While a
co-guarantor cannot unfairly structure a property buyout so as to profit from
fellow guarantors, the High Court ruled a Bay of Plenty businessman acted within
the law by fixing a buyout price to maximise his recovery from other
guarantors.
Mr Ian Renner, together with his then wife and
another investor Mr Dustin were co-guarantors of a property development at Lochhead
Road, Te Puna near Tauranga. The
development was not a success with financier FM Custodians Ltd chasing all
three for guaranteed borrowings of $3.04 million.
The court was told that Mrs Renner paid
$380,000 to FM Custodians in full and final settlement of its claim. Mr Dustin paid nothing. Mr Renner, as the
remaining guarantor, came to a side arrangement with FM Custodians in which he
paid a total of $2.92 million in full satisfaction. The negotiated arrangement saw Mr Renner buy
the Te Puna land from the financier at a price of $1.6 million with the balance
of $1.32 million described as payment discharging the guarantee.
At equity, guarantors who have paid more than
their share of any amount guaranteed can recover payment directly from the
remaining co-guarantors. Mr Renner sued
both Mrs Renner and Mr Dustin for contributions he paid on their behalf. They complained Mr Renner had deliberately
arranged the deal with FM Custodians to reduce the sum paid for the Te Puna
land below market value so as to inflate the amount paid under the guarantee. They pointed to Mr Renner’s actions over
subsequent months in which he acted on existing resource consents to subdivide
the land into three lots eventually selling for $3.125 million; a net profit of
some $215,000 after taking into account the $2.92 million settlement with FM
Custodians.
Justice Brewer ruled that Mr Jenner did not
inflate the guarantee component of his payment to FM Custodians by depressing
the value of the land purchased. The
$1.6 million price for the land was supported by a valuer’s report using comparable
sales information. At the time of the
valuation, a local real estate agent was trying to broker a deal between Mr
Jenner and a prospective buyer but nothing came of these soundings for some
months later. Evidence was given that
when a deal was done Mr Jenner could only get part payment in cash. He was obliged to take the balance in kind; property
from the purchaser’s own subdivision. Mr
Jenner was having trouble selling these sections, the court was told.
Mr Dustin was ordered to pay $566,666 (his one
third share of the total payments on the guarantee). Mrs Renner was ordered to pay $186,666 (her
one third share less the $380,000 already paid). Justice Brewer said if either Mrs Renner or
Mr Dustin cannot pay their full contributions, then Mr Renner can recover from
them unevenly, but proportionately. Evidence
was given that Mr Dustin had been adjudicated bankrupt, but the bankruptcy was
annulled six months later. Should Mr Dustin be unable to pay any contribution,
Mrs Renner would be then liable for $470,000 (with both Mr and Mrs Renner
having to share the shortfall caused by any failure by Mr Dustin to
contribute).
Renner
v. Renner – High Court (11.06.15)
15.066