ROBINSON v CAMPBELL SUPREME COURT OF NEW SOUTH WALES — COURT OF APPEAL MEAGHER JA, HANDLEY JA and CRIPPS JA 17 September 1992 [1992] NSWCA 215 Meagher JA. This is an appeal by Mr and Mrs Robinson who as plaintiffs were unsuccessful before Cohen J in their efforts to obtain an order for specific performance of a partition agreement. The agreement was dated 21 December 1988. The primary purpose of the agreement was to divide a building known as Robell House situate at 287 Elizabeth Street into separate strata titles, some in favour of the appellants and some in favour of the respondent, Mr Campbell, who was the defendant before Cohen J. All which need be known for this purpose is that the Robinsons and Mr Campbell agreed to build Robell House, to own it in equal shares and to discharge all liabilities connected with it equally. They operated this scheme through a corporate entity called Soinco Pty Ltd of which Messrs Robinson and Campbell are both directors and whose shareholding is held as to one half by Mr and Mrs Robinson and as to the other half, by Mr Campbell. At the time of the deed of December 1988 they were indebted to Westpac Banking Corporation in respect of this building in the sum of $11 million which they had borrowed. Westpac had a mortgage over the land to secure that indebtedness. Clause 6 of the partition agreement reads as follows: 6. Rand C hereby agree with each other and with S that pending completion of the implementation of the partition, all costs payable to Westpac Banking Corporation in respect of the mortgage by S to Westpac Banking Corporation with respect to the Property are paid by R and C equally. Without limiting the generality of the foregoing, such costs shall include all interest payments, all amounts paid by way of discounted bill facility, and all legal costs and disbursements in connection with the aforesaid mortgage to Westpac Banking Corporation or any legal costs and disbursements paid or payable in respect of any consent by Westpac Banking Corporation to either the proposed Strata Plan or this partition or the discharge of its mortgage, R and C agree that upon registration of the Strata Plan, they will each use their best endeavours to procure that the mortgages by S to Westpac Banking Corporation shall be discharged and each of R and C shall contribute equally to the amount required to discharge such mortgage.'"The difficulties which arose in the present case flow from the last sentence of this clause and in particular, from the second half of the last sentence. I might add that there is no dispute but that Mr Campbell is liable under clause 6 to pay one half of $11 million to repay Westpac's debt and to discharge the mortgage. But Westpac's mortgage secures more than that $11 million, it also secures the sum of $5,175 million owing in respect of premises situate at 362 Pitt Street. 2 UNREPORTED JUDGMENTS Until January 1990, both Mr Campbell and the Robinsons had an interest in this Pitt Street property by reason of the participation of a company called SIDC Pty Ltd in a joint venture to develop that site. Before that date the Robinsons owned one half of the units in a trust of which SIDC was the trustee and Mr Campbell, through a corporate entity called Diarmid Pty Ltd, owned the other half of the units. Mr and Mrs Robinson contemporaneously with the partition agreement which is in issue between the parties, executed a separation agreement the purpose of which, as its name implies, was to disentangle the Robinson interests from the Campbell interests. The background of the parties" transactions is of some complexity but all that is relevant for present purposes is to note that -A. Before January 1990 the SIDC units were owned, as I have said, partly by the Robinsons and partly by Mr Campbell, whereas after January 1990 they were owned solely by the Robinsons; B. That the $5.175 million indebtedness arose through a transaction connected with the Pitt Street property being the advance of money by Westpac to SIDC in respect of that property and had nothing whatever to do with Robell House in Elizabeth Street; C. After January 1990 the Robinsons continued to have an interest through the SIDC units in the Pitt Street property and Mr Campbell did not; As far as this $5.175 million is concerned, the parties agreed with Westpac that it should be included as part of the principal moneys owing under the Robell House mortgage. As far as these moneys were concerned then they were owed by SIDC as debtor to Westpac as principal creditor and guaranteed by Soinco. Cohen J was prepared to make an order for specific performance as sought by the plaintiffs if the plaintiffs, the present appellants, would accept as a condition that they would not seek an order that Mr Campbell repay one half of the $5.175 millionindebtedness which had been secured. His Honour's reasoning was that if Mr Campbell did pay one half of the $5.175 million he would undoubtedly be able to recover that sum from Mr and Mrs Robinson. His Honour said — It was agreed by consent for both parties that for practical purposes the corporate entities which were the trustees of family trusts should be ignored for the purpose