The court did not have power to assist a guarantor who claimed that the second guarantor should pay a greater proportion of the guaranteed debt…
Daniel Brown and Dustin Kavanagh guaranteed the debts of Rethink Financial Group Pty Ltd to AMP Bank.
Mr Brown claimed that the conduct of Mr Kavanagh, at the time of the split of the partnership, gave him an unfair advantage and therefore Mr Brown should pay a greater proportion of the debt claimed by the bank.
Judge Kunc delivered judgment on 30 March 2017, and held that the law did not include any power to adjust the monetary obligations as between guarantors to reflect what might be seen as one co surety’s greater culpability or responsibility for the guaranteed debt.
His Honour went in to say that even if the law allowed for an apportionment other than equally between guarantors, the facts did not support that in the case of Mr Brown and Mr Kavanagh .
Mr Brown held 30% of the shares in Rethink Pty Ltd and Mr Kavanagh held 70%. Mr Brown said that it would be fair if he was required to pay 20% of the debt. He did not argue the percentage of his shareholding as a factor. Mr Brown’s case was based on facts that occurred at the end of the partnership, namely that he was locked out and that Mr Kavanagh dealt with assets of the business in a way that gave him an unfair advantage.
Mr Honour relied on an old 1787 authority in deciding that the doctrine of contribution among sureties is not founded on contract but in equity on the ground of equality of burden and benefit.
His Honour pointed out that the only way Mr Brown could have argued that Mr Kavanagh should pay more than half the guaranteed debt would be to argue that he did not come to the court of equity with clean hands. This was not argued and his Honour said that it was difficult to see how it could have been.
Mr Brown was unsuccessful in his claim and Mr Kaganagh and was obliged to pay half of the debt.
The law — the accepted exceptions to the rule that co-sureties must contribute equally…
The authorities disclose four exceptions to the general principle of equality as between co-sureties (the “accepted exceptions”):
1. Contract, or something less than contract, being the manifestation of a common intention to modify or exclude rights to contribution;
2. Where one surety has obtained the whole benefit of the guarantee;
3. Where one surety is guilty of “fraud, illegality, willful misconduct or gross negligence”; and
4. Equitable defences, such as clean hands.