Global Consulting Services Pty Ltd v Gresham Property Investments Ltd

In the New South Wales Court of Appeal, Global Consulting Services Pty Ltd (as trustee for the Pierora Trust) and Pierora Pty Ltd (as trustee for the PVS5 Trust) appealed against orders made by the primary judge concerning the liabilities of guarantors. The dispute arose from guarantees provided by the appellants and a third party, PV, to secure a loan from CVS Mezzanine Pty Ltd. The primary judge had found that the liabilities of the guarantors were coordinate, meaning they were equally liable for the debt.

The central legal issue before the Court of Appeal was whether the primary judge erred in finding that the guarantors' liabilities were coordinate, and consequently, whether the appellants were entitled to contribution from PV. This involved considering the circumstances in which contribution between co-guarantors might be excluded, particularly where there was a common intention or agreement to the contrary, or where one guarantor enjoyed all the benefit of the guarantee.

The Court of Appeal reasoned that the primary judge had failed to properly consider the substance of the arrangement between the parties, which, in equity, should be regarded over mere form. The court found that the evidence demonstrated a clear intention that PV would be the primary obligor to CVS Mezzanine, with the appellants acting as secondary obligors. This arrangement meant that the appellants, if required to pay under their guarantees, should have recourse against PV before PV could claim contribution from them. The court applied equitable principles concerning contribution between co-sureties, noting that equity looks to the substance of the transaction and that a guarantor who receives the sole benefit of the guaranteed loan is not entitled to contribution from a co-guarantor.

Consequently, the Court of Appeal allowed the appeal, setting aside the primary judge's orders. The court declared that PV was the primary obligor and the appellants were secondary obligors. It further ordered that CVS Mezzanine be paid first from the sale proceeds attributable to PV, and then rateably from the sale proceeds attributable to the appellants. Any residue after payment to CVS Mezzanine was to be paid to the appellants up to the full amount referable to their respective sales, in priority to PV. The court also ordered that Gresham Property Investments Ltd, the first respondent, pay the appellants' costs at first instance and of the appeal.