Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Adisan Pty Ltd v Irwin [2015] NSWCA 217 Hearing dates: 10 July 2015 Decision date: 30 July 2015 Before: Beazley ACJ at [1]; Meagher JA at [2]; Gleeson JA at [56] Decision: 1. Appeal dismissed. 2. Set aside order 3 made on 1 August 2014. 3. Order the appellant pay the respondent's costs of the appeal. Catchwords: CONTRACT – guarantee and indemnity – where guarantee provided that it could be extended to cover "new loan contract" – interpretation – deed of variation to extend guarantee presented to guarantors for agreement – terms of new loan contract capping liability of co-guarantor not disclosed in deed or otherwise – whether deed of variation effective to extend guarantee to cover the liability of the borrower under the new loan contract, including capping arrangement AUSTRALIAN CONSUMER LAW – order under s 87 of the Trade Practices Act 1974 (Cth) – misleading or deceptive conduct including omission to disclose information – whether presentation of deed of variation without disclosure of agreement to cap co-guarantor's liability misleading or deceptive – whether guarantor suffered or likely to suffer loss or damage by the misleading conduct Legislation Cited: Trade Practices Act 1974 (Cth) Cases Cited: Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15; 162 CLR 549 Allianz Australia Insurance Ltd v Haddad [2015] NSWCA 186 Blest v Brown (1862) 4 De G, F & J 367; 45 ER 1225 Brighton v Australia and New Zealand Banking Group Ltd [2011] NSWCA 152 Greer v Kettle [1938] AC 156 Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd [2010] HCA 31; 241 CLR 357 Westpac Banking Corporation v Robinson (1993) 30 NSWLR 668 Texts Cited: J O'Donovan and J Phillips, Thomson Lawbook Co, Modern Contract of Guarantee, Vol 1 Category: Principal judgment Parties: Adisan Pty Ltd (Appellant) Craig Irwin (Respondent) Representation: Counsel: MK Condon SC with A Di Francesco (Appellant) P Bolster (Respondent) Solicitors: Wood Marshall Williams (Appellant) Pikes & Verekers Lawyers (Respondent) File Number(s): 2015/236538 Decision under appeal Court or tribunal: Supreme Court of NSW Jurisdiction: Common Law Citation: [2014] NSWSC 1043 Date of Decision: 1 August 2014 Before: Nicholas AJ File Number(s): 2012/101107 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] HEADNOTE [This headnote is not to be read as part of the judgment] In 2007, a loan agreement between the appellant lender and two companies engaged in a residential property development ("the borrower") was guaranteed by six co-guarantors, including the respondent. An advance of $600,000 was made to the borrower. The principal and capitalised interest was to be repaid by 12 January 2009. No monies were repaid by that date. In February 2009, the terms of the loan facility were renegotiated. The proposed amendments included an extension of time for the repayment of the principal and accrued interest; an increase in the interest rate payable and the provision of additional security in the form of a first mortgage over an apartment at Noosa Heads owned by Bingemann Holdings Pty Ltd and a guarantee from that same company. It was also agreed between the appellant, the borrower and Bingemann that the latter's liability as guarantor would be limited to the amount realised from the sale of the Noosa property. A Deed of Variation was executed by the appellant, the borrower, the six existing guarantors and Bingemann. The agreement as to Bingemann's liability was not disclosed in the Deed or otherwise. The borrower failed to pay the moneys due under the amended loan facility. On 26 May 2011, the appellant served default notices on the guarantors, requiring payment of an amount of $1,190,696.52. The respondent denied liability, arguing that he was discharged from liability as guarantor of the amended facility because of the agreement to cap Bingemann's liability. The primary judge found in favour of the respondent, holding that the agreement involved a significant departure from the terms of the guaranteed obligation such that he should be discharged from liability in accordance with the principles discussed in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15; 162 CLR 549. He also found that the appellant's conduct in not disclosing that agreement was misleading or deceptive and made an order under s 87(1) of the Trade Practices Act 1974 (Cth) refusing to enforce the guarantee. The issues before the Court were: whether the respondent remained liable as guarantor for moneys not paid in accordance with the original loan facility; whether the respondent's execution of the Deed of Variation was effective to extend the guarantee to cover moneys due under the Loan Contract as varied; and whether the appellant's conduct was misleading or deceptive entitling the respondent to relief under s 87(1) of the Trade Practices Act. The Court held, dismissing the appeal: In relation to (i) The unpaid balance of the original Loan Contract was not the subject of an unremedied default notice so as to make the respondent liable as guarantor. Nor was it the subject of the claim in the proceedings: [1], [33]-[34], [56]. In relation to (ii) The Guarantee provided, by clause 3, for its application to be extended to cover an amended facility ('Future Loan Contract') with the guarantor's consent. In seeking and obtaining that consent by the execution of the Deed of Variation, the appellant did not disclose