Parker v Alessi [2011] NSWSC 947

This case concerns a failed joint venture between engineers and achitects. One of the financiers called upon the personal guarantees and one guarantor paid out the loan and took an assignment of the loan and called upon the other guarantors to pay their proportions. The agreement was to split the profits after $500,000 was paid to the architects. Each parties liability for the loans was equal to their shareholding and a party offering higher equity risk was to be rewarded out of potential profits.
The architects made a loan to the engineers to pay out the overdraft and other debts of the engineers and provide some ongoing cashflow to enable the financing, which required extra security to be released from the other debt, to go ahead. The characterisation of that loan as a loan to the engineers to be paid back at the conclusion of the project before profits would be distributed was not agreed by the engineers. The engineers thought the debt and difference in interest rates would both become part of the project costs because the overdraft was due to work done on the project and the overdraft would only be repaid if the project were successful and not otherwise.

The court found that all the individuals involved recognised that in one way or another, the engineers would bear a particular responsibility for the overdraft amount. All of the joint venturers agreed that the architects were to be repaid the amount the engineers received to discharge their overdraft. The fact that the engineers did not have an obligation to repay the amount of the loan used to pay out the overdraft until the end of the project does not mean that they agreed that they would have no obligation to be responsible for the repayment of the overdraft amount of the SCF debt if the Project failed. The court held that even though final agreement was not reached as to how the overdraft amount was to be repaid, that does not prevent a guarantor seeking contribution from co-guarantors.

Contribution – Equity is equality
The doctrine of contribution is based on the principle of natural justice and equitable principles that those with a common obligation should contribute proportionately in satisfaction of that obligation. A party who has provided more than a “just proportion” in satisfaction of the obligation is entitled to contribution from the others with the common obligation. Ordinarily the justice of the matter will require equality of sharing such that if a disproportionate burden falls on one of the sureties, that one has an entitlement in equity to contribution by the others so that overall the burden is distributed fairly, and has an entitlement to be subrogated to rights which the creditor has not exercised. Equitable doctrine and not contract is the basis of the right of contribution but equity may also require unequal sharing in the particular circumstances of the case.

Here the engineers derived a financial gain from the payment of the overdraft and if the architects were required to contribute to the loan equally with the engineers, the architects would be providing more than their just proportion. The architects had no responsibility for the overdraft and received no benefit from it and the joint venture did not benefit because none of those monies were available for use in the project. And the fact that the joint venture records recorded the engineer’s debt as owed to the project is of no consequence in equity. The loan was for the benefit of the engineers only. The court was not satisfied that the parties intended that if the project were not successful and the parties were called upon under their guarantees that such payment towards the overdraft would be not brought to account. Also the fact that they adjusted their profit sharing 55: 45 to reflect their different equity contributions, does not restrict their entitlement to claim contribution under their guarantees. The parties’conduct indicated a clear intention that the overdraft was to be repaid by the engineers.

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