Gordon, Gregory John v Australia and New Zealand Banking Group Ltd

[1997] FCA 1108

FEDERAL COURT OF AUSTRALIA

CONTRACT - construction of guarantee - whether ambiguity - material alteration - whether the deletion of a limited liability clause in which no sum has been inserted is a material alteration of the contract - whether guarantor’s liability was conditional on another guarantor’s liability.

Coles Myer Finance Ltd v Commissioner of Taxation (1993) 176 CLR 640, referred to
National Bank of New Zealand Ltd v West [1978] 2 NZLR 451, referred to
Caltex Oil (Aust) Pty Ltd v Alderton (1964) 81 WN Pt 1 (NSW) 297, applied
Spectra Pty Ltd v Pindari Pty Ltd [1974] 2 NSWLR 617, referred to
Colonial Bank of Australasia v Moodie (1880) 6 VLR 354, referred to
Pigot’s Case (1614) 11 Co Rep 26b, applied
Farrow Mortgage Pty Ltd v Slade & Nelson (1996) 38 NSWLR 636, referred to

Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549, referred to

Lady Naas v Westminster Bank Ltd [1940] AC 366, discussed
Ward v The National Bank of New Zealand, Ltd (1883) 8 App Cas 755, 765, referred to

GREGORY JOHN GORDON and SUSANNE WAY GORDON v AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED
NG 139 OF 1997

DAVIES, KIEFEL AND LEHANE JJ
SYDNEY
24 OCTOBER 1997

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 139 of 1997

ON APPEAL FROM A SINGLE JUDGE
OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

GREGORY JOHN GORDON
FIRST APPELLANT

SUSANNE WAY GORDON
SECOND APPELLANT

AND:

AUSTRALIA AND NEW ZEALAND BANKING GROUP LTD
RESPONDENT

JUDGE(S):

DAVIES, KIEFEL AND LEHANE JJ

DATE OF ORDER:

24 OCTOBER 1997

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1. The appeal is dismissed with costs.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 139 of 1997

ON APPEAL FROM A SINGLE JUDGE
OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

GREGORY JOHN GORDON
FIRST APPELLANT

SUSANNE WAY GORDON
SECOND APPELLANT

AND:

AUSTRALIA AND NEW ZEALAND BANKING GROUP LTD
RESPONDENT

JUDGE(S):	DAVIES, KIEFEL AND LEHANE JJ
DATE:	24 OCTOBER 1997
PLACE:	SYDNEY

REASONS FOR JUDGMENT

LEHANE J:

This is an appeal from a decision of a single Judge of the Court (Sheppard J).  The proceedings before his Honour were commenced by an application by which Cosmedia Productions Pty Ltd (Cosmedia) sought relief of various kinds against the respondent (the Bank) principally on the basis of various alleged breaches of contract by the Bank.  The Bank cross claimed against Cosmedia in respect of what the Bank said was Cosmedia’s indebtedness to it; and the Bank claimed against the appellants (Mr and Mrs Gordon) on the basis of a guarantee which they had given of Cosmedia’s liabilities to the Bank.  The Bank sought also an order for possession of land which Mr and Mrs Gordon had mortgaged to the Bank.

His Honour dismissed Cosmedia’s application and, on the cross claim, ordered that there be judgment for the Bank against Cosmedia and against Mr Gordon as guarantor in the sum of $126,484.68; he ordered that there be judgment against Mrs Gordon, as guarantor, in the sum of $60,191.30.  His Honour refused the Bank’s claim for an order for possession of the mortgaged land.

Mr and Mrs Gordon appeal from the orders made against them on the Bank’s cross claim.  The Bank cross appealed against his Honour’s refusal to order that the Bank have possession of the mortgaged land, but the cross appeal was not pursued.  There is no appeal from his Honour’s decisions dismissing Cosmedia’s application or from the judgment against Cosmedia on the cross claim.

