Friend v Brooker

• Jurisdiction: Australia Federal only
• Judge: French CJ,Gummow,Hayne,Bell JJ,Heydon J.
• Judgment Date: 28 May 2009
• Neutral Citation: [2009] HCA 21,2009-0528 HCA A
• Court: High Court
• Docket Number: S475/2008
• Date: 28 May 2009

[2009] HCA 21

HIGH COURT OF AUSTRALIA

French CJ, Gummow, Hayne, Heydon and Bell JJ

S475/2008

Nicholas Macarthur Friend

Appellant

and

Frederick Clarkson Brooker & Anor

Respondents

Representation

C R C Newlinds SC with H S PackerB R Kremer for the appellant (instructed by Bull, Son & Schmidt)

B W Walker SC with M S White for the first respondent (instructed by Levitt Robinson Solicitors)

No appearance for the second respondent

Friend v Brooker

Equity — Doctrine of contribution — ‘Co-ordinate liability’ — Appellant and respondent company directors — Respondent personally borrowed money which was on-lent to the company — Company ceased trading — Respondent sought funds from appellant to repay personal loan — Whether fiduciary relationship existed between the two — Whether co-ordinate liability existed so as to require equitable contribution from appellant.

Words and phrases — ‘common design’, ‘community of interest’, ‘co-ordinate liability’, ‘equitable contribution’.

1. Appeal allowed.

2. First respondent to pay the costs of the appellant.

3. Set aside the orders of the Court of Appeal of the Supreme Court of New South Wales entered 25 June 2008 and, in lieu thereof, order that the appeal to that Court be dismissed with costs, including the costs of the application for recall of reasons.

1 French CJ, Gummow, Hayne and Bell JJ This appeal is brought by Mr Friend from the decision of the New South Wales Court of Appeal (Mason P and McColl JA; Basten JA dissenting 1) which allowed an appeal by the first respondent (Mr Brooker) and set aside the orders of the primary judge (Nicholas J) dismissing a suit in the Equity Division of the Supreme Court of New South Wales 2. The appeal should be allowed and the orders of the primary judge restored.

2 The appeal raises for consideration by this Court fundamental questions respecting the nature and scope of the equitable doctrine of contribution. These are precipitated by the decision of the Court of Appeal which proceeded from considerations first raised by the President in the course of argument and not advanced to the trial judge.

3 The matter is further complicated by the circumstance that in various respects findings of fact were made or assumed by the Court of Appeal and in this Court the appellant vigorously challenged the procedure adopted by the Court of Appeal, in going beyond the findings made by Nicholas J when disposing of the quite different case presented at trial. However, it will be possible to decide the appeal in favour of the appellant even assuming many of the factual findings and assumptions of which the appellant complains.

The equity suit

4 The suit was tried upon the fifth amended statement of claim. Mr Brooker sought a declaration respecting the existence between May 1977 and January 1995 of a partnership or of an agreement (identified in his pleading as ‘the Joint Venture’) between him and Mr Friend for them to carry on jointly the conduct of a building and construction business. Mr Brooker contended that the second respondent, Friend & Brooker Pty Ltd (‘the Company’), had been the ‘corporate vehicle’ for the conduct of the partnership or joint venture agreement. In his reasons for judgment, Nicholas J recorded that Mr Brooker also claimed that there had been a fiduciary relationship between the partners or joint venturers.

5 Mr Brooker (hereafter ‘the respondent’) sought an order for the taking of a full account of the partnership or the Joint Venture and recovery for loss suffered by him by reason of the alleged refusal of Mr Friend (hereafter ‘the

appellant’) to make equal contribution to the repayment of his personal borrowings for the purpose of the business.

6 Apparently for good measure, in par 24 of his pleading Mr Brooker alleged that Mr Friend had been unjustly enriched at his expense as a result of his being ‘materially benefited’ to the extent of expenditure of those borrowings upon repayment of debts and payment of expenses of the Joint Venture or partnership and as a result of the failure of Mr Friend to make a contribution to or to account to Mr Brooker for his share of the benefit to the Joint Venture or partnership. The failure of the case respecting the existence of the Joint Venture or partnership made it unnecessary for Nicholas J to enter upon any issue of unjust enrichment raised by par 24.

