Cancian v Carters [2021] NZCA 397, 24 August 2021
- Court
- Court of Appeal
- Judgment
- 24 August 2021
- Neutral
- [2021] NZCA 397
Areas of law
Judgment analysis
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Facts
In October 2016, Bella Vista Homes Ltd (BVH), through its director Mr. Cancian, applied for a credit account with Carters for the supply of building products. BVH requested a credit limit of $700,000. Mr. Cancian contemporaneously signed a personal deed of guarantee and indemnity for all monies owed by BVH to Carters. Carters approved the application but sent a letter stating the credit limit was $50,000, which was standard practice as an opening figure. Shortly after, Carters internally set the credit limit at $800,000 without notifying either BVH or Mr. Cancian. Supplies commenced in November 2016. Until June 2017, BVH made regular payments. Thereafter, payments ceased but supplies continued, causing the debt to escalate rapidly from approximately $47,000 in early June 2017 to over $1,078,000 by 31 October 2017. Carters demanded payment from Mr. Cancian under the guarantee in November 2017, and BVH was placed into liquidation later that month. Mr. Cancian made no payments, leading Carters to initiate proceedings.
Held
- A change to a credit limit does not constitute a variation to the principal agreement when the agreement itself contains a clause (like cl 2.2) that expressly permits the creditor to alter the credit limit without notice. Such a change is effected pursuant to the agreement's terms, not as a variation of them.
- Even if a change in credit limit were a variation, an 'anti-discharge' provision in the guarantee (like cl 5(b)) which explicitly states the guarantor is not discharged by any variation in the terms of the contract between the creditor and debtor, operates to prevent the guarantor's discharge.
- A significant, unnotified increase in a credit limit falls within the 'general purview' of a guarantee when the principal contract expressly allows for unilateral credit limit changes and the commercial context (e.g., a large-scale building operation) anticipates a high level of credit.
The appeal is dismissed.
Key passages6
A material variation of the terms of a contract between a creditor and a principal debtor will discharge a surety, unless there is an express reservation in the instrument preserving the creditor's rights.
“It is trite law that (unless there is an express reservation in the instrument preserving the creditor's rights against the surety in such event) a material variation of the terms of the contract between the creditor and the principal debtor will discharge the surety. It is immaterial that the variation may be to the advantage of the surety; unless it is clearly so or obviously does not affect him materially, he is discharged.”
The rationale for discharging a surety upon a material variation is that the creditor cannot unilaterally alter the arrangement without consulting the surety.
“The rationale as stated in Dunlop is that the party benefitting from a guarantee cannot keep a surety bound, and transact what is in effect their affairs, without consulting them as to a material or substantial alteration in the agreement.”
Where a contract term expressly allows a party to alter a specific arrangement (such as a credit limit) without notice, a subsequent alteration is not a variation of the contract but is an action taken pursuant to the contract.
“In this context, any subsequent change to the credit limit does not constitute a variation to the BVH agreement but is rather simply effected pursuant to the agreement.”
An exception to the rule that a surety is discharged by a material variation applies where the guarantee itself contains a clause (an 'anti-discharge' provision) giving the creditor power to make variations to the principal contract.
“Even if the alteration to the credit limit were a variation to the BVH agreement, an exception to the principle in Holme v Brunskill and in Dunlop (as confirmed by this Court in Pogoni v R & W H Symington & Co (NZ)) applies where the guarantee contains a clause which gives the creditor power to make variations to the contract with the debtor.”
The 'purview doctrine' posits that a variation so fundamental it is outside the general purview (or reasonable contemplation) of the guarantee may not be covered by an anti-discharge provision.
“The purview doctrine says that where a variation is so fundamental that it could not properly be described as a variation at all, it will fall outside the general purview of the guarantee and will not be covered by an anti-discharge provision, or, put at its best for the guarantor, that any variation still has to be within the general purview (in the sense of reasonable contemplation) of the guarantee.”
Whether an anti-discharge clause operates to prevent a guarantor from being discharged is a matter of construction in each case.
“As this Court held, and as Wylie J acknowledged, in each case it is a matter of construction as to whether the particular clause operates to prevent the guarantor from being discharged.”
Cases mentioned in judgment
Legislation mentioned
- Property Law Act 2007, s 27