Facts

Cosmedia manufactures and distributes cosmetics, car care and “specialty” products.  It was incorporated in 1987.  Mr Gordon was a director of Cosmedia and managed its business throughout the period which is relevant to these proceedings.  Mrs Gordon was for a time a director of Cosmedia but was not involved in its management or informed about the details of its business.  Cosmedia conducted its banking business with the Bank.  It had, apparently throughout the relevant period, accommodation from the Bank in the form of an overdraft and a fully drawn advance, the amounts and “mix” of which varied from time to time.  In June 1987, by a printed document in what is clearly one of the Bank’s standard forms, Mr and Mrs Gordon guaranteed the payment to the Bank of sums of money for the time being owing or unpaid by Cosmedia to the Bank.  The document (the guarantee) is dated 26 June 1987; it was signed by Mr Gordon in the presence of a solicitor and by Mrs Gordon in the presence of an officer of the Bank.  It will be necessary, later in these reasons, to consider in detail some of the provisions of the guarantee.

In April 1993 Cosmedia entered into what was described as a “merchant agreement” with the Bank.  The agreement was expressed to have commenced on 18 March 1993 and it incorporates certain general terms and conditions applicable to agreements of this kind entered into by the Bank.  The merchant agreement authorised Cosmedia to “accept” certain credit cards.  Cosmedia was to “honour all valid Nominated Charge Cards presented by Cardholders by supplying goods and services to the Cardholder at [Cosmedia’s] normal prices”.  The Bank agreed, among other things, to “accept all valid sales transactions” and to credit Cosmedia’s account with their amount.  The agreement provided that a sales transaction was not to be regarded as “valid” in certain circumstances, for instance if the transaction was illegal, a voucher forged or unauthorised, the card not “current” or listed on a “warning bulletin”.  The agreement entitled the Bank not to “accept” a sales transaction if it was not valid, if the Cardholder disputed liability or if the Cardholder asserted a set-off or counterclaim; if the Bank accepted such a transaction, it was entitled to “charge” it “back”. Cosmedia agreed to permit the Bank to debit Cosmedia’s account with, among other things, any credits made by the Bank in respect of sales transactions which were not valid and any other moneys due to the Bank by Cosmedia under the merchant agreement.

In circumstances which it is not necessary to describe, Cosmedia presented to the Bank a number of sales vouchers and the Bank accepted several of them, crediting their amounts to Cosmedia’s account.  Subsequently, the Bank formed the view that a number of the transactions represented by the vouchers were not “valid” and charged their amounts back, debiting Cosmedia’s account accordingly.  The Bank terminated the merchant agreement: the terms of the merchant agreement entitled either party to do so at any time by giving written notice.

The amount of the judgment ordered by his Honour against Cosmedia and Mr Gordon includes debits for amounts charged back, and other sums owing, under the merchant agreement.  The judgment against Mrs Gordon does not (it is for other amounts owing by Cosmedia to the Bank).  His Honour held that Mrs Gordon was not responsible for Cosmedia’s indebtedness to the Bank under the merchant agreement.

Issues on the appeal

Three issues arise on the appeal.  First, as a matter of construction of the guarantee, do the obligations of Mr and Mrs Gordon under it extend to sums owing by Cosmedia under the merchant agreement?  His Honour answered that question in the affirmative.  Secondly, was Mrs Gordon’s liability as guarantor of Cosmedia’s indebtedness discharged by reason of a material alteration made to the guarantee after she signed it?  His Honour’s answer to that question was “no”.  Thirdly, was Mr Gordon’s accessory liability discharged because of the exclusion of Cosmedia’s indebtedness under the merchant agreement from the sums for which his co-guarantor, Mrs Gordon, was liable?  His Honour answered that question, also, in the negative.

