Dobbs v National Bank of Australasia Ltd

The National Bank of Australasia Ltd. brought an action in the Supreme Court of New South Wales against Frank Morris Dobbs to recover a sum of money under a guarantee. The core of the dispute revolved around the interpretation and enforceability of specific clauses within the guarantee document. The defendant, Mr. Dobbs, raised several pleas by way of defence, including allegations that the bank had released securities provided by co-guarantors without his consent and that the bank had acted negligently in honouring cheques. The plaintiff bank demurred to these pleas, relying on the terms of the guarantee.

The legal issues before the court were twofold. Firstly, whether a clause in the guarantee, stipulating that a certificate signed by a bank manager would be conclusive evidence of the principal debtor's indebtedness, was void as being contrary to public policy by ousting the jurisdiction of the court. Secondly, whether another provision in the guarantee, which authorised the bank to release any security held by it without affecting the guarantor's liability, permitted the bank to release securities furnished by one co-guarantor without discharging the liability of the other co-guarantors.

The High Court, affirming the decision of the Supreme Court of New South Wales, held that the clause making the manager's certificate conclusive evidence of indebtedness was valid and not contrary to public policy. The court reasoned that such clauses do not oust the jurisdiction of the court but rather provide a contractual mechanism for ascertaining facts relevant to liability, akin to arbitration clauses that, once acted upon, extinguish original causes of action. The court distinguished between agreements that prevent resort to the courts altogether and those that define how facts will be determined. Regarding the release of securities, the court found that the broad wording of the relevant clause authorised the bank to release any security, irrespective of whether it was furnished by the principal debtor or a co-guarantor, without affecting the liability of the guarantors. Therefore, the bank was entitled to release securities provided by one co-guarantor without the consent of the others.