Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Wollongong Coal Ltd v Gujarat NRE India Pty Ltd [2019] NSWCA 135 Hearing dates: 8 and 9 April 2019 Decision date: 11 June 2019 Before: Bathurst CJ at [1]; Leeming JA at [15]; McCallum JA at [122] Decision: 1. Appeal allowed in part. 2. Set aside declaration 1 made on 28 September 2018. 3. Cross-appeal dismissed. 4. Direct the parties to file and serve, within 14 days of today, an agreed form of orders including orders as to costs, or, to the extent agreement is not reached, the orders for which each contends, and short submissions in support of those orders. 5. Direct the parties to file and serve, within 21 days of today, any submissions in reply as to the orders each seeks. Catchwords: CONTRACT – deed – guarantor's right of indemnity against primary obligor – whether enforceable – provision in multipartite deed by which guarantor "irrevocably waives and must not exercise any right of indemnity" – whether that provision enforceable by primary debtor – whether fact that guarantor and primary debtor were parties to deed sufficient to permit guarantor to enforce provision – whether "privity" entitled guarantor to rely on provision – whether sufficient that provision was clear and unambiguous – whether provision on true construction amounted to unilateral renunciation of right of indemnity EQUITY – set-off in equity – requirement of impeachment – whether debt owed by parent company impeached appellant's debt to respondent – no error in conclusion by primary judge that impeachment not made out Legislation Cited: Corporations Act 2001 (Cth), ss 429, 588FE Conveyancing Act 1919 (NSW), s 38(3) Cases Cited: Accordent Pty Ltd & Portellos v Bresimark Nominees Pty Ltd (2008) 101 SASR 286; [2008] SASC 196 Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570; [2008] HCA 57 Banque Financiere de la Cite v Parc (Battersea) Ltd [1999] 1 AC 221 Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44 Brooks v Burns Philp Trustee Co Ltd (1969) 121 CLR 432; [1969] HCA 4 Bundanoon Sandstone Pty Ltd v Cenric Group Pty Ltd [2019] NSWCA 87 Cherry v Steele-Park (2017) 96 NSWLR 548; [2017] NSWCA 295 Commonwealth v Verwayen (1990) 170 CLR 394; [1990] HCA 39 Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51; [2003] HCA 18 Coulls v Bagot's Executor and Trustee Co Ltd (1967) 119 CLR460; [1967] HCA 3 Fitness First Australia Pty Ltd v Fenshaw Pty Ltd (2016) 92 NSWLR 128; [2016] NSWCA 207 Forestview Nominees Pty Ltd v Perpetual Trustees WA Ltd (1998) 193 CLR 154; [198] HCA 15 Gardner v Lachlan (1836) 8 Sim 123; 59 ER 49 Gujarat NRE Coke Ltd v Wollongong Coal Ltd; Wollongong Coal Ltd v Gujarat NRE Coke Ltd [2017] NSWSC 383 Gujarat NRE India Pty Ltd v Wollongong Coal Ltd [2018] NSWSC 1459 Hawes v Dean [2014] NSWCA 380 Lavin v Toppi (2015) 254 CLR 459; [2015] HCA 4 Lord v Direct Acceptance Corporation Ltd (Receiver and Manager appointed) (in liq) (1993) 32 NSWLR 362 Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; [2014] NSWCA 184 Mardorf Peach & Co Ltd v Attica Sea Carriers Corporation of Liberia [1977] AC 850 Moody v Condor Insurance Ltd [2006] 1 WLR 1847; [2006] EWHC 100 (Ch) Morgan v Pike (1854) 14 CB 473; 139 ER 195 Moss v the Legal and General Life Assurance Society of Australia (1875) 1 VLR (L) 315 Pyrmont Point Pty Ltd v Westacott (2016) 91 NSWLR 170; [2016] NSWCA 33 Rinehart v Hancock Prospecting Pty Ltd; Rinehart v Rinehart [2019] HCA 13 Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2019] AC 119; [2018] UKSC 24 Salter v Kidgley (1689) Carth 76 Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47 Suttor v Gundowda Pty Ltd (1950) 81 CLR 418; [1950] HCA 35 Taouk v Assure (NSW) Pty Ltd [2017] NSWCA 227 Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107; [1988] HCA 44 Victoria v Tatts Group Ltd [2016] HCA 5; (2016) 90 ALJR 392 Wickham v Hawker (1840) 7 M & W 63; 10 LJ Ex 153 Wily as Liquidator of Anglican Insurance Ltd [2009] NSWSC 696 WIN Corporation Pty Ltd v Nine Network Australia Pty Ltd (2016) 341 ALR 467; [2016] NSWCA 297 Woodside Petroleum Development Pty Ltd v H & R-E & W Pty Ltd (1999) 20 WAR 380 Texts Cited: R J Bullen, "The Rights of Strangers to Contracts under Seal" (1977) 6 Adel L Rev 119 J Carter, The Construction of Commercial Contracts (Hart Publishing, 2013) Encyclopaedia Britannica (Cambridge University Press, 11th ed, 1911) Vol 7 M Furmston and G Tolhurst, Privity of Contract (Oxford University Press, 2015) OW Holmes, "The Arrangement of the Law – Privity" (1872) 7 American Law Review 46 J D Heydon, Heydon on Contract: The General Part (2019, Thomson Reuters (Professional) Australia Ltd) D Ibbetson and E Schrage, "Ius quaesitum tertio: A Comparative and Historical Introduction to the Concept of Third Party Contracts" in E Schrage (ed), Ius quaestium tertio (Duncker & Humbolt, Berlin, 2008) D Ibbetson and W Swain, "Third Party Beneficiaries in English Law: From Dutton v Poole to Tweddle v Atkinson" in E Schrage (ed), Ius quaestium tertio (Duncker & Humbolt, Berlin, 2008) A Mason, "Privity – A Rule in Search of Decent Burial?" in P Kincaid (ed), Privity – Private justice or public regulation (Ashgate Dartmouth, 2001) V Palmer, The Paths to Privity (Austin & Winfield, 1992) N Seddon, Seddon on Deeds (Federation Press, 2015) AWB Simpson, A History of the Common Law of Contract (Clarendon Press, Oxford, 1975) S Wilken QC and K Ghaly, The Law of Waiver, Variation and Estoppel (Oxford University Press, 2012) Category: Principal judgment Parties: Wollongong Coal Limited (Appellant) Gujarat NRE India Pty Ltd (Respondent) Representation: Counsel: DL Williams SC and ND Riordan (Appellant) NC Hutley SC, D Pritchard SC and A Macauley (Respondent) Solicitors: Thomson Geer (Appellant) Gillard Consulting Lawyers (Respondent) File Number(s): 2018/312700 Publication restriction: None Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Citation: [2018] NSWSC 1459 Date of Decision: 28 September 2018 Before: Robb J File Number(s): 2014/211688 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] HEADNOTE [This headnote is not to be read as part of the judgment] In 2014 Gujarat NRE India Pty Ltd (GNI) commenced proceedings against Wollongong Coal Ltd (WLC) claiming (1) a right of indemnity as guarantor after having been called upon to meet WLC's obligations and (2) a separate debt of $6,565,398.06. The primary judge found in favour of GNI on both claims and against WLC's on its defence of equitable set-off. WLC appealed. At all relevant times, both GNI and WLC were companies within the Gujarat Group. GNI was a wholly owned subsidiary of Gujarat NRE Ltd (GNL) which was in turn wholly owned by Gujarat NRE Coke Ltd (Gujarat India). Gujarat India, directly and indirectly through the Gujarat Group, controlled 62% of the votes of ordinary shareholders of WLC. GNI's right of indemnity In March 2013, WLC entered into a Coal Purchase Agreement with UIL (Singapore) Pte Ltd (UIL) under which UIL paid WLC $20 million for the supply of coal. GNI acted as guarantor and offered by way of security its 150 million fully paid ordinary shares in WLC. WLC failed to deliver any coal in breach of the agreement. In July 2013, GNI, WLC, UIL and another company entered into an Override Deed which put in place a repayment schedule of $20 million plus interest. WLC failed to make the scheduled repayments under the Override Deed. In September 2013, UIL took possession of the shares and sold them shortly thereafter. Central to the parties' dispute was the construction of cl 5.3 of the Override Deed which provided: "5.3 Waiver of rights [GNI] irrevocably waives and must not exercise any right of indemnity or subrogation which it otherwise might be entitled to claim and enforce against or in respect of [WLC]." GNI argued that cl 5.3 did not prevent it from enforcing its right of indemnity against WLC as the irrevocable waiver under that clause was for the sole benefit of UIL so that only UIL could enforce the waiver. WLC contended that the language of cl 5.3 had the effect of GNI unilaterally renouncing its right of indemnity. WLC also submitted that "privity" entitled it to enforce cl 5.3 which was expressed clearly and unequivocally. WLC's right of equitable set-off In June 2013, GNL arranged a loan of $10 million from Axis Bank Ltd with Gujarat India and GNI as guarantors so that WLC could urgently repay its lenders. On 24 June 2013, Axis Bank made a deposit into GNL's account. That amount was transferred from GNL's account into GNI's account, then from GNI's account into WLC's account. WLC repaid some of the loan amount to GNI leaving $6,565,398.06 owing. WLC's contention on appeal was that it had a defence of equitable set-off as between its debt to GNI and a judgment debt of $59 million that it had obtained against Gujarat India for the supply of coal over many years. WLC acknowledged that there was no mutuality of debt. Instead, WLC contended that there was sufficient connection between the two claims that it would be unconscionable for GNI to rely on one claim without taking into account the other. Held, by the Court allowing the appeal in part per Leeming JA (Bathurst CJ and McCallum JA agreeing): Clause 5.3 on its proper construction contained two separate promises made by GNI: first, GNI irrevocably waived its present right of indemnity and secondly, GNI promised "not to exercise" specific rights in the future. The ordinary meaning of "irrevocably waives" was a present and immediately effective unilateral renunciation of a right. Thus WLC was entitled to enforce GNI's irrevocable waiver of its right of indemnity: [3]–[11], [85]–[100], [122]. Commonwealth v Verwayen (1990) 170 CLR 394; [1990] HCA 39; Mardorf Peach & Co Ltd v Attica Sea Carriers Corporation of Liberia [1977] AC 850; Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570; [2008] HCA 57 considered. WLC's two preliminary contentions that it has a right to rely on GNI's waiver in cl 5.3 by reason of "privity" and that the language of cl 5.3 is "clear and unambiguous" must be dismissed: [2], [12], [50]–[51] [71], [122]. WLC's claim against Gujarat India did not impeach GNI's debt against WLC. At all relevant times, WLC's current liabilities far exceeded Gujarat India's outstanding debt to it for the supply of coal. Thus the funds borrowed from Axis Bank were not to make good Gujarat India's failure to pay for coal over many years but to enable WLC urgently to repay its lenders: [14], [113]–[119], [122]. Hawes v Dean [2014] NSWCA 380 considered. Judgment 1. BATHURST CJ: I have had the advantage of reading the judgment of Leeming JA in draft. I agree with the orders proposed by his Honour and with his reasons. I would add the following. For convenience, I have adopted the abbreviations used by Leeming JA in his judgment. 2. To the extent that the submission by WLC that cl 5.3 of the Override Deed is "clear and unambiguous" was intended to convey that it was necessary to construe the provision without consideration of the context in which it appears, the submission suffers from two difficulties. First, as Leeming JA has pointed out at [50]-[51], it is incorrect as a matter of law. Secondly, the difficulty in construing the clause as illustrated by the debate between the parties as to its construction and which of WLC or UIL were entitled both to its benefit and to enforce it, shows that it is by no means as "clear and unambiguous" as suggested in the submission. That being said, it remains necessary, as Leeming JA has pointed out at [51], to have regard to the primacy of the text. 3. Clause 5.3 which is set out in the judgment of Leeming JA at [32], in my opinion, has two elements. First, it contains what is described as an irrevocable waiver and second, a prohibition ("must not") on the exercise of any right of indemnity or subrogation which it otherwise might be entitled to claim and enforce against or in respect of WLC. 4. It does not seem to me that the provision can simply be construed as a covenant not to sue in respect of any right of indemnity or subrogation, much less a covenant only in favour of UIL. 5. Such a construction gives no work to the expression "irrevocably waives". As was pointed out by the plurality in Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570; [2008] HCA 57 at [50], the word "'waiver' is a word applied in a variety of senses". 