of looking at the realities of the financial position of the parties. SIDC is the trustee of the unit trust, all of the units of which are held by the plaintiffs. Accordingly, it can for practical purposes be regarded as the plaintiffs when looking at the flow of benefits or liabilities. Similarly, Diarmid as the trustee of the family trust of the defendant can be assumed to be the defendant for those purposes. It was conceded by the plaintiffs that if the defendant were to pay one-half of the amount due under the guarantee which had been given as additional security for the Pitt Street project then he would have a right of indemnity against SIDC and, in effect, against the plaintiffs for that payment. Some debate has taken place before this Court as to whether the concessions to which his Honour referred were or were not made by Mr and Mrs Robinson. In view of the fact that we have nothing on the record other than his Honour's judgment to deal with the matter and that no ground of appeal is taken suggesting that his Honour's record of the concessions was inaccurate, it is impossible for this Court to operate on any other basis than the concessions which his Honour said were made, were in fact made. However for reasons which will appear I do not think it matters very much. His Honour also said: Had the Custom Credit guarantee not been discharged and, contrary to expectations, had the defendant been called upon to pay under his personal guarantee, then he would have had a right of subrogation and indemnity against SIDC, in effect the plaintiffs. URJ ROBINSON v CAMPBELL (Meagher JA) 3 Similarly, Soinco, if called under the second mortgage, had rights against SIDC. In substitution for that Soinco guaranteed the debt of SIDC and, if the defendant were to pay out one-half of that debt, he would in the same way have a right of indemnity against the plaintiffs through SIDC. Accordingly, he is being called upon by the plaintiffs to contribute half of the debt due to the Bank under the Soinco guarantee, which is the debt of SIDC and thus the plaintiffs, even though it is acknowledged that he can then make a claim on those parties to recover the amount so paid. The fact of course is that a claim on SIDC may not yield anything. After some confusion owing to the complexity of the transactions involved I am now of the clear view that his Honour was correct. If the Robinsons and Mr Campbell both contributed one half of the $5.175 million indebtedness to Soinco who paid that amount to Westpac in order to extinguish the Pitt Street liability, SIDC would become liable to indemnify Soinco for that amount. If that indemnity were paid, Soinco would have an amount which it would hold on trust equally for the Robinsons and Mr Campbell. So that the situation would be achieved equivalent to that which would be obtained if Mr Campbell had never made any payment in the first place. His Honour therefore considered, and in my view correctly, that to insist on a circuity, which Equity traditionally abhors, would constitute an undue hardship for the defendant. For these reasons in my view the appeal should fail and should be dismissed with costs. My brother Handley drew the Court's attention to one problem and that is what the situation would be for the appellants if they now, at this stage, wished to accept the original order offered by Cohen J, that is there should be specific performance of clause 6 subject to a condition. The matter has not been fully argued before us and as Mr Robb submitted it could not be fully argued before us without extra evidence. My tentative view is that there is nothing which we have decided which would prevent the appellants seeking such an order in due course before the Equity Division. For those reasons in my view the order that should be made now and the only order which should be made is the appeal should be dismissed with costs. Handley JA. I agree. I would only add for myself that the principle that Equity will not insist upon circuity of action but will allow processes to be short-circuited, is well established. Decisions which illustrate, but do not exhaust, the operation of thisprinciple include Trafford v Boehm (1746) 3 ATK 440 at 447-8(26 ER 1054 at 1057-8), and more than two hundred years later Re Collard's Will Trusts (1961) ChD 293 at 300-301. I would also respectfully agree with what has fallen from my brother Meagher as to the effect of the order of dismissal on future proceedings by either party for the enforcement of clause 6 of the partition agreement. The obligations under that clause remain in existence, there has been no rescission or attempted rescission of the partition agreement and it seems to me as at present advised, that all this Court and Cohen J have decided, is that the Robinson interests are not entitled to specific performance at the present time. Subject to that I agree fully with what has fallen from Meagher JA. Cripps JA. I also agree with the reasons and observations made by Meagher JA and Handley JA and I agree with the orders proposed by Meagher JA. Meagher JA. The order of the Court therefore is the appeal is dismissed with costs. 4 UNREPORTED JUDGMENTS Orders accordingly.