In a recent Court of Appeal case, Cancian v Carters  NZCA 397, Carters sought to enforce a personal guarantee against Mr Canican. The Court dismissed an argument from Mr Cancian that Carters had not notified him that that the limit on his personal guarantee had been increased. He argued that for this reason, he was not liable for the substantial amount his company subsequently owed for construction supplies.
In October 2016, Bella Vista Homes Ltd (BVH) through its sole director, Mr Cancian, entered into a “credit agreement application and terms of agreement for supply” with Carters for the supply of construction products to BVH on credit. The agreement contained Carters’ standard terms and conditions with an approved credit limit of $700,000. At the same time as the credit agreement, BVH also provided a deed of guarantee and indemnity signed by Mr Cancian. In this deed, Mr Cancian “unconditionally and irrevocably” agreed to pay Carters any outstanding amounts owed by BVH.
The initial credit limit granted by Carters to BVH was $50,000. A week later, Carters increased this limit to $800,000 but did not notify BVH or Mr Cancian of the limit increase. By October 2017, BVH owed Carters $1,078,668.23 and when no payment was made to them by BVH or Mr Canican, Carters issued proceedings against Mr Cancian to enforce the guarantee.
THE HIGH COURT:
Mr Canican attempted to enforce the initial limit of the personal guarantee arguing that (a) Carters’ agents told him that the guarantee would be limited to $50,000 and (b) the increase in the limit was a variation of the original agreement, discharging his responsibility to pay. The High Court dismissed these arguments preferring the Carters version of events that no pre-contractual representations about a “capped” amount had been made. On the variation point, the Judge found that the guarantee and indemnity agreement had a clause which allowed Carters to increase the limit unilaterally. This clause specifically allowed Carters the right to alter the credit limit amount without the obligation to notify Mr Cancian.
THE COURT OF APPEAL:
The High Court found in favour of Carters. Mr Canican appealed this decision to the Court of Appeal, arguing that Carter’s did not have the right to vary the credit limit unilaterally. The Court of Appeal discussed the relevant law surrounding the right of a creditor to vary contract terms when this variation will discharge the debtors’ obligations. In this case, they held that Carters’ change of the credit limit was a legitimate use of the clause and not a variation which would affect Mr Cancian’s liability under the guarantee. There was no obligation on Carters to advise Mr Cancian of the revised credit limit. The Court went further and said that even though the amendment to the credit limit was a variation to the credit agreement, Carter’s had the right to make this variation because this had also been covered in an “anti-discharge” clause. This separate clause specifically allowed Carters to vary or alter the credit agreement, even if this were to increase a guarantors’ liability. Overall, “anti-discharge” clauses attempt to ensure that even with variations to an agreement, these variations do not “discharge” a debtor’s obligations. It is important to note that the Court also found that as sole director of BVH, Mr Cancian would have known about its credit limits and that an increase in the credit limit was within the general purview of the guarantee. This is an indication that the credit limits were anticipated by BVH/ Mr Cancian.
It goes without saying that any in any contract, close attention to the terms and conditions is important. This is especially so for parties considering giving personal guarantees. Construction supply companies will always seek to cover all payment eventualities (among others) as part of their standard terms and conditions of supply. This case serves as a reminder that if offering a personal guarantee, close scrutiny of the guarantee terms and conditions is required, especially where one party retains the right to alter terms without notifying the other party. Ultimately, a sole director may find it difficult to escape a personal guarantee on technical grounds but notice of alterations to an agreement may prevent disputes about their enforcement.
By Jo O’Dea.