Supreme Court New South Wales Medium Neutral Citation: Miller & Anor v Harris [2013] NSWSC 1902 Hearing dates: 24 October 2013 Decision date: 18 December 2013 Jurisdiction: Equity Division Before: Slattery J Decision: Judgment for the plaintiffs. Catchwords: EQUITY - claim for equitable contribution between joint debtors - all parties were previously guarantors of a debt of a company managed by the defendant -company defaulted - the plaintiffs commenced proceedings to set aside their guarantees - proceedings ultimately settled in 1995 - the parties jointly took out a loan from a credit union to pay the settlement sum - the parties repaid the loan in agreed proportions for 16 years - in 2011 the defendant stopped making repayments and the plaintiffs repaid the balance to avoid default to the credit union - whether the plaintiffs entitled to equitable contribution in relation to the repayments to the credit union - whether the plaintiffs lost any part of their right to contribution because of their conduct of the settled proceedings or because of the circumstances in which the defendant executed the 1995 loan. PROCEDURE - self-represented litigant - Defence filed in the proceedings included various factual statements - order made treating the Defence as the defendant's evidence in chief. Legislation Cited: Contracts Review Act 1980 (NSW) Real Property Act 1900 (NSW) s 57(2)(b) Cases Cited: Burke & Anor v LFOT Pty Ltd & Ors (2002) 209 CLR 282 Coulls v Bagot's Executor & Trustee Co Ltd (1967) 119 CLR 460 Crawley v Short [2009] NSWCA 410 Hampton v Minns [2002] 1 All ER (Comm) 481 James Hardie & Co Pty Ltd v Wyong Shire Council (2000) 48 NSWLR 679 Muschinski v Dodds (1985) 160 CLR 583 Smith v Compton (1832) 110 ER 146 Official Trustee in Bankruptcy v Citibank Savings Ltd (1995) 38 NSWLR 116 Ogilvie v Ferry [2010] NSWSC 379 Robinson v Campbell (No 2) (1992) 30 NSWLR 503 Steel v Dixon (1881) 17 Ch D 825 Category: Principal judgment Parties: First Plaintiff: William Connor Miller Second Plaintiff: Elizabeth Ann Miller Defendant: Peter Francis Harris Representation: Plaintiff: B. Palmer Defendant:- in person File Number(s): 2012/208334 Publication restriction: No Judgment 1In these proceedings the plaintiffs, William Miller and his wife Elizabeth Miller, seek orders for equitable contribution against the defendant, Peter Harris arising from the Millers' discharge of what they allege is more than their equal share of their joint obligations with Mr Harris to repay a 1998 loan from the Manly Warringah Credit Union Limited (the Credit Union). 2Mr Harris admits he was jointly responsible to repay the 1998 loan back to the Credit Union. But he says he has already paid his proper share of this joint liability and that what was outstanding to the Credit Union over and above what he has paid represents the Millers' own personal liability, resulting mainly from the costs of proceedings that they alone commenced against the State Bank of NSW in 1991. Issues arising from Mr Harris' lack of legal representation 3Mr Harris was not legally represented in these proceedings. Although he clearly explained his arguments to the Court and made some appropriate concessions, his lack of legal representation led to special evidentiary issues. 4First, at the pre-trial directions hearing the Court ordered by consent, that the document titled "Defence of Peter Francis Harris", sworn by Mr Harris on 28 June 2013 and filed on 1 July 2013 was to be treated as both Mr Harris' Defence and his evidence in chief. Secondly, by consent, the Court ordered that both parties' evidence would be read without objections. Thirdly, at the hearing Mr Harris first made submissions from the bar table and then gave sworn oral evidence both in chief, in cross-examination and in re-examination. Mr Harris made a number of admissions from the bar table. The Court's findings are in part based on these admissions. 5Understanding the parties' dispute requires an account of some of their financial dealings over the last 30 years. Much of this history is uncontested. But the parties disagreed in relation to four principal matters. One of those disputed matters was Mr Harris' alleged lack of knowledge of and involvement in the Supreme Court proceedings that the Millers commenced in 1991 against the State Bank of NSW. This was perhaps the main basis of Mr Harris' defence. The other three disputed matters related to particular payments made out of the parties' joint Credit Union loan accounts. Each of these disputed matters is discussed separately below. Uncontested facts - 1983 to 2013 6The parties have known each other for a long time. In 1983 they formed Zytek Pty Limited ("Zytek"), an enterprise which commenced business importing electronic goods from Asia. Mr Harris, not the Millers, was directly involved in running Zytek's business. But the Millers were directors of Zytek and contributed the whole of its initial $15,000 in working capital. But Zytek's importing business was persistently unprofitable. 7To maintain its working capital in 1985 Zytek obtained a loan from the State Bank of NSW ("the State Bank"). Each of Mr and Mrs Miller and Mr Harris personally guaranteed this loan to a limit of $160,000. The Millers secured their guarantee obligations by granting a mortgage over their family home in Seaforth, NSW ("the Seaforth property"). 8But Zytek's unprofitability continued. In late 1991 it defaulted its loan obligations to the State Bank. The Millers reacted proactively to this default. 9In December 1991 they commenced proceedings under the Contracts Review Act 1980 against the State Bank seeking to set aside both their guarantees and their mortgage to the State Bank over the Seaforth property ("the State Bank proceedings"). Grogan & Webb Solicitors acted for the Millers in that litigation. 