Dear Colleagues;

The High Court of Australia today handed down its decision in Lavin v Toppi [2015] HCA 4 (11 February 2015) http://www.austlii.edu.au/au/cases/cth/HCA/2015/4.html dealing with contribution between co-sureties and co-ordinate liabilty. The case is fairly brief and the result unsurprising, to me, though others who know more about the complexities may see more there. Two groups of sureties guaranteeing a loan; on default, the bank sued all the guarantors; one group settled for less than half the amount, and received a covenant from the bank that it would not sue. When the bank recovered the balance from the other guarantors, they then sought contribution from the ones who had settled with the bank. In response these claimed that there was no “co-ordinate liability”, as they could no longer be sued by the bank. But the HC (agreeing with the NSWCA) held that the settlement with the bank did not preclude appropriate contribution being paid between the guarantors. Hence the second group sued could recover half of the “excess” they had paid, from the first group.

Interestingly comments are offered on two alternative bases for the decision, one at common law and the other under equitable principles. As the court noted at [37], following Leeming JA in the CA, the grant of a covenant not to sue on the liability did not extinguish the liability, it simply put enforcement out of the power of the bank. So the liability remained. The only difference the court noted between common law and equity was that at common law the action for contribution could not have been brought unless the excess amount had actually been paid, while in equity the court would be willing to act on a quia timet basis and issue an injunction. But in this case both grounds for the order were present.

Regards

Neil

neil foster