Required to pay $860,580, Harkirat Gill and Maher Jammal challenged their guarantee of a Northland Regional Council loan for a Marsden Point sawmill.
Advanced in 2015, the loan was intended to support employment in Northland with Resources Enterprises Ltd milling industrial grade timber for export to the Middle East. The project folded four years later, following a drop in demand. Director Maher Jammal, resident in United Arab Emirates, and Auckland-based shareholder Harkirat Gill guaranteed a $750,000 Regional Council loan. The amount owed reached $860,580 by late 2019. Council sued on the guarantee.
Gill and Jammal said the guarantee was not enforceable; they had been prejudiced by a re-ordering of loan priorities in which the Council agreed to rank behind a later multi-million loan advanced by ASB Bank. As a general rule, guarantors are discharged if there is a material alteration to terms of the loan guaranteed. With the Council loan dropping to a second ranking security, rights of subrogation were harmed they said. ASB had first claim on sawmill assets and they were left with the crumbs after paying on the guarantee and then standing in the shoes of Regional Council.
The guarantee was enforceable, Justice Whata ruled. The Council loan stated guarantors remained liable even if there were subsequent variations.
Northland Regional Council v. Gill & Jammal – High Court (8.10.20)
20.164