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Cite as: Jan/Feb 2011 85(1/2) LIJ, p.60

Assignment of lease – does original guarantor remain liable for contribution at suit of guarantor of assignee?

Willis & Anor v Teparyl Pty Ltd & Ors [2010] VSCA 318 (unreported, 26 November 2010, No S APCI 2009 3810, Mandie and Hansen JJA and Vickery AJA).

At first instance, the trial judge had been asked to determine the following question in relation to the liability of guarantors for the obligation of an assignee of a lease of business premises in Mentone, namely:

Does the deed made 24 February 2006 (Release) between [the lessor] and [the original lessee] and [the original lessee’s guarantor] have the effect as pleaded [by the assignee’s guarantors] of releasing [them] from all and any obligations to the lessor?

The judge at first instance held that “as between the lessee and the assignee, the ultimate liability to the lessor lay with the assignee and that, in those circumstances, the lessee, if it paid the rent and other moneys due, might seek indemnity from the assignee, but the assignee, if it paid, could not seek indemnity from the lessee. It followed, his Honour said, that, if the lessor released the assignee, this would release the lessee but the release of the lessee would not affect the liability of the assignee to the lessor.

His Honour went on to say that the position of the guarantors was similar. He said that the lessee’s guarantor was severally liable with the assignee’s guarantors but that the assignee’s guarantors, as sureties for the ultimately liable party, could not seek contribution for rent and other moneys 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’”. [8]

The trial judge concluded “that the release of the lessee or of the lessee’s guarantor did not affect the liability of the assignee’s guarantors to the lessor and that the release:

‘ . . . 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’”. [9]

The guarantors of the assignee appealed.

The principal judgment of the Court of Appeal was given by Mandie JA. The Court was of the view that the appellant guarantors could not maintain prejudice in relation to the release of the original guarantor of the lease. The Court said:

“The short answer to the appellants’ contentions is that the original lessee’s guarantor and the assignee’s guarantors were not co-sureties because they were not guarantors to the lessor of the same principal debtor or, for that matter, of the same debt (even if, in the instant case, the amount of their liability would have been calculated by reference to the same arrears of rent, etc.). To put it another way, the liability of the original lessee’s guarantor and the liability of the assignee’s guarantors were not ‘coordinate liabilities’ because the respective liabilities did not arise from a ‘common obligation’ and because the liabilities were not ‘of the same nature and the same extent’. Accordingly, there was no entitlement to contribution as between them”. [12] [endnote omitted]

The assignee’s guarantors would have had no entitlement to contribution as against the original guarantor of the lease.

Reference was made to authorities both in the UK and in Australia, particularly with reference to the right of recoupment which a lessee has against an assignee. In particular, reference was made to the decision of the NSW Court of Appeal in Karacominakis v Big Country Developments Pty Ltd ([2000] NSWCA 313). With regard to that case, it was noted that:

“That case concerned certain business premises and involved numerous parties including a lessor, an original lessee, an original lessee’s guarantor, first assignees, second assignee, third assignee and third assignee’s guarantors. The Court decided numerous issues on the particular complex facts of the case that are unnecessary to outline. It is sufficient to note that the Court applied Becton in deciding that the original lessee and the second assignee had a right of recoupment against both the third assignee and the third assignee’s guarantors and that, accordingly, the third assignee and its guarantors had no entitlement to indemnity or contribution from any relevant party”. [22] [endnote omitted]

Mandie JA noted that the Court would have regard to the ultimate responsibility of a party for default. [23]

The appeal was dismissed.



PROFESSOR GREG REINHARDT is executive director of the Australasian Institute of Judicial Administration and a member of the Faculty of Law at Monash University, ph 9600 1311, email Gregory.Reinhardt@law.monash.edu.au.

The numbers in square brackets in the text refer to the paragraph numbers in the judgment. The full version of this judgment can be found at www.austlii.edu.au.

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