Teparyl Pty Ltd v Willis
[2009] VSC 259
•3 July 2009
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
No. 5341 of 2007
BETWEEN:
| TEPARYL PTY LTD (ACN 005 501 360) | Plaintiff |
| V | |
| DIANNE MARGARET WILLIS and ORS | Defendants |
AND BETWEEN:
| DIANNE MARGARET WILLIS and ROBERT BRUCE ANDREWS | Plaintiffs by Counterclaim |
| V | |
| TEPARYL PTY LTD (ACN 005 501 360) | Defendants by Counterclaim |
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JUDGE: | BYRNE J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 16 June 2009 | |
DATE OF JUDGMENT: | 3 July 2009 | |
CASE MAY BE CITED AS: | Teparyl Pty Ltd v Willis | |
MEDIUM NEUTRAL CITATION: | [2009] VSC 259 | |
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GUARANTEE and SURETY– Lease – Assignment –– Release by lessor of lessee and lessee’s guarantor – Whether release discharges assignee and assignee’s guarantors
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Dr O Bigos | Clarkson Giacomi Solicitors |
| For the First and Second Defendants | Mr J Arthur | MacKinnon Jacobs Horton & Irving |
| For the Third and Fourth Defendants | Mr N O’Bryan SC | TressCox Lawyers |
HIS HONOUR:
This is the preliminary trial of a question arising in this proceeding ordered by Daly AsJ made on 2 March 2009 pursuant to R 47.04. The question is the following:
Does the deed made 24 February 2006 (Release) between the Plaintiff in the original proceeding (Teparyl) and the Second Defendant by Counterclaim (Astawayne) and the Third Defendant by Counterclaim (Sheard) have the effect as pleaded in paragraphs 26 to 28 of the Amended Defence to Amended Statement of Claim and Counterclaim[1] filed by the First and Second Defendants in the original proceeding and the Plaintiffs by counterclaim (Willis & Andrews)?
[1]These pleas are set out in para [15] below.
The Facts
The facts underlying this interesting question are not complicated, nor are they very much in issue.[2]
[2]See agreed statement of facts filed on 15 June 2009.
By instrument of lease dated 14 April 2003 the plaintiff, Teparyl Pty Ltd (“the lessor”), leased the premises situate at and known as 24 Warrigal Road, Mentone to an associated company, Twenty-Three Astawayne Pty Ltd (“the lessee”), for a term of 10 years with a 10 year option.
By guarantee and indemnity of the same date, the sole director of the lessee, Gary Keith Sheard (“the lessee’s guarantor”), who was also the sole director of the lessor, guaranteed the payment of all moneys and the performance of the lessee’s obligations during the term of the lease and also “during any period of over holding after the end of the term and any Assignment or transfer of the Lease”.[3]
[3]Guarantee and indemnity cl 1.
The lessee in 2003 had conducted on the premises a supported residential care establishment business and, by agreement made in April or May 2003,[4] it agreed to sell this business to RB Andrews Pty Ltd (“the assignee”).
[4]The statement of claim alleges the agreement is 30 April 2003, the defence alleges the date of contract of sale of the business is 7 May 2003, but nothing turns on this.
Some months later, on 8 August 2003, the lessee, with the consent of the lessor, assigned the balance of the term to the assignee. This was achieved by a document of that date entitled Transfer and Variation of Lease. The lessor was a party to this agreement, as were Dianne Margaret Willis and Robert Bruce Andrews, who signed as joint and several[5] guarantors (the “assignee’s guarantors”).
[5]Clause 14.
The transfer and variation provided that the lessee remained liable under the lease for the balance of the term but not in “any period of overholding after the lease ends, nor into any renewed term”.[6]
[6]Clause 5.
The transfer and variation also provided for the continuing liability of the lessee’s guarantor in these terms:
6. THE [LESSEE’S] GUARANTOR STILL LIABLE
This transfer does not end the obligations of the [lessee’s] guarantor under any guarantee or indemnity. Unless the guarantee or indemnity provides otherwise, those obligations continue until the end of the lease, but do not continue into any period of overholding after the lease ends, nor into any renewed term.
