Chan v Burrowes

In *Chan v Burrowes* [1998] NSWCA 56, the New South Wales Court of Appeal considered a dispute between the appellant, Chan, and the respondent, Burrowes, concerning the enforceability of a guarantee.

The primary legal issue before the Court was whether the respondent, as guarantor, was discharged from her obligations under a guarantee due to the appellant's conduct in varying the terms of the principal loan agreement without the guarantor's consent. Specifically, the Court had to determine if the variations to the loan agreement were material and of such a nature as to prejudice the guarantor, thereby releasing her from liability.

The Court of Appeal held that the variations to the loan agreement, which included an increase in the interest rate and an extension of the repayment period, were material and had the effect of increasing the guarantor's risk. Applying established principles of guarantee law, the Court found that where a creditor varies the principal contract without the guarantor's consent, and that variation materially alters the guarantor's position or increases their risk, the guarantor is discharged from their liability. The Court reasoned that the guarantor's obligation is to guarantee the performance of the original contract, and any substantial alteration to that contract without their assent releases them from that obligation.

The appeal was dismissed, and the guarantor was accordingly discharged from her obligations under the guarantee.