6. In the present case the word is plainly not referring to an election or estoppel. Nor, in my opinion, is it merely a covenant to forebear from exercising a right of subrogation or indemnity. Such a construction is inconsistent with the word "irrevocably" and would, in any event, be achieved by the second part of the clause. 7. In these circumstances, I agree with Leeming JA that the expression "irrevocably waives" evinces an intention to renounce any right of indemnity or subrogation that was otherwise available to GNI had it met its obligations as guarantor. The permanent nature of the renunciation is made clear by the use of the word "irrevocably". 8. This is not to adopt a fine legal distinction as to the meaning of the word "waiver", rather a meaning which, considered in context, reflects the objective intention of the parties. 9. The second part of the clause, in my view, is consequential on the first part. It contains a prohibition against bringing proceedings in respect of rights to which GNI might otherwise have been entitled, that is entitled but for the renunciation. 10. This construction is supported by the context. It must be remembered that any right of subrogation and indemnity which GNI may have had against WLC was postponed by virtue of cl 13.6 of the Security Deed until the secured monies were fully paid. Clause 5.3 of the Override Deed operated to renounce that already postponed right. 11. In those circumstances, WLC was entitled to succeed in its defence based on cl 5.3 of the Override Deed. 12. Although it is strictly unnecessary to deal with the matter, I agree with Leeming JA that the submission based on privity was misconceived. The submission presumably was referring to the doctrine that only parties to the contract can sue on it and (perhaps) that consideration must move from the promisee: Coulls v Bagot's Executor &Trustee Co Ltd (1967) 119 CLR 460 at 494; [1967] HCA 3. The latter requirement, by now generally considered a separate rule (see J D Heydon, Heydon on Contract: The General Part (2019, Thomson Reuters (Professional) Australia Limited) at [12.60]), is plainly unnecessary in the case of a deed. 13. However, the doctrine does not establish the converse, namely, that a party to a contract can in all cases enforce all promises made in it. That ultimately will depend on the construction of the contract or the deed in question. 14. I also agree with Leeming JA for the reasons given by him that WLC has not made good its claim for an equitable set-off. 15. LEEMING JA: This appeal arises out of the respondent's claims based on (a) its right of indemnity as a guarantor after having been called upon to meet the appellant's obligations and (b) an unrelated debt owed to it by the appellant. It raises two issues. The first is the effect of a clause in a deed concerning "waiver of rights", to which the appellant and respondent were parties, which provided that: "[The respondent] irrevocably waives and must not exercise any right of indemnity or subrogation which it otherwise might be entitled to claim and enforce against or in respect of [the appellant]". 1. The appellant relied on this clause as an answer to the claim based on the right of indemnity, but the primary judge held that the clause amounted to a promise which was enforceable only by another named party to the deed, and not by the appellant. Although resolved by the primary judge as a question of construction, the appellant not only disputes that construction, but also propounds two preliminary points, based on (a) "privity" and (b) the fact that the clause is, so it is said, "clear and unambiguous". The second issue concerns equitable set-off, and in particular that doctrine's requirement that one claim "impeach" the other, on which the appellant relied in answer to the second claim. 2. I have concluded that the appeal should succeed on the first issue, although not by reason of either preliminary point, but because properly construed the clause amounted to an immediately effective and unilateral renunciation of the respondent's right of indemnity. On the second issue, I have concluded that the primary judge was correct to conclude that the requirement of impeachment was not made out, so that no set-off was available in equity. Factual background to first issue 1. There were no disputed questions of fact, and the issues in this Court were considerably narrower than those before the primary judge, and narrower still when a notice of cross-appeal and notice of contention were withdrawn shortly before the hearing. The narrowness of the issues permits a considerably abbreviated account of the background. 2. The plaintiff/respondent Gujarat NRE India Pty Ltd (GNI) was, in 2013, a 13% shareholder in the defendant/appellant Wollongong Coal Ltd (WLC). At all material times, WLC was listed on the Australian stock exchange. In 2013 WLC was known by a different name, Gujarat NRE Coking Coal Ltd, which is apt to cause confusion. Throughout this judgment I shall refer to WLC, or, when quoting from documents when the company had a different name, "[WLC]". 3. GNI is an Australian company, and a wholly owned subsidiary of another Australian company Gujarat NRE Ltd (GNL), which in turn was a wholly owned subsidiary of Gujarat NRE Coke Ltd (Gujarat India), which was a listed Indian company. As well as its indirect 13% shareholding via GNI, Gujarat India either directly or indirectly owned an additional 49% of the shares in WLC in the first half of 2013. Thus, Gujarat India could control 62% of the votes of ordinary shareholders of WLC at a general meeting, as was reflected in the fact that its director, Mr Arun Jagatramka, was a director and Executive Chairman of WLC, as well as a director of GNI. However, by November 2013, companies in a different group came to hold a majority interest in WLC. In 2017, Gujarat India was in external administration, and in January 2018 it was wound up pursuant to Indian law. 4. WLC extracts hard coking coal from its mines in the southern coal fields of New South Wales. There was no dispute that WLC was in financial difficulty in 2013. Part of the reason seems to have been that WLC sold most or all of its coal to other companies in the Gujarat Group, and was not paid promptly. The primary judge described its financial position as "parlous, if not desperate" (at [18]) and the fact that the company survived as "something of a marvel" (at [22]). I shall return to the financial position of WLC when dealing with equitable set-off. 5. The primary judge attended to a great many more dealings involving companies in the Gujarat Group, and in much greater detail, than need be summarised here. For the purposes of this appeal, it suffices to mention: 1. the Coal Purchase Agreement of 25 March 2013; 2. the Security Deed and Tripartite Deed of 26 March 2013; and 3. the "Override Deed" of 25 July 2013. Coal Purchase Agreement 1. On 25 March 2013, WLC and UIL (Singapore) Pte Ltd (UIL) entered into a Coal Purchase Agreement. UIL appears to have run a business trading in coal and metals. UIL made an advance payment of US$20,000,000 for the purchase of coal from WLC. The coal was to be delivered over the next three months to an "Ultimate Buyer" to be nominated by WLC. 2. Clause 13 was headed "Security". It provided "[WLC] agrees to provide charge, by way of pledge, over 150,000,000 fully paid ordinary share in the capital of [WLC] (Security) held by [GNI] (Grantor) for the due payment by the Ultimate Buyer for all the cargo shipped ..." . GNI was not a party to the Coal Purchase Agreement. 3. Clause 14 provided that should WLC fail to make the requisite delivery within the delivery period, then WLC must pay, within 15 days of the expiry of the delivery period, the entire amount of the advance payment plus interest, in default of which UIL could sell the shares and further, in the event of any shortfall, was purportedly entitled to be issued with sufficient fully paid ordinary shares in WLC to make up the deficit. 4. It is not necessary to pause to consider the legal effect of the loose use of either or both of the words "charge" and "pledge" in an agreement to which GNI was not a party, because of the execution, on the following day, of the Security Deed and Tripartite Deed. Security Deed and Tripartite Deed 1. On 26 March 2013, GNI and UIL entered into a Security Deed, pursuant to which GNI granted to UIL a security interest over "each of the shares held by GNI in WLC comprising not less than 150,000,000 fully ordinary shares [sic] in the Company". GNI undertook in cl 4.1 to repay UIL promptly and to ensure that no event of default occurred. Clause 13.6 relevantly provided that: "13.6 No Competition (a) Until the Secured Money has been fully paid, [GNI] will not, for any reason: (i) be subrogated to any rights, security or moneys held, received or receivable by the secured Party (or any trust or agent on its behalf); (ii) be entitled to any right of contribution or indemnity in respect of any payment made or moneys received on account of [GNI's] liability under this Clause 13.6 …" It will be seen that cl 13.6 addressed the same subject matter – GNI's rights of subrogation and indemnity – as would cl 5.3 in the Override Deed. 1. On the same day, GNI entered into a Tripartite Deed with Argonaut Securities Pty Ltd (an ASX Market Participant) and Axis Bank Ltd. The Tripartite Agreement referred to a Sponsorship Agreement between GNI and Argonaut which was not in evidence. No criticism was made of the primary judge's description at [54] of the Tripartite Deed as containing "relatively technical provisions" but which in simple terms, meant that Argonaut acted as stakeholder in respect of GNI's 150,000,000 shares in WLC. The Override Deed 1. WLC failed to deliver any coal in the three months as required by the Coal Purchase Agreement. On 16 July 2013, UIL demanded the immediate delivery of coal or a refund of US$20 million within 24 hours. The demand was referred to as the "Tripartite Notice". On 17 July 2013, WLC agreed to refund UIL's payment by 31 July 2013 and UIL agreed to take no action in respect of the shares. 2. Those were the circumstances in which, on 25 July 2013, GNI, WLC, UIL and Argonaut entered into an "Override Deed". The recitals were: "A. On 25 March 2013, [WLC] and UIL entered into a coal purchase agreement (CPA). B. [WLC's] obligations under the CPA were secured by [GNI] granting a specific security deed dated 26 March 2013 (Original Security Deed) … The CPA is a Transaction Document and [WLC] and [GNI] are Obligors for the purposes of the Original Security Deed. C. The Original Security Deed was perfected by UIL taking control of the Security Shares through entering into a tripartite deed between [GNI], UIL and Argonaut dated 26 March 2013 (Tripartite Deed). D. The Tripartite Deed restricts the exercise of rights by [GNI] and Argonaut under a CHESS sponsorship agreement between [GNI] and Argonaut ... ... F. On 27 March 2013 UIL advanced [WLC] US$20 million as advance payment of its obligations under the CPA (Advance Payment). G. As at the date of this agreement, [WLC] has not shipped any Coal to UIL as required in accordance with the CPA. H. On 16 July 2013, UIL notified Argonaut that an event of default under clause 14 of the CPA had occurred and had requested the transfer of the Security Shares to its own account (Tripartite Notice). I. On the terms set out in this deed, UIL has agreed to withdraw the Tripartite Notice and [WLC] has agreed not to sell or deliver any Coal to UIL under the CPA on the basis that UIL is paid the Repayment Instalment on or prior to 3pm on the relevant Repayment Date, which [sic] the Security Shares will be transferred to UIL in accordance with the Existing Security Deed." 1. The substance of the Override Deed was that there was a release of obligations to buy and sell coal under the Coal Purchase Agreement and a withdrawal of the notice given under the Tripartite Deed to sell the 150,000,000 WLC shares, in lieu of which WLC promised to repay the US$20,000,000 plus interest in instalments of US$4,500,000 on 31 July 2013, US$4,500,000 on 15 August 2013 and the balance by 31 August 2013. 