10Mr Harris was not a party to the State Bank proceedings. But he attended at least the initial meeting at which the Millers first gave instructions to Grogan & Webb and he was aware that the Millers continued to conduct that litigation. 11On 7 January 1992 the State Bank served Notices under Real Property Act s 57(2)(b) on each of Mr and Mrs Miller: informing them that Zytek had defaulted under its obligations under the 1985 loan; and, requiring that they pay the then outstanding loan amount of $138,403.29 within 1 month. About the same time the State Bank filed a Cross-Claim in the State Bank proceedings seeking to enforce both the guarantees and the Seaforth mortgage. 12The State Bank proceedings came on for hearing almost 4 years later, on 6 November 1995. As a result of a negotiated settlement on the first day of the trial the Court made the following consent orders: "The Court declares that: 1. The Mortgage dated 14 November 1985 Registered [number] secures the sum of $210,000; 2. The Guarantee dated 27 July 1990 granted by the Cross Defendants to the Cross Claimant of the debts of Zytek Pty Limited secures the sum of $210,000; The Court orders that: 3. The Cross Claimant be granted an order for possession of the [Seaforth property]; 4. The Cross Claimant be at liberty to issue a Writ of Possession against the Property to enforce orders 1 and 3 after 4 December 1995; 5. Interest on the sum in declarations 1 and 2 at Supreme Court rates after 4 December 1995 if the said sum in declarations 1 and 2 is not paid on or before 4 December 1995; 6. There be no order as to costs; and 7. There be judgment for the Cross Claimant on the Amended Statement of Claim." 13Mr Harris accepts that he was responsible to pay his equal share of Zytek's outstanding debt of $138,403.29 to the State Bank just before the Millers commenced the State Bank proceedings in 1991. But he says that he should not now be responsible for the difference between that amount and the larger amount of $210,000, which the Millers agreed to pay to the State Bank on the settlement in 1995. This difference of approximately $70,000, I infer includes the additional interest accrued on Zytek's debt over the four years of the State Bank proceedings together with the State Bank's costs of those proceedings. 14After the State Bank proceedings settled the State Bank commenced separate proceedings against Mr Harris. There was no evidence before me as to the date of commencement of, or any other details of, those proceedings. But the parties agreed that these State Bank - Harris proceedings also settled with Mr Harris making an additional payment of between $10,000 and $12,000 to the State Bank. But the timing of this settlement of the State Bank - Harris proceedings and its associated payment is in dispute. 15To pay the final settlement sum to the State Bank in December 1995 Mr Harris and Mr and Mrs Miller obtained a loan from the Credit Union for approximately $240,000 ("the 1995 loan") which was secured by a mortgage on the Seaforth property. 16The account statement for the 1995 loan records its proceeds were distributed in December that year. On 14 December 1995 $210,759.45 was disbursed from the Credit Union loan account to "State Bank NSW"; another $6,326.10 to "Grogan & Webb"; and $1,713 to "Lange & Co". The same day $10,679.41 was transferred to another bank account. Six days later, $10,522.04 was paid by cheque to a payee "Adams Mascarenh". These payments found one of Mr Harris' supplementary arguments. He contends that even if the Court finds that he was liable to contribute equally to the whole amount of the settlement payment to the State Bank of $210,000, he should not be required to make any contribution for these additional payments drawn down from the 1995 loan because they were neither for his benefit nor were they to meet the parties' joint liabilities. This is the second group of disputes between the parties. 17For the next three years the parties made regular repayments of the 1995 loan: the Millers paying 50% of these repayments and Mr Harris the other 50%. 18In 1998 the Millers decided to sell the Seaforth property and to buy a smaller house in North Balgowlah, NSW ("the Balgowlah property"). To accommodate that change the Millers and Mr Harris entered into a new loan for $164,000 with the Credit Union ("the 1998 loan") secured by a mortgage over the Balgowlah property (which was registered in Mrs Miller's name only). 19The Credit Union administratively divided the 1998 loan into two separate loan accounts: account "L78" with an initial debit of $50,000; and account "L71" with an initial debit of $114,000. The parties agree that this was done to facilitate their contemporaneous oral agreement that, although all three of them were jointly liable to the Credit Union for the whole amount of the loan, as between themselves, the Millers were only to be responsible for paying off account L78 and Mr Harris would pay off account L71 ("the Repayment Agreement"). In these proceedings Mr Harris initially argued that this agreement was never formalised. But in his oral evidence he admitted that he knew that these two separate accounts were created and that he had agreed with the Millers to pay the amount outstanding in account L71. In my view the creation of these two accounts, L71 and L78, strongly supports the inference that the Repayment Agreement was made and that the Millers accepted responsibility to pay off account L78 and Mr Harris to pay off account L71. 20Mr Miller explained to the Court that the difference between the initial balances of accounts L78 and L71 was designed to reflect that after the sale of the Seaforth property the Millers had paid a lump sum of approximately $65,000 off their share of the 1995 loan. Mr Harris did not provide any alternative explanation for the difference between the balances of these two accounts. 