ALEX PETER CHARANEKA v JAMES GALLAGHER [1993] NSWCA 56

ALEX PETER CHARANEKA v JAMES GALLAGHER SUPREME COURT OF NEW SOUTH WALES — COURT OF APPEAL

MEAGHER JA, SHELLER JA and Cripps JA 14 July, 17 August 1993

[1993] NSWCA 56

FACTS: A director, the respondent, was induced by a co-director, the appellant, to sign a Deed of Guarantee relying upon a misrepresentation that he would not be personally liable as a result. The guarantee related to a trade creditor whose goods were urgently required. The appellant had already signed it. The trade creditor later obtained judgment against the appellant under the guarantee. The appellant in turn sought contribution from the respondant, but did not succeed. An application to have this appeal from that decision struck out for want of prosecution, after a six year delay, failed.

HELD: (per curiam)

(1) The right to contribution can be defeated by the equitable defence of unclean hands. The misrepresentation that the guarantee in this case was a "directors guarantee" as opposed to a "personal guarantee" must amount to unclean hands, despite some inconsistencies in the evidence as to what the parties believed the expressions to mean.

(2) (per Sheller JA dissenting only on the question of costs) Costs of the interlocutory motion should be shared, as responsibility for the delay has not been clearly attributed to either party.

Meagher JA. The plaintiff, Mr Charaneka, appeals from a judgment of Phelan DCJ, dismissing his claim against the defendant, Mr Gallagher, who is the present respondent. The plaintiffs claim was for moneys owing by way of contribution from a co-guarantor.

The document relied on by the plaintiff is a Deed of Guarantee dated 4 August 1981 whereby, on the face of it, Mr Charaneka and Mr Gallagher each guaranteed a company called Schenker & Co (Australia) Pty Ltd moneys owing to it by another company called Maybrick International Australia Pty Ltd Mr Charaneka and Mr Gallagher were both directors of the latter company. In August 1981 the financial fortunes of Maybrick International Australia Pty Ltd were at a low ebb and getting worse by the minute. Mr Gallagher had refused to mortgage his assets to secure further borrowings from theCompany's bank. Execution of the Deed of 4 August 1981 by both Maybrick International Australia Pty Ltd and two of its directors was insisted on by Schenker & Co (Australia) Pty Ltd Failure to execute the Deed would have meant a cessation of business between Schenker & Co (Australia) Pty Ltd Maybrick International Australia Pty Ltd, which would have been fatal to whatever slim chances of survival Maybrick International Australia Pty Ltd had. Its cash flow situation must have been desperate, as Mr Gallagher, who was an employee as well as a director, at the date of the execution of the deed had not been paid for about six weeks.