2. By cl 5.1, GNI guaranteed WLC's obligations to make the instalment repayments. Clause 5.3 was headed "Waiver of rights" and gave rise to the main issue on the appeal. It is convenient to reproduce the entirety of cl 5: "GUARANTEE 5.1 Guarantee and indemnity [GNI] unconditionally and irrevocably: (a) guarantees to UIL the payment when due of all amounts payable by [WLC] under or pursuant to this deed and the other Transaction Document; b) undertakes to ensure that [WLC] will perform when due all its obligations under or pursuant to this deed and the other Transaction Document; (c) agrees that if and each time that [WLC] fails to make any payment when it is due under or pursuant to this deed or any other Transaction Document, [GNI] must on demand (without requiring UIL to first to [sic]take steps against [WLC] or any other person) pay that amount to UIL as if it were the principal obligor in respect of that amount; and (d) agrees as principal debtor and primary obligor to indemnify UIL against, and to pay to UIL on demand an amount equal to, all Losses (including legal and other professional fees and a reasonable amount in respect of management time) directly or indirectly incurred or suffered by UIL arising out of or in connection with any non-payment or default of any kind by [WLC] under or pursuant to this deed or any other Transaction Document. 5.2 Obligations not affected by certain matters The obligations of [GNI] under this deed are not affected by any matter or thing which but for this provision might operate to affect or prejudice those obligations, including: (a) any time or indulgence granted to, or composition with, [WLC] or any other person; (b) the taking, variation, renewal or release of, or neglect to perfect or enforce this deed, any other Transaction Document or any right, guarantee, remedy or security from or against [WLC] or any other person; (c) any variation or change to the terms of, or any waiver, consent or notice given under, this deed or any other Transaction Document; or (d) any unenforceability or invalidity of any obligation of [WLC], so that this deed must be construed as if there were no such unenforceability or invalidity. 5.3 Waiver of rights [GNI] irrevocably waives and must not exercise any right of indemnity or subrogation which it otherwise might be entitled to claim and enforce against or in respect of [WLC]. 5.4 Company's actions to bind Gujarat Any agreement, waiver, consent or release given by [WLC] binds [GNI] including under the terms of this deed." 1. Both parties invoked other clauses in the Override Deed with a view to advancing their preferred construction, but it will be more efficient to defer summarising them until dealing with those submissions. Events following the Override Deed 1. Notwithstanding the effect of the Override Deed, by an addendum to the Coal Purchase Agreement, the delivery period was extended to 31 August 2013 and bills of lading in respect of 50,000 metric tonnes of coal with a value of US$4.6 million were delivered to UIL. (That coal was then on-supplied by UIL to Gujarat India.) 2. Although UIL seems to have treated that delivery as the first instalment of the repayments specified in the Override Deed, WLC made no further repayments. In September 2013 UIL "took possession" of GNI's shares in WLC and notified WLC that it was a controller of property of GNI under s 429 of the Corporations Act 2001 (Cth). On 15 May 2014, WLC and UIL entered into a settlement deed under which the parties agreed that WLC's debt would be discharged upon WLC's payment of $2.64 million and sale of the security shares. The shares were sold shortly thereafter, and GNI sued WLC for an indemnity for the value of shares sold by UIL. 3. It may be seen immediately that on any view GNI was, by suing WLC, in breach of cl 5.3. This litigation is a little unusual in that respect. Normally, when there is a question of contractual construction, its answer determines whether or not a party is in breach. In the present case, GNI did not deny that it was in breach but maintained that its promise in cl 5.3 was enforceable only by UIL, and could not be relied on by WLC in answer to its claim to be indemnified. The decision of the primary judge 1. The primary judge heard a trial over 11 days concluding in May and June 2018, and delivered a judgment of 494 paragraphs on 28 September 2018: Gujarat NRE India Pty Ltd v Wollongong Coal Ltd [2018] NSWSC 1459. The Court made two declarations. The first was to the effect that GNI was entitled to be indemnified by WLC in respect of the sale of shares which had been charged to secure WLC's indebtedness. The second was that WLC was indebted to GNI in the sum of $6,565,398.06, rejecting (relevantly) WLC's submission that WLC was entitled to an equitable set-off. The first and second issues in this appeal challenge, respectively, the first and second declarations. Reasoning of the primary judge on enforceability of cl 5.3 1. The primary judge rejected WLC's submission that cl 5.3 of the Override Deed prevented GNI's claim for an indemnity, relevantly for present purposes, at [112]-[149]. His Honour framed the inquiry at [113] as: "As GNI accepts that cl 5.3, on the ordinary meaning of its words, would prohibit GNI from enforcing its indemnity against WLC, the issue distils into a simple proposition: Is WLC entitled to enforce cl 5.3 by reason of the fact that WLC is a party to the Override Deed?" 1. The primary judge summarised the position at [114]-[116]: "WLC's argument proceeded, as I perceived it, on the basis that: (a) WLC is a party to the Override Deed; (b) cl 5.3 by its terms clearly bars GNI enforcing any right of indemnity; (c) the bar is absolute and unrestricted; and (d) the bar is not explicitly made for the benefit of any party; so (e) WLC is entitled to enforce the bar notwithstanding that it is the primary debtor. This argument was put on the basis that it is self-evident, and submissions were not put as to why cl 5.3 may be enforced by the principal debtor, when the creditor has been wholly repaid, and the creditor does not seek to enforce the bar. WLC said in its closing submissions at par 51: "In this case, clause 5.3 was part of the bargain". That is the essence of WLC's case on this issue. In my view, WLC's argument begs the question of why it is that WLC, as the principal debtor, has a right to enforce cl 5.3 against its guarantor, GNI, when the creditor, UIL, no longer has any interest to do so, and does not seek to enforce the provision. WLC's argument raises the question whether or not it is the case that, when a deed contains a covenant by one party that is not explicitly made in favour of a limited number of the other parties, but is simply expressed in unqualified terms, all of the other parties to the deed are entitled to enforce the covenant." 1. The primary judge concluded that the answer to that question turned on construction. The essential elements of his Honour's reasons were as follows: 1. First, in a multi-partite deed, the question as to which parties are entitled to enforce the provisions of that deed depended upon its proper construction. The same principle equally determined the effect of any provision pursuant to which a guarantor excluded its right of indemnity against the principal debtor. As a matter of principle, all parties to a deed cannot always enforce all covenants that are expressed in general terms. 2. Secondly, it was not intended that all parties to the Override Deed could enforce cl 5.3. Were it otherwise, Argonaut could seek to prevent GNI from enforcing a right of indemnity, notwithstanding it had no interest in the matter. 3. Thirdly, while WLC had an "obvious interest" in the enforcement of cl 5.3, the existence of such an interest was not determinative of the question of construction. Rather, cl 5.3 fell to be construed in the context of the whole of the terms of the Override Deed, particularly the surrounding terms of cl 5, as well as the prior agreements between the parties, and the other objectively known facts. 4. Fourthly, the Override Deed was broken into a number of different parts, with each part dealing with separate matters, some concerning certain parties and not others. Thus, cll 2.1 and 2.2 comprised an expressly bilateral agreement between UIL and WLC, pursuant to which the obligation to buy and sell coal under the CPA was replaced with WLC's repayment obligations under cl 2.1(c) of the Override Deed. Pursuant to cl 3.1, select amendments were made to the Security Deed, which deed otherwise continued in force afterwards. Although that clause was expressed to be an agreement between the parties to the Override Deed, the primary judge observed that only the parties to the Security Deed would be bound by the amended deed. Clause 4 dealt with the notice issued by UIL to Argonaut under the Tripartite Deed, as well as amendments to that deed. Whilst cl 4.2, which set out amendments to the Tripartite Deed, was expressed as an agreement between the parties to the Override Deed, again, only the parties to the Tripartite Deed were to be bound by the amended deed. 5. Fifthly, turning to cl 5.3 itself, the primary judge emphasised the importance of that clause forming part of cl 5, and not as a separate standalone restraint. The preceding provisions of cl 5 (cll 5.1 and 5.2) were either expressly or implicitly in favour of UIL, and no other party. The absence of an express statement that cl 5.3 was solely in favour of UIL was immaterial: from the structure and content of the other provisions of cl 5, cl 5.3 was clearly "part of the collection of rights and protections intended to be granted to UIL": at [143]. 6. Sixthly, the history of the dealings between the parties did not indicate that WLC was to be able to enforce cl 5.3. The provisions of the Override Deed were to enhance the level of protection available to UIL, given the defaults that had occurred. There were no objective surrounding circumstances which suggested that the parties intended to confer on WLC a new benefit, except to the extent that such a benefit was consequential upon a term inserted for the benefit of UIL and enforced by that party. Supporting this point was the fact that the Override Deed and the Security Deed were to operate concurrently and consistently. Under the Security Deed, WLC had no ability to enforce cl 13.6, which suspended GNI's right of indemnity until UIL was repaid in full. This spoke against WLC obtaining, on execution of the Override Deed, a right in respect of GNI's right to indemnity that it did not possess previously, or concurrently, under the Security Deed. 7. Seventhly, WLC's proffered construction allowed it to enforce cl 5.3 before all amounts payable to UIL had been paid, even if UIL had a commercial reason for not doing so. The trial judge held that it was "improbable" that the parties would have intended to put WLC on par with UIL. Rather, it was "most likely" that UIL would have wanted to maintain absolute control as to how and when it recovered from WLC and GNI, and may well have wanted to "manipulate the balance between the two obligors" by permitting GNI's action for indemnity (at [148]). Preliminary points – Privity and "clear and unambiguous" 1. WLC maintained two preliminary points, both of which were, so it was said, dispositive. First, it said that by reason of "privity", WLC was entitled to enforce GNI's promise in cl 5.3. This was elaborated in grounds 3, 4, 5 and 6 of its notice of appeal. Grounds 3 and 4 squarely alleged error in [133] of the reasons of the primary judge, where his Honour concluded his analysis: "It is clear that, where multiple parties enter into a deed, the parties may expressly provide for some covenants to be made by and in favour of some parties and not others. As a matter of principle, it cannot be right, without more, that all parties to a deed can always enforce all covenants that are expressed in general terms." 