BANQUE BRUXELLES LAMBERT v AUSTRALIAN NATIONAL INDUSTRIES LTD SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL MEAGHER, COLE and BEAZLEY JJA 26 February 1997, 26 February 1997 [1997] NSWCA 40 Contract — Deed of Release — Construction and Interpretation — Equitable principle in Grant v John Grant & Sons Pty Ltd (1954) 91 CLR 112 — General words of release — Whether included release of court order for costs in initial litigation. Beazley JA In this matter, which might correctly be described as another of the spin-offs from the litigation which was commonly known as the Spedley Litigation, it is convenient for the purposes of dealing with this appeal if I quote from the judgment of the trial judge as to the relevant facts: "In 1992 BBL, lent money to Spedley Securities Ltd, ('SSL'), which was a fully owned subsidiary of Spedley Holdings Ltd of which ANI held 45% of the issued capital. To support the loan ANI gave BBL 'a letter of comfort' and when SSL failed to repay the amount lent by BBL to it, BBL sued ANI on the letter of comfort. The proceedings were contested and, on 12 December 1989, his Honour [Rogers CJ Comm D] found that BBL had 'made out its case on liability' and ordered ANI to pay BBL's 'costs to this point'. He noted there remained outstanding the question of the quantum, which was subsequently litigated, and, on 5 October 1990, his Honour found BBL was entitled to damages. On 16 October 1990 an order was made that ANI pay BBL $9,091,717.86 and costs. The judgment debt has been paid by ANI to BBL, but the costs have neither been taxed, nor agreed and consequently have not been paid. An appeal was lodged to the Court of Appeal." That appeal was subsequently discontinued by a Notice of Discontinuance, the terms of which will be relevant to the matters to which I will refer later in this judgment. At the same time as that appeal was discontinued, Banque Bruxelles Lambert (BBL) entered into a document called a Major Creditor's Deed of Release dated 22 December 1982. The parties to the Deed of Release included BBL as the Releasor and Australian National Industries (ANI) as one of several Releasees. It will be also necessary to refer to the terms of the Deed in due course. Notwithstanding the discontinuance of the appeal and the entry into the Major Creditor's Deed of Release, the appellant in proceedings, which were heard by Rolfe J in the Commercial Division, claimed that it was still entitled to the order for costs, as made by Rogers CJ Comm D. The trial judge rejected that claim, having regard to the proper construction of the Major Creditor's Deed of Release. This appeal is brought against his Honour's dismissal of that action. The sole point which was argued on the appeal was whether the equitable principles enunciated by the High Court in Grant v John Grant & Sons Pty Ltd (1954) 91 CLR 112 apply, so as to except from the Major Creditor's Deed of Release the order for costs which was made by Rogers CJ Comm D. 2 UNREPORTED JUDGMENTS To determine whether that principle does operate in the circumstances of this case, it is necessary to refer to a number of documents, including correspondence which passed between BBL and ANI and their solicitors leading up to the execution of the Major Creditor's Deed of Release and the agreement as to the discontinuance and the filing of the Notice of Discontinuance of the appeal proceedings. I have referred already to the Spedley Litigation. In September 1992 that litigation was proceeding to a settlement and to that end a Deed of Settlement was prepared. Cl5.1 of that Deed of Settlement provided: "\.. the obligations and entitlements referred to in this Deed... shall be conditional upon... (m) the execution by each major creditor of a Major Creditor's Deed of Release excluding parties who are not parties to these proceedings." A major creditor was defined in that Deed of Settlement. It suffices to say that BBL was a major creditor within that definition. A "Major Creditor's Deed of Release" was also defined to mean. "a Deed of Release executed by a major creditor in the form or to the effect of the deed..." which was annexed to the Deed of Settlement. The Major Creditor's Deed of Release in the form which was annexed to that Deed of Settlement, included a definition of the Spedley Claim. That definition was: "(a) any claim that the releasor may have against any or all of the Releasees arising out of or incidental to any debt owed by Spedley to the Releasor, or otherwise in any way connected with the dealings between the releasees and Spedley or conduct of the Releasees or officers of Spedley including, without limitation, any costs, whether or not the subject