Case: Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245
Outcome: applied
side letters, on their face, are phrased as an agreement between the three parties, Euroceaonia, WAMS and West Asia. They express a relationship between performance of WAMS' obligations under the charterparties and each of West Asia and WAMS. In one sense, the side letters could be thought of as being a guarantee by West Asia that its subsidiary would perform in the second class of guarantees of payment of instalments due by a principal debtor referred to by Mason CJ in Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 256-257: i.e. that a default by WAMS was also a breach of West Asia's obligations to Euroceonia because West Asia had not brought about performance by WAMS. Curiously, however, these commercial parties did not use the word "guarantee" in the side letters. There was obvious commercial sense for Euroceania to have sought some binding assurance from WAMS' more substantial part-parent of the performance of a 5 year charter of the two ships. Importantly, the ships were to be, and were, employed as part of West Asia's fleet. Here, the side letters contain admissions by West Asia concerning its relationship to WAMS. What is the natural and ordinary meaning of a person agreeing that he is "ultimately responsible for the true fulfilment of" another's obligations under charterparty between the latter and a third party? The quoted words refer to a positive role in relation to performance of the charterparty. They are consistent with West Asia assuming a primary, or at least a joint and several, liability to Euroceania. In Sunbird Plaza 166 CLR at 255-256, Mason CJ (with whom Deane, Dawson and Toohey JJ agreed) said: "It may be that as a matter of history the view that the guarantor has an obligation "to see to it" that the debtor performs his obligation explains why the guarantor is not entitled to notice of the debtor's default and why the creditor's cause of action arises on that default. But the view certainly does not accord with the nature of the guarantor's obligation as it is understood today. Rarely do guarantors have control of, or a capacity to influence, the principal debtor such that they would willingly assume an obligation to ensure that he performs his primary obligation . It is fictitious and quite unrealistic to suggest that this version of the guarantor's undertaking, rather than a promise to "answer for" the debt or default of the debtor, is the true nature of the guarantor's obligation." (emphasis added) However, Mason CJ concluded that there was no common rule applicable to all guarantees and the parties were free to make such agreement as they chose: Sunbird Plaza 166 CLR at 256. There, the guarantor undertook that, in effect, the debtor would perform its contractual obligations. In contrast, the side letters involve West Asia itself being responsible to fulfil the charterer's obligations, not merely to cause its subsidiary to do so. And, here West Asia did have control of and power to influence what WAMS did, including causing it to enter into the charterparties in the first place. The side letters demonstrate the reality of West Asia's control of WAMS. And, West Asia was in control of the " JBU Opal " and " JBU Onyx " in a practical, business sense. As the instructions of 21 April 2009 to the master of the " JBU Opal " said, the commercial operations of the ship would be handled by West Asia on behalf of WAMS. I infer that this recognised the business reality that, although WAMS was the charterer, it caused the two chartered ships to operate as West Asia directed.