This case concerned the liability of co-guarantors. The bank sued the co-guarantors on their guarantees but settled in relation to one of the guarantors. Subsequently the remaining guarantor discharged the balance of the debt owed to the bank, so contributing a higher sum and then sought contribution to ensure equality between them.
The court found that the covenant by the bank not to sue the guarantor who settled did not release their liability as a co-surety. The court found the liabilities of the co-guarantors to be coordinate liabilities and noted as follows:
A surety is entitled to contribution from his co-sureties so that the common burden is borne equally and so that no surety is required, as between himself and his co-sureties, to pay more than his due share. The right arises whether the sureties are bound jointly, jointly and severally, or severally, and whether by the same or different instruments, and whether or not the sureties knew of each other’s existence, provided that they are liable in respect of the same debt.
The court recognised that there are cases in which a co-surety is able to demonstrate that there are reasons why an equitable and fair adjustment of the amounts payable by each co-surety should not depend only on the amount paid by each and a simple division of the total debt divided by the number of co-sureties, but once a surety has established that he has paid a disproportionately larger amount than another surety in respect of a creditor’s claim on the guarantee, it is the second surety who bears the onus of establishing any defence including an assertion that the lack of proportionality in payment to the creditor ought not be determinative of the amount of contribution to be paid. If one co-guarantor was able to demonstrate that they had, prior to receiving the demand, paid significant and disproportionate amounts in reducing the debt pursuant to their obligations as a guarantor, those payments would need to be taken into account but having failed to make out such a case (indeed having given no evidence at all), that co-guarantor cannot rely on the other co-guarantor’s failure to prove the contrary.
Further the court recognised that a surety can, by reason of his or her conduct, be disentitled to equitable contribution, or equitable contribution beyond a certain amount but this was not such a case.
The court held that the guarantor who contributed more was entitled to recover contribution for half of the difference between what they paid and what the guarantor who settled paid plus interest.
Click here to read the full judgment