Ushta Pty Ltd (as trustee of the AVVM Trust) v Meditrainean Pty Ltd and Babayan

[2025] NSWCATCD 9

Civil and Administrative Tribunal

New South Wales

Medium Neutral Citation:

Ushta Pty Ltd (as trustee of the AVVM Trust) v Meditrainean Pty Ltd and Babayan [2025] NSWCATCD 9

Hearing dates:

25 and 26 June 2024
23 October 2024
5 February 2025

Date of orders:

5 March 2025

Decision date:

05 March 2025

Jurisdiction:

Consumer and Commercial Division

Before:

D R Bluth, Senior Member

Decision:

(1)   The application is dismissed.

(2)   Each party is to pay their own costs of the proceedings.

(3)   In the event that a party contends a different costs order should be made, the following order and directions are made:

(a) The cost applicant is to file any application for costs ( limited to 4 pages) within 21 days from the date of publication of these orders including submissions about whether an order can be made dispensing with an hearing pursuant to s 50(2) of the NCAT Act.

(b) The respondent to the costs application is to file and serve any submissions in reply (limited to 4 pages) within 42 days from the date of these orders, including submissions about whether an order can be made dispensing with a hearing pursuant to s 50(2) of the NCAT Act.

   (c)   The cost applicant is to file and serve any submissions (limited to 3 pages) in reply within 56 days from the date of these orders.

   (d)   Order 2 ceases to have effect if a cost application is filed in the time permitted by these orders.

Catchwords:

Guarantee and Indemnity-change of lessee, whether guarantee and indemnity continues or is discharged-clause 13.2 of the Law Society Commercial Lease

Legislation Cited:

Conveyancing Act 1919 ( NSW)

Cases Cited:

Caltex Australia Petroleum Pty Ltd v Troost [ 2015] NSWCA 64

Johnson Bros (Dyers) Ltd v Davison (1935) 79 SJ 306

Mango Boulevard Pty Ltd & Anor v Mio Art Pty Ltd & Ors [2016] QCA 148,

Monty Manufacturing Pty Ltd v Platt (Domestic Building) [2013] VCAT 2137

Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd [2006] FCAFC 40

Walter and Sullivan Ltd v Murphy and Sons Ltd [1955] 1 All ER 853,

Category:

Principal judgment

Parties:

Ushta Pty Ltd (as trustee of the AVVM Trust) (Applicant)
Meditrainean Pty Ltd (First Respondent)
Babak Babayan (Second Respondent)

Representation:

Solicitors:

Self ( Applicant)
Keypoint Law (Mr David Baker) ( Second Respondent)

File Number(s):

2023/444425

REASONS FOR DECISION

1. This is claim by a successor landlord, the Applicant against a successor lessee, the Frist Respondent and the original guarantor, the Second Respondent for damages for breach of lease.

2. The events start with the signing of a Retail Lease undated but around 25 October 2010 between the original landlords, the Loke family and Hugo Junior Enterprises Pty Ltd ( the Original Lessee) for premises in Crows Nest to be run as a restaurant ( the Lease)

3. I am satisfied that the premises are retail and that the Tribunal has jurisdiction under the Retail Leases Act, 1994 ( NSW) ( The RLA)

4. I am also satisfied that mediation has been attempted but has been unsuccessful ( s 68 of the RLA).

5. The Lease was for a term of five years with two options for five years each.

6. The guarantor under the Lease was the Second Respondent.

7. On or about 22 October 2015 a company called A Good Company ( Aust) Pty Limited ( the Second Lessee) began to occupy the premises on a monthly tenancy.

8. The Second Respondent was the sole director of the Original Lessee and on about 2 June 2016 transferred the Lease to the Second Lessee. The transfer was registered at the Land Titles Office on or about 29 November 2016.

9. On or about 28 November 2016 the Second Lessee transferred the Lease to the First Respondent. The Transfer was registered the Land Titles Office on or about 7 December 2016.

10. The Applicant acquired the property which contains the premises from the Loke family on or about 20 September 2023, subject to the Lease.

11. In preparation for the sale of the property, the solicitors for the Loke family confirmed that the Lease had not been renewed, that the lessee being the First Respondent was holding over as a monthly tenant and was in arrears of rent.