9. ACKNOWLEDGEMENT BY THE [LESSEE’S] GUARANTOR
The [lessee’s] guarantor by signing this transfer acknowledges that its obligations to guarantee the [lessee] continue.
Mr Sheard signed the transfer and variation.
The assignee covenanted to pay the rent and to do everything else required by the lease[7] and provided an indemnity to the lessee in these terms:
4. INDEMNITY BY [ASSIGNEE]
The [assignee] indemnifies the [lessee] so that the [lessee] will not be responsible for breaches of the lease by the [assignee].
[7]Clause 3.
The guarantee by the assignee’s guarantors is contained in cl 8 of the transfer and variation:
8. GUARANTEE AND INDEMNITY
The [assignee’s] guarantor –
8.1Guarantees to the [lessor] and to the [lessee] that the [assignee] will pay the rent promptly and will do everything the lease requires.
8.2Agrees that this guarantee is a continuing guarantee which will not be affected by –
-part-payment
-part-performance
-extension of time given by the [lessor], or
-non-registration of the lease.
8.3Must indemnify the [lessor] and the [lessee] so that they suffer no harm from breaches of the lease by the [assignee], including losses resulting from the insolvency or winding-up of the [assignee].
The agreement presently under consideration is described as a transfer and variation. There are two respects in which the lease was varied by this document: the original term of 10 years from 14 April 2003 was extended so that the term expired 10 years from the date of approval by the Department of Human Services of the change of proprietor.[8] The second change was in the rental payments payable during the first 12 months of the term.[9]
[8]Clause 15.1. The date of approval was 13 August 2003: statement of claim, para 9, defence, para 11.
[9]Clauses 15.2, 15.3.
On 24 February 2006, the lessee and the lessee’s guarantor agreed that the lessee and the lessee’s guarantor should be released. The terms of this release which fall for construction in this trial are in these terms:
1.The [lessor], in consideration of this Deed and the sum of $1.00 paid by each of the [lessee] and the [lessee’s guarantor] to the [lessor], hereby forever releases and discharges the [lessee] and the [lessee’s guarantor] from any and all obligations and all claims and demands whatsoever which the [lessor] or any person whomsoever claiming under through or on behalf of the [lessor] may have or claim to have against the [lessee] and the [lessee’s guarantor] pursuant to the Transfer. AND THIS DEED FURTHER WITNESSETH that the [lessor] and any person whomsoever claiming under through or on behalf of the [lessor], in consideration of this deed and for the consideration herein before expressed, does hereby indemnify and agree at all times hereafter to indemnify the [lessee] and the [lessee’s guarantor] from and against all actions, claims and demands whatsoever which any person whomsoever may at any time make against the [lessee] or the [lessee’s guarantor] in respect of matters arising out of the Transfer.
The Litigation
This proceeding was commenced by the lessor against the assignee’s guarantors by writ filed on 27 March 2007. It alleges that the assignee fell into default and that the lessor re-entered on 3 February 2007.[10] I have been told that the assignee is now in liquidation. The sum of nearly $400,000 is said to be owing by it to the lessor under the assigned lease. The lessor, therefore, seeks to enforce the guarantee against the assignee’s guarantors.
[10]Statement of claim, para 13.
In their defence and counterclaim[11] the assignee’s guarantors, deny liability and bring a counterclaim against the lessor, the lessee and Mr Sheard as director of those parties. They allege false representations were made by them prior to the sale of the business and prior to the entry into of the lease. These are said to amount to contraventions of ss. 51AC, 52 and 53A of the Trade Practices Act and the corresponding provisions of the Fair Trading Act. It is said, too, that the representations were made negligently. Other allegations in the counterclaim I need not outline.
[11]Defence to amended statement of claim and counterclaim filed 2 May 2008.
