Lavin v Toppi [2015] HCA 4

ON 11 FEBRUARY 2015, the High Court of Australia delivered Lavin v Toppi [2015] HCA 4 (11 February 2015).

The appellants and respondents were sureties who had guaranteed a consolidated loan with the National Australia Bank.

In 2010, NAB demanded repayment of the balance of the loan debts and brought proceedings against all of the guarantors. In settlement of proceedings against the appellants, NAB covenanted not to sue them for the guaranteed debt in return for the payment of a minor portion of the debt. The respondents then paid the disproportionately high balance of the debt and then brought proceedings against the appellants seeking the recovery of the amount they paid to NAB in excess of their proportionate share.

The appellants resisted the appellants claim, arguing that the appellants and respondents no longer had “coordinate liabilities” by reason of the debt only being enforceable against the respondents due to NAB’s covenant not to sue the appellants.

The NSW Supreme Court found in favour of the respondents and the Court of Appeal dismissed an appeal, holding that the respondents could still recover from the appellants because the covenant not to sue did not alter the liabilities between the appellants and respondents under the guarantee and therefore they still had “coordinate liabilities”.

The High Court dismissed an appeal by the appellants, holding the Court of Appeal to be correct in holding (1) that the covenant not to sue did not extinguish the appellants’ liability under the guarantee and (2) that the respondents had an equitable entitlement to contribution which could not be defeated by the covenant not to sue.

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