12. At the time of the completion of the sale the Loke Family executed a Deed of Assignment of Rights under the Lease to the Applicant (the Deed of Assignment of Rights).

13. The First Respondent was in arrears of rent and the Applicant issued a Notice of Termination on 20 September 2023 giving 30 days notice pursuant to the monthly tenancy.

14. The First Respondent challenged the Notice. Correspondence between the parties and their respective lawyers took place. The First Respondent indicated that it would not be abiding by 30 days Notice and would not be vacating the premises.

15. 0n 23 October 2023 the Applicant retook possession of the premises, locking the First Respondent out of the premises.

16. The directors and shareholders of the First Respondent are Mr Ashley Rolfe, Mr Gary Hovagimian and Ms Devine.

17. These events have resulted in three proceedings.

18. The first is 2023/367945 which is the First Respondent against the Applicant. Originally the First respondent claimed to hold a lease until 2025 and was seeking to remain in the premises but ultimately it became a suit for damages.

19. The First Respondent has had liquidators appointed on 8 October 2024.

20. The proceedings were dismissed by the Tribunal on 25 October 2024 for want of prosecution pursuant to s 55(2) of the Civil and Administrative Tribunal Act, 2013 (NSW).

21. The second proceedings are these proceedings where the Applicant is suing the Second Respondent as guarantor under the Lease. The Applicant cannot proceed against the First Respondent as it is in liquidation without an order from the Supreme Court.

22. The third proceedings are 2024/219811 where the Second Respondent is suing the directors/shareholders of the First Respondent on a residual claim, that should the Second Respondent be found liable for the debts of the lessee, as guarantor, then he seeks recovery from the directors/shareholders.

23. While there have been hearing days and adjournments, all three proceedings were litigated. The Applicant requested the Tribunal to dismiss the first proceedings and subsequently also sought costs.

24. The Applicant has vigorously pursued the Second Respondent and has complained about the delay in moving the proceedings forward so it can claim its damages.

25. Submissions have been received from the Applicant and the Second Respondent.

Applicant’s claim

26. The Applicant claims as successor in title that the Second Respondent has guaranteed to it the performance of the lessee under the Lease.

27. The Applicant relies on clause 13 of the Lease, which is the standard form recommended commercial lease by the Law Society of NSW. Clause 13 provides

What are the obligations of a guarantor?

13.1   This clause applies if a guarantor of the lessee is named in item IOA in the schedule and has signed or executed this lease or, if this lease is a renewal of an earlier lease, the earlier lease.

13.2   The guarantor guarantees to the lessor the performance by the lessee of all the lessee’s obligations (including any obligation to pay rent, outgoings or damages) under this lease, under every extension of it or under any renewal of it or under any tenancy and including obligations that are later changed or created.

13.3   If the lessee does not pay any money due under this lease, under any extension of it or under any renewal of it or under any tenancy the guarantor must pay that money to the lessor on demand even if the lessor has not tried to recover payment from the lessee.

13.4   If the lessee does not perform any of the lessee’s obligations under this lease, under any extension of it or under any renewal of it or under any tenancy the guarantor must compensate the lessor even if the lessor has not tried to recover compensation from the lessee.

13.5If the lessee is insolvent and this lease or any extension or renewal of it is disclaimed the guarantor is liable tothe lessor for any damage suffered by the lessor because of the disclaimer. The lessor can recover damages for losses over the entire period of this lease or any extension or renewal but must do every reasonable thing to mitigate those losses and try to lease the property to another lessee on reasonable terms.

13.6   Even if the lessor gives the lessee extra time to comply with an obligation under this lease, under any extension of it or under any renewal of it or under any tenancy, or does not insist on strict compliance with the terms of this lease or any extension of it or renewal of it or of any tenancy, the guarantor’s obligations are not affected.

13. 7 If an amount is stated n item 10B in the schedule the guarantor’s liability under this clause is limited to that amount.

13.8 The terms of this guarantee apply even if this lease is not registered, even if any obligations of the lessee is only an equitable one, and even if this is extended by legislation.