Of interest, however, for present purposes, is the allegation made in paragraphs 26-28 of the counterclaim that the release of the lessee and the lessee’s guarantor in 2006 had the effect of releasing the assignee and the assignee’s guarantors. These pleas, which are the subject of the question before me are as follows:
26. As to paragraph 11 thereof:
(a)by Deed made 24 February, 2006, in consideration of such deed and the sum of $1.00 paid by each of [the lessee] and [the lessee’s guarantor], [the lessor]:
(i)forever released and discharged [the lessee] and [the lessee’s guarantor] from any and all obligations and all claims and demands whatsoever which [the lessor] may have or claim to have against them pursuant to the transfer;
(ii)indemnified and agreed at all times to indemnify [the lessee] and [the lessee’s guarantor] from and against all actions claims and demands whatsoever which any person may at any time make against them;
(b)save as aforesaid, they admit the contents of paragraph 11 thereof.
27.Further, by reason of the terms of the lease and the transfer of lease, each of [the lessee] and [the lessee’s guarantor] on the one hand, and [the assignee], and the [the assignee’s guarantors] on the other, were subject to a common obligation, or further, or in the alternative, were jointly and severally liable to [the lessor].
PARTICULARS
The common obligation and/or joint and several liability arose under the transfer of lease.
28.By virtue of [the lessor] so releasing [the lessee] and [the lessee’s guarantor] from their obligations under the transfer:
(a)[the assignee]; and
(b)the [the assignee’s guarantors] (and each of them) – were thereby released from all and any obligations to [the lessor] under:
(i)the lease;
(ii)the transfer of lease; and
(iii)the guarantee.
The raising of this plea appears to have caused the lessor to join as third and fourth defendants to the claim, Rowland John Hassall and John James Byrne, the solicitors who prepared the 2006 release. The allegation against them is that, if the release had the effect of releasing the assignee’s guarantors from liability to the lessor, this was the result of their negligent advice and drafting. Since this is the only issue involving the solicitors, it was convenient to determine it at the outset.
The Preliminary Question
Before me the principal submissions offered in support of the proposition that the 2006 release had the effect of releasing the assignee’s guarantors, were presented, surprisingly, by counsel for the lessor. His argument was directed to two broad issues. The first was that, on its true construction, the 2006 release released the lessee and the lessee’s guarantors from all liability to the lessor. The second, which was put in a number of ways, was that the effect of such a release was to release the assignee and the assignee’s guarantors.
The Construction Point
This point arose from the contention put on behalf of the solicitors that the terms of the 2006 release which are set out above,[12] were such that the lessee and the lessee’s guarantor were not released from all liability to the lessor; only liability under the transfer and variation.
[12]See para [12] above.
It will be recalled that in the 2006 release, the lessor releases them “from any and all obligations and all claims and demands whatsoever which the [lessor] or any person whomsoever claiming under, through or on behalf of the [lessor] may have or claim to have against the [lessee] and the [lessee’s guarantor] pursuant to the Transfer”. The same clause provides that the lessor indemnifies them from and against all actions, claims and demands whatsoever which any person may make against them “in respect of matters arising out of the Transfer”. In the recitals to this agreement the Transfer is defined to mean the transfer and variation of 8 August 2003. Furthermore, recital (f) is in these terms:
The [lessee] and the [lessee’s guarantor] have requested that the [Lessor] release them from their obligations under the Transfer.
The submission put on behalf of the lessor and the assignee’s guarantors is that this must be a reference to the obligations under the lease and the guarantee given at the time of the lease because the transfer and variation did nothing more than confirm the continuing liability of the lessee and the lessee’s guarantors under those documents.
This may not, strictly speaking, be correct because the transfer and variation did also vary the terms of the lease.[13] A further matter, but one which was not the subject of argument, is that cll 5 and 6 of the transfer and variation may have the consequence of relieving the lessee and the lessee’s guarantor from liability during any period of overholding or renewal of the lease.
[13]See para [11] above.
Putting to one side, for the moment, the transfer and variation, the effect of an assignment of the term of a lease at common law is that the lessee remains liable to the lessor because they are bound by privity of contract. The assignee is also liable to the lessor in respect of covenants that run with the land by reason of the privity of estate which exists between them when the lessor accepts the assignee as tenant. This position is also provided by the lease and guarantee itself. In cl 3(g) of the lease, “lessee” is defined to include assigns of the original lessee. In cl 1 of the guarantee the lessee’s guarantor is bound during any period of assignment or transfer of the lease. These obligations, counsel submitted, are not affected by the 2006 release.