of a court order: or (b) any claim of any nature that any Releasee may have against the Releasor connected with or incidental to any Spedley Claim the Releasor may have." BBL initially resisted entering into a Deed of Release, at least in the form in which it was annexed to the Deed of Settlement, because of its judgment against ANT in the sum of $9 million and its costs order and also because, if ANI's appeal against it was successful, it had indicated it proposed to bring further proceedings against ANI. Accordingly, on 9 December 1992 when this matter was under discussion, the general manager of BBL wrote to ANI stating: "..In truth I see little reason why BBL should make any concessions in respect of the BBL v ANI Appeal. Nevertheless to conclude the matter and to enable the Spedley settlement to proceed, I can say that I would be prepared to recommend to the Bank that the costs incurred by BBL in respect of the Appeal should be borne by BBL if the appeal of ANI is withdrawn. I should add that these costs are significant because much work has had to be done in view of the failure by ANI to give proper discovery at first instance." It is important to note that in that letter there was no reference to the proceedings at first instance and in particular, no reference to the costs order at first instance. Before proceeding further, it is appropriate to refer to an earlier letter written on 9 November 1992 by ANI to Mr Foy, the managing director of BBL, which was in the following terms: UHANQUE BRUXELLES LAMBERT v AUSTRALIAN NATIONAL INDUSTRIES LTD (Beazleg JA) "\..1 note... that BBL considers that it is in a different position to that of the other creditors and has formed the view that it seems inappropriate to execute the Major Creditors' Deed of Release. It may be desirable if John Harkness, Tim L'Estrange and myself met with you in the near future to discuss the matter, but in the mean time I would invite you to consider the following:- (a) if the appeal against the decision of Justice Rogers is unsuccessful, then the judgment in your favour will not be disturbed and the signing of the Deed by BBL should not have any effect on BBL. (b) if the appeal is successful, then BBL presumably will become a creditor of Spedley and be treated in the same fashion as another creditor of Spedley... In those circumstances ANI presently does not see why BBL should regard itself as being in any different circumstance to all other unsecured creditors." It should be noted that in that letter, whilst there is a reference to the judgment in favour of BBL, there is no express reference to the order for costs. It is not certain therefore, whether in using the word "judgment", the author was intending to mean only the judgment sum of $9 million, or also the order for costs. In that regard it should be noted that the author of the letter was ANI's finance director and not ANI's lawyer. The letter of 9 December 1992 drew a response from ANI on 16 December 1992. Again the terms of that letter are important and need to be set out in full. "Tn the absence of our Finance Director, your letter dated 9 December 1992 has been referred to me. Tam instructed that your proposal that AN7 withdraw the Appeal is acceptable to AN7 on the basis that: . Each party bears its own costs of the Appeal; and . BBL releases all further claims it may have against ANI and any of its related bodies corporate, its directors (past and present) and all other persons in relation to the subject matter of the Appeal and in connection with the Spedley Group of Companies. This having been agreed, ANI sees no reason why BBL cannot then execute a Major Creditor's Deed of Release. I would be grateful for your urgent response, whereupon I will instruct our solicitors to prepare the requisite discontinuance documentation." In the mid afternoon of 17 December 1992, the BBL responded to ANI's letter of 16 December 1992. Its response was: "Thank you for your letter dated 16 December 1992. As I understand your letter ANI will withdraw its Appeal in the BBL v ANI Litigation on the following terms: 1. All orders of the Court in the BBL v ANI Litigation at first instance stand; 2. BBL and ANI each bear their own costs in respect of work done in preparation for the Appeal, and 3. BBL releases any further claims (ie those which were not raised at first instance and which were not the subject of the Judgements of Rogers CJJ it may have against ANI and any of its related bodies corporate, its Directors (past and present) and all other persons in relation to the subject matter of the Appeal and in connection with the Spedley Group of Companies. On behalf of BBL I can confirm that these