that the "proposed new loan contract" included the agreement to cap Bingemann's liability. It followed that the Future Loan Contract to which the respondent agreed and consented was not the new loan contract made between the borrower and the lender, which included the capping agreement: [1], [43], [61]. This outcome arose on the construction of the Guarantee and it was not necessary to consider or apply the equitable principles referred to in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15; 162 CLR 549: [1], [43], [57], [62]. In relation to (iii) The statement in recital D of the Deed of Variation was reasonably to be understood as representing that Bingemann had agreed to guarantee the whole of the borrower's obligations without limitation. That representation was misleading because of the agreement to cap Bingemann's liability: [52]. However, the respondent did not and was not likely to suffer any loss as a result of that conduct because his guarantee did not extend to cover the amended facility. The respondent was not entitled to an order under s 87(1): [1], [53], [56]. Judgment 1. BEAZLEY ACJ: I have had the advantage of reading in draft the reasons of Meagher JA. I agree with his Honour's reasons and the orders he proposes. I also agree with the additional comments of Gleeson JA. 2. MEAGHER JA: The primary judge (Nicholas AJ) dismissed the appellant's claim against the respondent as guarantor of an advance of $600,000 made in 2007 to partly finance a residential property development in Gordon, a suburb of Sydney: Adisan Pty Ltd v Irwin [2014] NSWSC 1043. This appeal is from that order. As will become apparent, the central issue is whether a deed of variation made in early 2009 was effective to extend the respondent's guarantee to cover moneys owing under the terms of the advance as varied by that deed. Ultimately the answer to that question turns on whether the loan agreement as varied was a Future Loan Contract within the meaning of the respondent's guarantee. Background facts 1. On 12 April 2007 the appellant advanced $600,000 to Globe Projects (McIntyre) Pty Ltd (Globe) and Southern Cross Developments (McIntyre) Pty Ltd (SCD and together the borrower) under a written loan agreement. That agreement is described as the Loan Contract and referred to in the same terms in the guarantee and deed of variation. 2. The Loan Contract provided for the $600,000 and capitalised interest to be repaid by 12 January 2009, which was "21 months from the date" the advance was made. The terms of the advance included that the performance of the borrower's obligations be the subject of a guarantee and indemnity from six parties. They included the respondent and Mr Box, each of whom was a director of SCD, Lewis and Richard Yazbek and Southern Cross Constructions (NSW) Pty Ltd. All of those individuals were shareholders in the Southern Cross Constructions group of companies. The remaining guarantor, Mr Vertzayias, was associated with Globe. 3. The Guarantee and Indemnity (the Guarantee) executed was one by which the guarantors undertook jointly and severally to pay the Guaranteed Moneys (cl 2.1(a)). Those moneys included the "unpaid balance of the Loan Contract and any Future Loan Contract" (cl 2.2(a)). Clause 3 (see [37] below) provided for the appellant lender to request the guarantor's agreement to extend the Guarantee "to cover any new loan contract between us" and the borrower. The Guarantee also contained provisions permitting the appellant to release co-guarantors and securities and to enter into arrangements with the borrower without discharging any other guarantor's liability (cll 5.2, 12). It will be necessary to return to the detail of these provisions. 4. No moneys were repaid by the borrower on or before 12 January 2009. There followed negotiations between the sole director of the appellant, Mr Roach, and representatives of the borrower, including Mr Box. The respondent, Mr Irwin did not participate in those negotiations. In early February 2009 a proposal was put by Mr Box to Mr Roach. As negotiated, that involved an acknowledgement that the borrower's indebtedness as at 31 January 2009 was $810,000; an extension to 30 July 2009 of the time for repayment of outstanding interest; an extension to 30 September 2009 of the time for repayment of the principal sum of $600,000 plus any further accrued interest; the increase of the interest rate payable from 18% to 30% per annum, provided that interest would be calculated at 23% per annum if the borrower was not in default; and the provision of additional security in the form of a first mortgage over an apartment at Noosa Heads and a guarantee, in each case to be given by Bingemann Holdings Pty Limited (Bingemann). That company was controlled by Mr Box. Most significantly, it was agreed that Bingemann's liability as guarantor would be capped at the amount realised from the sale of the Noosa property. 5. That proposal was accepted and a Deed of Variation of Loan Contract (Deed of Variation) was executed by the appellant, the borrower, the six existing guarantors and Bingemann. That deed is dated 19 March 2009. The last party to execute it was the respondent in mid-April 2009. Recital D provided: At the request of the Borrower, Bingemann Holdings Pty Limited, has agreed to guarantee and grant additional security in respect of the obligations of the Borrower under the Facility as varied by the Variation. 