The question which this analysis poses, then, is what is the effect of the 2006 release. What obligation is imposed on the lessee by the transfer and variation which was not already existing? What fresh obligation did it impose on the lessee’s guarantor? Counsel for the lessor and counsel for the assignee’s guarantors replied to each question that there was none. Counsel for the solicitors did not really suggest that there was any. The terms of cll 5, 6 and 9 of the transfer and variation speak not of a fresh obligation but of the continuance of existing obligations.
Clause 4[14] might suggest otherwise, in as much as it says that the lessee will not be responsible for breaches of lease by the assignee. But the context of this clause suggests that it is intended to mean that the indemnity which the assignee gives to the lessee will have the consequence of relieving the lessee from the consequences of its continuing liability to the lessor. But, in any event, this clause, on no reading, imposes a new obligation on the lessee.
[14]Set out at para [9] above.
I had before me no evidence of the context in which the 2006 release was entered into. I am left with the conclusion that the construction offered by counsel for the solicitors, who were in fact the drafters of the document, would deprive it of any commercial or legal significance. In these circumstances, I conclude that the reference to “obligations under the Transfer” and “obligations pursuant to the Transfer” in cl 1 of the 2001 release must be construed as a reference to obligations referred to in the transfer and variation and that those are the obligations which were created by the lease and the guarantee. The legal effect of the 2006 release, therefore, is to release both the lessee and the lessee’s guarantor from all obligations to the lessor arising out of the lease, as varied by cl 15 of the transfer and variation.
I mention before leaving this point, that the point may not have been available to the solicitors in any case. In its statement of claim the lessor alleges that, by the 2006 release, it “released [the lessee] and [the lessee’s guarantor] from their obligations to it.”[15] The plea of the solicitors in response is to admit the allegation, subject to production of the 2006 release and reference to the same.[16]
[15]Paragraph 11
[16]Defence of the third and fourthnamed defendants, para 11.
The effect of the release
It was contended on behalf of the lessor and the assignee’s guarantors that the release of either the lessee or the lessee’s guarantor had the legal effect of releasing the assignee and the assignee’s guarantors.
Following the assignment of the lease in 2003, each of the lessee and the assignee owed to the lessor an obligation which arose by contract in each case and by privity of estate in the case of the assignee. The lessor in these circumstances could choose to sue either or both if the rental was not paid and the other covenanted payments not made, but it could recover once only; payment by one of them would discharge the liability of the other. So much was not challenged.
Counsel for the lessor and for the assignee’s guarantors then submitted that, but for the 2006 release, each of the lessee, the lessee’s guarantor and the two assignee’s guarantors would have been liable to the lessor in respect of the same loss. This loss is the sum representing the amount of rental and other payments which were not paid by the assignee. Theirs is a coordinate liability.[17] This is the position notwithstanding that the liability arises under different instruments or is several. And where one of them pays more than their proper share of this loss, that party is entitled to equitable contribution from the others.[18] This was a right of contribution enjoyed by the assignee’s guarantors.
[17]Burke v LFOT Pty Ltd (2002) 209 CLR 282 at 293 [16], per Gaudron and Hayne JJ. See too, Friend v Brooker [2009] HCA 21 at [41], per French CJ, Gummow, Hayne, Bell JJ.
[18]McLean v Discount & Finance Ltd (1939) 64 CLR 312 at 328, per Latham CJ and at 336, per Rich J
Associated with this right of contribution is the principle upon which the argument of the lessor and the assignee’s guarantors depends. It is that, where this right of contribution is altered or lost by an act of the obligee without the concurrence of the coordinate obligors, the liability of the coordinate obligors may also be discharged.[19] In this case this was achieved by the act of the lessor in releasing the lessee and the lessee’s guarantor which, it is said, affected the right of contribution of the assignee’s guarantors.
[19]Hancock v Williams (1942) 42 SR (NSW) 252 at 255, per Jordan CJ and Halse Rogers J.