Construction of the guarantee

A sufficient description of the style in which the guarantee is drawn is that it is traditional.  Any doubt about what that means may be dispelled by the observation that, although the individual words used are plain enough, the description of the debts for which the guarantors assume liability is contained in a single, closely printed sentence of 57 lines, including several phrases in parentheses, but otherwise unpunctuated except for commas immediately before and after the word “namely” in line 49.  Comments of that sort are, of course, easily made.  Fortunately, drafting fashions appear to be changing; but a reluctance to depart from forms of words which had been laboured over and seemed to have served well for many years is not difficult to understand.  The obscurity of the style represented by the Bank’s form, however, which even for the experienced reader is difficult to comprehend, encourages, where any ambiguity appears, resort to the contra proferentem rule and other principles of construction which tend to limit, rather than expand, the meaning of the words used.  But is it necessary first to see whether there is an ambiguity.

The relevant portion of the guarantee is to be read bearing in mind that “the Guarantor” means Mr and Mrs Gordon, jointly and severally, and “Customer” means, in this case, Cosmedia.  It reads:

The Guarantor hereby guarantees the payment by the Customer to the Bank... of all sums of money whatsoever which shall for the time being be owing or unpaid by the Customer to the Bank... for or in respect of all loans advances credits or banking accommodation heretofore made created or given by the Bank or now or which may hereafter be made created or given by the Bank to for or on account or at the request of the Customer or in respect of any indebtedness from the Customer to the Bank on any account whether now existing or which may hereafter be opened or by any means whatsoever including all sums in which the Customer is or may hereafter become liable immediately or contingently to the Bank upon or in respect of any account or accounts in which the Customer is or may hereafter be interested or concerned either alone or jointly or in common as aforesaid...

The primary Judge held that the words “any indebtedness from the Customer to the Bank on any account whether now existing or which may hereafter be opened or by any means whatsoever including all sums in which the Customer is or may hereafter become liable immediately or contingently to the Bank upon or in respect of any account or accounts in which the Customer is now or may hereafter be interested or concerned either alone or jointly in common” were sufficiently wide to cover liability arising under the merchant facility agreement.

Senior counsel for the appellants criticised the learned Judge’s reliance on the phrase “or by any means whatsoever”.  His submission was that it was by no means clear which of the preceding words the phrase was intended to qualify (or, perhaps more accurately, modify).  He propounded various theories about that, none of which, in his submission, would permit a construction which included sums due under the merchant agreement within the guaranteed indebtedness.  Counsel for the Bank submitted that the phrase modified the opening words of the description “all sums of money whatsoever which shall for the time being be owing or unpaid by the Customer to the Bank”: those moneys fell into three categories:

1. for or in respect of all loans advances credits or banking accommodation... created or given by the Bank to for or on account or at the request of the Customer;

1. in respect of any indebtedness from the Customer to the Bank on any account whether now existing or which may hereafter be opened; and

1. or by any means whatsoever.

That seems to me clearly enough the natural construction of the words: senior counsel for the appellants retorted, however, that such a construction would render everything else in the provision unnecessary and would include in the guaranteed debt matters having nothing to do with the relationship of banker and customer, for instance damages for defamation or negligence.

In my view, however, it is unnecessary to come to a conclusion about that.  The question is not as difficult as senior counsel suggested.  Whatever may be unclear about the provision, it is plain that the guarantee covers two categories of sums owing by Cosmedia to the Bank:

(1)Sums of money... owing or unpaid by the Customer to the Bank... for or in respect of all loans advances credits or banking accommodation... which may here asked to be made created or given by the Bank to for on account or at the request of the Customer; and

(2)All sums of money... owing or unpaid by the Customer to the Bank... in respect of any indebtedness from the Customer to the Bank on any account whether now existing or which may hereafter be opened.