1. The Deed contained no reference to Bingemann's liability as guarantor being limited. Nor was the respondent aware, at the time he executed it, of any arrangement for the capping of Bingemann's liability as guarantor. In the proceedings before the primary judge (as recorded in the judgment at [38]) the respondent's evidence was that if he had known about this arrangement he would not have signed the Deed of Variation because: … it would have signalled to me that there was substantial risk that those guarantees would not be enforced as Andrew [Box] had done all the dealings with this and at this stage I was very concerned about the ability of the joint venture to repay Adisan at all. 1. On 19 March 2009, Bingemann executed a guarantee and indemnity. It later executed a mortgage over the Noosa property. On 20 April 2009, the appellant wrote to Bingemann. That letter recorded the terms of the capping agreement as follows: Notwithstanding the provisions of the Variation Documents the Lender has agreed to limit the liability of Bingemann Holdings Pty Ltd (Bingemann) under the Variation Documents as follows. 'Notwithstanding any provision to the contrary in the Variation Documents, Bingemann's liability to pay any amount under or in connection with the Variation Documents, may be discharged from, and the recourse of the Lender is limited to the sale of the Property only. The Lender shall have no further claim against Bingemann in connection with the Variation Documents or the Amount of Credit (as defined in the Loan Contract) and may not seek to recover any shortfall in the amounts owing to it under or in connection with the Loan Contract and the Variation Documents by bringing proceedings against the Bingemann [sic] or applying to have Bingemann wound up.' 1. The borrower failed to pay the moneys due on 30 July 2009 and 30 September 2009. On 26 May 2011 the appellant served default notices on each of the guarantors, requiring payment of an amount of $1,190,696.52, described as "the total amount currently owing under the Loan Contract and Deed of Variation as at 26 May 2011". Bingemann subsequently transferred the Noosa property to the appellant at an agreed value of $450,000. That transaction was completed in April 2013. Overview 1. At this point it is useful to reflect on the position between the parties. By the Guarantee the respondent and five others had guaranteed the borrower's obligations under a loan facility entered into in April 2007. As described in [5] above, the terms of that Guarantee permitted the appellant to release co-guarantors and to enter into specified arrangements with the borrower, without discharging the remaining guarantors from liability. 2. In early 2009 the appellant agreed to vary the original loan facility by extending the time for repayment of principal and interest subject to an increase in the interest rate and the provision of additional security in the form of a first registered mortgage and a capped guarantee from Bingemann. 3. It was necessary to extend the guarantee to cover the borrower's obligations under the amended loan facility. That could not be achieved merely by amending the facility because the guaranteed obligation as defined was that arising under the original facility and not that facility as amended. Clause 3 of the Guarantee enabled the extension of a guarantor's liability with consent (referred to as "written acceptance"). 4. The Deed of Variation recorded the terms of the amended loan facility to which the guarantees were to extend and by cl 3 (set out in [35] below) contained the guarantors' consent to that variation and agreement that the Guarantee would apply to the amended facility. It was not necessary, in these circumstances, for the appellant lender to rely upon any of the provisions in cl 12 of the Guarantee. 5. Recital D of the Deed of Variation (see [7] above) confirmed that Bingemann had agreed to guarantee the obligations of the borrower. Notwithstanding that the capping agreement was not referred to or otherwise disclosed, the respondent did not claim that he was entitled to rescind the Deed of Variation on account of any material misstatement. The principles relevant to such a claim, as applied to contracts of guarantee, are referred to in Westpac Banking Corporation v Robinson (1993) 30 NSWLR 668 at 686-687 (per Clarke JA with whom Handley JA agreed). Nor did the respondent argue that it was a condition precedent to his being bound at the outset by the Deed of Variation that Bingemann had agreed without limitation to guarantee the borrower's obligations under the amended facility: cf Blest v Brown (1862) 4 De G, F & J 367; 45 ER 1225; and Greer v Kettle [1938] AC 156 where the existence of a fact stated in recitals was held to be a condition precedent to the undertaking of the guaranteed obligations. The claim against the guarantors 1. The appellant commenced proceedings against each of the guarantors. By the time of the hearing in June 2014, two of the six original guarantors, Mr Vertzayias and Southern Cross Constructions (NSW) Pty Ltd, were insolvent. On the first day of the hearing, judgment was entered in favour of the appellant against Lewis and Richard Yazbek, jointly and severally in the sum of $600,000. The claim against Mr Box and Bingemann was discontinued. 