The recent New South Wales decision in Alceon Group
Pty Ltd v Rose  NSWSC 686 considered the quality of the
legal advice provided to a guarantor and the enforceability of the
guarantee provided by that guarantor.
The plaintiff advanced $23,000,000 to Quadwest Development Pty
Ltd (Quadwest) of which Christopher Rose was the
director and secretary. The plaintiff required that Quadwest
provide, amongst other things, a supported third party guarantee to
secure the repayment of the facility. Christopher Rose arranged for
his parents (Mr & Mrs Rose) to provide the required third party
guarantees for $2,000,000 supported by a mortgage over their family
The plaintiff also required Mr & Mrs Rose to obtain
independent legal advice prior to signing the guarantees and to
execute, amongst other things, a Declaration (as to receipt of
independent legal advice).
Quadwest's solicitor had a brief telephone conversation with
Christopher Rose, Mr & Mrs Rose in which he informed them:
"If Quadwest does not comply with its obligations, [the
plaintiff] may under the guarantee issue a demand to you up to an
amount of $2 million. If this is not paid then [the plainfiff] may
exercise the rights as a mortgagee against the mortgaged property
(namely the family home). These rights include the ability to sell
The Borrower effectively defaulted on the facility and the
plaintiff sought to enforce its security. Both Mr & Mrs Rose
argued that the guarantees were unenforceable. However, only Mrs
Rose was successful.
The court found in Mrs Rose's favour due to, amongst other
things, the plaintiff's knowledge that Quadwest's solicitor
was not impartial in the transaction and was unable to provide Mrs
Rose with independent legal advice. In fact, the court went as far
as to say that the plaintiff's "express statement that
"the advice need only be brief", and independent only
of" the plaintiff shows that the plaintiff "had
no reason to believe that advice of the requisite standard was
given" to Mrs Rose.
The court went on to say that the plaintiff "encouraged
Quadwest to procure [its solicitor] to give the advice to Mrs Rose,
fully aware that [its solicitor] was the solicitor for Quadwest,
knew its dire financial position, knew the financially severe terms
of the arrangement [the plaintiff] was offering, and must therefore
have been cognisant of the very high degree of risk associated with
The guarantee was enforceable against Mr Rose as the court found
that he "was an experienced businessman; he was involved
in the Quadwest project; he was aware of the financial position of
Quadwest; and he was aware of the potential consequences of the
Guarantee and the Mortgage."
The decision demonstrates that lenders cannot just tick the
required 'independent legal advice' box when obtaining
guarantees but must consider the quality and effect of the advice
being provided to a guarantor if they want to enforce a
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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