28. The First Respondent is guarantor for 100% of the liability under the Lease.

29. The Applicant submitted that pursuant to clause 13.2 the guarantee by the Second Respondent is extended to cover the assignees of the Original Lessee and the last assignee is the First Respondent.

30. The words in clause 13.2 “under any tenancy” according to the submission capture the tenancy to the First Respondent, notwithstanding there is no privity of contract between the Applicant and the Second Respondent.

31. Further, the words in clause 13.2 that the guarantee continues “ under every extension of it or under any renewal of it or any tenancy and including obligations that are later changed or created” extend to the Second Respondent guaranteeing the performance of the First Respondent, who was not the Original Lessee under the Lease but a subsequent lessee. This was an obligation that was later changed, that is the guarantor now guarantees the performance of the First Respondent under the Lease.

32. The Applicant relies on the decision in Johnson Bros (Dyers) Ltd v Davison (1935) 79 SJ 306, where Lord Hanworth MR held that a change of the lessee was not such a substantial alteration so as to discharge the guarantor. The lease which was guaranteed expressly contemplated a transfer of the lease (as provided in clause 10 of the lease the subject of this matter). The guarantor in the case of Johnson Bros was aware of the terms of the lease when executing the guarantee, as was the Second Respondent.

33. This decision in Johnson Bros was approved in the VCAT case of Monty Manufacturing Pty Ltd v Platt (Domestic Building) [2013] VCAT 2137 where Senior Member Reigler stated:

“25. However, where the primary contract contemplates variations, such as changes to the scope of the work to be performed or the time to complete the works, such changes will not necessarily bring about a discharge of a Guarantor’s obligations.”

34. To overcome the lack of privity of contract between the parties, the Applicant points to the Deed of Assignment of Rights which relevantly provides as follows:

DEED of ASSIGNMENT OF RIGHTS

This Assignment of Rights (“Assignment”) is made and entered into as of 20 September 2023 by and between:

Party A: Lucy hang Mel Shao Loke, Carlson Kah Shen Loke, Ruth Loke, Kah Pooi Loke, Loke Kah Chi

Party B: Ushta Pty Ltd ATF AWM (ABN: 57582217670)

Lease Contract: Registered Lease AF843354H dated 22 October 2010

Background: The Party A is the original party to the Lease Contract dated 22 October 2010(“Lease Contract”), pertaining to Shop l, 55 Alexander St Crows Nest 2065. Party A desires to assign, transfer, and convey to the Party B all of its rights under the Lease Contract from the date of the Lease Contract to 20 September 2023.

Assignment: The Party A hereby assigns, transfers, and conveys to the Party B all of its rights and interest in and to the Lease Contract, including but not limited to all rights to payment and performance under the Lease Contract, from the date of the Lease Contract to 20 September 2023

Effective Date: The date for this Assignment shall be 20 September 2023

Governing Law: This Assignment shall be governed by and construed in accordance with the laws of NSW

Executed as a deed

EXECUTED by the Loke family

35. Accordingly, the Applicant had assigned to it the rights under the Lease, in particular the right to pursue the Guarantor being the Second Respondent.

Submissions by the Second Respondent.

36. There are a number of defences submitted.

1. The purported Deed of Assignment of Rights was invalid,

2. Extinction of the original debt,

3. No privity of contract,

4. Fundamental change in risk.

37. Section 12 of the Conveyancing Act 1919 ( NSW) provides:

Assignments of debts and choses in action

12 Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal chose in action, of which express notice in writing has been given to the debtor, trustee, or other person from whom the assignor would have been entitled to receive or claim such debt or chose in action, shall be, and be deemed to have been effectual in law (subject to all equities which would have been entitled to priority over the right of the assignee if this Act had not passed) to pass and transfer the legal right to such debt or chose in action from the date of such notice, and all legal and other remedies for the same, and the power to give a good discharge for the same without the concurrence of the assignor: Provided always that if the debtor, trustee, or other person liable in respect of such debt or chose in action has had notice that such assignment is disputed by the assignor or anyone claiming under the assignor, or of any other opposing or conflicting claims to such debt or chose in action, the debtor, trustee or other person liable shall be entitled, if he or she thinks fit, to call upon the several persons making claim thereto to interplead concerning the same, or he or she may, if he or she thinks fit, pay the same into court under and in conformity with the provisions of the Acts for the relief of trustees.

