Lee v ATL (Australia) Pty Ltd

The appeal in *Lee v ATL (Australia) Pty Ltd* concerned a dispute over the scope of a guarantor's liability. The plaintiff, ATL (Australia) Pty Ltd, sought to recover moneys from the guarantor, Mr. Lee, under a loan agreement. Mr. Lee argued that his obligations as guarantor had been discharged due to variations made to the principal loan agreement without his consent. The matter was heard in the Court of Appeal of the Supreme Court of New South Wales.

The central legal issues before the Court of Appeal were whether a side letter, agreed between the borrower and the lender, constituted a variation of the principal loan agreement that altered the borrower's obligations in a way that discharged the guarantor. Specifically, the court had to determine if the side letter, which provided for pre-drawdown interest, altered the terms of the loan agreement under which funds were advanced, and if so, whether this variation released Mr. Lee from his guarantee obligations. The court also considered the application of the rule in *Holme v Brunskill* regarding the discharge of a guarantor where the principal contract is varied without their consent.

The Court of Appeal allowed the appeal, finding that the side letter did not alter the borrower's obligations under the loan agreement in a manner that would discharge the guarantor. The court reasoned that the side letter was a separate agreement that did not modify the terms of the loan agreement itself, but rather addressed a specific aspect of interest accrual. Consequently, the rule in *Holme v Brunskill* was not engaged in a way that would release Mr. Lee from his guarantee. The court set aside the orders made by the primary judge and dismissed the plaintiff's claim against the second defendant, ordering the plaintiff to pay the second defendant's costs of the proceedings below and the appellant's costs of the appeal.