2. The claim against the respondent as guarantor proceeded. It is important to be precise about the subject matter of that claim. By pars 7, 8, 18, 29 and 30 of the Second Further Amended Statement of Claim, the appellant claimed the moneys owing under the Loan Contract as amended by the Deed of Variation. Those moneys had been the subject of the default notice served on the guarantors on 26 May 2011. Addressing the terms of the Guarantee (cll 2.1(a), 2.2(a)), the appellant's claim was for the Guaranteed Moneys being the unpaid balance of the Future Loan Contract constituted by the Loan Contract as varied. The arguments at trial 1. The respondent advanced two arguments as to why he was not liable. First he submitted that the capping agreement involved a departure from the terms of the Deed of Variation to which he had agreed. That departure was said to be material and, by application of the equitable principles referred to in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15; 162 CLR 549 at 559-560 and 569-570, was said to have discharged him from any liability as guarantor of the amended loan facility. 2. Secondly, it was submitted that the appellant's conduct in proffering the Deed of Variation for execution without disclosing the capping agreement was misleading or deceptive and that, but for that conduct, the respondent would not have signed that Deed. The respondent submitted that he would suffer damage by that conduct unless an order was made under s 87(1) of the Trade Practices Act 1974 (Cth) refusing to enforce the guarantee in respect of the appellant's claim. 3. The appellant made two responses to the first of these arguments. It relied upon the provisions in cll 5.2 and 12 of the Guarantee as permitting the capping of Bingemann's liability without that also having discharged the respondent from liability under his guarantee. In the alternative the appellant said that if the respondent's liability as guarantor of the amended facility was discharged, it was nevertheless entitled to recover the moneys guaranteed under the original facility and that its right to do so was preserved by cl 6 of the Deed of Variation (set out in [31] below). The decision of the primary judge and issues in the appeal 1. The primary judge accepted each of the respondent's arguments. In doing so, he did not address the appellant's alternative response to the first of those arguments which asserted that the respondent remained liable as guarantor of the original facility. 2. As to the respondent's first argument, the primary judge said at [52]: … the agreement with Bingemann, absent Mr Irwin's knowledge and consent, was a significant departure from the terms of the second guarantee which precluded the existence of the circumstances in which Mr Irwin had agreed to be bound (Ankar at 569, 570). Accordingly, I find that Mr Irwin is entitled to have the guarantee provided under the variation deed set aside in toto, and to be discharged from all liability under it. 1. The reference to the "second guarantee" is to the guarantee as amended by the Deed of Variation. In the pleading, that amended guarantee was referred to as the "2009 Guarantee". 2. As to the respondent's second argument, the primary judge found that the appellant represented that Bingemann had agreed to be jointly and severally liable with each of the other guarantors for the whole of the Guaranteed Moneys due under the amended facility: [54]. That representation was misleading because the appellant had agreed that Bingemann's liability would be capped. The primary judge accepted the respondent's evidence (Judgment at [40] and [51]) that, had he been told that Bingemann's guarantee was capped, he would not have signed the Deed of Variation; and concluded that the relief to which the respondent was entitled under s 87 of the Trade Practices Act was an order refusing enforcement of the provisions of the "second guarantee". 3. The appellant challenges each of these conclusions. It submits that the primary judge erred in concluding that the respondent's liability as guarantor of the amended loan facility was discharged by the fact of the capping agreement. This argument is made by Ground 2 of the Amended Notice of Appeal. In the alternative the appellant submits the primary judge erred in neither addressing whether nor finding that the respondent remained liable for the moneys guaranteed under the original facility. This argument is made by grounds 1 and 3. 4. Finally, the appellant challenges the primary judge's conclusions in relation to the claim under s 87. It is said that he erred in finding that there was misleading or deceptive conduct and that, but for that conduct, the respondent would not have executed the Deed of Variation. It is also said that the primary judge erred in not addressing whether the respondent was likely to suffer loss or damage sufficient to justify an order refusing enforcement of the Guarantee. These questions, and issues relating to his Honour's findings as to reliance and the sufficiency of the reasons for those findings, are raised by grounds 5, 6, 7, 8, 9 and 10. 