1. Ground 5 was directed to the way the trial had been conducted, in which it was maintained that it had not been open to GNI to raise the point that cl 5.3 was a promise enforceable exclusively by UIL, and ground 6 was a complaint that WLC's short supplementary submission, filed with leave after the conclusion of the entirety of the trial, had not been dealt with. The submission commenced: "Although the question of who was intended to benefit from [scil] a clause is relevant to the situation of a non-party trying to enforce that provision, the rule of privity is that parties can enforce the agreement." 1. However, WLC advised that it did not press grounds 5 or 6. That was a sensible course to take. The submission advanced by GNI was that WLC could not rely on cl 5.3 as a matter of construction, and even if there had been some error in the way in which the primary judge came to permit that submission to be advanced, it was not said that there was any evidence which could have been given which "by any possibility could have prevented the point from succeeding". As explained in Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 438; [1950] HCA 35, in such circumstances it is both competent and expedient to entertain the point in an appellate court, even where the appeal is strict, and all the more so in this Court where the appeal is by way of rehearing. 2. WLC's second preliminary point was that cl 5.3 was "clear and unambiguous", such that there was no occasion to consider the surrounding circumstances or the commercial purpose of the Override Deed. 3. Both preliminary points were directed to undermining the conclusion that cl 5.3 properly construed conferred a benefit upon UIL which was enforceable only by UIL. Both were combined in ground 3: "The trial judge erred in law in holding that, as a matter of principle, all parties to a deed cannot enforce or take the benefit of all covenants that are expressed in general terms." 1. Likewise, both were merged in WLC's oral submissions: "We submit that when the waiver itself is plain and unambiguous, and the parties to the deed are plain and unambiguous, and there's a general provision in the deed, then it follows by reason of the doctrine of privity that the party in position of Wollongong Coal was entitled to rely on it. That's the bald, simple proposition that we say stands at the heart of this case." 1. Shortly thereafter, WLC confirmed that it contended that the doctrine of privity gave it a positive right: "LEEMING JA: I'm sorry to interrupt but a few times you've relied upon privity as a sword, really, [you say] privity gives you a right. I'm used to thinking of privity as something that stands in the way of someone ... WILLIAMS: Yes. It's the converse of something standing in the way. What is it that gives one a right to sue upon a set of contractual provisions? It's being a party to them. Privity." 1. GNI dismissed the contended right conferred by privity as "merely a bald assertion without authority". Orally, it was said that "concepts of privity were irrelevant and would not assist" in determining construction. 2. GNI responded to the second preliminary point by stating in its written submissions that whether a clause is "plain and unambiguous" was "a conclusion that can only be arrived at upon properly construing the whole of the agreement in context", citing Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; [2014] NSWCA 184 at [77] and [79], WIN Corporation Pty Ltd v Nine Network Australia Pty Ltd (2016) 341 ALR 467; [2016] NSWCA 297 at [59] and Cherry v Steele-Park (2017) 96 NSWLR 548; [2017] NSWCA 295 at [79]-[85]. In oral submissions, WLC appeared to accept that the approach was not so confined as it had contended, but submitted that nothing in context detracted from the generality of cl 5.3. WLC's submission based on cl 5.3 being "clear and unambiguous" 1. WLC's preliminary point based on cl 5.3 being clear and unambiguous is readily dismissed. The proposition that ambiguity is a conclusion is supported not merely by decisions of this Court (to those cited by GNI may be added Taouk v Assure (NSW) Pty Ltd [2017] NSWCA 227 at [103] (Sackville AJA, Beazley P and White JA agreeing). The passages cited by GNI included reference to how the High Court determined the meaning of "a new gaming operator's licence" in Victoria v Tatts Group Ltd [2016] HCA 5; (2016) 90 ALJR 392 at [51]-[75] having regard to the text, context and purpose of the contract, and as to the determination of questions of construction of a contract "by reference to its text, context and purpose" in Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47 at [18] and [78]. More recently, Kiefel CJ, Gageler, Nettle and Gordon JJ reaffirmed in Rinehart v Hancock Prospecting Pty Ltd; Rinehart v Rinehart [2019] HCA 13 at [44] that "It is well established that a commercial contract should be construed by reference to the language used by the parties, the surrounding circumstances, and the purposes and objects to be secured by the contract." The same point was made more emphatically by Edelman J, in the opening paragraph of his judgment at [83]: "Every clause in a contract, no less arbitration clauses, must be construed in context. No meaningful words, whether in a contract, a statute, a will, a trust, or a conversation, are ever acontextual." 1. There is always the possibility that the seeming clarity and absence of ambiguity of the plainest language is falsified by some other provision in the document, or something else in the context. Thus latent ambiguity was always an exception to the parol evidence rule. But, as the High Court has also indicated in passages emphasising the primacy of the text, the possibility that the legal meaning of the contractual language may depart from its ordinary meaning considered in isolation does not mean that in most cases that will be so. The appropriate starting point in most cases is the critical text itself, rather than contextual matters. It is to be borne in mind that the parties to a commercial contract have chosen to record their bargain in a document, and ordinarily the most powerful guide to the intention to be imputed to them emerges directly from the critical language of the document executed by them. For those reasons, not uncommonly litigation proceeds on the basis of the written contract alone: see for example Fitness First Australia Pty Ltd v Fenshaw Pty Ltd (2016) 92 NSWLR 128; [2016] NSWCA 207 at [4] and [32]. WLC's submissions based on privity 1. WLC's reliance on "privity" is also flawed, but that is a conclusion I have reached only after some research. Underlying WLC's submission is a deal of law which was not exposed in any party's submission. Both parties eschewed any detailed reliance on the law. How then is a court to resolve the dispute between bald assertion and bare denial? It seems to me that the court should address the substance of the submission as best it may, but conscious of the difficulties of deciding the point without the benefit of submissions, and the possibility that it may be necessary to give a further opportunity to the parties to be heard if the analysis undertaken by the court is dispositive. 2. First, it is essential to distinguish between privity in a simple contract and privity in a deed. The Override Deed was expressed to be a deed, and was executed as a deed. Accordingly it is treated as a deed: Conveyancing Act 1919 (NSW), s 38(3). The rules relating to privity in the case of deeds as opposed to simple contracts are different, largely as a consequence of the different history. The enforcement of deeds is centuries older than the enforcement of simple contracts, as may be seen in the first two chapters of AWB Simpson, A History of the Common Law of Contract (Clarendon Press, Oxford, 1975). This "rugged fragment of ancient law remains embedded in our elaborate modern structure", no less today than when Pollock wrote the entry on Contract in the Encyclopaedia Britannica (Cambridge University Press, 11th ed, 1911) Vol 7, p 37. As Windeyer J said in a related context half a century ago: "That our law should still treat covenants by deed differently from other promises in writing may seem to be today a regrettable historical survival - a relic of a very distant past, and of the distinction in somewhat later times between covenant, or debt, and assumpsit as forms of action. ... But it is not for any court administering the common law to shut its eyes to a seal and in impatience to treat words of covenant as if they were promises which, in the absence of consideration, the law would not enforce": Brooks v Burns Philp Trustee Co Ltd (1969) 121 CLR 432 at 464; [1969] HCA 4. 1. Very commonly, the differences between deeds and simple agreements do not matter. However, the distinction is vital in order to address the submission advanced by WLC. As it happens, the absence of any requirement for consideration, as well as the fact that a deed inter partes has always been regarded as a bargain between parties, while the law of contract arose from tort and was long conceptualised as a unilateral undertaking (hence the term "assumpsit") produce the result that privity in the case of deeds is more straightforward than for simple contracts. In particular, the large question whether privity is "a distinct doctrine or merely an aspect of the requirement of consideration" (the so-called "monist" and "dualist" positions summarised in V Palmer, The Paths to Privity (Austin & Winfield, 1992), pp 26-27) does not arise. 2. Secondly, at common law, only a person expressed to be a party to a deed inter partes could sue on the deed. Thus there was a series of cases in which grantees or covenantees were nonsuited because they were not named as a party. In Gardner v Lachlan (1836) 8 Sim 123; 59 ER 49, Sir Lancelot Shadwell VC said that "I have always understood the settled rule of law to be that a party not named in a deed, cannot recover by means of it, if it be a deed between parties". (The qualification recognised that deeds poll were different.) Conversely, if a person was named as a party, he or she could sue on the deed even though he or she had not executed the deed. In Morgan v Pike (1854) 14 CB 473; 139 ER 195, Jervis CJ concluded that "the covenantor may be sued upon his covenants, although the deed may not have been executed by the covenantee". Cresswell and Williams JJ expressed the same view. The position is explained in D Ibbetson and E Schrage, "Ius quaesitum tertio: A Comparative and Historical Introduction to the Concept of Third Party Contracts" in E Schrage (ed), Ius quaestium tertio (Duncker & Humbolt, Berlin, 2008), p 26: "In the case of deeds inter partes, ie where the document itself specified who the parties were, all that was needed was that the intended beneficiary be named as a party. While the person undertaking the obligation had to put his seal on the document, there was no such requirement in the case of the beneficiary: naming was sufficient." 1. Thirdly, the position was different with deeds not inter partes, such as deeds poll. A person to whom a covenant or grant contained in a deed poll is made could enforce it, as was explained by Barrett J in Wily as Liquidator of Anglican Insurance Ltd [2009] NSWSC 696 at [7]: "The deed poll can be sued on 'by any person with whom the covenant was made': Chelsea and Waltham Green Building Society v Armstrong [1951] Ch 853 per Vaisey J quoting the second edition (1928) of "Norton on Deeds" at 29. Classes of non-parties who typically derive rights under deeds poll are beneficiaries under a declaration of trust created by deed (see, for example, Oakes v Commissioner of Stamp Duties (NSW) [1954] AC 57) and creditors to whom a guarantee is extended by deed poll (an example is found in Re A&K Holdings Pty Ltd [1964] VR 257). An entitlement may be claimed under a deed poll by a person within the relevant class only upon satisfaction of any condition that the deed attaches to the entitlement: Macdonald v Law Union Fire & Life Insurance Co (1874) LR 9 QB 328." 