Where one guarantor enjoys the whole financial benefit of a guaranteed loan, fellow guarantors should stand second in line and not be liable to initially front up with any contribution the High Court ruled, requiring Auckland property developer Brian Hudson pay first on a $593,000 guaranteed debt, ahead of his former partner and fellow guarantor.
A September 2022 refinancing of funding from Kensington Finance Limited Partnership saw a three-way guarantee of repayment made by Mr Hudson, his then partner Sarah Clarke, and their company Hobsonville Consulting Ltd.
Funds were needed to complete a property redevelopment on St Vincent Avenue in Remuera, one of Mr Hudson’s projects.
With a mortgagee sale threatened, Hobsonville Consulting paid off the $550,000 owed Kensington Finance.
Left unresolved was the question of how this liability should be split between the three guarantors.
The general rule is that liability between multiple guarantors is shared equally.
Justice Becroft adopted a principle established in Australian litigation: a guarantor who obtains the whole benefit of a loan may be required to accept the whole burden, with co-guarantors having a right to recover their otherwise equal liability out of the prime guarantor’s assets should they be called to pay.
Mr Hudson was ordered to pay fifty per cent of the guaranteed $550,000 debt, with Hobsonville Consulting agreeing it would pay the other fifty per cent.
The loan was primarily for Mr Hudson’s benefit, to complete his St Vincent Ave project.
Ms Clarke is excused payment, to the extent that the other two guarantors make full payment.
Separately, Mr Hudson argued he should pay nothing. Transfer of his fifty per cent shareholding in Hobsonville Consulting to Ms Clarke extinguished his liability on the guarantee, he claimed. The remaining co-guarantors assumed all liability.
There was no such agreement, Justice Becroft ruled.
Even if there were, Mr Hudson provided nothing of benefit in return for the supposed agreement. Shares in Hobsonville Consulting were essentially worthless.
Hudson v. Hobsonville Consulting Ltd – High Court (22.12.25)
26.060