Guarantees disappear like magic - Barecall Pty Ltd v Hoban
 NSWSC 1104
In a recent NSW Supreme Court case, a landlord lost the right to
claim over $1.3 million from the guarantors of a lease because of
incomplete and inadequate documentation.
The lessee was granted a lease and a sublease of premises in
Manly to be used as a nightclub/restaurant. Manly Council owned
some parts of the leased premises - hence the need for a
Initially, the lease contained personal guarantees from three
directors of the lessee company. The lease (both headlease and
sublease) was varied to change the permitted use slightly and to
provide for a greater area and additional rent. The variation
introduced two new guarantors. The lessee went into liquidation
towards the end of the first term of the lease leaving substantial
debts. The landlord made a claim against the guarantor.
The initial lease contained three personal guarantees (Hardy,
Hoban and Harvey). The variation contained execution clauses for
five personal guarantees, (Hardy, Hoban, Harvey, Rossi and
Spadina), however, only Rossi and Spadina signed as guarantors, and
Hoban only signed as director. Hardy and Harvey did not sign.
The variation did not amend the list of guarantors in the
initial lease so as to include the new guarantors (Rossi and
Spadina), and there was no guarantee clause in the variation
document. The court found that all five guarantees were completely
ineffectual, and the landlord could not claim against any of
Rossi and Spadina
These two individuals were new to the business at the time of
the variation. They agreed to provide personal guarantees to the
lease, and their names were listed on the execution page of the
variation. They both signed the execution page.
The variation did not contain a guarantee clause, which was not
fatal to the guarantees because the court remarked that people
signing a variation of lease know that many terms are to be found
in the lease being varied. However, the variation did not amend the
reference schedule of the lease to include Rossi and Spadina in the
list of guarantors.
The court found that even though they signed the variation,
which would usually mean they were parties to the contract, there
was no mention of them in the contract so their obligations were
The guarantees of Rossi and Spadina were ineffective.
Hardy and Harvey
These two signed the initial lease and were listed in that
document's reference schedule as guarantors. There was space
provided for them to sign on the variation, however they did not
The court, following the 1987 High Court decision of Ankor v
Westminster Finance (Australia), found that a creditor cannot
enforce a guarantee if the guarantee has been varied in a way that
increases the guarantor's risk unless the guarantor has signed
the variation. The lease had been varied to increase the leased
area and the rent. This increased the risk, so the original
guarantees in the lease were discharged. The landlord could not
even claim any rent owed based on Hardy and Harvey's liability
under the initial lease.
Hoban signed the original lease, was listed in the reference
schedule and signed the variation. He only signed the variation as
a director, but the court found that this at least showed that he
was aware of the variation and consented to it.
Although it seems that Hoban's guarantee has no major flaws,
it was discharged and ineffectual because the variation was
supposed to include a guarantee from all five people listed. The
court relied on the 1985 case Marston v Charles H Griffith
& Co Pty Ltd as authority that where there is an express
or implied term in a guarantee that more than one person will be
providing the guarantee, then the guarantee is only effective if
all the proposed guarantors sign up properly.
Hardy and Harvey did not sign the execution page in the
variation, so Hoban's guarantee was ineffective.
This case reads like a magic trick -the guarantee of Hoban seems
valid right up to the end, but it disappears with the others.
Landlords must be careful that all guarantees are correctly
documented, because if one is not executed, the other guarantees
may be ineffectual as a result.
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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