As to the former of those categories, senior counsel submitted that “loans advances credits or banking accommodation” should be read by reference to the way in which the form of guarantee describes itself, in the top left hand corner of the front page, as “guarantee for existing or new advance”.  Thus credits or accommodation must be taken as credits or accommodation having the nature of an advance.  I cannot accept that.  Plainly the debts expressed to be guaranteed include a number of categories which could not possibly be described as “advances”, for example contingent liability in respect of a guarantee issued by the Bank at the request of the Customer or a liability to indemnify the Bank in respect of bills which the Bank has discounted for the Customer.  Another category (undoubtedly included within the guaranteed money) is sums which have been credited to the account of the Customer for which the Bank accounts to a trustee in bankruptcy or liquidator.  Although this was not a matter much canvassed in argument, I see no reason to doubt that the provision by the Bank, under the merchant agreement, of arrangements for accepting payment by credit card is to be regarded as “banking accommodation”.  We may take it, I think, that an arrangement of that sort is a facility of a kind which, these days, banks commonly provide for their “merchant” customers.  The evidence was that the Bank had a “Card” department.  The Shorter Oxford English Dictionary, as one would expect, gives as one of the meanings of “accommodation” “the supplying of what it is requisite” or “anything which supplies a want...”.  “Banking accommodation” is accommodation, in that sense, which a bank customarily provides.  There appears to be no authority which suggests that a more limited meaning should be given to the term.  Authority concerning “accommodation bills” and accommodation parties does not suggest any restriction: see Coles Myer Finance Ltd v Commissioner of Taxation (1993) 176 CLR 640 at 656-661 and at 683-689. In my opinion the sums which became due by Cosmedia to the Bank under the merchant agreement fall within the description “sums of money... owing... by [Cosmedia] to the Bank... in respect of ... banking accommodation”.

In any case, however, in my view counsel for the Bank was correct in submitting that Cosmedia’s indebtedness for sums which became due under the marketing agreement falls within the second of the two categories.  It is indebtedness of Cosmedia to the Bank on an account.  Senior counsel for the appellants suggested that an “account” meant a bank account in a conventional sense: for example, a current account, an advance account or a loan account.  Even if that were right, it is still difficult to see why the indebtedness is not guaranteed: the Bank had express authority under the merchant agreement to debit Cosmedia’s account, the account specified in the merchant agreement was Cosmedia’s ordinary current account and the Bank debited the sums owing accordingly.  Why, that being so, is the indebtedness not indebtedness on an account?  In any event, I do not think that the word “account” is to be limited in the way senior counsel suggested: see National Bank of New Zealand Ltd v West [1978] 2 NZLR 451 at 457. In essence, senior counsel’s arguments rested on a proposition that the guarantee should be construed to cover only indebtedness arising out of the Bank’s relationship with Cosmedia as its banker, not out of other relationships or transactions between Cosmedia and the Bank. But even if that is right, I am quite unable to see why the transaction represented by the merchant agreement is not to be regarded as one falling within that relationship.

For those reasons I would uphold his Honour’s conclusion on this aspect of the case.

Material alteration?

Mr and Mrs Gordon signed the guarantee on separate occasions.  Mrs Gordon signed first.  The printed form of guarantee includes a clause which provides:

13.Subject to the provisions of Clause 5 hereof, the Bank shall not be entitled to recover from the Guarantor under this Guarantee a larger sum than... (hereinafter referred to as “the said sum”) and interest on the said sum until the date of payment...

Obviously it is contemplated that a sum will be inserted as the maximum principal sum recoverable from the guarantor, agreed between the guarantor and the Bank.  When Mrs Gordon signed the guarantee the clause had not been deleted but no sum had been inserted.  When Mr Gordon signed the clause had been deleted.

If clause 13 is deleted from the standard form, the legal effect of the document is that the guarantor guarantees the indebtedness of the customer described in the 57 line sentence, without limit.  If a guarantee in the standard form is signed with the clause retained but no amount filled in, there is authority for the proposition that its legal effect is exactly the same as it would have been had the clause been deleted: Caltex Oil (Aust) Pty Ltd v Alderton (1964) 81 WN (Pt 1) (NSW) 297, a decision of the Full Court of the Supreme Court of New South Wales followed, in a different context, by Wootten J in Spectra Pty Ltd v Pindari Pty Ltd [1974] 2 NSWLR 617. The decision in Caltex Oil was followed also by Miles CJ in Westpac Banking Corporation v Chan (1991) 104 FLR 37 at 42; and it had a precursor in Colonial Bank of Australasia v Moodie (1880) 6 VLR 354. On that footing, the form of the guarantee as Mrs Gordon signed it, and its form as Mr Gordon signed it, had precisely the same legal effect.