1. Fourthly, this area of the law continues to be relevant, and not only by reason of the deployment of deeds poll in a range of important commercial transactions, for example, schemes of arrangement. Two 21st century decisions are Accordent Pty Ltd & Portellos v Bresimark Nominees Pty Ltd (2008) 101 SASR 286; [2008] SASC 196 (a decision of the Full Court constituted by Doyle CJ, Duggan and Anderson JJ) and Moody v Condor Insurance Ltd [2006] 1 WLR 1847; [2006] EWHC 100 (Ch) (a decision of Park J). Reference to both may be found in N Seddon, Seddon on Deeds (Federation Press, 2015), pp 202-206. The issue which arose in both those cases was whether a deed operated as a deed poll and was therefore enforceable by a non-party. (Of course, there is a multitude of ways by which a non-party may enforce a promise in a deed inter partes, as is well illustrated by the 95 pages constituting chapters 3 ("Exceptions") and 4 ("Statutory Exceptions") of M Furmston and G Tolhurst, Privity of Contract (Oxford University Press, 2015), but none was relied on in this litigation.) 2. Fifthly, "privity" is a poor choice of label for the doctrine which WLC invokes. Like many legal terms, "privity" is used in a variety of ways in law, many of which are superseded. Palmer referred to "privity of condition", "privity of estoppel", "privity of bailment" and many other early usages at pp 10-11 of his monograph, and noted that it was remarkable that Coke, who identified privies in estate, in blood, in representation and in tenure, had failed to include privity of contract in his scheme. Holmes in an early paper, anticipating The Common Law, offered a chart of the common law classifying all legal duties in terms of privity: "The Arrangement of the Law – Privity" (1872) 7 American Law Review 46. 3. By invoking "privity", WLC was referring to a rule of law as to the enforcement of agreements. As ordinarily understood in this context, "privity" denotes an essentially negative rule. That is how it is formulated in the overwhelming majority of curial and academic writing. It is, as Sir Anthony Mason put it, "the principle which prevents a third party from obtaining a right or benefit under a contract": A Mason, "Privity – A Rule in Search of Decent Burial?" in P Kincaid (ed), Privity – Private justice or public regulation (Ashgate Dartmouth, 2001) p 88. It is in that sense that the judgments in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107; [1988] HCA 44 refer to the "privity rule" or the "privity requirement" or the "doctrine of privity". 4. Windeyer J commenced his analysis of the enforcement by third parties of contractual promises in Coulls v Bagot's Executor and Trustee Co Ltd (1967) 119 CLR 460 at 494; [1967] HCA 3 by the words: "By the common law of England only those who are parties to a contract can sue upon it. For us that statement is incontrovertible. But what exactly is meant by it?" 1. But the proposition that only a party may enforce a promise in a deed (which is trite save for the quantity of exceptions) is entirely different from the proposition upon which WLC insisted, namely, that any party could enforce any promise in a deed. A necessary condition is distinct from a sufficient condition. WLC cited no decision and no academic writing in support of the proposition that "privity" entitled a party to a deed to enforce a covenant in it. 2. Putting to one side the imprecise "privity" label, I understood the gravamen of WLC's submission to be this. If the Override Deed operated as a deed poll, then there would be a question of construction as to who might enforce GNI's promise in cl 5.3. But the Override Deed was a deed inter partes and thus any of the named parties to it might enforce GNI's promise in that clause. 3. That submission is one which I regard as quite complex. Like most of this aspect of the case (including the five points mentioned above) this was largely unexplored in the parties' submissions. It is true that in many cases, the fact that a person was a named party to a deed inter partes was regarded as sufficient. The historical account in D Ibbetson and W Swain, "Third Party Beneficiaries in English Law: From Dutton v Poole to Tweddle v Atkinson", pp 191-213 of the volume cited above goes further, and states of deeds inter partes in the 16th, 17th and 18th centuries that "the only question was whether the plaintiff was a party. If he was he might sue; if not, not." The same authors explain (at 192) how assumpsit developed as a practically effective remedy for agreements not under seal, but because assumpsit was at least in form an action based on a unilateral promise, it was difficult to formulate an analogous rule. But even so it may be doubted that Professors Ibbetson and Swain are to be regarded as saying that being a party to the deed was sufficient, because they explain at 194-195 the line of cases whereby "a single document could be interpreted as containing two distinct agreements with different parties", giving as examples Salter v Kidgley (1689) Carth 76 and Wickham v Hawker (1840) 7 M & W 63; 10 LJ Ex 153. 4. This may be related to a further potential difficulty, which arises from the distinction between the document and the legal relationship. As Professor Carter has observed, "There remains a tendency to speak in terms of the parties to the document, rather than the parties to the contract": J Carter, The Construction of Commercial Contracts (Hart Publishing, 2013), p 311. Although it is natural to use the same word to describe the legal relationship and the document which records it, they are two quite distinct things. So too, the physical document styled as a "lease" and the legal or equitable relationship between landlord and tenant, which confers exclusive possession and obliges the payment of rent, are two distinct things: Pyrmont Point Pty Ltd v Westacott (2016) 91 NSWLR 170; [2016] NSWCA 33 at [59]. Physically tearing up a deed or a written contract or a lease does not without more alter the legal relationship between the parties. Contrast a will: tearing up a will with the intention of revoking it is, without more, effective to do so. WLC was party to the document. It does not necessarily follow that WLC was party to a single quadrilateral legal relationship which constrained all of the terms recorded in the document. 5. It is not necessary to take this any further, and in the absence of submissions, it is inappropriate to do so. The litigation should, if possible, be decided on the basis of the proposition regarded by the parties as dispositive, and on which they joined issue, rather than general propositions asserted but not developed in argument. 6. The primary judge found against WLC on the basis of construction of the Override Deed. GNI sought to defend the appeal based on construction of the Override Deed. And WLC accepted the general proposition that any party to a deed might enforce any covenant contained within it was subject to exception. 7. WLC conceded during the course of submissions that it is possible for a promise to be made expressly such that it is enforceable by not all of the parties to a multipartite deed. That must be right, although authority is difficult to find. However, it is consistent with the reasoning of the High Court in a related area, the enforceability of restrictive covenants, in Forestview Nominees Pty Ltd v Perpetual Trustees WA Ltd (1998) 193 CLR 154; [1998] HCA 15. The High Court upheld the limited efficacy of a covenant expressed to enure for the benefit only of the transferee of the land, and not for any tenant for the time being of the land: at [30]-[31] and [33]. The joint judgment cited the writing of Ames including reference to the principle that "equity will compel the promisor to perform his agreement according to its tenor. If the restrictive agreement, fairly interpreted, was intended for the sole benefit of the promisee, only he can enforce it." The common law would not take any more generous approach than equity to the enforceability of covenants expressed to benefit a particular person or class of persons. 8. WLC also came close to conceding, if it did not in fact concede, that the same could occur by implication. The issue was raised early on the first day of the hearing: "LEEMING JA: Do you say the only circumstances where a party can't enforce a covenant are those where there's been an express limitation in the deed? WILLIAMS: We do. LEEMING JA: So that you can't impliedly do what can be done expressly? WILLIAMS: Could I make this qualification to it. I suppose if one has a set of provisions in one part of the deed that operate to expressly exclude certain rights and in another part of the deed a clause that's in general terms that's inconsistent with it, that might be one example. But other than that, no. The proposition is it's a matter of privity. If there's a general provide in a multi-party deed, any party to the deed is entitled to rely on it." 1. That the ordinary rules of construction are applicable is supported by what was said in Moss v The Legal and General Life Assurance Society of Australia (1875) 1 VLR (L) 315 at 318 (on which WLC relied). Further support may be seen in a helpful article by R J Bullen, "The Rights of Strangers to Contracts under Seal" (1977) 6 Adel L Rev 119. The author considered at 122-124 the difficulty which arose if a deed poll were not expressed to be for the benefit of any named person, and a dispute as to whether the plaintiff could enforce it. It was said at 122: "In such a case it appears from what little authority there is on the point that whether a beneficiary of the covenant is a 'covenantee' is a question of the construction of the deed". 1. There is no reason why the same would not be true of a promise in a multipartite deed. Even if WLC's concession did not go so far, I would hold that a promise in a deed inter partes could by implication be limited so as to enable its enforcement only by a particular party. This follows from first principles, once it is acknowledged as it must be that the task of giving legal meaning to the words chosen by the parties cannot ignore context and purpose. Although there are important differences in deeds and contracts, there is no reason to suggest that construction – the process of fixing the contractual words with legal meaning – is any different (to take but one example, Rinehart v Hancock Prospecting Pty Ltd involved the construction of a deed). 2. I respectfully agree with what was said by the primary judge at [133]. Grounds 3 and 4 of WLC's appeal fail. The proper construction of cl 5.3 1. The real point dividing the parties on the first issue in this appeal is the question of construction, and most of their written and oral submissions were directed to it. 2. WLC submitted that cl 5.3 ought to be construed, in light of its natural and ordinary meaning, as a general provision through which GNI irrevocably waived its right to seek an indemnity from any party to the override deed. GNI sought to construe cl 5.3 as involving a single and essentially negative promise, and sought to support that submission with the fact that other substantive negative promises in the Override Deed lacked express articulation of the persons who might enforce them, in contrast with the various positive promises in the deed. WLC's submissions 1. First, WLC submitted that the language of cl 5.3 expressed a clear and unequivocal waiver by GNI of any right to indemnity. In the absence of words qualifying the general terms of the provision, cl 5.3 should not be read down as conferring a right to UIL alone. 