Ogilvie v Ferry [2010] NSWSC 379

This complicated case involved the rights of a surety for a mortgage debt against co-sureties. In finding a right of subrogation existed the court endorsed the following definition of subrogation quoted by Windeyer J in Saffron Sun Pty Ltd v Perma-Fit Finance Pty Ltd (in liq) (2005) 65 NSWLR 603 at [14]:

“It is broad enough to include every instance in which one party pays a debt for which another is primarily answerable, and which, in equity and good conscience, should have been discharged by the latter; but it is not to be applied in favour of one who has, officiously and as a mere volunteer, paid the debt of another, for which neither he nor his property was answerable, and it is not allowed where it would work any injustice to the rights of others.”

Having found a right of subrogation the court went further and ordered the co-sureties to indemnify the plaintiff 100% of their liability. The reasoning behind this was explained by example as follows:

There are cases where a person falls under a common liability but is not obliged to contribute equally to the liability. To take a grossly simple illustration, if two join in borrowing money but the money borrowed is applied for the purposes of only one of them, the borrower who obtained the money is categorised as the principal borrower and the other is categorised as a surety for the purpose of adjustment of rights between them, regardless of whether or not they were expressly so categorised by the terms of their contract with the creditor, and whether or not there was any express arrangement excluding contribution or any actual advertence to the question of contribution at all. The court would have no difficulty in categorising one as principal and one as a surety, and in recognising that they do not stand in a position of equality so that there could be no claim for contribution by the principal, while the other would be entitled to an indemnity. Further, if both gave security over property the surety would be entitled to a charge over the charged property of the principal.

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