21The loan records seem to confirm the Millers' analysis, which I accept. In 1998 when the Millers sold the Seaforth property and bought the Balgowlah property the outstanding balance of the 1995 loan, $228,227.27, was discharged in full. But the total initial balance of the refinanced loan, the 1998 loan, was only $164,000 (being $114,000 in account L71, plus $50,000 in account L78). This new loan balance of $164,000 was also about $64,000 ($228,000 less $164,000) less than the balance of the 1995 loan being discharged. Thus the difference between the initial balances of accounts L71 and L78, of approximately $64,000, is very close to the difference between the outstanding balance of the 1995 loan at the time the Seaforth property was sold and the initial amount of the 1998 loan. 22Apart from ordinary accruing interest, there were only two significant increases to the 1998 loan over the years since then: $6,000 in October 1998, and $20,000 in June 2007. These increases were both recorded as debits to account L71, the account for which Mr Harris had agreed to be responsible. The Millers submit that as between themselves and Mr Harris those increases should be treated no differently than the balance of account L71, namely, their repayment is Mr Harris' responsibility. The exact circumstances of those increases are another area of dispute between the parties. These are discussed separately below. 23Between April 1998 and November 2011 Mr Harris made approximately 150 monthly payments in respect of account L71. In the same period the Millers met the required repayments on account L78. 24In 2011 Mr Miller's mother passed away and he received some funds from her estate. On 17 August 2011 he used part of those funds ($77,742) to repay the whole outstanding balance of account L78. 25In November 2011 Mr Harris decided to stop making payments in relation to account L71. This was a unilateral decision on his part which placed considerable pressure on the Millers, who nevertheless remained jointly liable to the Credit Union with Mr Harris to pay of account L71. So for the next six months repayments for account L71 were made by the Millers. In June 2012 Mr Miller used the balance of the money he had inherited from his mother to pay the outstanding balance of account L71. As a result the 1998 loan is now fully discharged. 26The re-payments the Millers made between November 2011 and June 2012 add to $106,992.76. This is the amount they now claim from Mr Harris by way of equitable contribution. Their uncomplicated contribution case is that the Credit Union accounts L71 and L78 represent their agreed and binding allocation of responsibility to pay off their obligations to the Credit Union, and that as the Millers have paid an additional $106,992.76 beyond what was agreed, they are now entitled to recover the excess. Facts in dispute 27Moving beyond the uncontested facts, the parties' accounts differed on four main issues; which were each the subject of strong debate between the parties. The four areas were the following: (1)The extent of Mr Harris' knowledge between 1991 and 1995 about the State Bank proceedings; (2)The application of the proceeds of the 1995 loan; (3)The $6,000 increase of the 1995 loan in October 1998; and (4)The $20,000 increase of the 1998 loan in July 2007. 28Each of these issues is addressed separately below. The Court's findings about them means that they ultimately have little significance to the outcome of these proceedings. 29What did Mr Harris know about the State Bank proceedings? Mr Harris agrees that in 1991, after Zytek defaulted on the State Bank loan, he and the Millers attended a meeting with solicitors to obtain advice on their position as guarantors of Zytek's obligations. He says that a few days later he received a call from Mr Miller informing him that he should not make any payments to the State Bank and that he "was not to be included in subsequent action". 30Mr Harris does not dispute that he was at least generally aware that the State Bank proceedings were continuing on foot but he says that the Millers did not update him as to their progress. 31Although Mr Harris says that he was not kept informed of the progress of the State Bank proceedings, in his oral submissions he recalled at least two occasions on which he did receive an update from Mr Miller. He said that at some point between 1991 and 1995 Mr Miller called him and said words to the effect "You wouldn't believe that we're up for a quarter of a million dollars". And he further said that in 1995 Mr Miller called him and said the words to the effect of "We've lost. We've got to pay. I am going to the credit union for some money. Will you pay?" Mr Harris says that he understood that when Mr Miller said "we" in this conversation he was referring himself, his wife and Mr Harris. 32Mr Harris made conflicting statements as to his knowledge of the amount that had to be paid to the after the State Bank proceedings finished in 1995. At one point Mr Harris submitted that in 1995 Mr Miller informed him that the amount outstanding under the State Bank loan was $265,000 but that the State Bank had agreed to accept $240,000. But in his oral evidence Mr Harris insisted on the rather implausible version of events that although he knew that the amount of the proposed settlement was of the order of a quarter of a million dollars or more, he never asked Mr Miller what the exact amount was or, enquired why the amount claimed had almost doubled since commencement of the State Bank proceedings in 1991. 