Lavin V Toppi Case Study

I FACTUAL BACKGROUND
In Lavin v Toppi, the High Court of Australia considered the application of equitable contribution for co-guarantors/co-sureties to a loan where a creditor had covenanted not to sue one of the guarantors.
Ms Lavin and Ms Toppi were directors and equal shareholders of the company Luxe Studios Pty Ltd (“Luxe”). In 2005, Luxe purchased a property in Sydney for the purpose of running a photographic studio, funded by a loan from the National Australia Bank (“the Bank”). Further loans were made by the Bank in 2007 and 2008. These were consolidated into one loan for the amount of $7,768,000, which was guaranteed by:
• Ms Lavin and her associated company (“the appellants”);
• Ms Toppi and her husband (“the respondents”); and

In support of this conclusion, the court cited the reasoning of Williams, emphasising the independence of the right of contribution amongst co-sureties from any present rights of a creditor. In further support, the court considered the specific nature of covenants not to sue, noting that they are not intended to discharge liability, so as to not release all co-guarantors, but rather to prevent any enforceability through legal proceedings. The court resultantly concluded that the covenant not to sue did not extinguish, but in fact assumed the continued existence of the appellants’ and respondents’ shared coordinate liabilities, entitling the respondents to recover

In this regard, the court approved of comments in Friend v Brooker that:
Equity follows the law in the sense that it does not seek to direct the manner of exercise of the rights of the creditor, but equity does make an adjustment between the debtors. Thus equity does not interfere with the action of the creditor but seeks to ensure the sharing of the burden between those subjected to it.
In this way, equity and the doctrine of contribution do not inadvertently create unfairness by restricting the rights of a creditor, but instead strive to achieve a fair outcome within the constraints of common law