This week's TGIF considers the decision in ANZ v
Manasseh  WASCA 41, where the court considered the
enforceability of a guarantee when a subsequent credit contract is
entered into without the guarantor's consent.
The respondent entered into a contract of guarantee with the
bank in October 2006 to guarantee a finance facility agreement
between the bank and a third party borrower. The terms of the
guarantee did not extend to "any new or replacement
arrangements" unless the respondent had given consent.
In 2009, the borrower entered into a further letter of offer
with the bank. The letter of offer increased the facility
limit, imposed additional fees and updated other terms of the
October 2006 agreement.
It was a condition precedent of the 2009 letter of offer that
the respondent, as guarantor under the October 2006 agreement,
signed an acknowledgement that the guarantee was to continue to
apply to the borrower's obligations. However, the respondent
refused to consent.
The bank subsequently sought to call on the guarantee. The
question for the court was whether the 2009 letter of offer was a
new or replacement arrangement, or a variation of the October 2006
At first instance, the Supreme Court of WA held that the 2009
agreement was a new contract or a replacement arrangement, rather
than a variation of the 2006 agreement.
The Court of Appeal (McLure P, Murphy and Buss JJA) dismissed
the bank's appeal.
McLure P and Buss JA took the view that although the 2009 letter
of offer was not a "new" arrangement, it was a
"replacement" arrangement which had the effect of
terminating and replacing the October 2006 agreement. The
2009 arrangement was stated to be an exhaustive statement of all
the terms and conditions governing the facility, and did not
require the continuing existence of the 2006 agreement.
Their Honours inferred that the condition precedent of the 2009
letter of offer (that the guarantor would acknowledge that the
guarantee would continue to apply to the replacement letter of
offer) had been waived by the bank before funds were advanced.
Murphy JA took the alternative view that the 2009 letter of
offer was a variation. His Honour considered the meaning of
the word "replacement" required the new agreement to
expressly or impliedly bring the 2006 agreement to an end. On
His Honour's view of all the surrounding circumstances, the
2009 arrangements were in the nature of a variation rather than a
replacement. However, His Honour ultimately dismissed the
bank's appeal on other grounds.
This case emphasises the importance for lenders to obtain the
consent of existing guarantors, or enter into new guarantees, when
replacing a borrower's facility agreement. Lenders should
also ensure all conditions precedent are met before allowing
borrowers to drawdown funds.
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.
Most awarded firm and Australian deal of
Australasian Legal Business Awards
Employer of Choice for
Equal Opportunity for Women
in the Workplace (EOWA)
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
This article includes five takeouts for robo advisers following RG 255: ASIC's new digital advice regulatory guide.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).