2. Secondly, WLC submitted that the Override Deed, read as a whole, did not support a narrow reading of cl 5.3. Clause 5.3 could not be read down simply because cl 5 contained GNI's covenant to guarantee WLC's debt, which conferred a benefit on UIL. Nor could cl 5.3 be construed as being qualified by cll 5.1, 5.2 and 5.4 simply because those clauses were expressed as covenants between only some of the parties. WLC pointed to a number of clauses within the Override Deed with a similar structure to clause 5, one of which was cl 2 comprising (a) a bilateral agreement that WLC will repay UIL (cl 2.1), (b) a bilateral agreement that UIL and WLC may arrange for the delivery of coal after execution of the override deed (cl 2.2), (c) a trilateral agreement where UIL had the discretion to advise WLC and GNI of the repayment amount which was final and binding on the parties (cl 2.3), and (d) a quadrilateral agreement that WLC's failure to pay UIL will constitute an event of default (cl 2.4). WLC submitted that the primary judge was inconsistent in his construction of cl 5 as compared to the other clauses of the override deed. If one were to construe cl 2.4 as a quadrilateral agreement, notwithstanding the fact that the preceding clauses were bilateral or trilateral, then cl 5.3 ought to be construed similarly as being a general provision without limitation. It was submitted that nothing in the surrounding circumstances could be construed as qualifying the ordinary and literal meaning of the words in the deed: Cherry v Steele Park at [116]. 3. Thirdly, WLC submitted that the parties intended for cl 5.3 to provide a much broader waiver than that offered by GNI in cl 13.6 of the Security Deed. The fact that the Security Deed was only between GNI and UIL supported the conclusion that cl 5.3 of the later Override Deed was intentionally added to benefit WLC. WLC embraced the proposition that cl 5.3 did not confer any additional rights upon UIL as its interests are adequately protected by cl 5.2 of the Override Deed and cl 13.6 of the Security Deed. GNI's submissions 1. GNI accepted that much of the language of the Override Deed was "infelicitous" or "inelegant" (adjectives which on one view tend to understate the difficulties). GNI submitted that cl 5.3 was "elliptical" in that it did not say for whose benefit it was made. The question of whether cl 5.3 was made for the benefit of all parties or just UIL was a question of construction to be determined in accordance with the usual canons of construction. 2. GNI submitted that the parties could not have objectively intended for cl 5.3 to be enforceable by all parties to the Override Deed. Argonaut, for example, could not benefit from GNI's promise of waiver as it was not involved in the underlying commercial agreements between WLC, GNI and UIL. Rather, cl 5.3, read consistently with the purpose of the Override Deed, was added to ensure that UIL's interests were fully protected. The terms and structure of the deed, read as a whole, supported that conclusion. 3. Ultimately, Mr Hutley's candid submissions were that cl 5.3 should be construed as a negative promise, enforceable only at the instance of UIL, not to exercise any right of indemnity or subrogation against WLC: "[I]t's a composite idea, essentially negative. In substance it's a promise not to deploy or take advantage of rights which arise for the benefit of the surety." 1. That is to say, GNI contended that cl 5.3 amounted to a single promise, namely, "GNI must not, if UIL objects, exercise any right of indemnity" or "GNI promises UIL not to exercise any right of indemnity". 2. GNI also sought to draw support from the wording of other clauses in the Override Deed. It submitted that the drafters had paid "acute attention" to each part of the deed and to which party the rights and obligations of each provision relate. However, due to the "inelegancies of drafting", the negative covenants contained in the override deed, like cl 5.3, did not expressly identify for whose benefit the promises were made. Like other clauses of the Override Deed containing a negative covenant, cl 5.3 did not expressly provide who was to benefit from the promise. One such clause was cl 4.2(i) which provided that: "Confirmations The parties agree that for the purposes of the Tripartite Deed and all other purposes: … (i) Each of Argonaut and Gujarat agree that to the extent within its control it will not take any action to terminate or waive any rights or obligations under the Sponsorship Agreement, the Tripartite Deed or the Settlement Agreement (insofar as it relates to the Security Shares) without the prior written consent of UIL." Another clause was cl 7.4, which provided that: "7.4 No set-off by Company or Gujarat Each of [WLC] and [GNI] waive all equitable and common law rights of set-off which it may, but for this clause 7.4, be entitled to exercise in relation to any payment [WLC] or [GNI] is liable to make under this deed (including any payment under clause 7.3)." GNI submitted that as a matter of construction, cll 4.2(i) and 7.4 were clearly intended for the sole benefit of UIL without saying so expressly. Similarly, cl 5.3, properly read in the context of the guarantee clause made in favour of UIL, was inserted for the sole benefit of UIL. GNI also submitted that cl 5.3 provided UIL with broader protection than cl 13.6 of the Security Deed as the effect of the waiver was immediate as opposed to after WLC had discharged its debt. It was said that cl 5.3 protected UIL from risks of insolvency, including the possibility that the Coal Purchase Agreement be regarded as a voidable transaction pursuant to s 588FE of the Corporations Act 2001 (Cth). 1. GNI submitted that a waiver may be selectively enforceable by one party. It sought to rely on what had been said by Toohey J in Commonwealth v Verwayen (1990) 170 CLR 394; [1990] HCA 39 especially at 471 to that end. It was put that if cl 5.3 had been expressed as "irrevocably waives for the benefit of UIL alone" its meaning would have been clear. Such a covenant would not have prevented UIL from waiving the benefit of that promise, however, irrespective of whether UIL chose to do so, WLC would not be permitted to take advantage of a contractual promise made in favour of UIL in accordance with the doctrine of privity. WLC's submissions in reply 1. WLC's response to the proposition that cl 5.3 was a single negative covenant was to emphasise its two halves and, in particular, its opening words. WLC also sought to rely on what had been said in Verwayen at 474, namely that waiver was "not capable of being withdrawn" and that it was "of the essence of waiver in this sense that the defendant has unequivocally renounced his right to rely upon the particular defence". It was submitted that: "[O]ne has to focus on the words 'irrevocable waiver' which are at the very start of the obligation or the renunciation and we say that that's descriptive of the renunciation in the same way that Toohey J was describing, in another ... context, the concept ..." 1. WLC resisted the conclusion that the Override Deed was only for the benefit of UIL as a matter of fact, and contended that asking that question was an unsound basis for construing cl 5.3. In any event, it was submitted that it was in UIL's own interest for WLC to be able to assert the benefit of the clause, in circumstances where both GNI and WLC were insolvent; in such a case UIL would not wish the liquidator of GNI to prove in the winding up of WLC. Consideration 1. It is no criticism to observe that the majority of the parties' written and oral submissions on construction focussed upon clauses other than cl 5.3. That is of the nature of things. There is commonly a temptation to present as many arguments as possible, in part because one cannot be sure in advance which may find favour, in part in order to create the appearance of overwhelming numbers, and doubtless in part as a natural consequence of the ingenuity of legal analysis and research. 2. Of course the Override Deed is to be read as a whole. Of course cl 5.3 is to be construed in context. However, to say that the Override Deed is "infelicitous" or "inelegant" understates its difficulties. It is replete with ordinary grammatical mistakes (for example cl 2.2(a)(ii) is close to gibberish ("to the vessel agree in writing after the date of this deed"). At least some of its language is difficult to reconcile with basic legal principle (cl 4.2(i) which refers to "terminate or waive any rights or obligations" has been reproduced above). I do not mean by those observations implicitly to criticise its drafters. When problematic language is found in a negotiated contract, it is important always to bear in mind that the clauses may have been negotiated, perhaps under urgent time pressure, and the resultant text may represent the greatest extent to which one party was prepared to yield. The only reason for making those comments is that they tend to diminish the potency of arguments based upon a comparison with other clauses. Where, in order to construe the critical clause, textual features of another clause are invoked by way of contrast or comparison, the exercise has limited utility to the extent that there is an absence of uniformity or coherence of approach throughout the contract. 3. The starting point is the text of cl 5.3. Contrary to GNI's primary submission, there are powerful textual considerations supporting the conclusion that cl 5.3 contains two distinct aspects, rather than amounting to a single negative covenant. 1. First, as a matter of ordinary grammar, GNI's irrevocable waiver is something distinct from its promise not to exercise any right of indemnity or subrogation. One way in which this may be seen is that the adverb "irrevocably" evidently qualifies "waives", but does not readily apply to the indefinite obligation extending into the future not to exercise its rights. As a matter of language, it is to say the least rather awkward to promise "irrevocably" not to do something. 2. Secondly, it is one thing to "irrevocably waive" a right of indemnity or subrogation. It is another to promise not to exercise a right of indemnity or subrogation. The former is effective then and there as a unilateral renunciation of the right, being what WLC described as the ordinary sense of waiver in this context ("the irrevocable waiver of which this clause is speaking is an abandonment of the right"). The latter is a promise in the future not to seek to enforce the right. 3. Such distinctions are familiar in law, and may well have important consequences. The two components of cl 5.3 are analogous to a release and a promise not to sue: cf Lavin v Toppi (2015) 254 CLR 459; [2015] HCA 4 at [37]. 4. Further, cl 5.3 is to be contrasted with cl 13.6 of the Security Deed, which was mentioned in the recitals to the Override Deed, in which GNI made a similar promise but only for a limited time. It is natural to give the additional words in cl 5.3 their ordinary meaning, extending the scope of the clause. 1. The ordinary meaning of "waives" is quite different from the ordinary meaning of "must not exercise". I have borne in mind that elsewhere in the Override Deed, including in cl 5, the drafter has a tendency to use two words separated by "or" to denote a single concept (see "incurred or suffered" in cl 5.1(d), and "affect or prejudice", "variation or change" and "unenforceability or invalidity" in cl 5.2). But it is quite awkward for the words "waives" and "must not exercise" to refer to a single portmanteau concept. 2. I do not accept GNI's submission that there is a single promissory character in cl 5.3. The clause contains two verbs which bear quite different meanings, only one of which is qualified by "irrevocably", and one of which speaks of the present while the other looks to the future. The distinction between the immediately effective act and the promise to refrain from doing something in the future is familiar in law. Why ever should the parties have imputed to them an intention only to have promised not to do something in the future, which reduces the content of the words "irrevocably waives and" to nil? I am conscious that little regard is to be placed on the heading of cl 5.3, "Waiver of rights", but even so I think one can note the oddity that GNI's construction denudes meaning of the words "irrevocably waives and" in a clause expressed to be about "waiver". 