terms are acceptable to it. 4 UNREPORTED JUDGMENTS Would you please instruct your solicitors to prepare the necessary documents to enable the Appeal to be withdrawn forthwith and would you also please provide me with a Major Creditor's Deed of Release for execution. Clearly these should become effective simultaneously. lam happy to work to finalise these outstanding matters this week since I know that the completion of the Spedley Settlement is due next week." An important difference between these two letters is to be noted. In the letter of 16 December 1992, there was no reference to the costs order made at first instance. Senior Counsel for ANI also conceded that the reference to the release in the second point of the letter, was literally wide enough to encompass the costs order. However, in its response of 17 December, BBL made specific reference to the order for costs, asserting that it understood that that is what the letter of 16 December 1992 meant. There is no evidence as to where that understanding came from. It certainly does not come out of the express determination of the letter of 16 December. Later on 17 December 1992, ANI's solicitors wrote to the solicitors for BBL and enclosed a copy of the amended Major Creditor's Deed of Release. In doing so Mr Halley, solicitor, stated that the amended deed was enclosed for "your urgent review". He then stated most significantly: "You will appreciate that the draft is in the form of the deed of release annexed to the ANI/Spedley Statement of Deed." Notwithstanding that language, that was clearly a reference to the Spedley Deed of Settlement to which I have earlier referred. Thus, as at 17 December the position was this. The original Major Creditor's Deed of Release, (Deed of Release), which was annexed to the Spedley Deed of Settlement, contained a definition of the Spedley claim which expressly included any costs. There was negotiation in respect of whether or not BBL would enter into such a deed, and there was also negotiation as to what the terms of that deed ought to be, in so far as BBL might enter into one. In that regard, mention should be made of a draft Deed of Release prepared at the end of November 1992, which excluded the proceedings the subject of the appeal but which still expressly, in the definition of the Spedley Claim, included a release of any costs. On 17 December 1992 the Deed which was forwarded for review and execution by BBL if appropriate was, in the original form of a Major Creditor's Deed of Release, annexed to the Spedley Deed of Settlement, a matter which was specifically drawn to the attention of BBL's solicitors. Against that background, senior counsel for BBL submitted that notwithstanding the express terms of the agreements entered into by the parties, the principles in Grant v John Grant & Sons Pty Ltd (supra) apply. That principle was stated by the court at 129-30 as follows: "...it will be seen that equity proceeded upon the principle that a releasee must not use the general words of release as a means of escaping the fulfilment of obligations falling outside the true purpose of the transaction as ascertained from the nature of the instrument and the surrounding circumstances including the state of knowledge of the respective parties concerning the existence, character and extent of the liability in question and the full intention of the releasor." In this matter the terms of the instrument quite clearly included a release of the costs order. The surrounding circumstances included negotiations leading up to the final entering into of the Major Creditor's Deed of Release on 22 September WANQUE BRUXELLES LAMBERT v AUSTRALIAN NATIONAL INDUSTRIES LTD (Col6 JA) 1992. At one stage in those negotiations, as was clearly evidenced by the letter of 17 December 1992, BBL would have liked to have reserved the costs order made by Rogers CJ Comm D at first instance. There is no evidence and indeed the evidence is to the contrary, that ANI ever agreed to that. There is no evidence that BBL between 17 December and the time of the execution of the Deed, did not decide in the interests of the overall commercial settlement, to forego its right to that costs order. In those circumstances I cannot see how the principle in Grant v John Grant & Sons Pty Ltd applies. In my view the appeal should be dismissed with costs. Meagher JA I agree. Cole JA I also agree. Meagher JA: The order of the court therefore is that the appeal be dismissed. Counsel for the appellant: RA Conti QC/PJ Brereton Solicitors for the appellant: Mallesons Stephen Jaques Counsel for the respondent: PG Hely QC/TGR Parker Solicitors for the respondent: Allen Allen & Helmsley