CASE ANALYSIS: LAVIN v TOPPI In Lavin v Toppi, the High Court clarified the principles governing contribution between co-sureties where one surety pays more than its share of a guaranteed debt. I. MATERIAL FACTS The first appellant (Ms Lavin) and the first respondent (Ms Toppi) were guarantors, jointly and severally liable for a consolidated loan in the amount of $7,768,000 (the loan) which was provided by the National Australia Bank (the Bank) to Luxe Studios Pty Ltd (Luxe), a company of which the parties were directors and equal shareholders. In 2009, Luxe went into receivership and the Bank made demands upon each of the guarantors for payment of the balance of the loan. The proceeds of the sale of a property owned by Luxe were paid …show more content…
to the Bank, but as of May 2010 Luxe remained indebted to the Bank for over $4 million. Ms Lavin crossclaimed against the bank and subsequently executed a deed of settlement whereby the Bank covenanted not to sue Ms Lavin if she paid, relevantly, a minor portion of the guaranteed debt. Thereafter, Ms Toppi sold her home and used the proceeds of the sale to pay the balance of the guaranteed debt, which was then approximately $2.9 million. Importantly, the obligations of both parties as guarantors were discharged. Ms Toppi then commenced proceedings claiming contribution from Ms Lavin for $773,661.04, being an amount equal to half the difference between the respective amounts paid by the parties in discharging the guarantee. II. ISSUE The issue, then, was whether Ms Toppi, a surety who had paid a disproportionate amount of the guaranteed debt, was entitled to recover contribution from Ms Lavin, a co-surety who had the benefit of a covenant not to sue from the Bank. III. REASONING A. Co-ordinate Liabilities Before the High Court, Ms Lavin submitted she did not share co-ordinate liabilities with Ms Toppi because her own liability in respect of the guaranteed debt was unenforceable by the Bank in light of the covenant not to sue. During arguments it was claimed that this “qualitative difference” in the liabilities of the respective parties precluded a claim for contribution by Ms Toppi as a co-surety. As an extension, Ms Lavin also suggested that Ms Toppi’s discharge of the guarantee conferred no real or practical benefit on her because she had no liability under the guarantee which could be enforced by legal proceedings. In a novel approach, Ms Lavin insisted that the existence of co-ordinate liabilities and benefit by the payment of the co-surety claiming contribution, are necessarily separate and distinct elements of a right of action for contribution. Importantly, the court found that the covenant not to sue did not extinguish Ms Lavin’s liability in respect of the guaranteed debt, nor did it alter her obligations vis-à-vis Ms Toppi.
In reaching this conclusion the court drew upon the statement of Glanville Williams that “the right to contribution among co-debtors is independent of any present rights of the principle creditor.” Further, Wolmershausen v Gullick was applied as authority for the proposition that the right to contribution exists between co-sureties despite the fact that enforcement by the creditor may be barred against one debtor. Therefore, because the covenant did not extinguish Ms Lavin’s liability under the guarantee, it followed that the parties continued to share co-ordinate liabilities so as to entitle Ms Toppi to recover contribution from Ms …show more content…
Lavin. With regard to the ancillary argument, the joint judgment made it clear that the purpose of the doctrine of contribution is to ensure that the burden of a common liability is borne equally, and so it was held that the existence of co-ordinate liabilities and benefit from payment are associated elements of the right. The case of Burke v LFOT Pty Ltd was applied to demonstrate that the discharge of a common liability by one surety inevitably benefits a co-surety who pays less than their fair share and is unjustly enriched. B. Contribution in Equity The court held that Ms Toppi was entitled to recover contribution from Ms Lavin in accordance with equitable doctrine of contribution. This finding was premised on the understanding that Ms Toppi’s equity was sufficiently cognisable in equity prior to the Bank’s covenant not to sue and the payment of the guaranteed debt. Ms Lavin adopted a highly technical argument which was premised on the notion that Ms Toppi’s right to contribution only arose after she had paid a disproportionate share of the guaranteed debt. The court, with reference to the judgment of Starke J in McLean v Discount & Finance Ltd, explained that at common law an action for contribution cannot be maintained in advance of actual payment of more than the just proportion of the principal obligation. In equity, however, the right to contribution can be declared before actual payment is made or loss sustained provided that such payment or loss is imminent. Importantly, the Court held that Ms Toppi’s liability to the Bank became imminent upon the commencement of proceedings by the Bank. Thus, from