Before going further, it is desirable to record some findings made by his Honour in relation to Mrs Gordon.  His Honour gave preliminary consideration to the present question in his judgment delivered on 5 June 1996 and considered it further in a supplementary judgment delivered on 22 January 1997.  In his earlier judgment his Honour found that the bank officers present when Mrs Gordon signed the guarantee gave an explanation of it, but in terms suggesting that the debts which it covered were limited to those arising from “advances”.  The explanation referred to the bank’s ability to make such advances to Cosmedia as it thought fit; it was also said that the guarantee could be used in relation to future overdraft lending requirements.  There was no contemplation or mention of the merchant facility agreement or anything resembling it.  His Honour, however, also accepted evidence of Mrs Gordon that her understanding of the guarantee was that it was limited to $70,000 and covered only advances made by way of overdraft.  She relied on the Bank and on her husband to explain the nature of the guarantee.  The reference to $70,000 as an understood limit at the time the guarantee was executed is perhaps somewhat odd: correspondence in evidence suggests that the amount of the combined overdraft and fully drawn advance made available by the Bank to Cosmedia was increased to $70,000 only in 1991.  However that may be, his Honour’s finding is as I have stated it and it is not challenged.  After referring to the letters from the Bank, and Mrs Gordon’s acknowledgment of the increased amount - $70,000 - covered by the guarantee, his Honour continued:

Of course, a person experienced in these matters would know that the bank’s letter would not alter its right to recover whatever amount had been borrowed whether pursuant to an overdraft, a fully drawn advance or otherwise.  But Mrs Gordon had no experience in business whatever.  Her husband had little; she had much less.  To her the guarantee covered a sum no greater than $70,000.  It was less in 1987.  That is what the documents said and it is in accordance with her evidence.  In those circumstances I think it likely that, if clause 13 had been referred to when she signed the guarantee, she would have said something about the liability being limited to a particular sum.  She was not given that opportunity.  The alteration made may therefore be said to have been a material one.  If that be the case, the authorities to which I have earlier referred would tend to suggest that Mrs Gordon’s liability as surety was discharged once the alteration was made when Mr Gordon executed the guarantee.  If that be right, Mrs Gordon is discharged entirely from liability under the guarantee and is not liable for the fully drawn advance any more than she is for other amounts which are claimed.

His Honour did not then deal with the matter finally, but invited further submissions.  The learned Judge’s conclusion, as expressed in his supplementary judgment, was as follows:

I think that, if the clause had not been struck out but had been drawn to Mrs Gordon’s attention when she signed the guarantee, she would have said that the guarantee was indeed limited to an amount which was then $65,000.  It is clear from the letter that was written in 1991, which is referred to in the earlier judgment (p.66), that Mrs Gordon would have been content with such a limitation.  She signed an acknowledgment to this effect.  She believed all along that she was liable for the company’s debts to an amount of $70,000.  In those circumstances I do not think that the subsequent alteration of the guarantee by omitting Clause 13 made any material difference to the situation.  In the light of my earlier findings, counsel for the bank has conceded that Mrs Gordon is not liable for any amount beyond the amount of the fully drawn advance and interest payable thereon, as I understand it, up to a limit of $70,000.  The bank does not seek to recover from Mrs Gordon the amount owing by Cosmedia in respect of the charge backs.  Subject to one matter with which I have to deal when I come to the guarantee given by Mr Gordon, that means that Mrs Gordon is liable for the amount of the fully drawn advance presently outstanding together with interest thereon calculated in accordance with the contractual rates specified in the relevant agreement but not for any amount exceeding $70,000.