33Mr Harris says further that when he signed to accept the 1995 loan Credit Union knew it was significantly higher than the balance of the outstanding State Bank debt in 1991 when Zytek first defaulted. But he says that he did not know the exact amount of the 1995 loan and did not enquire. When asked why he did not inquire, he explained that he was mostly concerned that the Millers may lose their house if the State Bank was not paid and that it was only much later, sometime in 2005, he formed an opinion that he should not be liable for the increase in the loan amount caused by the State Bank proceedings. But even then he did not act on that opinion until November 2011 when he stopped making payments towards account L71. I find Mr Harris' account of his knowledge of the State Bank proceedings difficult to accept. In my view he was aware of those proceedings throughout. 34Mr Harris submits that in 1995 and 1998 when he signed the Credit Union loans, and until he accessed the Court file of the State Bank proceedings in 2013: (1) he thought that he was a defendant in the State Bank proceedings; (2) he was not aware that those proceedings were commenced by the Millers rather than the State Bank (although the bank did later bring a Cross-Claim); and (3) he believed that in 1995 there was a judgment entered against himself and the Millers for $240,000 (as opposed to a settlement for $210,000, between the State Bank and the Millers only) and that on the payment of that sum his obligations as a guarantor of Zytek will be extinguished. Mr Harris concedes that the Millers did not expressly tell him any of this. But that was what he says he understood and he did not ask for confirmation from the Millers. 35Mr Miller remembers the events between 1991 and 1995 quite differently. He says that the commencement of the State Bank proceedings was initially Mr Harris's idea (born out of an article on litigation by third party guarantors that Mr Harris had seen in Sydney's Daily Telegraph). He further says that Mr Harris always knew that the strategy suggested by the solicitors at the first meeting was that: the Millers would sue the State Bank and argue that they were third party guarantors who had no involvement in the Zytek's business; and, that Mr Harris should not be a party to those proceedings because his role as the person running Zytek's business could make this argument less convincing. Mr Miller recalls that after the litigation started Mr Harris was present at conferences with solicitors and was "engaged in the proceedings at all times". In my view this is inherently more probable than what Mr Harris says. It was important to the Millers that Mr Harris be kept abreast of the State Bank proceedings so that he did not inadvertently act inconsistently with their strategy for the proceedings. 36Mr Miller further says that after the State Bank proceedings settled he and Mr Harris had the following conversation: Mr Miller: "I can't believe that we got into this mess. What are we going to do about this debt? We will need to get a loan in order to pay the debt" Mr Harris: "Let's get a loan. I feel terrible that you are in this situation as a result of Zytek failing, I will pay half of the debt" Mr Miller: "Any loan will need to use my house as security again" Mr Harris: "That's okay, we are in this together. I will pay off half of the debt" Mr Miller: "Alright, let's look around to see if we can get a loan." 37I accept this conversation took place. Mr Miller's account of this conversation is believable and it is probably. Mr Harris then took responsibility for this financial mess. 38But Mr Miller and Mr Harris agree on one thing at this time on which they were both mistaken. They both thought in 1995 that once the sum of $210,000 was paid to the State Bank, that the bank would no longer pursue Mr Harris. 39I accept that Mr Harris' understanding of the State Bank proceedings was not perfect. This was partly because he did not, at any stage, have independent legal representation. But in my view even though Mr Harris was not told much about the State Bank proceedings he was the kind of person who still made assumptions about the litigation without checking those assumptions and, on his own evidence, did not ask questions to verify if those assumptions were correct. Although he says he was surprised by the increase of the amount owed to the State Bank and by the fact that after the Millers' litigation was finalised the State Bank commenced separate proceedings against him, it is strange that he did not react to these events, which he thought were adverse to his interests, until many years later, in November 2011 when he stopped making repayments of the 1998 loan. In my view he was made fully aware of the increase in the amount owed to the State Bank. 40The Millers submit that Mr Harris' change of heart in late 2011 was directly related to Mr Miller's receipt of his late mother's inheritance. Mr Miller says that Mr Harris was upset that Mr Miller did not apply the inheritance to discharge the whole outstanding balance of the 1998 loan and instead paid only the balance of account L78. Mr Harris disagrees that this was his motivation. He says that in the second half of 2011 one of his income sources died out and that, coupled with the fact that "in recent years" he believed that he already repaid his share of the 1998 loan, he decided not to continue the repayments of account L71. 41I would accept that Mr Harris motivations in late 2011 were a mixture of different elements, including a consciousness on his part that Mr Miller at that time had access to funds from his mother's estate. His motives do not ultimately matter to the outcome of these proceedings. I do not have to decide this issue. 