the time the parties were called upon under the guarantee, Ms Toppi’s equity to recover contribution was sufficiently cognisable that it could not be defeated by the covenant not to sue between the Bank and Ms Lavin. As a result, the High Court unanimously held that Ms Toppi’s entitlement to contribution from Ms Lavin was unaffected by the Bank’s covenant not to sue, and the appeal was dismissed. IV. NATURE OF EQUITY The rationale of the right to contribution, both at law and in equity, is said to be “one of natural justice” which ensures “that persons who are under co-ordinate liabilities to make good the one loss must share the burden pro rata”. In finding that Ms Toppi was entitled in equity to contribution from Ms Lavin, the reasoning of the Court was informed by the maxims of equity. A. Equality is Equity This maxim derives from the principles of natural justice, such that if several persons have a common obligation they should as between themselves contribute proportionately in satisfaction of that obligation. Specifically, the Court cited the case of Craythorne v Swinburne to explain that equity will intervene to ensure that a creditor is not at liberty to fix one co-surety with the payment of the whole debt so as to relieve the other of a shared responsibility. In accordance with the maxim, the Court held that the equivalence of the co-extensive liabilities of Ms Toppi and Ms Lavin under the guarantee should not be defeated by the actions of the Bank in covenanting not to sue Ms Lavin. To this end, the argument put forward by Ms Lavin that the Bank was at their whim to discriminate between debtors was expressly rejected on equitable grounds. This reasoning illustrates that equity naturally aims to distribute losses in proportion to the liabilities of the parties concerned. B. Equity follows the Law In AMEV-UDC Finance Ltd v Austin, Deane J observed that ‘equity followed and built upon the common law, adding its remedies by way of enforcement of the common law in some cases and granting its relief against the harshness of the operation of the common law in others’.
In the present case, equity intervened to prevent Ms Toppi from shouldering a disproportionate share of the debt, not by interfering with the action of the Bank, but rather by providing for the remedy of contribution from the time that the parties were called upon to satisfy the guarantee. Thus, equity can be said to follow the law in the sense that it does not seek to direct the manner of exercise of the rights of the creditor, but instead it makes an adjustment between the
debtors. In an action at common law, payment of a disproportionate amount is an essential element of the payer’s cause of action against a co-surety for contribution. Equity, on the other hand, acts quia timet where the apprehended over-payment appears sufficiently imminent. This exemplifies the flexible and comprehensive nature of equity, and demonstrates how equity is designed to mitigate the rigour of the common law. C. One who seeks Equity must do Equity Plaintiffs in equity must fulfil their legal and equitable obligations before seeking a remedy. Thus, a party seeking to claim contribution from a co-surety must be able to satisfy the court that they were willing and able to pay at least their share of the principal debt. In the present case, Ms Toppi satisfied this requirement when she paid the balance of the guaranteed debt, thus discharging the obligations of both parties. V. CONCLUSION Therefore, the outcome and reasoning in Lavin v Toppi illustrates that the equitable principles underpinning the doctrine of contribution will ensure that the entitlement of a co-surety to equitable contribution is not defeated by any discriminatory actions taken by the creditor. This decision is significant because it again highlights the robust protections that equity affords to an innocent third party, where their rights are adversely affected by dealings beyond their control.
“In my view I am required by principle and local authority to decide that the terms of this mortgage, when it was registered, established an indefeasible right in the mortgagees to bring proceedings for repayment of the debt existing from the advance of the $206,000.”
Gummow and Bell JJ concluded that clause 1 of the Deed signed Rural’s debts and its interests under the loan agreements to Equuscorp. Their Honours observed that the phrase “other remedies for these matters” located in clause 2 assigned a claim in restitution for money had and received . Heydon J agreed with this decision on similar grounds .
Palgo Holdings Pty Ltd carried on a business of making small secured loans. Each borrower would sign a two-part document. The first part of the document, titled “Secured Loan Agreement”, recorded the amount of the loan and the date on which the principal and interest was due. The second part of the document, titled “Bill of Sale/Goods Mortgage”, was made as a deed between the borrower as mortgagor and the lender as mortgagee. It also recorded that the terms of the bill of sale were set out in the schedule of terms attached.