It is clear, in my view, that those findings do not bear upon the legal effect of the document which Mrs Gordon signed.  Accepting the correctness of Caltex Oil, its effect was, as I have said, the same as it would have been had clause 13 been deleted.  Equally, his Honour’s findings and conclusion do not depend, for their validity, on the presence of clause 13 in the document undeleted and uncompleted.  They would have been equally valid if clause 13 had been deleted and the effect of the deletion had not been explained to Mrs Gordon.  The precise legal basis on which Mrs Gordon was relieved of any liability under the guarantee in excess of $70,000 is, perhaps, not fully spelt out but clearly it arises from the circumstances in which the guarantee was executed and in which the facilities made available to Cosmedia were later rearranged: particularly, the explanation given by the bank officers, Mrs Gordon’s understanding and the terms, calculated to reinforce that understanding, of the correspondence.  The basis of the relief (Mrs Gordon’s entitlement to which is now conceded by the bank) it is no doubt equitable, or possibly statutory: certainly its basis is not a construction of the document which Mrs Gordon signed.  There is ample authority for the proposition that the rule in Pigot’s Case (1614) 11 Co Rep 26b is to be interpreted liberally and reasonably: Farrow Mortgage Pty Ltd v Slade & Nelson (1996) 38 NSWLR 636 at 640; Armor Coatings (Marketing) Pty Ltd v General Credits (Finance) Pty Ltd (1978) 17 SASR 259; Warburton v National Westminster Finance Australia Ltd (1988) 15 NSWLR 238. Because the crossing out of clause 13 affected neither the legal effect of the document nor Mrs Gordon’s equitable (or other) entitlement to relief, his Honour’s conclusion is hardly surprising.

It was submitted, applying by analogy Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549, that the alteration would be regarded as material unless it were shown that it was beneficial to the surety or could not in any circumstances increase the surety’s risk. It was suggested that the alteration to the guarantee increased the surety’s risk in two ways: it prevented the agreed limit being inserted and it prevented Mr and Mrs Gordon from arguing that Caltex Oil is wrong.  As to the former suggested risk, there is no evidence, let alone any finding, that there was an “agreed” limit: his Honour found that in Mrs Gordon’s mind there was a limit, but there is no suggestion of any concurrence by the Bank: such a suggestion would hardly be consistent, in any event, with the subsequent deletion of clause 13 when Mr Gordon signed it.  As for the latter of the suggested risks, the answer is simply, in my view, that the deletion did not prevent Mrs Gordon (or Mr Gordon) from arguing that Caltex Oil is incorrect.  Indeed, senior counsel submitted on behalf of Mrs Gordon that Caltex Oil was wrong and should not be followed.

In my view Caltex Oil, the correctness of which has been accepted in the more recent cases to which I have referred, was correct and should be followed.  A form of guarantee with clause 13 uncompleted is very different from such a document with words such as “to be agreed” written in (compare Relwood Pty Ltd v Manning Homes Pty Ltd [1990] 1 Qd R 481). The latter by its terms indicates that the parties have agreed that there is to be a limit but not what the amount of the limit is to be. The former indicates by its terms only that the parties have not elected to place a limit on an otherwise unlimited guarantee. Nor, finally, do I think it makes any difference that the issue in Caltex Oil arose on a demurrer: the question was, after all, simply one of construction of the document.

For those reasons, in my opinion the decision of the primary Judge on this issue was correct also.

Is Mr Gordon’s guarantee discharged?

It was put to the trial Judge that Mr Gordon’s liability as guarantor was discharged by the principle in Lady Naas v Westminster Bank Ltd [1940] AC 366: a principle stated by Lord Russell of Killowen, at 391, as follows:

I do not think that the proposition can be carried further than this, that the equity arises where a deed is sought to be enforced against an executing party, and owing to the non-execution by another person named as a party to the deed the obligation which is sought to be enforced is a different obligation from the obligation which would have been enforceable if the non-executing person had in fact executed the deed.  The most common instance is the case... where only one of two co-sureties named in the deed in fact executes the deed, and it is sought to enforce the deed against the one who did execute.

There is a similar principle which applies where one of two or more joint, or joint and several, sureties is released: see Ward v The National Bank of New Zealand, Ltd (1883) 8 App Cas 755 at 764, 765.

