Khoury v Fitz-Gibbon

In *Khoury v Fitz-Gibbon* [1989] NSWCA 124, the New South Wales Court of Appeal considered a dispute concerning the enforceability of a guarantee. The appellant, Mr. Khoury, sought to enforce a guarantee provided by the respondent, Ms. Fitz-Gibbon, in favour of a company. The core of the dispute revolved around whether Ms. Fitz-Gibbon was entitled to rely on certain defences to resist the enforcement of the guarantee.

The primary legal issue before the Court of Appeal was whether Ms. Fitz-Gibbon had been discharged from her obligations under the guarantee due to the conduct of the company and Mr. Khoury. Specifically, the court had to determine if the company's actions, and by extension Mr. Khoury's involvement, had fundamentally altered the nature of the obligations guaranteed, thereby releasing Ms. Fitz-Gibbon from her liability.

The Court of Appeal found that the company's conduct, which involved a significant departure from the original agreement and a substantial increase in the company's indebtedness beyond what was contemplated at the time the guarantee was given, had indeed discharged Ms. Fitz-Gibbon from her obligations. The court applied the principle that a guarantor is released if the principal debtor's obligations are so fundamentally altered without the guarantor's consent that the guarantor is exposed to a greater risk than they originally agreed to undertake. This principle, rooted in the law of suretyship, protects guarantors from being bound by obligations that have been significantly and detrimentally varied from the original terms.

The Court of Appeal accordingly dismissed Mr. Khoury's appeal, upholding the decision that Ms. Fitz-Gibbon was not liable under the guarantee.