42How were the proceeds of the 1995 loan applied? The 5 November 1995 settlement of the State Bank proceedings required the Millers to pay to the bank the sum of $210,000. But the initial balance of the 1995 loan was just over $240,000. Mr Harris submits that even if his argument, that he should only be liable for the Zytek's debt as it stood in 1991 and not for the increase caused by the State Bank proceedings, fails, the most he should be liable for is 50% of $210,000 and not of $240,000. This argument is best examined after considering the reasons for the $30,000 difference. 43The amount charged to the 1995 loan on top of the $210,000 paid straight to the State Bank, included the following amounts that approximate $30,000 in total: (1)$6,326.10 paid by to cheque "Grogan & Webb"; (2)$1,713 to paid by to cheque "Lange & Co"; (3)$10,679.41 was transferred to another bank account; and (4)$10,522.04 paid by cheque to "Adams Mascarenh". 44The parties agree that the "Grogan & Webb" cheque, and possibly also the "Lange & Co" cheque, were payments of the Millers' legal costs associated with the State Bank proceedings. 45But the $10,679.41 transfer is more controversial. Mr Miller suggested that the account to which the money was transferred may have been his personal account and that it was used to settle the proceedings that the State Bank commenced against Mr Harris in late 1995. Mr Harris disagreed. Although Mr Harris admitted that he did not know what the transfer was for, he thought that it could not have been for the settlement of the litigation between him and the State Bank, because he says that did not occur until 1998. 46I did not have before me any evidence other than Mr Harris' and Mr Millers' recollection that independently established when the State Bank commenced proceedings against Mr Harris. Mr Harris says that it is unlikely that this happened before the 1995 loan was drawn down because there was only just over 1 month between the settlement on 5 November 1995 and the drawing down of the loan on 14 December 1995. Although this point has some merit, it is even more unlikely that the State Bank would wait until 1998 to recover from Mr Harris the balance of the money Zytek owed to it. 47I accept Mr Miller's evidence that the State Bank sued Mr Harris in late 1995 and those proceedings were settled around the same time. And, in the absence of any evidence adduced by Mr Harris as to how the $10,679.41 was spent, I accept that it was used to the settle those proceedings. 48As to the cheque to "Adams Mascarenh", the parties agree that this was a payment to Zytek's accountant. But they present conflicting theories on what it was most likely for. Mr Harris speculates that this was the payment of Mr Miller's liability for personal tax. Mr Miller recalls that in that period he was employed on a salary, usually completed his personal tax returns himself, and not through Mr Mascarenh, and would have had no reason to have to make such a substantial payment to the ATO (or to Mr Mascarenh personally). He admits that he does not remember the circumstances of this specific payment but thinks that it must have been related to Zytek's tax liabilities. Mr Miller says that the liability for this payment lies jointly with him, and his wife, and Mr Harris. 49The evidence on this issue is unsatisfactory. Neither side presents any corroborating evidence. I accept Mr Miller's explanation that it is unlikely this payment related to his personal tax liabilities. Mr Harris did not adduce any evidence supporting the inference that Mr Mascarenh acted as Mr Miller's accountant at the time or that Mr Miller was likely to have substantial tax liabilities. The parties agree Mr Mascarenh was Zytek's accountant. In the absence of other evidence on the subject I am prepared to infer that a payment to him was a payment related to the tax liabilities of Zytek. 50The October 1998 $6,000 increase. The Credit Union's account statements show that on 9 October 1998 the outstanding balance of account L71 (the account for which Mr Harris was responsible) was increased by $5,950 and debited with a $50 approval fee. The Millers submit that this increase was at Mr Harris's request and that Mr Harris used its proceeds to repay his tax debt. Mr Harris disagrees. He says that this was half of the $12,000 paid to the State Bank to settle the proceedings it commenced against him. When faced with the argument that an equivalent increase was not made to account L78 (for which the Millers were responsible) Mr Harris speculated that the Millers' part of the settlement amount may have been paid from their other sources of income. But in my view if Mr Harris were right about the application of this sum, it is probable that the Millers would have drawn down an equivalent amount on account L78 at the same time. But they did not. 51As I explained above, I accept that it is more likely that the State Bank sued Mr Harris in 1995 and not in 1998. The Millers' version of the origins of this increase is more convincing, and I accept it. 52The June 2007 $20,000 increase. The Credit Union's account statements show that on 20 June 2007 the outstanding balance of account L71 was again increased, this time, by $20,000 plus a $75 approval fee. 53The parties agree that the proceeds of this increase were used to pay the Zytek's then outstanding GST liabilities. In oral submissions Mr Harris accepted that he was personally responsible to the ATO for those debts as he was the sole person operating Zytek's business. The only factual dispute in relation to this increase relates to the repayment that Mr Harris says he made into account L71 after the increase. He says that once the GST was paid he was left with a sum which he immediately returned to the loan account. The Millers say that no such repayment took place. 54Mr Harris' evidence in relation to the repayment was vague. In his initial written evidence he stated that he repaid $10,000. But at the hearing he reduced that amount to $5,600. Mr Miller said that he had no recollection of any such a repayment. 