5. Ground 4, which sought to argue that the respondent was liable under the indemnity provisions of the Guarantee, is not pressed. That argument was not pleaded or made before the primary judge. It is convenient to start with the argument made by grounds 1 and 3. Was the respondent liable as guarantor for moneys not paid in accordance with the original facility (grounds 1 and 3)? The appellant's argument 1. The appellant submits that the respondent was liable as guarantor of the moneys unpaid as at 12 January 2009. The respondent guaranteed "the payment of the Guaranteed Moneys" and "the performance of the Borrower's obligations under the Loan Contract" (cl 2.1). That guarantee remained in place until the appellant had received "all of the Guaranteed Moneys" (cl 5.1) which included "the unpaid balance of the Loan Contract" (cl 2.2(a)). The obligations under the Guarantee were principal obligations and independent of and unaffected by any other security held in relation to the Guaranteed Moneys (cl 11.2). Those obligations survived the termination of the Loan Contract (cl 11.5). The relevant terms of the Guarantee and Deed of Variation 1. The Guaranteed Moneys included by cl 2.2(a) "the unpaid balance of the Loan Contract and any Future Loan Contract". They also included interest, credit fees, other charges and enforcement expenses. The Loan Contract was the contract "of even date" between the appellant as Lender and the Borrower for the advance of $600,000, to be repaid with accrued interest on 12 January 2009. 2. Clause 4.1 of the Guarantee provided: You become liable to pay us the Guaranteed Money when both you and the Borrower fail to remedy a default notice we send you and we do not postpone or waive enforcement proceedings. The appellant lender could serve a default notice if the guarantor was in default under the Guarantee (cl 4.2). The circumstances in which such a default would occur included where the borrower did not make a repayment in full by the due date under the Loan Contract (cl 4.3(a)) and where the borrower was in default under the Loan Contract (cl 4.3(c)). 1. By cl 6, the Deed of Variation preserved liabilities arising before its execution and under any Collateral Security, which as defined included the Guarantee: … the terms and conditions of the Loan Contract and the Collateral Security are ratified and confirmed and, as amended, continue in full force and effect. Nothing contained in or implied by this document abrogates, prejudices, diminishes or otherwise adversely effects any rights, remedies, obligations or liabilities of any of the parties arising with respect to any act, matter, or thing done or effected or otherwise arising before the execution of this document. The respondent was not liable as guarantor for unpaid moneys due under the original facility 1. The appellant is correct to observe that the primary judge did not address this argument although his Honour noted at [44] that, if the Deed of Variation was unenforceable, it was claimed that the respondent "remained liable under the first guarantee for the loan contract". 2. The starting point for the appellant's argument must be the claim under the guarantee as made and pleaded against the respondent. That claim (see [17] above) was that, by the default notice dated 26 May 2011 and in accordance with cl 4.1 of the Guarantee, the respondent became liable to pay the amount of $1,190,696.52 owing "under the Loan Contract and Deed of Variation". That amount was not the "unpaid balance of the Loan Contract" due as at 12 January 2009. That "unpaid balance" had not been the subject of any default notice. 3. It follows that this argument cannot be sustained. There was no failure to remedy a default notice served in relation to the moneys due under the original facility. For that reason the respondent guarantor did not become liable in accordance with cl 4 to pay that balance as Guaranteed Moneys. Furthermore, that unpaid balance was not the subject of the appellant's claim. Was the respondent liable as guarantor of the moneys due under the Loan Contract as varied by the Deed of Variation (ground 2)? The appellant's argument 1. The appellant submits that by the Deed of Variation the guarantors, including the respondent, consented to the variation of the Loan Contract and, by cl 3 of that Deed, confirmed: … that the whole of their guarantee and any security (including any document specified in Item 2) remain in full force and effect for the Facility as varied by the Variation. 1. The respondent's obligation as guarantor of that amended loan facility (or, in the language of the Guarantee, the Future Loan Contract) was said not to have been discharged by the agreement to cap Bingemann's liability for two reasons. First, the Guarantee expressly provided by cll 5.2 and 12 that the making of such an arrangement would not release or discharge another guarantor's obligation. Secondly, the equitable rule referred to in Ankar did not apply because the alteration to the respondent's rights as guarantor was "unsubstantial and not prejudicial" (Ankar at 559) given that those same clauses permitted such an alteration to be made unilaterally by the appellant at any time during the life of the Guarantee. Clauses 3, 5.2 and 12 of the Guarantee 1. Clause 3 of the Guarantee permitted the parties to agree to extend its application to cover any "proposed new loan contract". 3. GUARANTEEING FUTURE LOAN CONTRACTS 3.1 We may ask you to extend Guarantee We may ask you to extend this Guarantee to cover any new loan contract between us and the Borrower. We will give you: (a) a copy of the new loan contract or proposed new loan contract; and (b) a form of written acceptance to extend this Guarantee to cover the new loan contract. 