The rationale underlying this rule is that, while a creditor may recover the amount of the debt from any of a number of co-sureties, each of them has an equitable right to contribution against the others because the burden of the recovery ought to be shared rateably between them. And the creditor, for its part, owes an equitable obligation to them not to prejudice their equitable rights, including that of contribution from co-sureties. A breach of this obligation may lead to the discharge of the surety or a reduction in its liability to the creditor. [20]
[20]Graeme Webb Investments Pty Ltd v St George Partnership Banking Ltd [2001] NSWCA 93 at [82], per Fitzgerald JA (Sheller JA and Ipp AJA concurring).
The next step in the argument was that the 2006 release affected the rights of contribution of the assignee’s guarantors in one or other of four respects: it released a principal debtor; it released a co-surety; it effected a material variation to the rights of the surety; and it brought about a loss or diminution of the lessor’s security. In any such event they were discharged from liability.
Counsel for the assignee’s guarantors adopted all of these arguments and added that his client’s guarantee contained an express or implied term that the existing co‑sureties would remain in place. The making of the 2006 release breached this condition so that his clients were released.
The answering submission offered on behalf of the solicitors did not challenge these underlying principles, except insofar as it appeared to challenge the proposition that the right of contribution as between coordinate obligors could not arise where the obligations arose at different times and under different instruments. If such a challenge was made, I would reject it: the weight of authority shows that, in principle, sureties severally bound by different instruments may have a right of contribution where one satisfies a demand for which the other is also liable.[21] The operation of this principle, however, may differ where the co-sureties are severally bound.[22]
[21]Burke v LFOT Pty Ltd (2002) 209 CLR 282 at 300 [41]ff, per McHugh J; Mahoney v McManus (1981) 180 CLR 370 at 376, per Gibbs CJ (Aickin and Wilson JJ concurring). See, too, Albion Insurance Co Ltd v Government Insurance Office (NSW) (1969) 121 CLR 342.
[22]See Ward v National Bank of New Zealand (1883) LR 8 App. Cas. 755 at 765 (PC); Walker v Bowry (1924) 35 CLR 48 at 56, per Isaacs ACJ (Rich J concurring) and at 57-8, per Starke J.
The point of difference between the contending parties was as to the relationship between the two sets of guarantors inter se and the lessor. All counsel referred me to the following passage in Professor Glanville Williams’ venerable work on joint obligations:[23]
Where a debt is joint or joint and several, tender by one of the debtors may be pleaded by the other. But it has been held that tender by the assignee in possession cannot be pleaded by the original lessee, if the tender was before the assignee was accepted by the lessor.[24] … Moreover there are respects in which the position of lessee and assignee has been assimilated to that of joint and several debtors: for there is a right of contribution between them (that is to say, contribution amounting to indemnity, payable by the assignee to the lessee) and both may be joined by the lessor as defendants in an action.
Professor Williams in this passage appears to be dealing with the position where there is no contract between the assignee and the lessor. It should be noted, also, that the contribution last referred to is a right in the lessee against the assignee and that this right is a right to contribution amounting to indemnity. The submission of counsel for the solicitors was that the positions of the lessee’s guarantor and the assignee’s guarantors, respectively, in this case were no better than those of the parties for which they were surety, and that the assignee had no right of contribution against the lessee.
[23]Williams, Joint Obligations, Butterworth & Co, 1949 at p. 42.
[24]Orgill v Kemshead (1812) 4 Taunt 642; 128 ER 483. In this case there was no privity of contract between the lessor and the assignee, and no privity of estate because the former had not accepted the assignee as tenant.