55The Credit Union's account statements show that on 26 October 2007 a lump sum of $5,400 was paid by cheque into account L71. The parties did not seem to have previously noticed that entry. But after considering it at the hearing they agreed that it was likely that it recorded the repayment alleged by Mr Harris. And I accept that it did. Principles of equitable contribution 56The principles of equitable contribution may be shortly stated. A person who paid more than his or her share of a common monetary obligation has a right to recover contribution from the other persons liable: Burke & Anor v LFOT Pty Ltd &Ors [2002] HCA 17 ("Burke") at 299 per McHugh J. Various relationships, for example co-contractors (such as joint borrowers), have traditionally been recognised as capable of giving rise to an order for contribution: Burke at 300 per McHugh J. 57The right of contribution may be excluded or modified by an agreement between the co-obligors and it does not arise where it would clearly be contrary to the intentions of the parties at the time when the joint obligation was undertaken: Coulls v Bagot's Executor & Trustee Co Ltd (1967) 119 CLR 460 at 488, Muschinski v Dodds (1985) 160 CLR 583 at per Gibbs CJ at 597, and Robinson v Campbell (No 2) (1992) 30 NSWLR 503 at 508 ("Robinson"). 58A co-obligor may by way of contribution recover from the other co-obligors costs reasonably incurred in successfully defending, in whole or in part, a creditor's claim, where such defence is to the benefit of the other obligors: James Hardie & Co Pty Ltd v Wyong Shire Council (2000) 48 NSWLR 679 at 689 per Giles JA; [2000] NSWCA 107. The same applies if the co-obligor is sued by the creditor and settles the proceedings, unless the co-guarantors can prove that the settlement was improvident: Smith v Compton (1832) 110 ER 146 at 147 ("Smith"). 59A co-obligor who breached his or her duties towards the other co-obligors may lose the right to contribution: Steel v Dixon (1881) 17 Ch D 825 at 832. But what exactly are the duties between co-obligors is not clear: Hampton v Minns [2002] 1 All ER (Comm) 481 at [67]-[70]. Although it has been said Equity will not permit legal rights of contribution to be enforced where it would be inequitable to do so (Robinson at 508), few examples of such inequity barring contribution can be identified in the cases. 60Some of these examples follow. A co-obligor who is sued by the creditor and settles the proceedings may lose the right to claim contribution if no notice of the proceedings was given to other co-obligors and they prove that the terms of the settlement were improvident or that they may have been able to settle on better terms if they had notice: Smith v Compton (1832) 110 ER 146 at 146. And a co-obligor who has been guilty of fraud, illegality, wilful misconduct or gross negligence is not entitled to contribution: Burke at 293, per Gaudron A-CJ and Hayne J. 61A right of contribution may not arise where two persons borrow money but that money is applied for the purposes of only one of them, or if one guarantor enjoys the whole benefit of the guarantee in another capacity to the exclusion of his co-surety: Official Trustee in Bankruptcy v Citibank Savings Ltd (1995) 38 NSWLR 116 at 125-126 per Bryson J; Ogilvie v Ferry [2010] NSWSC 379 at [84] per Hamilton AJ. Parties' submissions 62The Plaintiffs. The Millers' case is simple. They seek reimbursement of $106,992.76 they paid in 2012 to clear the outstanding balance of account L71, after Mr Harris ceased making repayment to the Credit Union. For the reasons that follow I conclude that this claim should succeed and that Mr Harris' arguments do not warrant exercise of the Court's discretion to impair the Millers' right to equitable contribution. 63The Millers submit that all they need to prove to establish the right to equitable contribution is: that the 1998 loan and the Repayment Agreement were entered into; and, that they then repaid the outstanding balance of account L71 for which Mr Harris agreed to be responsible. The Millers say further that none of the pre-1998 events relied on by Mr Harris are relevant to their claim. 64In the alternative, the Millers submit that, if the Court was prepared to take into account some of what happened before 1998, it should consider not only the circumstances relied on by Mr Harris but the overall equity of the situation between the parties. This would, they say, include the fact that the Millers were involved in the State Bank proceedings and were ultimately required to obtain funding from the Credit Union because of an initial act of friendship and goodwill. They submit that to help out their long time friend, Mr Harris, they agreed to use their family home to obtain finance for the running of a business in which they were not involved and from which they derived no profits. 65The Defendant. Mr Harris' defence relies heavily on what happened before 1998. He submits that the Millers' lost part of their right to contribution because of their conduct before the 1995 loan was entered into. He says further that once that reduction of the Millers' contribution right due to their conduct is taken into account the Millers did not pay more than their fair share of the 1998 loan and they have no valid claim against him. Mr Harris makes several points in support of this case. But many of these points can be dismissed on the facts as found. 66First, Mr Harris highlights that when he signed the 1995, and then the 1998 loan documents, he thought that he was morally responsible for the Zytek's debt as it stood in 1991; and, he believed that if he did not sign the Millers would have lost their home. He also says that it was the Millers who organised and negotiated both loans with the Credit Union and that he "was merely told to go and sign". But I do not accept that his role was this passive and that he did not know what he was signing in 1995. 