38. The guarantee is a recognised chose in action governed by s 12 Notice. The law requires strict compliance with notice requirements for assignment of contractual rights. In Walter and Sullivan Ltd v Murphy and Sons Ltd [1955] 1 All ER 853, the court held that the following are the requirements of a valid notice of an assignment of a debt:

(a) The notice must be in writing.

(b) The notice must be signed by the assignor.

(c) The notice must identify the assignor and the assignee.

(d) The notice must identify the debt that is being assigned.

39. In Mango Boulevard Pty Ltd & Anor v Mio Art Pty Ltd & Ors [2016] QCA 148, Fraser JA said at [34] citing the relevant authorities:

to constitute valid notice, there must be some kind of formal notification by the assignee, or possibly by the assignor on his behalf, to the debtor in order to achieve the object described in the Walter & Sullivan case. This view is also consistent with the decision of the Court of Appeal in Talcott v John Lewis & Co Ltd [1940] 3 All ER 592, where it was held that a notice stamped by a creditor on his invoice stating that the invoice should be transferred and payment made to the assignee, was ineffective, both because it was insufficiently plain in its wording, and because it was not a notice sent by the assignee to the debtor.

40. The High Court in Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 held that:

(1) Notice requirements are mandatory, not directory

(2) Substantial compliance is insufficient

(3) The onus lies on the assignee to prove proper notice.

41. No notice was ever served on the Second Respondent despite his address remaining unchanged for 25 years and he being readily contactable.

42. The attempted assignment of the chose in action being the Guarantee by the Second Respondent via the Deed of Assignment of Rights was defective because:

1. It was unilateral rather than bilateral

2. It failed to comply with proper execution requirements

3. It did not constitute “express notice in writing” as required by sl2 Conveyancing Act 1919

43. The fact that the Deed was not executed by the Applicant as the other party to the Deed made the Deed a Deed Poll as it was only executed by the Assignor being the Loke Family and not executed by the Assignee. A Deed Poll is not an effective assignment of rights.

44. The fundamental principles of privity of contract prevent the Applicant from enforcing the guarantee: as established in Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd [2006] FCAFC 40 which held that:

(1)   Personal contractual rights cannot be assigned without express provision

(2) The mere purchase of property does not transfer personal guarantees, and

(3) Guarantees are strictly construed against the party seeking to enforce them

45. The High Court in Wilson v Darling Island Stevedoring & Lighterage Co Ltd (1956) 95 CLR 43 confirmed that third parties cannot acquire rights under a contract merely by purchasing a related property or taking assignment of related rights or standing in the shoes of an original party.

46. The Guarantee contained no express provision for assignment, was personal to the Original Lessor being the Loke family and was tied to specific known circumstances and parties.

47. The High Court in Ankar Pty Ltd v National Westminster Finance ( Australia) Ltd [1987] 162 CLR 549 held that a guarantor will be discharged from their liability under a guarantee if:

(a) the guarantor’s rights under the contract are altered without the consent of the guarantor; and

(b) the alteration is substantial or prejudicial to the guarantor.

Tribunal considerations

48. In Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd [2006] FCAFC 40 the Court listed at [32] by way of background a number of relatively-non contentious propositions regarding assignable contractual rights such as guarantees:

First, it is well accepted that assignable contractual rights are choses in action; are a species of personal proprietary right; and can be transferred to a third party at law or in equity in accordance with the formal rules governing the transfer of such rights: see Norman v Federal Commissioner of Taxation (0963) 109 CLR 9 at 26; Loxton v Moir (090 4) i8 CLR 360 at 379._. Secondly, while it is not legally possible to assign the burden of a contract (i.e. the obligation to render performance), it may be possible to assign (a) the entire benefit of a contract (i.e. the right to receive performance): Don King Productions Inc v Warren [2000] Ch 290 at 318 (“Don King”); (b) if a right under a contract is separate and severable, such a separate and severable right: cf Federal Commissioner of Taxation v Everett (1980) 043 CLR 440 at 449-450; or (c) if some only of the rights under a contract are assignable, those rights. “[A]ssignability is not a matter of all obligations arising under a contract or none at all”: Do n King, above, at 309. Thirdly, a contract may expressly or impliedly authorise assignment of rights in a contract which would not otherwise be assignable: Devefi Pty Ltd v Mateffy Perl Nagy Pty Ltd (1993) 113 ALR 225 at 235 (“Devefi v Mateffy”); or, conversely, may expressly or impliedly prohibit assignment of rights otherwise prima facie assignable: Don King, above, at 309. “Such contractual provisions are legally effective” as between the contracting parties: Don King, ibid; Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] AC 85 at 103 ff (“Linden Gardens Trust”). Fourthly, while the product to be derived from a contractual pe formance (the “fruits of performance”) may be assigned; Devefi v Mateffy, above, at 234; the right to that performance may, nonetheless, be unassignable because, having regard to the nature of the contract and the subject matter of the contractual right in question, that right is personal in the sense that the identity of the contractual obligee is material to the contractual relationship itself (i.e. it is a “personal contract”: Peters v General Accident Fire & Life Assurance Corporation Ltd [1938] 2 All ER 267 at 270; Moore v Collins [0937] SASR 095; or to the contractual performance to be rendered: Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd (0992) 57 BLR 57 at 77(contract requiring a party to act on the other’s instructions); see generally Seddon and Ellinghaus Cheshire and Fifoot’s Law of Contract ^(8th Aust ed, 2002), [8-6]; Furmston (ed), above, 6.299 ff; Chitty on Contracts, Volll9-053 ff ^(9th ed, 2 004); Farnsworth, above, §11.4. A contractual right, though, will not be personal if, construed in its setting, “it can make no difference to the person on whom the [corresponding] obligation lies to which of two persons [i.e. assignor or assignee] he is to discharge it”: Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1902] 2KB 660 at 668.

49. The issue presented by these facts is whether the guarantee signed by the Second Respondent continues notwithstanding the two transfers of the Lease.

50. Normally, when leases are transferred the parties including the outgoing guarantor and the incoming guarantors execute a deed of assignment of lease where the incoming guarantors or if the existing guarantor is to continue covenant in favour of the lessor to guarantee to the lessor the performance of the assignee being the new lessee. The lessor usually enters into the deed consenting to the assignment of lease which is consideration for the guaranteeing of the performance of the assignee.

51. In respect of the two transfers of the Lease to the First Respondent no such deeds of assignment was executed by the parties only a one page transfer of lease which was not executed by the Second Respondent.

52. Notwithstanding the suggestion of some knowledge by the Second Respondent to the transfers of the Lease no formal consent has been produced.

53. Consequently the Applicant relies on the terms of clause 13.2 of the Lease and the Deed of Assignment of Rights.

54. In relation to the purported Deed of Assignment of Rights, I agree that it is in fact a Deed Poll given that it had not been executed by Applicant to constitute a Deed. Whether a Deed Poll is itself effective as an assignment of rights or perhaps a simple declaration that the owner of those rights now stands as trustee of those rights on behalf of the purchaser being the Applicant is not a matter to which the Tribunal need trouble itself.

55. Assuming that the Deed of Assignment of Rights is effective to assign to the Applicant the rights under the Lease, s12 of the Conveyancing Act 1919 requires that notice of the assignment be given.

56. I could not identify the passage cited in the submissions by Douglas JA in Mango Boulevard Pty Ltd v Mio Art Pty Ltd [2016] QCA 148, however I came across the following passage by Gotterson JA at [99] who held that:

99. Both the debtor and assignee of a debt have obvious interests in there being given an effective notice of the assignment which makes it clear whom the debtor is to pay. The passage from Naylor (above) emphasised the interest of the debtor. In Walter & Sullivan Ltd v J Murphy & Sons Ltd66 Parker LJ remarked that, “the whole object of the notice to the debtor is to protect the assignee”. Both the debtor and assignee need to know of the assignment with sufficient certainty that they are confident to pay the debt or give a discharge. This need for commercial certainty is the measure by which the Court must judge whether express notice has been given in any particular case. A similar need for certainty was central to the judgment of Lord Cairns in Lloyd v Banks. 67 That was a case dealing with notice in equity, but I think it well expresses the need for the person propounding notice to show information so reliable that a business person would act upon it. The following passage from Lloyd v Banks is similar to the principles discussed in Naylor and Talcott: “It must depend upon the facts of the case; but I am quite prepared to say that I think the Court would expect to find that those who alleged that the trustee had knowledge of the incumbrance had made it out, not by any evidence of casual conversations, much less by any proof of what would only be constructive notice – but by proof that the mind of the trustee has in some way been brought to an intelligent apprehension of the nature of the incumbrance which has come upon the property, so that a reasonable man, or an ordinary man of business, would act upon the information and would regulate his conduct by it in the execution of the trust. If it can be shewn that in any way the trustee has got knowledge of that kind – knowledge which would operate upon the mind of any rational man, or man of business, and make him act with reference to the knowledge he has so acquired – then I think the end is attained, and that there has been fixed upon the conscience of the trustee, and through that upon the trust fund, a security against its being parted with in any way that would be inconsistent with the incumbrance which has been created.” (1868) LR 3 Ch App 488, 490-491.

57. Consequently, notice is fundamental to ensure that the surety is liable to the assignee. This did not occur in this case.

58. The next matter for consideration is whether the guarantee pursuant to clause 13.2 carries over to the Applicant as Beneficiary without an assignment but standing on its own terms.

59. This is asserted by the Applicant notwithstanding that the lessee has changed twice. The applicant submitted that the change in lessee was not material and cited the decision in Monty Manufacturing Pty Ltd V Platt ( Domestic Building) [2013] VCAT 2137 to support that proposition referring to a paragraph from the decision of Senior Member Riegler ( see paragraph 32 of these Reasons).

60. A further review of the decision is instructive especially from the earlier paragraphs [21]-[23] as follows:

21 ….In Anker ( Ankar) Ply Ltd v National Westminster Finance (Australia) Ltd the High Court stated:

Then it has been said that any departure by the creditor from the suretyship contract “which is not obviously and without inquiry quite unsubstantial, will discharge the surety from liability, whether it injures him or not, for it constitutes an alteration in the surety’s obligations” (Halsbury’s Laws of England, 4th ed., vol. 20 par.259). The final clause in the passage quoted from Halsbury indicates that this proposition is founded not so much on cases dealing with a breach of a term in the suretyship contract, as on cases in which conduct on the part of the creditor materially altered the surety’s obligations. Such an alteration takes place when the creditor agrees to a variation of the principal contract or to an extension of time within which the debtor may comply with that contract. The creditor’s agreement with the debtor thereby alters the nature of the surety’s obligations without the surety’s consent.( 1962) 162 CLR 549

23. Further, the High Court held that where there has been a departure from or variation to the terms of the primary obligation, then:

The rule does not permit the courts to enquire as to the effect of the operation. The consequence is that, to hold the surety to his bargain, the creditor must show that the nature of the alteration can be beneficial to the surety only or that by its nature it cannot in any circumstances increase the surety’s risk e.g., a reduction in the debtor’s debt or in the interest payable by the surety. The mere possibility of detriment is enough to bring about the discharge of the surety. [559]-[560]

24. In the context of building contracts, the learned authors of Modern Contract of Guarantee state:

In relation to a building contract, ‘a change in the work or design from the original specifications, a variation in the terms of a trust of retention monies, the postponement of the date upon which the contractor was to take possession of the site in order to commence the building work, or payments made to the building contractor before the contractual date for payment stipulated in the principal contract all constitutes variations that will discharge guarantors of the builder’s obligations (Modern contract of guarantee Dr James O’Donovan and Dr John Phillips (Thomson Lawbook Company) [footnotes omitted]