The question was considered in the context of circumstances similar to the present in Becton Dickinson UK Ltd v Zwebner[25], a case much relied upon by counsel for the solicitors. The plaintiff was the lessee who assigned the term to an assignee who defaulted in payment of rent and then went into liquidation. The plaintiff lessee paid the rental in response to the lessor’s demand and then sought to recover this amount from the defendant who, not being a party to the assignment, had covenanted with the lessor that the sums payable by the assignee under the lease would be paid by him. The issue is whether the defendant was obliged to indemnify the lessee plaintiff with whom he had no contract. McNeill J analysed the position of the lessee and the assignee in terms that, as between them, the assignee was primarily liable to the lessor so that the lessee had a right of indemnity. His Lordship continued as follows:
There can be no question but that Brent [the assignee] was “ultimately” liable for the rent, etc. If unpaid the lessor was entitled to look to the plaintiff [the lessee] or to the defendant [the assignee’s guarantor]. As between the plaintiff and defendant I have no hesitation in holding that the defendant had the prior liability as Brent’s guarantor; indeed, in terms of the licence jointly (with Brent) and severally covenanting that the rent, etc, be paid.[26]
And he concluded:
In the present case there is, in my view, no extension of principle or doctrine. The defendant falls squarely within the category of those from whom reimbursement can be sought. His obligation to the creditor was without question prior to that of the plaintiff. If the use of the phrases is appropriate, between the two, plaintiff and defendant, his was the primary and theirs the secondary obligation. Accordingly, the defendant shows no arguable defence in law to the plaintiff’s claim.[27]
[25][1989] 1 QB 208.
[26][1989] 1 QB 208 at 217.
[27][1989] 1 QB 208 at 218.
Some three years later the decision in Deanplan Ltd v Mahmoud[28] was handed down. The plaintiff lessor had leased premises to a lessee who later assigned the term to the secondnamed defendant which in turn assigned the term to the firstnamed defendant, the second assignee. Each of the assignees entered into a direct agreement with the lessor to observe and perform the conditions and covenants contained in the lease. The second assignee defaulted in payment of the rent and was sued to judgment. Later, the lessor settled with the second assignee, releasing him from liability for some consideration. The lessor then sought to recover the balance of the unpaid rent from the first assignee. The first assignee argued successfully that it was one of a number of separate covenantors which were liable to pay the rent and that the release of one of them, the second assignee, released all of them. In accepting this submission, the court appeared to draw no distinction between these covenantors inter se. Indeed, it was accepted that the first assignee’s liability to the lessor was a primary liability.[29] The first assignee could have resisted the lessor’s claim for rent only by establishing that the second assignee had paid the rent or that the second assignee was, for some reason, absolved from the obligation to pay it.[30] This had been achieved by the consideration which passed from the second assignee to the lessor for the release and by the terms of the release itself.
[28][1993] Ch 151.
[29][1993] Ch 151 at 159
[30][1993] Ch 151 at 161, relying on Matthey v Curling [1922] AC 180 at 208, per Younger LJ.
The significance in this context of the relative status of the lessee and the assignee was recently examined by the New South Wales Court of Appeal in Karacominakis v Big Country Developments Pty Ltd.[31] The premises in this case were leased by the lessor to the lessee following which there were three successive assignments and the third assignee, Chadlace, defaulted. The second assignee, Karacominakis, sought to avoid liability to the lessor because the lease with the lessee was unenforceable. He contended that principles of contribution between sureties applied between himself and those above and below him in the chain of lessee and assignees, so that, if any of them was not bound, none of them was bound. Giles JA[32] said that the principles of contribution between sureties did not apply.
182In Wolveridge v Steward it was said that the effect of an assignment is that the lessee becomes a surety to the lessor for the assignee. At common law, in the absence of contrary agreement the assignee of a lease must indemnify the lessee for any breaches of covenant during the assignee's term.[33] Mr Karacominakis argued that the assignee was equally a surety to the lessor and the lessee for a further assignee. So, the argument ran, in the event of breach of covenant by the ultimate assignee there was a collection of suretyship obligations, and Mr Karacominakis could invoke the principles in the cases earlier mentioned whereby a surety is discharged if the obligations of a co-surety are unenforceable.
