then Corporations Law. In its prospectus OAL described the objective of the project as ‘to establish and maintain a commercial tea tree plantation for purposes of producing Australian tea tree oil, and to market and sell that oil’. Those who elected to participate in the project were to enter a Licence and Management Agreement with OAL as the manager of the project. Each participant or ‘farmer’ was to be granted a 17 year licence over one or more allotments of land on each of which would be planted no less than 18,000 tea trees. OAL would establish and maintain the trees. Each farmer was obliged to pay OAL for the purchase of seeds and to pay OAL annual licence fees and management fees.

11 The prospectus recorded that a participant could obtain finance ‘to assist in funding the initial management fees payable’ and that those ‘who take advantage of the finance offered by the Lender [ARF] have the option of entering into an Indemnity Agreement’. Most who participated in the scheme took advantage of the offer of finance and entered an indemnity agreement.

12 Mr Gardiner made two investments in this project (referred to in argument and in some of the documents as ‘Project No 1’). In each case, Mr Gardiner invested with his wife but nothing was said to turn on this and it is convenient to deal with the matter as if he were the sole borrower. He made the first loan agreement in October 1997 and the second loan agreement in March 1998.

13 In the meantime, in February 1998, OAL issued a new prospectus inviting participation in a further project — Project No 2. (Supplementary prospectuses relating to Project No 2 were issued in June 1998, February 1999 and June 1999.)

14 Mr Gardiner made two investments in Project No 2 (one with his wife and the other on his own account). These were the third and fourth loans mentioned earlier. As previously noted, the third loan agreement was performed according to its terms. The fourth loan agreement made by Mr Gardiner, like the first and second loan agreements, was not. As noted at the outset of these reasons, however, ARF now has judgment for the amount owed in respect of that loan and it is not necessary to consider it further.

15 It is not disputed that four...