7 The joint reasons in Lumbers v W Cook Builders Pty Ltd (In Liq)3 contain two propositions which are relevant here. The first is that, in general, the bare fact of the conferral of some benefit upon another does not suffice to establish an obligation to repay the expenditure in providing that benefit 4. The second proposition is that while the concept of unjust enrichment may provide a link between what otherwise appears to be a variety of distinct categories of liability, and it may assist, by the ordinary processes of legal reasoning, in the development of legal principle, the concept of unjust enrichment itself is not a principle which can be taken as a sufficient premise for direct application in a particular case 5.

8 In this Court, Mr Brooker expressly disavowed any reliance upon a cause of action framed as a case of unjust enrichment. However, he did rely upon par 24 as supplying sufficient foundation for the application of the equitable doctrine of contribution in his favour by the Court of Appeal, and for the further formulation of that doctrine which he advanced in this Court in support of the outcome in the Court of Appeal.

9 The Company ceased to trade in about July 1990 and was deregistered on 26 July 1996. It played no active part in the litigation. The Company may be taken to have been insolvent at least since the time it ceased to trade.

Mr Brooker's success in the Court of Appeal was based on the proposition that the dealings over some years between him and Mr Friend referable in particular to a certain loan transaction generated a right to contribution in his favour. The parties are in dispute in this Court, among other matters, as to whether the effect of the relief granted to Mr Brooker by the Court of Appeal is to disrupt what otherwise would be the established system for the insolvent administration of the Company, which the parties had jointly controlled.

The facts

10 As already noted, many matters of fact were still in dispute before this Court. Had Nicholas J ordered the account sought by Mr Brooker, various aspects of the dealings affecting the parties would have been for resolution on the taking of the full account. But, in the event, no such order was obtained from the trial judge.

11 However, some basic facts were largely undisputed. In about May 1977, Mr Brooker and Mr Friend resigned from their employment as engineers with John Holland Constructions Pty Ltd, with the intention of establishing an engineering and construction business. The Company was incorporated on 18 July 1977. In 1979 the scope of the business of the Company was expanded to include the purchase and development of land.

12 With respect to the incorporation of the Company, Nicholas J made an important finding respecting the subsistence thereafter of any partnership. He found:

‘What happened was that from the time of incorporation the partnership ceased, just as the parties intended. The effect of incorporation changed the basis upon which the business had been conducted since May 1977, not only with regard to third parties, but also as between themselves. Thereafter their relationship was as co-directors of the company, and the assets and liabilities associated with the business were the company's.’

13 Mr Brooker and Mr Friend were the directors of the Company and the shareholding was controlled equally by a complex of their respective family companies and trusts. The trial judge recorded that to finance the activities of the Company funds were obtained by loans from third parties to the Company and from time to time by separate personal borrowings from family and friends by Mr Brooker and Mr Friend; these funds then were lent to the Company and reflected in the loan accounts of the directors as unsecured loans. In this Court, Mr Brooker accepted that the loan accounts were not matched between the two directors, but fluctuated from time to time depending upon which of them had been tapping available sources of funds.

14 In January 1984 the Company entered into a contract with the Eurobodalla Shire Council (‘the Council’) for the construction of sewerage reticulation works at Narooma for a sum in excess of $2.5m. The contract reached practical completion in September 1985, but in April 1986 the Council rejected the Company's claim for payment of a sum of about $1m. This placed the Company in extreme financial difficulty and it was in these circumstances that further finance was obtained in circumstances disputed before the primary judge. It may be accepted for the purposes of these reasons that the indebtedness of the Company at this period comprised loans from Trade Credits Ltd, Mr and Mrs de Bakker, and Alcon Investments Pty Ltd; that the second and third loans were secured by mortgages over Brooker properties, and the first loan by mortgages over properties owned by Mr Friend and by Mr Brooker; and that the moneys advanced had been used for the purposes of the business of the Company.

15 Nicholas J found that in November 1986, SMK Investments Pty Ltd (‘SMK’) acting by its director Mr Graham Peterson (‘Mr Peterson’) agreed to lend $350,000 to Mr Brooker ‘and/or his wife’ (‘the SMK loan’). Mr Peterson was a long-time friend of Mr Brooker. Mr Peterson gave evidence but unsurprisingly, given the scope of the suit as tried by Nicholas J, SMK was not joined as a party to the suit. Had it been a party, then when Mr Brooker made good in the Court of Appeal his claim to contribution by Mr...