Schoenhoff v Commonwealth Bank of Australia

Schoenhoff appealed to the New South Wales Court of Appeal against a decision of the Supreme Court of New South Wales. The dispute concerned whether a guarantee provided by the appellant for a loan made by the Commonwealth Bank of Australia to a borrower, and an indemnity also provided by the appellant, were discharged by an advance made by the respondent to the borrower. The core of the appeal was whether this advance was contrary to the terms of the facility for which the guarantee was provided.

The Court of Appeal was required to determine whether the advance made by the Commonwealth Bank to the borrower was in breach of the facility agreement, and if so, whether this breach operated to discharge the appellant from his obligations under the guarantee and the indemnity. The court also considered the nature of the indemnity and whether it was affected by the same circumstances that might discharge the guarantee.

The Court of Appeal found that the advance made by the bank was not contrary to the terms of the facility agreement. Their Honours reasoned that the facility agreement permitted the bank to make advances as it saw fit, and that the advance in question did not constitute a breach. Consequently, the basis for discharging the guarantee and indemnity did not arise. The legal principles applied concerned the interpretation of facility agreements and the conditions under which a guarantor or indemnifier may be discharged from their obligations, particularly where the creditor's actions are alleged to be in breach of the underlying agreement.

The appeal was dismissed with costs.