67Secondly, Mr Harris complains about the Millers' conduct in relation to the State Bank proceedings, namely, that they did not tell him: that he was not a defendant and there was no judgment against him; and, that their negotiated settlement did not extinguish the State Bank's claim against him. But I do not accept his version as to this. 68Thirdly, Mr Harris points to the increase of his and the Millers' initial joint liability to the State Bank between 1991 and 1995 when the State Bank proceedings continued. He submits that, as between himself and the Millers, he should not be liable for that increase (which determined the ultimate amount of the 1995 loan and, in turn, the 1998 loan), because it was caused by proceedings in which he was not involved and which the Millers run for their benefit only. But in my view Mr Harris fully understood and accepted that the Millers were running the State Bank proceedings and he was prepared to leave his overall liability to the State Bank in their hands. 69Fourthly, Mr Harris says that if he were able to do so at the time, he would have personally repaid the debt to the State Bank right after Zytek defaulted back in 1991. But this seems to be no more than a hypothetical contention of no present significance. He concedes that he did not have any assets in 1991 and was not in a position to take out a loan by himself to raise the required funds. Instead the Millers' embarked on a different course with his acquiescence, which led them into the State Bank proceedings and ultimately to the 1995 loan. Are the Millers entitled to contribution? 70The 1998 loan created a joint obligation between the parties, which under the established principles would give rise to a right of equitable contribution. If nothing further were done, as between themselves, the Millers and Mr Harris would have been liable for a third of the loan amount each. But I accept that they made among themselves the Repayment Agreement which they intended to be binding. They entered into this agreement to allow for the history of previous dealing between the parties, and it varied that default position. Under that Repayment Agreement each party was entitled to a contribution from the other only if the party repaid; in case of Mr Harris, more that the balance of account L71; and in the case of the Millers (considered together), more than the balance of account L78. The Millers did repay more than the balance of account L78. In my view they should be entitled to recover the overpayment of $106,992.76 from Mr Harris, either in contract under the terms of the Repayment Agreement, or by way of equitable contribution. 71The four arguments raised by Mr Harris are not a defence to a claim in contract the Repayment Agreement. But nor would they in any event be an answer, in part, to the Millers' claim for equitable contribution. I now assess if what happened between Mr Harris and the Millers on these four matters sufficient to make it inequitable for them to recover from him a contribution for the amount exceeding the Zytek's debt to the State Bank as it stood in 1991. 72Execution of the Credit Union loans. It is convenient to start with the circumstances surrounding the execution of the two Credit Union loans. Would it be inequitable for the Millers to recover contribution from Mr Harrris because of any circumstances in which he signed the 1995 loan and/or the 1998 loan? 73In my view it would not. The flavour of Mr Harris' submissions is that because he did not have a clear understanding of all the circumstances at the time of the execution of the loans it would be inequitable to allow the Millers to rely on those loans as the source of the right to contribution. Although the Millers rely on the 1998 loan, it is sufficient to consider Mr Harrris' position when the 1995 loan was executed, that position could have only improved by 1998. 74How much did Mr Harris know at the time he signed the 1995 loan? He conceded in his oral submissions that he knew that the proceeds of that loan will be used to pay some liabilities to the State Bank arising out of the State Bank proceedings and that he understood that under that loan he was becoming a joint borrower with the Millers. The findings set out earlier establish also that he knew a great deal about the State Bank proceedings including that the amount of the loan outstanding was substantially higher than Zytek's initial debt to the State Bank. 75This knowledge was enough to indicate to Mr Harris that by executing the 1995 loan he would become liable for a debt much higher then Zytek's 1991 debt to the State Bank. Despite that knowledge he made no enquiries as to the reasons for this difference in amount. 76Mr Harris further says that at the time of signing the 1995 loan he made assumptions about the effect of the resolution of the State Bank proceedings: that he was a defendant in those proceedings, that there was a judgment in those proceedings against him, and that any further State Bank's claim against him was extinguished. Even if I accept that at some point Mr Harris held those assumptions, I do not accept that he was induced to hold them by the Millers. In any event, before Mr Harris entered into the 1995 loan, in my view, he had a clear indication that the assumptions were wrong. He could not reasonably assume that he was correct after the State Bank commenced proceedings against him. None of this shows any basis in equity for denying the Millers equitable contribution for paying out account L71 of the 1998 loan. . 