Guarantor liable for costs incurred by lender after full discharge of facility.
In the matter of Balanced Securities Limited v David Thomas  QDC 337, Elliott May was successful in obtaining judgment for its lender client against a guarantor for the costs incurred in defending proceedings brought by a borrower after the loan had been repaid in full.
The plaintiff, Balanced Securities Limited, advanced $7,200,000 to Joelco Pty Ltd. The loan was guaranteed by David Thomas, the sole director of the borrower. After the loan had been repaid in full, the borrower commenced proceedings against Balanced Securities to recover monies it alleged were not due to Balanced Securities when the loan was discharged. Chief Justice de Jersey dismissed the action after a 2 day trial and ordered the borrower to pay Balanced Securities’ costs on the indemnity basis.
After Balanced Securities’ costs were assessed, it commenced proceedings to recover the costs from David Thomas pursuant to the guarantee. Mr Thomas defended the claim on the following grounds:
- That upon a proper construction of the guarantee, its terms did not extend to the monies claimed by Balanced Securities as costs;
- That his obligations under the guarantee were forever discharged when Joelco repaid the loan in full.
Justice Dorney QC did not accept Mr Thomas’ defence and entered judgment against him in the sum of $113,515.37 stating:
“But to make things clear, I do not accept that, applying the proper interpretation principles that apply to guarantees, taking into account the interpretation clauses in the Facility Agreement itself and then applying both those generally to the objective theory of contract, the guarantee would be limited to the fixed time when principal, interest, damages and other moneys were asserted to have been first paid, especially where there existed later disputation about whether that payment of principal, interest, damages and other moneys was “in full”.
Although the facts in this case were unusual, the decision of the trial judge (which was upheld on appeal) serves as a reminder to all lenders to ensure that their loan facility documentation is up to date and includes the full spectrum of terms and conditions to be relied upon should it be necessary to either commence or oppose proceedings involving borrowers and guarantors.
The trial and appeal court decisions may be viewed by clicking on the links below:
Elliott May Lawyers specialise in all aspects of mortgage lending and enforcement, including preparation of offer documentation, loan agreements, mortgages, priority deeds, PPSA charges and guarantees, as well as issuing possession proceedings and facilitating the exercise of power of sale by mortgagees.
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