3. Clause 5.3 is not purely promissory. It has two components, the first of which is an irrevocable waiver by GNI of its right of indemnity against WLC. 4. Of course, waiver is a notoriously imprecise concept in law. That was Dr Ewart's thesis in his work "Waiver Distributed" published a century ago. In Commonwealth v Verwayen at 406, Mason CJ said that "waiver" was "an imprecise term capable of describing different legal concepts, notably election and estoppel". Lord Wilberforce observed in Mardorf Peach & Co Ltd v Attica Sea Carriers Corporation of Liberia [1977] AC 850 at 871 that: "the word 'waiver', like 'estoppel', covers a variety of situations different in their legal nature, and tends to be indiscriminately used by the courts as a means of relieving parties from bargains or the consequences of bargains which are thought to be harsh or deserving of relief." 1. One natural and well-established meaning of waiver is the immediately effective unilateral renunciation of a right. This is the "unilateral waiver" to which reference was made in Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570; [2008] HCA 57. Waiver in this sense is familiar in a range of contexts. One is waiver of a right to personal service of originating process. Another is waiver of a claim to privilege. This is the sense used by Toohey J in Verwayen at 474. It is also the sense used by Brennan J in the same decision at 423: "Lord Hailsham of St Marylebone L.C. pointed out that 'waiver' is derived from the same root as the word 'waif' – a thing, or person, abandoned. Lord Hailsham … continued: 'In my view, the primary meaning of the word 'waiver' in legal parlance is the abandonment of a right in such a way that the other party is entitled to plead the abandonment by way of confession and avoidance if the right is thereafter asserted.'" 1. In my view, this is the natural way of reading the words "irrevocably waives" in the first component of cl 5.3. It accords with the parties' language elsewhere in the Override Deed, which distinguishes between immediately effective unilateral acts, and promises concerning future conduct. For example, cl 4.1 ("UIL withdraws the Tripartite Notice but reserves the right to give a further notice under the Tripartite Deed ..."). GNI accepted, very properly, that cl 4.1 was not an executory promise: "It's not a promise, it's really in effect an act in law, but it's an act in law which impacts upon all parties". 2. I would readily accept that a promise not to do something may be limited, either expressly or impliedly, so as to be enforceable only by one or more named parties. But GNI's main submission on construction, no differently from the reasoning of the primary judge, was that cl 5.3 was wholly promissory, as opposed to an immediately effective legal act. I do not accept that that construction is correct. To that extent, GNI's submissions based on construction fall away. 3. GNI did submit, essentially as a fallback, that a waiver in the sense of a unilateral act could be enforceable for the benefit of a single party. But I confess I do not understand how that can be so, unless the unilaterality and immediate efficacy of the waiver is wholly subsumed into the promise not to do something in the future. The law of privilege is a good example. I do not understand how Party A may waive privilege for the benefit of Party B in such a way that the privilege may be maintained against Party C. Of course, a document may be communicated by Party A to Party B in circumstances which do not amount to waiver (for example, where there is a common interest privilege) but that is really the point: in such a case there has not been a waiver. 4. On the view I take, it is quite artificial to address GNI's submissions on construction, premised as they are on the proposition that cl 5.3 was wholly promissory, in order to determine whether that promise was impliedly limited to one enforceable only by UIL. The clause bears an entirely different character when it is seen that it has two components, the first of which is unilateral and immediately effective. That matter alone is a powerful consideration telling against the promissory second component bearing a narrower meaning. In fairness to the primary judge, I doubt that the submission which was advanced by WLC in this Court was advanced so clearly, if indeed at all, at first instance, although again, to be fair to WLC, that in turn may be a consequence of the fact that GNI seems only to have emphasised the enforceability of cl 5.3 late in the trial. 5. Although there is only limited utility in evaluating the parties' competing submissions on construction, I would however briefly note the following: 1. First, there is some force in WLC's submission that where a promise in the Override Deed is selectively enforceable by a particular party, that party is named. For example, cl 3.2 reflects an agreement that each of the two parties warrants to UIL that there was no prior encumbrance or PPSA security interest over the shares. Clause 4.2(i) is an agreement by Argonaut and GNI not to do certain things in the future without the prior written consent of UIL. The absence of any comparable limitation upon cl 5.3 is a slight indication that GNI's promise is not enforceable only by UIL. It suffers the weakness of most expressio unius arguments. But even so, it favours WLC, rather than GNI. 2. Secondly, GNI's submission that the promise in cl 4.2(i) was for the sole benefit of UIL might be accepted, so far as it goes, but it is not to the point. Clause 4.2(i) is executory. A promise to do something, or not to do something, in the future may be enforceable at the instance of fewer than all the parties to the deed. But the first aspect of cl 5.3 is not promissory or executory. Rather, it is a unilateral act immediately effective. 3. Thirdly, GNI also relied on cl 7.4. That clause is an immediate waiver of the rights of WLC and GNI of set-off. It is true, as GNI submitted, that the benefit of that clause is for UIL. UIL necessarily benefits from being entitled to receive repayments of indebtedness from a debtor and a guarantor free from any right of set-off. But I do not regard that consideration as bearing upon the question of whether the waiver of a different promise, this time directed to GNI's ability to recover from WLC, is to be treated as enforceable only at the instance of UIL. 4. Fourthly, submissions were exchanged on Woodside Petroleum Development Pty Ltd v H & R-E & W Pty Ltd (1999) 20 WAR 380, which dealt with a waiver of subrogation clause. However, despite the similarity in subject matter, that appeal did not concern the selective enforceability of such a clause. I do not think it is necessary to analyse that judgment, or whether the uncritical acceptance of what was said in Banque Financiere de la Cite v Parc (Battersea) Ltd [1999] 1 AC 221 requires review in light of Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44. 1. I should address one more elaborate submission advanced by GNI. By seeking to be indemnified by WLC for the loss it has suffered when UIL called upon GNI's guarantee, GNI was doing precisely what it had promised in cl 5.3 not to do. GNI maintained that if cl 5.3 was regarded as exclusively promissory, and a promise which was in favour of UIL such that it might only be enforced by UIL, then it was open to UIL to waive compliance with that promise. GNI went so far as to say that "the ability of UIL to waive or allow [GNI] to do so goes without saying". I do not think that is so. The parties agreed in cl 9.7 that the rights of each party under the Override Deed "may be waived only in writing and specifically". It by no means automatically follows that, in answer to WLC's defence that GNI is breaching its promise in cl 5.3, it is sufficient for GNI to say that that promise was enforceable only by UIL, which must be taken to have waived compliance with it. See, in the context of non-waiver clauses in insurance contracts, S Wilken QC and K Ghaly, The Law of Waiver, Variation and Estoppel (Oxford University Press, 2012) at 395–396. But on the view I take, it is not necessary to take the analysis any further along those lines, and in light of the absence of any submissions on Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2019] AC 119; [2018] UKSC 24 it is inappropriate to do so (the same approach was adopted in Bundanoon Sandstone Pty Ltd v Cenric Group Pty Ltd [2019] NSWCA 87 at [122]). 2. In summary, I have concluded that cl 5.3 on its proper construction means that GNI did two things: (a) immediately irrevocably waived presently existing rights that it has, and (b) promised not to exercise any specified rights at any stage in the future. The latter may quite readily be qualified so as to be enforceable only at the instance of a party such as UIL, but for my part, I do not understand how there may be a unilateral waiver which is only selectively enforceable in the same way. 3. For those reasons, I consider that WLC is entitled to succeed, as a matter of construction, on its defence based on cl 5.3 of the Override Deed. Second issue – set-off 1. WLC had obtained a very substantial judgment against GNI's ultimate parent company, Gujarat India, in the amount of some US$59 million. WLC was found by the primary judge to owe GNI $6,565,398.06. On appeal, although not at first instance, the fact that WLC was indebted to GNI and the amount of the indebtedness were not in issue. WLC sought to rely on its judgment debt against Gujarat India by way of equitable set-off as a defence to GNI's claim on its (much smaller) debt. In order to address the submissions made on appeal, it is necessary to summarise how the two debts came into existence. Gujarat India's indebtedness to WLC 1. WLC submitted that most of the coal it produced was sold to Gujarat India for which Gujarat India failed to pay. On 11 May 2007, WLC and Gujarat India entered into a coal purchase agreement in which WLC promised to sell and deliver to Gujarat India unwashed (ROM) coal mined from its NRE No 1 Colliery for the life of the mine at a benchmark FOB price less certain adjustments. WLC's 2013 Annual Report noted that it received support from Gujarat India in a variety of areas, including "life-time coal off take agreements" for its ROM coal production and access to international markets. 2. By 31 March 2013, the payment amount outstanding from Gujarat India was $46,958,799, comprising $27,795,628 in trade receivables and $19,163,171 by way of bills discounted against a discounting facility from State Bank of India. By 30 September 2013, the debt had increased to $63,036,000 and by 31 March 2014, to $67,602,335. 3. WLC ultimately brought proceedings in the Supreme Court of New South Wales against Gujarat India and was successful in obtaining a judgment of US$59,718,101.53: Gujarat NRE Coke Ltd v Wollongong Coal Ltd; Wollongong Coal Ltd v Gujarat NRE Coke Ltd [2017] NSWSC 383. GNI's underwriting of WLC's rights issue and WLC's indebtedness to GNI 1. In May 2013, WLC announced a partially underwritten non-renounceable rights issue to its shareholders at an issue price of 20 cents per share to raise almost $69 million. The offer was partially underwritten by Wonga Coal Pty Ltd, another company within the Gujarat Group (and a 17% owner of WLC), for $44,023,758. The underwriting agreement between WLC and Wonga of an unspecified date in May 2013 permitted Wonga to appoint sub-underwriters. On 22 June 2013, GNI and Wonga entered into a sub-underwriting agreement in which GNI agreed to sub-underwrite up to 30% of the shortfall, being some $13.2 million. The rights issue was heavily undersubscribed (it raised only some $35,000). On 26 June 2013, WLC announced a trading halt suspending trading of its shares as it was in the process of negotiating refinancing of its existing debt facilities. On 3 July 2013, the underwriting agreement and sub-underwriting agreement were terminated. 