In his supplementary reasons for judgment, his Honour dealt with this matter as follows:

Clause 8 of the guarantee (which was not drawn to my attention at the earlier hearing) provided that each guarantor, i.e. Mr and Mrs Gordon, signing the guarantee agreed that he (or she) should be jointly and severally liable to the bank thereunder notwithstanding that some one or more of the guarantors or any other person intended to be a guarantor in respect of all or any of the indebtedness and liability covered by the guarantee should refuse or fail to sign the guarantee in respect thereof.  This clause makes it clear that the guarantee was a joint and several guarantee and that the liability under it as joint and several.  Paragraph 11 of the cross-claim makes it clear that Mr and Mrs Gordon are sued on the guarantee pursuant to its terms.  Those terms involve each of them being jointly and severally liable for the debt of Cosmedia.  In those circumstances, I see no problem about the fact that, in the circumstances as I have found them to be, Mrs Gordon’s liability will be less than that of her husband.  The submission of counsel for Mr and Mrs Gordon to the contrary is therefore rejected.

It is undoubtedly true, as senior counsel for the appellants submitted, that the principles to which I have referred apply equally where co-sureties are jointly and severally liable as they do where the liability is joint but not several.  There is both a rule of common law (which applies where, as a matter of construction, one guarantor’s assumption of liability is conditional on, or made in consideration of, other guarantors assuming liability) and an equitable principle (which will relieve a guarantor who is induced to undertake liability because others are to do so, or have done so). Ward at 763-765; compare Ellesmere Brewery Co v Cooper [1896] 1 QB 75 at 82, 83 and Evans v Bremridge (1856) 8 De GM & G 100 at 109; see also Keith Murphy Pty Ltd v Custom Credit Corporation Ltd (1992) 6 WAR 332 at 342-345.

Plainly, however, if a guarantor assumes liability on terms which expressly state that the assumption is not conditional on others becoming liable as guarantors or expressly permit the release of other guarantors without affecting the obligation assumed, then the rules and principles to which I have referred will not apply.  That, no doubt, was the point of his Honour’s reference to clause 8 of the guarantee.  It is not that clause which imposes a joint and several liability: that work is done by the words of guarantee read in conjunction with the interpretation provisions in clause 21.  Clause 8 provides that each guarantor who signs is jointly and severally liable with others who sign even though others, intended to sign, do not.  In fact, of course, Mrs Gordon did sign and has been held liable for a portion of Cosmedia’s indebtedness to the Bank; and she executed a form of guarantee which, as a matter of construction, had precisely the same effect as the guarantee signed by Mr Gordon.  The position being that Mrs Gordon has, in the circumstances and particularly because of the conduct of those representing the Bank, been partially relieved from her liability under the document signed, the important provision probably is not clause 8 but clause 4, to which we were referred also: that clause provides:

The Bank shall be at liberty without discharging or in any way affecting the liability of the Guarantor or any one or more of them... hereunder... to grant... to the Guarantor any one or more of them... any time or any other indulgence and also to compound compromise or make any arrangement with... the Guarantor or any one or more of them... and/or to release wholly or partially... the Guarantor or any one or more of them... .

That provision, in my view, clearly states an intention that Mr Gordon’s liability was not conditional or dependent on Mrs Gordon remaining liable for the full amount of Cosmedia’s debt to the Bank, or any of it.  It is thus sufficient to preclude the operation of the principles stated in Ward.  No other basis being suggested on which Mr Gordon should be regarded as relieved of his liability as guarantor, his Honour’s decision on this aspect of the case should be upheld as well.

Conclusion

For those reasons in my view the appeal should be dismissed with costs.

I certify that this and the preceding twelve (12) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Lehane J

Associate:

Dated:            

Counsel for the Applicant:	Mr D M Bennett QC and Mr M Heath
Solicitor for the Applicant:	Newman & Associates
Counsel for the Respondent:	Mr J W Stevenson
Solicitor for the Respondent:	Norton Smith & Co
Date of Hearing:	10 September 1997
Date of Judgment:	24 October 1997