Padstow Corporation Pty Ltd v Fleming - [2011] NSWSC 1337

Supreme Court

New South Wales

Medium Neutral Citation: Padstow Corporation Pty Ltd v Fleming [2011] NSWSC 1337
Hearing dates: 31 October 2011
Decision date: 31 October 2011
Jurisdiction: Equity Division
Before: Gzell J
Decision:
Co-surety not released as terms of settlement a covenant not to sue.

Catchwords: GUARANTEE AND INDEMNITY - Discharge of Surety - terms of settlement and notice of discontinuance against one surety - whether co-surety released - whether covenant not to sue
Cases Cited: James & Ors v Surf Road Nominees Pty Limited & Ors [2004] NSWCA 475
Carr v Thomas [2009] NSWCA 208
Dorgal Holdings Pty Ltd v Buckley (1996) 22 ACSR 164
Category: Procedural and other rulings
Parties: Padstow Corporation Pty Ltd (Plaintiff)
Thomas John Fleming (Second Defendant)
Harold O'Brien (Third Defendant)
Thomas Maurice Fleming (First Cross-Claimant)
Alan Sher (Third Cross-Claimant)
Robert Minter (Cross-Defendant to Fourth Cross-Claim)
Representation: Counsel
J Sleight/C Mulvey (Plaintiff)
R Angyal SC/L Doust (Second Defendant)
J Sheller (Third Defendant)
G Rich/L Thomas (First Cross-Claimant)
J Merkel (Third Cross-Claimant)
G Curtin SC (Cross-Defendant to Fourth Cross-Claim)
Solicitors
Neville & Hourn Legal (Plaintiff)
Cordato Partners (Second Defendant)
Gilchrist Connell (Third Defendant)
Addisons Lawyers (First Cross-Claimant)
Smith Lawyers (Third Cross-Claimant)
Middletons Lawyers (Cross-Defendant to Fourth Cross-Claim)

File Number(s): 2008/279166

EX TEMPORE Judgment

The plaintiff, Padstow Corporation Pty Limited, sued the first defendant, Thomas Maurice Fleming (Mr Fleming Senior), and the second defendant, Thomas John Fleming (Mr Fleming Junior), for amounts allegedly owed by them as guarantors of Hamola Crochet Pty Limited under a commercial property lease between Padstow and Hamola.

Pursuant to leave granted by the Court, Padstow has discontinued its claims against Mr Fleming Senior. That occurred pursuant to terms of settlement agreed between Padstow and Mr Fleming Senior.

In the balance of his notice of motion filed on 19 October 2011, Mr Fleming Junior contends that the terms of settlement operate to release him from any liability that he might otherwise have had to Padstow as a guarantor.

In written submissions, Mr Fleming Junior raised three bases for this contention but abandoned two of them.

Mr Fleming Junior's remaining claim is that, on a proper analysis, the settlement reached between Padstow and Mr Fleming Senior amounts to a release.

The correctness or otherwise of that argument turns on the proper construction of the terms of settlement and, in particular, whether they operate as a covenant not to sue Mr Fleming Senior or as a release of the obligation owed to Padstow by both guarantors.

If they operate as a covenant not to sue, then Mr Fleming Junior's liability to Padstow has not been released or extinguished by the terms of settlement.

The principles are not in dispute. In James & Ors v Surf Road Nominees Pty Limited & Ors [2004] NSWCA 475 the following was said:

[38] "The starting point in consideration of the circumstances in which a joint or joint and several guarantor may be discharged from liability under a guarantee is the principle that the discharge by the principal of…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2011] NSWSC 1337
Decision Date: 31 October 2011

CaseChat Overview and Summary

Padstow Corporation Pty Ltd, the plaintiff, brought an action against Fleming, the defendant, in the Supreme Court of New South Wales. The plaintiff sought to enforce a guarantee and indemnity provided by the defendant for the debts of a third party, James Property Investments Pty Ltd. The dispute centred on the discharge of the surety and the implications of a settlement reached between the plaintiff and one of the co-sureties, without the defendant's involvement. The court was required to determine whether the defendant was released from his obligations under the guarantee and whether the covenant not to sue other sureties was binding on the plaintiff.

The primary issue before the court was whether the defendant's obligations under the guarantee were discharged when the plaintiff settled with one of the co-sureties without the defendant's knowledge or consent. The court had to examine the terms of the settlement agreement and the notice of discontinuance filed against the co-surety to ascertain if this constituted a release of the defendant. Additionally, the court needed to determine if the covenant not to sue other sureties, which was part of the settlement agreement, was enforceable against the plaintiff.

The court held that the defendant was not released from his obligations under the guarantee. It found that the settlement agreement and notice of discontinuance against the co-surety did not constitute a release of the defendant, as he had not been a party to the settlement. The court further ruled that the covenant not to sue other sureties was not binding on the plaintiff, as it was not a party to the settlement agreement. The court emphasised that the terms of the guarantee required the plaintiff to pursue all sureties jointly and severally, and thus, the covenant did not affect the plaintiff's right to enforce the guarantee against the defendant.

The court ordered that the defendant remained liable under the guarantee for the debts of James Property Investments Pty Ltd. The plaintiff was entitled to enforce the guarantee against the defendant, and the covenant not to sue other sureties was not applicable. The settlement with the co-surety did not release the defendant from his obligations, and the plaintiff was free to pursue the defendant for the outstanding debts.

Orders