Clients lent superannuation money, unsecured, to their accountant which was never repaid. The client demanded repayment from the accountant and the accountant argued that the agreement did not contain a stand alone operative guarantee clause that made the accountant named as guarantor liable for the debts. Unknown to the clients, before they signed the agreement, the accountant had filed a defence to a similar claim brought against him under a similar agreement. The clients sought judgment against the accountant on the basis of the guarantee or on the basis of misleading and deceptive conduct in failing to disclose he was being sued as guarantor on a similar contract. The judge refused summary judgment on the basis that the agreement did not contain a specific clause guaranteeing payment of the debt. The clients appealed.
The Court of Appeal found that the accountant was liable for the debt as guarantor noting that the guarantor signed, seal and delivered the agreement as guarantor and was defined as having guaranteed the borrower’s obligations under the agreement. The court noted that the definitions were intended to be operative provisions and that explained why there was no discrete operative clause setting out the role of the guarantor. The court also took into account the objective background facts and noted that a reasonable person adopting a commercially sensible approach, in relation to an unsecured loan would have understood the agreement as requiring the accountant to guarantee the debt.
The Court of Appeal found that the District court erred and should have given summary judgment.