77Lastly, even if the circumstances surrounding the execution of the 1995 or the 1998 loan could have provided Mr Harris with an equitable defence he should have raised it much earlier. Now, after 16 years of making monthly loan repayments, any equitable claim that he may have had would be abandoned by laches. As Young JA explained in Crawley v Short [2009] NSWCA 410 at [182]: "If a person strongly suspects that there has been unconscionable conduct perpetrated against him or her and does nothing either to obtain more detail nor to prevent the defendant going ahead on the basis that there is no challenge to his or her rights, then one is in the very territory that laches was designed to govern." 78Effect of the State Bank proceedings. Should the Millers' right to contribution be restricted to ensure that Mr Harris is not liable for the debt increase occasioned by the State Bank proceedings? I am not persuaded that it should. 79Mr Harris may perhaps have been able to argue before he entered into the 1995 loan that he should not be liable for the increase of the State Bank debt resulting from the conduct of the State Bank proceedings, which the Millers commenced and then settled for their benefit only: Smith v Compton (1832) 110 ER 146. 80But Mr Harris did not protest about the commencement of the State Bank proceedings. Nor, despite his knowledge of them, did he at any stage raise the issue of the increase with the Millers. Instead he executed documents for the 1995 loan with the Credit Union. Once he agreed to that loan with its joint obligations came into existence in 1995 Mr Harris' potential claims in relation to the effect of the State Bank proceedings on his obligation became irrelevant. He voluntarily bound himself to a new debt, to which he and the Millers were jointly liable by agreement from then on. Should Mr Harris be liable for the $30,000 added to the 1995 loan? 81Mr Harris' argument that he should not be liable for the $30,000 added to the 1995 loan on top of the $210,000 for the settlement of the State Bank proceedings also fails. 82Three of the amounts, which formed part of the $30,000 increase, are related to the State Bank proceedings: the $6,326.10 payment to Grogan & Webb", the $1,713 payment to "Lange & Co", and the $10,679.41 paid to settle the proceedings the State Bank brought against Mr Harris. The argument that it would be inequitable for Mr Harris to be liable for those amounts fails for the same reasons that the increase of the State Bank's debt fails. Before the 1995 loan Mr Harris could perhaps have argued that he should not be liable for Millers' legal costs incurred as a result of the State Bank proceedings which did not and could not benefit him in any way: James Hardie & Co Pty Ltd v Wyong Shire Council (2000) 48 NSWLR 679; [2000] NSWCA 107 and Smith v Compton (1832) 110 ER 146. And a similar analysis could have applied the $10,679.41 settlement payment, which, Mr Harris may have argued, might have not been necessary, if the settlement in the State Bank proceedings was entered on terms more beneficial for him. 83But Mr Harris never raised any of those issues with the Millers before November 2011. Instead he entered into the 1995 loan with full knowledge of its amount. Once that loan came into existence, Mr Harris in my view agreed to set aside any potential complaints related to the State Bank proceedings. 84There is also no reason why it would inequitable for the Millers' to claim contribution for the last of the payments forming part of the $30,000 increase: $10,522.04 paid to satisfy Zytek's tax liabilities. This payment was either Mr Harris and the Millers' joint liability or Mr Harris' sole liability (as he was the person actually running the Zytek's business). In either scenario there is no reason why he should not be required to contribute to this. Should Mr Harris be liable for the increases of the 1998 loan? 85Both the $6,000 increase and the $20,000 increase were added to account L71, the account for which Mr Harris agreed to be responsible for. And so, unless Mr Harris can point to some circumstances which could make it inequitable, he, and not the Millers, should be responsible for the repayment of those amounts. 86I accept Mr Miller's evidence that the $6,000 increase was used to pay Mr Harris tax liabilities. There is no reason why Mr Harris should not be solely liable for it. 87The situation of the $20,000 increase is also quite simple. Mr Harris accepts that he is responsible for $14,600 of that sum ($20,000 minus $5,400). And so there is no dispute between the parties in relation to that amount. He says further, and I accept, that the difference, $5,400, was deposited back into account L71 shortly after the increase. Since the amount of $5,400 was no longer outstanding when the Millers repaid the balance of the loan in 2012, it does not form part of their claim for reimbursement. It is just an amount paid off account by Mr Harris L71 before their claim for reimbursement arose. Orders 88In the result I will give judgment for the plaintiffs in the sum of $106,992.76 plus interest. Unless argument is put to the contrary costs will follow the event. 89Accordingly his Honour makes the following orders and directions: (1)Enter judgment for the plaintiffs against the defendant in the sum of $106,992.76 exclusive of interest. (2)Direct the solicitors for the plaintiffs to prepare a calculation of interest claimed to be due on the judgment summand to serve on Mr Harris by 31 January 2014. (3)I will list the proceedings on at 9.30am on 6 February 2014 to hear argument about the entry of judgment in relation to interest. (4)His Honour notes Mr Harris does not wish to put any argument about issues of costs in light of the judgment. (5)I order Mr Harris pay the plaintiffs' costs of these proceedings. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 06 February 2014