Tjen v Marquess Investment Fund Pty Limited

The appeal concerned a dispute arising from a loan agreement and a subsequent forbearance deed. The appellant, Mr Tjen, was the guarantor of a loan provided by the respondent, Marquess Investment Fund Pty Limited, to a company called Tjen Holdings Pty Ltd. The core of the dispute revolved around whether a forbearance deed entered into between the lender and the borrower had the effect of converting the outstanding loan amount into equity, thereby discharging Mr Tjen's obligations as guarantor.

The Court of Appeal was required to determine two primary legal issues. Firstly, it had to construe the terms of the forbearance deed to ascertain whether it effected a conversion of the loan into equity, considering whether specific clauses should be read in isolation or harmoniously within the context of the entire deed. Secondly, the Court had to consider whether the obligations of the guarantor were discharged by the execution of the forbearance deed between the borrower and the lender.

In its reasoning, the Court emphasised that the recitals within a deed cannot override the operative provisions when the deed is properly construed. The Court found that the forbearance deed, when read as a whole, did not operate to convert the loan into equity. Instead, it merely provided for a forbearance to sue for a period, subject to certain conditions. The Court held that the obligations of the guarantor remained enforceable as the underlying loan agreement was not fundamentally altered in a way that would discharge the guarantor's liability.

Consequently, the Court of Appeal dismissed the appeal from the judgment and orders of Chen J in the Common Law Division and ordered that the appellant pay the respondent’s costs in the Court of Appeal.