2. By June 2013, WLC had received a number of notices from Axis Bank Ltd demanding immediate repayment of substantial amounts owing to it and other lenders in the consortium. On 13 June 2013, GNL as borrower entered into a US$10 million facility agreement with Axis Bank Ltd, Hong Kong Branch. Gujarat India and GNI guaranteed GNL's obligations. On 24 June 2013, Axis Bank deposited US$9,506,000 into GNL's account. That same day, US$7,962,974.88 was transferred from GNL's account to GNI's account, and then from GNI's account to WLC's account. GNI made a further payment of $690,549.18 to WLC on the same date. WLC immediately made a number of payments to its lenders which the primary judge concluded was to permit WLC to meet urgent obligations to repay Axis Bank and members of a consortium of lenders led by Axis Bank: at [287]. 3. Between July and October 2013, WLC made three payments totalling $2,088,126 to GNI which GNI deducted from its debt claim against WLC. The balance owing was WLC's debt to GNI. That indebtedness was accepted (both as to its existence and its amount) in this Court. Reasons of the primary judge 1. The primary judge addressed set-off at [470]-[491] of his reasons, one aspect of which focussed on the disconnection between the two debts and the failure of one to impeach the other. His Honour said at [483]: "In my view, the reality is that WLC's submissions demonstrate how greatly disconnected the debts owed by Gujarat India and WLC to the other really were. Gujarat India became indebted to WLC because it did not pay the price for coal delivered by WLC to Gujarat India. WLC entered into loan facilities with various lenders, in particular loan facilities led by Axis Bank. WLC borrowed money from GNI in order to meet urgent instalment and interest obligations to Axis Bank. The transactions had no real connection. In no real way does WLC's claim that Gujarat India owes it a debt for unpaid deliveries of coal impeach GNI's claim for repayment of the debt owed to it. WLC's claim against Gujarat India does not go to the root of or be essentially bound up with GNI's claim against WLC. WLC's claim that if Gujarat India had paid its debt to WLC, WLC would not have borrowed the money that it did from GNI (even if true in fact) is not sufficient to cause the debt claimed by GNI to be impeached." 1. It was common ground that in order to establish an equitable set-off, it was necessary for WLC to establish that Gujarat India's debt to it impeached its indebtedness to GNI. There was no challenge to what was said in this Court by Sheller JA, with the agreement of Kirby P and Meagher JA, in Lord v Direct Acceptance Corporation Ltd (Receiver and Manager appointed) (in liq) (1993) 32 NSWLR 362 at 367 as to the requirement of impeachment being "indispensable". It follows that only if the primary judge's finding at [483] can be set aside can this aspect of the appeal be allowed. (For completeness, it may be noted that WLC did not rely on any other form of set-off and maintained that no question of choice of law arose in relation to the situs of the debts.) Parties' submissions on set-off 1. WLC conceded that the primary difficulty to its defence of equitable set-off to GNI's claim in debt, by reason of Gujarat India's debt, was the absence of mutuality. However, WLC submitted, with respect correctly, that a lack of mutuality in equity is not always fatal to a defence of equitable set-off. It relied on Hawes v Dean [2014] NSWCA 380 at [65] where the Court formulated the requirement in the following way: "… two wrongs or defaults are so closely connected that a net position or result ought in equity to prevail between the parties because it would be unconscionable to allow one of them to insist on its legal right without first accommodating the other's countervailing legal right. It is the existence of that unconscionability that causes the first party's claim to be 'impeached' (that is, undermined and defeated) by the second party's claim." WLC submitted that, as a matter of principle, equitable set-off is made out when the "various claims and counterclaims are sufficiently closely connected for it to be unconscionable for one to be relied upon without the other being taken into account". 1. The factors relied on by WLC were (a) at all relevant times, WLC was economically dependent upon and controlled by the Gujarat Group, (b) most of the coal mined by WLC was sold to Gujarat India and other companies within the Gujarat Group, (c) Gujarat India's failure to pay for the coal caused WLC to be unable to repay its creditors, (d) the loan from Axis Bank was obtained by entities within the Gujarat Group to enable WLC to meet its financial obligations to its creditors; it was only by happenstance that GNI became the entity within the Gujarat Group through which the funds were paid to WLC. 2. GNI submitted that irrespective of whether unconscionability qualified impeachment, which was not conceded, the facts of the case "never got within a bull's roar of establishing the requisite impeachment". GNI submitted that there was no evidence that WLC's entry into various facility agreements between 2010 and 2011 for much of its debt, or that WLC's inability to repay the debt under those agreements, was a result of Gujarat India's failure to pay for the supply of coal. At the time that the US$10 million was borrowed from Axis Bank, WLC's liabilities were some $487 million. The money owed by Gujarat India at that time was insufficient even to cover "Trade and Other Payables" which was some $110 million. WLC's attempt to raise further capital through share subscription illustrated the point that even if Gujarat India had fully repaid its debt to WLC, WLC still would have been in a parlous position. On that basis, WLC had failed to establish the requisite connection between the debt it owed to GNI and the debt owed to it by Gujarat India. Consideration 1. I agree with GNI that there is no occasion in this appeal to address the way in which, if at all, unconscionability qualifies the concept of impeachment of a debt. It is not necessary to do so in order to resolve this appeal, and not appropriate to do so, given the way in which argument was presented. It will be plain that this judgment should not be regarded as authority for the proposition that in order for a debt to impeach another it is sufficient that it be found to be "unconscionable" to permit the enforcement of one without regard being had to the other. Aside from anything else, the term "unconscionable" is used in quite different senses in equity: see for example Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51; [2003] HCA 18 at [38]-[45]. It is one thing to maintain that the notion of being contrary to good conscience is a theme explaining the availability of the equitable defence, and another thing to conclude that, for example, factors sufficient to entitle a party subject to an Amadio special disadvantage to rescind a transaction are sufficient to give rise to a defence of equitable set-off. 2. But let it be assumed, favourably to WLC, that it is sufficient to conclude that it would be unconscionable to permit GNI to enforce its debt without allowance for Gujarat India's indebtedness to WLC. On no view of the width of the term is unconscionability made out on the facts of this appeal. 3. In 2013, WLC was in desperate need of funds, following the failure of its rights issue and its default to its lenders. It has not been shown that that desperate need was attributable to Gujarat India's failure to pay for the coal which WLC continued to sell to it. WLC's total current liabilities as at 31 March 2013 were $487,876,003, including trade creditors in excess of $110,000,000 and borrowings in excess of $310,000,000. WLC's current assets were only some $79,000,000. Gujarat India's indebtedness to WLC was thus dwarfed by WLC's indebtedness to its own creditors. 4. Test the matter this way. Let it be assumed that Gujarat India had, in March 2013, paid WLC in full for the coal delivered to it. Even then, WLC's liquidity position would remain desperate. Even then, WLC's current liabilities exceeded its current assets by more than $300,000,000. There was no challenge to the finding of fact by the primary judge at [446]: "[T]the debt that Gujarat India owed to WLC (as now established by this Court's judgment) while substantial, was significantly less than the liability of WLC to its creditors. As a logical matter, it is clear that the failure of Gujarat India to pay its debt to WLC in a timely manner would have significantly impeded WLC's ability to pay its own creditors in due course. It goes too far to say that WLC's ability to pay its own creditors was dependent on Gujarat India paying its debt to WLC." 1. The evidence and findings of the primary judge established that the funds giving rise to WLC's debt to GNI were transferred to it by GNI, after they were borrowed by GNL from Axis Bank and transferred by GNL to GNI. Those funds were not lent to WLC by way of making good Gujarat India's failure to pay for coal over many years. They were lent in the immediate aftermath of the failure of WLC's capital raising, a capital raising which was urgently required, it may be inferred, because of WLC's enormous current liabilities. 2. To those matters there is added the temporal distance between the two debts. WLC's debt to GNI arose in June 2013. Gujarat India's debt to WLC reflected the cumulative outstanding indebtedness, which had accumulated over years, for supply of coal for which Gujarat India failed to pay. 3. The foregoing is little more than an elaboration of what was succinctly recorded by the primary judge at [483] reproduced above. I did not regard any of it to have been challenged by WLC, which is understandable, given the limited scope of this appeal, and since it derives from WLC's own contemporaneous financial records. It follows that no basis has been made out on appeal to interfere with his Honour's finding, with which I agree, that the requirement of impeachment was not made out. Orders 1. For those reasons, the first issue in the appeal is made out, but the second fails. The cross-appeal, which was not pressed, should be dismissed. The question of costs, both in this Court and at first instance, given the partial success of both sides, should be the subject of short submissions by the parties, if agreement cannot be reached. The directions I propose will also permit the parties to bring in short minutes of order in accordance with these reasons, or, in lieu of agreement, the form of orders for which each contends, and submissions in support, with a view to all remaining disputes being resolved on the papers. 2. I propose the following orders: 1. Appeal allowed in part. 2. Set aside declaration 1 made on 28 September 2018. 3. Cross-appeal dismissed. 4. Direct the parties to file and serve, within 14 days of today, an agreed form of orders including orders as to costs, or, to the extent agreement is not reached, the orders for which each contends, and short submissions in support of those orders. 5. Direct the parties to file and serve, within 21 days of today, any submissions in reply as to the orders each seeks. 1. McCALLUM JA: I agree with Leeming JA and with the additional remarks of the Chief Justice. ********** Amendments 24 March 2020 - [29]: "US" inserted before "$20 million". [31]: "US" inserted before "$20,000,000" and before both instances of "$4,500,000". [50]: "operator's" inserted after "gaming". [55]: "the case of a beneficiary" replaced by "the case of the beneficiary" in the indented quote. [69]: "the" changed to "The" in "Moss v The Legal and General Life Assurance Society of Australia". [83]: "in another the context" changed to "in another … context" in the indented quote. [87(2)]: "not to do seek to enforce" changed to "not to seek to enforce". [101]: "US" inserted before "$59 million". [104]: "US" inserted before "$59,718,101.53". [106]: "US" inserted before each of "$10 million", "$9,506,000" and "$7,962,974.88". [112]: "US" inserted before "$10 million". [113]: "should be not be regarded as authority" changed to "should not be regarded as authority". 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: 24 March 2020