3.2 Accepting extension of Guarantee This Guarantee does not extend to cover the new loan contract unless you sign and give us the written acceptance. If you do: (a) the new loan contract is a Future Loan Contract; and (b) subject to clause 2.2, any amount payable by the Borrower under the Future Loan Contract is Guaranteed Moneys. 3.3 No obligation to accept extension of Guarantee You do not have to accept our request to extend the Guarantee. 1. Clause 5.2 provided: 5.2 We may release one Guarantor but not all (a) If there is more than one Guarantor, we may release or discharge any Guarantor without releasing or discharging any other Guarantor. (b) If we release any Guarantor, any remaining Guarantor continues to be liable to us until final release under clause 5.1. 1. Clause 12 of the Guarantee provided that it was to be unconditional in the sense that the guarantor's obligations under it were not discharged or affected by the release of a co-guarantor or other conduct of the lender which might alter the nature of the surety's obligations or rights from those as originally undertaken (cf Ankar at 558). Such clauses are not unusual, as the cases cited by Campbell JA in Brighton v Australia and New Zealand Banking Group Ltd [2011] NSWCA 152 at [91] show: 12. UNCONDITIONAL NATURE OF THIS GUARANTEE Your obligations under this Guarantee and any mortgage that you give us are not released, discharged or otherwise affected by any of the following: (a) the grant of any time, waiver, covenant not to sue or any other indulgence; … (c) the release or discharge of the Borrower, any mortgagor or any guarantor including yourself; … (e) any transaction, agreement, arrangement, composition or compromise entered into by the Borrower, any mortgagor, ourselves or any guarantor; … (i) any amendment to any mortgage or other security or any guarantee including this Guarantee; … . The Guarantee did not extend to cover the amended facility 1. The respondent claimed that there had been a breach of cl 3.1(a) of the Guarantee because the "new loan contract" described in the proffered Deed of Variation was not the contract that the appellant "proposed" to make. That contract included the agreement to limit Bingemann's liability. The undertaking in cl 3.1(a) was a condition the breach of which was said to discharge the respondent from performance of his obligations as a guarantor of the amended facility (Ankar at 562). The appellant replied that there was no breach of cl 3.1(a) because that clause only required provision of the terms on which the "new" loan was to be made. In this case those terms related to the extended times for repayment of principal and interest and the higher interest rates, both of which were dealt with in the Deed of Variation. 2. The problem for this argument is that the subject matter of the Loan Contract, and of its proposed variation by the Deed of Variation, included, in the case of the former, a requirement for guarantees and, in the case of the latter, the requirement for an additional guarantee. 3. That position emerges from the following provisions of the Deed. Recital A referred to the financial accommodation provided to the borrower by the Loan Contract as the Facility. Recital C then stated that "The Borrower and Guarantor have requested the Lender to vary the terms of the Facility as specified in the Appendix (Variation)". That Appendix provided, by cl 5: 5 The Loan Contract will be amended as follows, (a) [provides for the giving of a mortgage by Bingemann over the Noosa Heads property] (b) Bingemann Holdings Pty is inserted in the list of Guarantors set out in the Schedule of the Loan Contract. The list of Guarantors in the Schedule to the Loan Contract is introduced by the words "We will require a guarantee from". 1. It follows that the unexecuted Deed of Variation, which was proffered to obtain the respondent's written acceptance for the purposes of cl 3.2 of the Guarantee, did not record all of the terms of the "proposed new loan contract". In relation to that contract there was a failure by the appellant to comply with cl 3.1(a). However, it is not necessary to consider whether that failure was a breach of a condition which discharged the respondent's liability as guarantor of the amended facility (cf Ankar at 555, 562). The result of that breach was that the "new loan contract", as made between the appellant and borrower, was not the subject of the respondent's written acceptance and accordingly not a Future Loan Contract within cl 3.2 of his Guarantee. 2. This conclusion differs from that reached by the primary judge which was that the respondent was entitled to have the "guarantee provided under the variation deed set aside in toto, and to be discharged from all liability under it": [52]. However, in substance the outcome is the same. The respondent's guarantee did not extend to the amended facility. The primary judge was correct to dismiss the appellant's claim and ground of appeal 2 should be rejected. Was the respondent entitled to relief under s 87 of the Trade Practices Act (grounds 5, 6, 7, 8, 9 and 10)? The relevant statutory provisions 1. The conduct which is said to have been misleading or deceptive occurred in 2009 and was subject to Pts V and VI of the Trade Practices Act. Section 87(1) relevantly provided: [W]here, in a proceeding instituted under this Part … the Court finds that a person who is a party to the proceeding has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in (whether before or after the commencement of this subsection) in contravention of a provision of Part IV, IVA, IVB, V or VC, the Court may, whether or not it grants an injunction under section 80 or makes an order under section 82, … make such order or orders as it thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention (including all or any of the orders mentioned in subsection (2) of this section) if the Court considers that the order or orders concerned will compensate the first-mentioned person in whole or in part for the loss or damage or will prevent or reduce the loss or damage. 