61. The full paragraph 25 in Monty Manufacturing is as follows:

25 However, where the primary contract contemplates variations, such as changes to the scope of the work to be performed or the time to complete the works, such changes will not necessarily bring about a discharge of a Guarantor’s obligations. ( Johnson Bros (Dyers) Ltd v Davison ( 1935) 79 SJ 306). As is the case with many building contracts, the obligations of the primary parties may change rather than being of a fixed obligation. ( Wren v Emmett Contractors Pty Ltd [1969] 43 ALJR 213 at 220) In the present case, the Contract, like so many other building contracts, was not one of a fixed obligation. It permitted variations to the scope of the work undertaken under it, subject to its terms. Nevertheless, both parties submitted that the circumstances relied upon by the First and Second Respondents did not constitute a variation to the Contract. In that respect, the First Respondent contended that what occurred was a departure from the administrative process contemplated under the Contract, which had the effect of materially changing the Guarantors’ risk under the Guarantee.

62. Clearly Monty’s case concerned a building contract where the obligations of the primary parties might change pursuant to variations. Two matters to be observed, the first is the reference to primary parties, that is the parties had not changed and secondly that variations are anticipated under the contract. Neither situation is relevant to the purported obligations of the Second Respondent under the Lease. The primary parties did change from the party being the Original Lessee to now the First Respondent without notice or consent from the Second Respondent and the beneficiary of that guarantee was now the Applicant.

63. The principles under Ankar are fundamental to construing guarantees. They are expressed coherently by the Court of Appeal in Caltex Australia Petroleum Pty Ltd v Troost [ 2015] NSWCA 64 at [52] as follows:

In the case of a guarantee, if there is an agreement made between the principal creditor and the debtor to vary the obligation that is the subject of the guarantee, the guarantor ought to be consulted. If the guarantor does not consent to the alteration, the guarantor will be discharged unless it can be shown, without enquiry, that the alteration was unsubstantial or could not be otherwise than beneficial to the guarantor. If it is not self-evident, the Court will not enquire as to the effect of the alteration to determine its materiality (see Holme v Brunskill [1878] 3 QBD 495 at 508 and Ankar v National Westminster at 558-9). The principal creditor will not be permitted to vary the guaranteed obligation or to extend time to the debtor without consulting and obtaining the consent of the guarantor since, by doing so, the principal creditor alters the rights of the guarantor (Ankar v National Westminster at 560). However, if the principal contract contemplates and provides for variation of its terms, then the obligations guaranteed by the guarantor will also be subject to variation, with the consequence that such variation will generally not discharge the guarantor’s liability (see, eg, Trade Credits Ltd v Burnes [1979] 1 NSWLR 630 at 634).

64. The Applicant relies on the decision of Lord Hanworth in Johnson Bros ( Dyers) Ltd v Davison [1935] 79 SJ 306. The decision is written up in the Solicitors Journal. It was an appeal from a decision of the county court judge who held that there had been an alteration, being an assignment, sufficient to excuse the surety from continuing to be liable under the guarantee. The court comprising Lord Hanworth M.R., Romer and Roche L JJ held the assignment, because it was contemplated that there might be an assignment, was not a substantial alteration and the liability of the surety was established.

65. The decision I suspect, is more about the arcane tenancy laws of the time in the UK, particular that assignments of lease were not allowed as a matter of right, as here but if within the lease then allowable subject to the lessors consent. I cannot contemplate what other reason could the Court hold that the party whose performance is being guaranteed changes cannot be of a substantial issue. What if the new lessee, being the assignee is a person of ill repute or impecunious or related to the lessor, how can this not be substantial?

66. Clauses in guarantees are construed strictly and generally against the party seeking to enforce the guarantee. The principles under Ankar are part of our Common Law and it is most unlikely that it is the intention of the parties in clause 13.2 of the Lease to override that.

67. The change of Lessee is not an “ obligation that is later changed or created”. It is a material change requiring the consent of the guarantor. A change in the party whose performance is being guaranteed, for the reasons expressed earlier requires consent of the surety. In this case that consent was not obtained. The Second Respondent is discharged from his obligations under the Lease.

68. The proceedings are dismissed.

69. I will order that each party pay their own costs but will allow a party if it seeks costs to make submissions.

**********

I hereby certify that this is a true and accurate record of the reasons for decision of the New South Wales Civil and Administrative Tribunal.

Registrar

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.

Registrar

Decision last updated: 19 May 2025