Jones was party to the contract and mortgage together with Mrs Jones as surety for her husband, even though Mrs Jones was the actual owner of the property. This produced a legal consequence as it affected the appellants with a conduct on the part of the husband in relation to his wife which raised equities in her favour against the indication of a mortgage. The husband exercised undue influence on Mrs Jones to procure her signature to the mortgage which consisted of no consideration. The plaintiff brought proceedings against the defendant upon a contract to pay interest and principal contained in the mortgage over the property at Walkerville owned by Mrs Jones. It was understood that Mrs Jones executed the mortgage without understanding the effect of the contract and presumed various false misrepresentations. She argued that the mortgage which she s...
The decision of the House of Lords in City of London Building Society v Flegg marks a key stage in how the balance is drawn between occupiers and creditors in priority disputes; the seeds of which were originally planted in the Law of Property Act 1925. It posed a serious challenge to the conventional understanding of overreaching and the machinery of conveyancing.Ref ?
“[T]he pari passu principle providing for equality of division among creditors is said to be one of the (if not the most) fundamental principles of the law of insolvency and is at the very heart of the who...
Had Mr Virgo disclosed all information to the Amadio’s, especially when Mr Amadio made the statement which suggested he was not properly informed of the terms of the mortgage, and the Amadio’s understood everything, they would not have been able to take to court the Commercial Bank of Australia on the grounds of unconscionable conduct. The fact that their ‘special disadvantage’ was exploited gave passage for them to receive equitable relief for unconscionable
In support of this conclusion, the court cited the reasoning of Williams, emphasising the independence of the right of contribution amongst co-sureties from any present rights of a creditor. In further support, the court considered the specific nature of covenants not to sue, noting that they are not intended to discharge liability, so as to not release all co-guarantors, but rather to prevent any enforceability through legal proceedings. The court resultantly concluded that the covenant not to sue did not extinguish, but in fact assumed the continued existence of the appellants’ and respondents’ shared coordinate liabilities, entitling the respondents to recover
Litigation seeking judgment has started against the borrowers and the guarantors. All corporate entities were served on 1/13/2017, and
Traditionally in English contract law, a common law rule called the ‘penalty doctrine’ has applied. This rule prohibits the enforceability of contractual clauses that stipulate the payment of an extravagant level of damages in the event of breach. Recently, this doctrine has come into question in Talal El Makdessi v Cavendish Square Holdings BV; judgment from the Supreme Court on the case is currently awaited. In Makdessi, the Supreme Court must decide whether the penalty doctrine should remain. This essay submits there is no place for the doctrine in present-day English law.
Interpretation of this case with the help of above two case is done in a very detailed and interesting manner with clear position. He says that when agency is pre-existing, the provisions of necessity should be an expansion of the agent’s obligations and rights attached to his authority, allowing Sheen J’s balanced examination. Hence no need to create an authority rather evaluate it within that network of rules. In case, agent exceeds his actual authority, the rules of apparent authority should be applied. This approach would let principles of agency to operate in their own context simultaneously acknowledging that, outside a pre-existing agency, claims for reimbursement should be
K.G White, Bankers Guarantees and the Problem of Unfair Calling in JOURNAL OF MARITIME LAW AND COMMERCE 124 (1980).
As set out by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Soci...
The main aim of this article is to undertake a analysis of the effect that the advantage to creditors requirement has on sequestration applications. In terms of the Insolvency Act 24 of 1936 there are two processes that a debtor may sequestrate his estate. Either by voluntary surrender of his estate or by compulsory sequestration. In both these instances there is a requirement that the granting of the sequestration must be to the “advantage of the creditors”. A discharge of debtors from debts is a something yet to be realized if the advantage requirement is not relaxed. Although the Act does not outline what constitutes an advantage of creditors, the courts have interpreted it to encapsulate a benefit to creditors.
One of the main requirements in both forms of sequestration is the requirement ‘advantage to creditors’, which entails that for an application of surrender to be accepted it must be to the advantage of the creditors. This requirement is the main focus with regards to the following discussion, as well as the challenges that have developed due to abuse of the sequestration process-specifically voluntary sequestration- by debtors.