1. The orders mentioned in s 87(2) include an order "refusing to enforce all or any of the provisions of such a contract", being one "made between the person who suffered, or is likely to suffer, the loss or damage and the person who engaged in the conduct": subs (2)(ba). 2. The effect of these provisions in the present case was that before the primary judge could make the order mentioned in subs 87(2)(ba) he had to be satisfied that the order would prevent or reduce loss or damage that the respondent was likely to suffer as a result of his entry into the Deed of Variation. The respondent's argument at first instance 1. The respondent's argument at trial proceeded as follows. By its conduct in proffering the Deed of Variation and not disclosing the agreement with Bingemann, the appellant engaged in misleading or deceptive conduct. Had the respondent been aware of that agreement, he would not have signed that Deed. At this point the argument became less straightforward. An order was sought under s 87(1) refusing to enforce the guarantee of the amended facility. It was accepted that to make such an order the Court had to be satisfied that it would prevent or reduce the loss or damage that would otherwise be suffered by reason of the misleading or deceptive conduct. To the extent that the argument focused on what that loss or damage might be, it was described in two ways. First, it was said the respondent had lost the benefit of having an additional co-surety with an uncapped liability. Alternatively, it was said that damage would be suffered as a result of the extra interest payable under the Deed of Variation (being the difference between 18% and 23%, assuming interest payments were made on time). What is immediately apparent is that neither of these descriptions could justify a conclusion that the loss or damage suffered or likely to be suffered would equal or exceed the respondent's liability under the guarantee if enforced. The decision of the primary judge 1. Having found that the appellant's conduct was misleading or deceptive, and that had he known the true position the respondent would not have executed the Variation Deed, the primary judge considered that it was "appropriate" to make an order "refusing enforcement of the Deed of Variation": [40], [54]. However, his Honour did not address what loss or damage the respondent was likely to suffer by reason of the misleading conduct if the Guarantee was enforced. That question required consideration of what was likely to have happened had the respondent refused to sign the Deed of Variation and a comparison of his position under that scenario with one in which the Guarantee was enforced, in each case taking account of any rights of contribution between co-sureties. The appellant's argument on appeal 1. The appellant submits that the primary judge erred in holding that its conduct was misleading or deceptive; that the respondent was misled by that conduct; and that the respondent would not have signed the Deed of Variation had he known of the capping arrangement with Bingemann. It is also submitted that his Honour erred in making an order under s 87 refusing to enforce the Guarantee in relation to the amended facility in circumstances where the Court could not be satisfied that the loss or damage likely to be suffered would exceed the amount by which the respondent's liability was increased as a result of the higher interest rate. Was the conduct misleading or deceptive? 1. The conduct complained of included the omission to disclose to the respondent the agreed limit on Bingemann's liability. As this Court observed in Allianz Australia Insurance Ltd v Haddad [2015] NSWCA 186 at [42], in such a case the judgments in Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd [2010] HCA 31; 241 CLR 357 show that there are different approaches which can be taken to the characterisation of such conduct as misleading or deceptive. One approach, which was that adopted by the primary judge at [54], is to consider whether that conduct in context conveyed a representation which was misleading or deceptive. Another is to inquire whether the circumstances were such as to give rise to a reasonable expectation that if a relevant fact existed, a particular thing would not have been done, or not done, without disclosing that fact. 2. In my view the primary judge correctly characterised the appellant's conduct as misleading or deceptive. The Appendix to the Deed of Variation provided that Bingemann was to be inserted in the list of Guarantors in the Schedule to the Loan Contract. That list consisted of the original six guarantors. Each had entered into a guarantee of the borrower's obligations under the Facility without limitation. Recital D of the Deed stated that Bingemann also had agreed to guarantee that obligation. In the absence of any qualification, that statement was reasonably to be understood as referring to the whole of those obligations without limitation. That representation was untrue because of the existence of the capping agreement. Reliance and likely loss or damage 1. That the Guarantee did not extend to the amended loan facility means that the respondent is not liable for the moneys which were the subject of the appellant's default notice dated 26 May 2011. It follows that the respondent did not and is not likely to suffer any loss or damage by the appellant's misleading conduct and his execution of the Deed of Variation. For that reason the primary judge erred in making an order in the terms of s 87(2)(ba) refusing to enforce the Guarantee. 