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. It was in this context that Mr Charaneka, whose financial interest in Maybrick International Australia Pty Ltd considerably exceeded Mr Gallagher's, set about procuring Mr Gallagher's signature to the Deed of Guarantee, he himself having signed it. He had asked the other directors to sign it and they had refused. At first, 2 UNREPORTED JUDGMENTS Mr Gallagher also refused. That, of course, was consistent with his attitude in refusing to mortgage his assets to secure further loans to the company. However, Mr Charaneka persisted in urging Mr Gallagher to sign. Mr Gallagher's somewhat odd account of what Mr Charaneka said to him was 'it is only a director's guarantee it is not a personal guarantee'. One would normally consider that statement with a measure of scepticism because it is so meaningless. Nonetheless, it was taken by Mr Gallagher to mean that it could not involve him in being sued personally on the guarantee; that is what he said,and the judge believed him. The curious thing is that in cross-examination Mr Charaneka admitted this. The transcript of his cross-examination includes the following: Q: No, but Mr Gallagher was reluctant to sign it, wasn't he? A: He expressed his objection. Q. Yes. Now he expressed his objection in this way did he not, well you know I won't sign a personal guarantee. Is that what he said? A: I'll say yes to that but I don't think — it was something else — It also includes the following: Q: But there was some urgency — A: He did say, I don't sign personal guarantees. He did say that he's reluctant to sign any documentation. He did say some other things. I said to him — I may have said to him or the other way this is not a personal guarantee. These are directors" guarantees. His Honour also found, and there is evidence to support the finding, that it was this misrepresentation which induced Mr Gallagher to sign the guarantee. What makes this rather more sinister is that, although Mr Charaneka had, in his representations to Mr Gallagher, drawn an imaginary distinction between director's guarantees and personal guarantees, he categorically stated in evidence that he knew there was no difference. 'I was of the opinion ... There's no difference as I saw it' were his precise words. His Honour concluded that Mr Charaneka by his misrepresentations induced Mr Gallagher to execute the guarantee, and did so knowingly. These are questions offact which depend on an evaluation of the oral testimony of the parties, and there is no way this Court can upset his Honour's findings. In a very able argument, Miss Needham, counsel for Mr Charaneka, drew the Court's attention to the bizarre nature of the misrepresentations alleged by Mr Gallagher, and to passages in the evidence of both parties which were inconsistent with Mr Gallagher's account. However, these facts were considered and evaluated by his Honour, and did not deter him from coming to the conclusion which he did. In September 1981, in fact Maybrick International Australia Pty Ltd ceased trading. In July 1982 Schenker & Co (Australia) Pty Ltd issued a statement of claim against Mr Charaneka based on the guarantee. It obtained judgment against him in the sum of approximately $16,000 in October 1982. On 12 June 1984, Mr Charaneka paid all the moneys then owing to Schenker & Co (Australia) Pty Ltd, being $20,995.80, on account of the original judgment together with interest to date. In November 1984, Mr Charaneka commenced these proceedings for contribution against Mr Gallagher, claiming from him one-half of the sum he paid to Schenker & Co (Australia) Pty Ltd The case was heard by Phelan DCJ in July 1987, when his Honour found for Mr Gallagher. Now, six years later, the lapse of time resulting from the appellants" indolence, the appeal has come on for hearing, pursuant, remarkably enough, to an order for expedition. URJ ALEX PETER CHARANEKA v JAMES GALLAGHER (Sheller JA) 3 On the facts found, which I have outlined, the plaintiffs claim for contribution was bound to fail. Contribution between co-guarantors is a doctrine to be applied on equitable principles. Mr Charaneka's action really is a classic example of a plaintiff seeking an equitable remedy with unclean hands. He asks the Court to award him contribution from a defendant according to a deed of guarantee which the defendant would never have executed were it not for the plaintiff's misbehaviour. Although other matters were canvassed in argument, to which it is not now necessary to advert, that central principle is sufficient to dispose of the case. The appeal should be dismissed with costs, including all costs reserved in interlocutory applications. Sheller JA. I have had the benefit of reading the judgment of Meagher JA and agree that the appeal should be dismissed with costs for the reasons his Honour has given. I do not agree that these costs should include the costs of an interlocutory application by the respondent that the appeal be dismissed for want of prosecution. This application was dismissed by Mahoney JA on 29 March 1993 for reasons his Honour gave in a judgment of that date and in accordance with the practice of this Court as stated in Stollznow v Calvert (1980) 2 NSWLR 749 at 755. His Honour observed that the appeal had been listed for hearing and stood over on the ground that the appellant had had a change of solicitors. His Honour was informed that the Court at that time directed that the parties consult the Registrar to fix a date for hearing. No application was made to the Registrar to fix a date for hearing by either party. The Registrar informed his Honour that a letter was written to the parties in 1991 drawing their attention to theposition, but no further steps were taken to fix a date for hearing. His Honour said: 'I am not sure on whom lies the responsibility for the present matter.' The respondent said that he had no interest in the appeal coming on for hearing and could properly stand by. His Honour was not sure that that was a complete answer to the situation which had arisen. Having refused the application that the appeal be dismissed for want of prosecution his Honour was no doubt concerned in accordance with the policy of the Court that, the appeal having been once already listed for hearing, the hearing should not be further delayed. Accordingly he directed that the appeal be fixed for hearing if possible in the May or June list and that it be brought to a hearing. He indicated that the parties should understand that the Court would not lightly entertain any application for a further adjournment of the matter. His Honour said: 'The matter should now be disposed of'. On the question of costs his Honour was not satisfied that all the circumstances were properly before him. He said: There appears to have been at least one change, possibly two changes, of solicitors, and the appellant has given no reason why nothing was done to bring the matter on for hearing. In the circumstances I will direct that the costs of the present application be dealt with by the Court dealing with the appeal in due course. During the course of argument counsel for the appellant when questioned about the matter said: The proceedings lay around because I think nobody wanted to do anything about it. Of course, it is not the fault of the Court of Appeal Registry. This statement was not challenged and for my part I can see no reason why the respondent, having done nothing to cause the appeal to be set down for hearing should now be rewarded by recovering thecosts of a delayed and unsuccessful 4 UNREPORTED JUDGMENTS application to strike out. Mahoney JA was not sure on whom lay the responsibility for the delay. No more am I. I think there should be no order as to the costs of the strike out application. 5 Cripps JA. I agree with the reasons and orders of Meagher JA. (1) Appeal dismissed with costs Counsel for the appellant: J NEEDHAM 10 Solicitors for the appellant: HOLMANN WEBB Counsel for the respondent: P O.LOUGHLIN Solicitors for the respondent: GILLIS DELANEY