183The lessee is not a surety to the lessor for the assignee in the same sense as conventional suretyship. The lessee has direct obligations to the lessor, pre-dating the assignment, and is surety for the assignee only in the sense that the assignee's default will also constitute the lessee's default. The assignee is also not a surety to the lessor or the lessee for a further assignee in the same sense as conventional suretyship. The assignee is liable to the lessor and to indemnify the lessee only for breach of covenant during the assignee's term, and is responsible for the assignee's own default. If there are successive assignments, the indemnity will be given to the defaulting assignee's assignor, not to the lessee. The lessee and the assignee or successive assignees are not in any sense under coordinate liabilities, let alone co-suretyship obligations, but parties to a chain of indemnities: hence, as has been seen, although the lease was enforceable in the abstract against the Hollingsworths [the first assignees], they are not liable under the lease for Mr Karacominakis ' (or Chadlace's) failure to pay rent. The principles of contribution between sureties relevant to discharge of a surety if the obligations of a co-surety are unenforceable have no application… .[34]
[31][2001] ANZ ConvR 513; [2000] NSWCA 313.
[32]Handley and Stein JJA, concurring.
[33]See for example Burnett v Lynch (1826) 5 B & C 589; 108 ER 220; Wolveridge v Steward (1833) 1 C & M 646; 149 ER 557; Moule v Garrett (1872) LR 7 Ex 101).
[34]Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 at [182] - [183].
Adopting this analysis, I conclude that, as between the lessee and the assignee in this case, the ultimate liability to the lessor lay with the assignee which had defaulted in the payments required under the lease. In these circumstances, the lessee, if it paid the rent etc, might seek indemnity from the assignee; but the assignee, if it paid the rent etc, could not seek indemnity from the lessee. It follows from this that, if the lessor released the assignee, this would release the lessee[35]; the release of the lessee, however, would not affect the liability of the assignee to the lessor, except to the extent that the lessee paid part or all of the rent in consideration for the release.
[35]Deanplan Ltd v Mahmoud [1993] Ch 151.
The position of the guarantors is similar. The lessee’s guarantor is severally liable with the assignee’s guarantors (who are themselves jointly liable) for the payment of the rent etc which each of their principals has covenanted with the lessor to pay. The assignee’s guarantors, as sureties for the ultimately liable party, could not seek contribution for rent etc paid by them from the lessee or its guarantor so that release of those parties did not increase the burden of the assignee’s guarantors. On the other hand, the lessee’s guarantor who paid the rent etc would be entitled to indemnity from the assignee or from its guarantors so that the release of any of them would have the consequence of releasing the lessee’s guarantor.[36]
[36]Deanplan Ltd v Mahmoud [1993] Ch 151.
In light of this, the various contentions put on behalf of the lessor and the assignee’s guarantors can be shortly dealt with. For the reasons set out above, the release of the lessee or of the lessee’s guarantor does not affect the liability of the assignee’s guarantors to the lessor. They were and remained liable as guarantors of the assignee which was itself liable in contract and as tenant to pay the rent and other outgoings. It does not affect their entitlement to contribution from the lessee or the lessee’s guarantor: they never had such entitlement. Nor did the 2006 release effect a material variation in the rights of the assignee’s guarantors or any loss or diminution of their security.
The further argument put on behalf of the assignee’s guarantors, that the 2006 release was a breach of an implied term as to the continuation of the liability of the lessee and the lessee’s guarantor must also fail. The guarantee provided by the assignee’s guarantors contains no express provision to that effect. I would not infer such a term since the continuing liability of the lessee and the lessee’s guarantor to the lessor would confer no benefit upon the assignee’s guarantors. There is therefore no cause to imply such a term. In any event, for reasons which I have set out, the 2006 release did not change the obligation guaranteed by the assignee’s guarantors.[37]
[37]See James v Surf Road Nominees Pty Ltd [2004] NSWCA 475 at [67]
I conclude from this that the 2006 release did not have the effect of releasing the assignee’s guarantors. I would determine the question for preliminary trial as follows:
The deed made 24 February 2006 (Release) between the Plaintiff in the original proceeding (Teparyl) and the Second Defendant by Counterclaim (Astawayne) and the Third Defendant by Counterclaim (Sheard) does not have the effect as pleaded in paragraphs 26-28 of the Amended Defence to Amended Statement of Claim and Counterclaim filed by the First and Second Defendants in the original proceeding and the Plaintiffs by counterclaim (Willis & Andrews).
I will hear counsel as to the precise terms of the orders which should be made to give effect to these conclusions and as to costs.
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