2. This makes it unnecessary to consider the appellant's challenge to the finding that the respondent would not have signed the Deed of Variation if he had known of the agreement between the appellant and Bingemann. It also makes it unnecessary to consider what, if any, loss or damage the respondent was likely to suffer if the guarantee did extend to the amended facility. Neither of these questions was addressed by the primary judge. Conclusion 1. The appeal should be dismissed. However, because of the basis on which I have reached that conclusion, the order made pursuant to s 87 should be set aside. Accordingly the orders I propose are: 1. Appeal dismissed. 2. Set aside order 3 made on 1 August 2014. 3. Order the appellant pay the respondent's costs of the appeal. 1. GLEESON JA: I agree with Meagher JA, and would add one brief observation. 2. The respondent guarantor's reliance upon Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15; 162 CLR 549 (Ankar) both at first instance and on appeal was largely a distraction. Ankar concerned the circumstances in which a creditor's breach of a contract of guarantee discharged the guarantor from liability under that contract. The plurality (Mason ACJ, Wilson, Brennan and Dawson JJ) viewed that question as involving an application of the general principles of the law of contract (at 561). This required in Ankar an examination of whether two provisions of the guarantee (relating to the creditor giving notice to the guarantor should the principal debtor propose to sell or assign its interest in the leased machinery, or otherwise default in its obligations under the lease, being the subject matter of the guarantee), should be treated as conditions, breach of which, at the guarantor's election, discharged it from performance of its obligations under the guarantee (at 561-562). A detailed analysis of the plurality judgment in Ankar and the reasoning underlying the ratio, is to be found in the reasons of Campbell JA in Brighton v Australia and New Zealand Banking Group Ltd [2011] NSWCA 152 at [71] – [83], in particular [80] and [83]. 3. Deane J (at 570) adopted a different approach in Ankar. His Honour considered (at 570-571) that there was a special rule applying to guarantees whereby a significant departure by the creditor from the terms of the contract of guarantee will, in the absence of agreement to the contrary, operate to preclude the existence or continued existence of the circumstances in which the guarantor has agreed to be bound. On this approach, there is no need for the guarantor to rescind the contract for repudiation or breach of an essential or fundamental term. Absent questions of waiver or estoppel, the situation is simply that the circumstances of liability as guarantor do not exist. 4. The special rule as described by Deane J has not escaped criticism by text writers: see J O'Donovan and J Phillips, Thomson Lawbook Co, Modern Contract of Guarantee, Vol 1 (at update 58), [8.110]. However, it is unnecessary here to address whether that criticism is well founded. 5. In the present case, there was no need for the respondent guarantor to call in aid either the general principles of the law of contract as to discharge for breach of a condition of the guarantee, nor the special rule described by Deane J. As the reasons of Meagher JA make clear, the matter was far more straightforward. 6. The appellant claimed from the respondent the moneys owing under the Loan Contract as amended by the Deed of Variation. This "new loan contract" was said to answer the description of a Future Loan Contract within cl 3.2 of the Guarantee. For the Loan Contract as varied to be covered by the Guarantee, as distinct from a new guarantee, two things needed to occur. The appellant was required to comply with cl 3.1(a) by providing the "new loan contract" to the respondent and obtaining the respondent's written acceptance for the purposes of cl 3.2 that his Guarantee would cover the "new loan contract". The appellant did not do so. The effect of that non-compliance is that the Guarantee given by the respondent never covered the liability of the principal debtor under the Loan Contract as varied. 7. The analysis does not involve any question of discharge of the guarantor's liability for the creditor's breach. Nor does it involve any special rule as described by Deane J. Rather the terms upon which the Guarantee given by the respondent would cover a "new loan contract" were simply never fulfilled, for the reasons given by Meagher JA at [41]-[43]. Hence, there was no need for the respondent guarantor to elect to terminate the Guarantee, as the approach of the plurality in Ankar would have required if the respondent was relying upon the discharge principle. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 30 July 2015