CHALLENGE BANK LTD v MAILMAN [1993] NSWCA 54

CHALLENGE BANK LTD v MAILMAN SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

KIRBY P, MAHONEY and PRIESTLEY JJA 21 and 22 July 1992, 14 May 1993

[1993] NSWCA 54

PRACTICE and PROCEDURE — declaration of right — proper circumstances for making declaration — whether relief sought is academic — whether declaration can be fashioned to conclude litigation between parties

GUARANTEE — contract of — limitation of liability of guarantors — agreement limits liability of particular guarantor as to 25 per cent of total debt of borrower — meaning of limitation — whether guarantor liable only in respect of proportion of debt — whether entitlement to benefit of securities does not arise until the whole of the debt is paid — proper meaning of agreement of guarantee and indemnity

Held: (Kirby P and Priestley JA; Mahoney JA dissenting):

(1) The Court will use its large declaratory power to assist parties in commercial and other litigation in the resolution of disputes between them. It will not do so where (a) the only effect of its order is to resolve an academic question of law; or (b) no declaration could be satisfactorily drawn which would deal with the contingencies affecting the circumstances between the parties;

(2) This did not appear to be such a case.

Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421; Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286 applied;

(3) Accordingly the parties having fought the issue at trial, should be afforded the opportunity to speak to the terms of the declaration and orders to be made.

Held: (per Kirby P and Priestley JA; Mahoney JA contra): In the circumstances of a partial guarantee, certain guarantors were entitled, upon payment of their proportionate obligations, to an interest in the proceeds of the sale of the security held by the creditor even though it then remained partly unpaid.