Case: Ankar Pty Ltd v National Westminster Finance (Aust) Ltd [1987] HCA 15 ; (1987) 162 CLR 549
Outcome: applied
law is clear that contractual provisions in a guarantee are to be construed strictly, and, in relation to provisions for the benefit of the principal, contra proferentum : Ankar Pty Ltd v National Westminster Finance (Aust) Ltd [1987] HCA 15 ; (1987) 162 CLR 549 at 561; Apple Computer Australia Pty Ltd v Mekrizis [2003] NSWSC 126 at [127] . In relation to the 1998 profit shortfall however, it is clear that the fact and amount of a profit shortfall for 1998 were agreed, on an informed basis, by Mr Poh on behalf of both applicants and Mr Forbes. Failing other reasons which have been advanced by the respondents, and to which I shall turn shortly, in my view the amount of $127,284 represents the profit shortfall for the year ending 31 December 1998 for the purposes of cl 3.3 of the share sale agreement and is recoverable from Mr Forbes by the applicants pursuant to the Forbes Guarantee. 2. What is the position of Mrs Forbes in relation to the 1998 profit shortfall? It is settled law that a surety will be discharged from his or her obligations where there is a fundamental alteration to the guaranteed obligations to which the surety has not consented: Ankar [1987] HCA 15 ; (1987) 162 CLR 549 , Wallace-Smith v Thiess Infraco (Swanston) Pty Ltd [2005] FCAFC 49 at [302] . As the majority said in Ankar (1987) 162 CLR 546 after discussing a number of English cases: These statements of principle ... indicate that the principle is the by-product, not so much of the general law of contract, as of the special relationship between creditor and surety arising out of the suretyship contract upon which equity fastened to protect the surety when the creditor's conduct affected the surety's liability: Holme v Brunskill . According to the English cases, the principle applies so as to discharge the surety when conduct on the part of the creditor has the effect of altering the surety's rights, unless the alteration is unsubstantial and not prejudicial to the surety. The rule does not permit the courts to inquire into the effect of the alteration. The consequence is that, to hold the surety to its bargain, the creditor must show that the nature of the alteration can be beneficial to the surety only or that by its nature it cannot in any circumstances increase the surety's risk, e.g. a reduction in the debtor's debt or in the interest payable by the surety. The mere possibility of detriment is enough to bring about the discharge of the surety. (at 559-560) As I have already observed, a surety is discharged where there is a fundamental alteration to the guaranteed obligations to which the surety has not consented unless the alteration is unsubstantial and not prejudicial to the surety: Ankar [1987] HCA 15 ; (1987) 162 CLR 549 ; Wallace-Smith [2005] FCAFC 49. Third, even if contrary to my view as to the weight of evidence before the Court the acquisition of Favco was not the decision of Mr Forbes, the acquisition of Favco was not an event which caused a material variation to the terms of the share sale agreement: Ankar [1987] HCA 15 ; (1987) 162 CLR 549 at 559. It could not be said, for example, that the acquisition of Favco involved conduct on the part of the creditor (Forbes Asia) having the effect of altering the suretys' rights: Ankar [1987] HCA 15 ; (1987) 162 CLR 549 at 559. Finally, the respondents cannot point to any provision in the terms of the guarantee side letters as executed by the respondents which support the proposition that the acquisition of Favco involved a departure from the terms as agreed in the guarantee. In this respect the events of which the respondents complain can be contrasted with, for example, the facts of Ankar [1987] HCA 15 ; (1987) 162 CLR 549 itself, where the High Court held that the surety had been discharged from liability because, inter alia : Accordingly, I consider that this aspect of the respondents' defence fails. 7. Even if the vendors' profit guarantee as articulated in clause 3.3 of the share sale agreement is valid, are the applicants estopped from relying on it because of the alleged representations of Mr Poh as pleaded in paragraph 13 of the respondents' defence? In relation to this issue, the respondents submit in summary: