The other member of the Tribunal indicated that there had indeed been an amendment which did not annul the previous agreement and therefore did not require the consent of the guarantor prima facie. However, his honour was in favour of the guarantor, as the ”change” required the consent of the guarantor, since in this case the exceptions based on the Ankar principle applied. Many changes to the terms and conditions can be made over the life of a trade finance facility. Sometimes these are contained in a short modification document in which only the respective changes are saved. There may be a number of them over time, and for more complex and time-consuming transactions, at any given time, it is common for the initial installation agreement with its modifications to be ”modified and adjusted” – in other words, consolidated and included in a single document. It`s as much for ease of reading as it is for anything else. The bank claimed that a guarantee provided for the purposes of the originally documented facility extended to the ”modified and reformulated” facility agreement, which came into force after defaults following the global financial crisis. Much has revolved around the interpretation of the documents of the facility and the guarantee itself, although the case is of interest to both financiers, lawyers and guarantors, as it was a standard guarantee used by one of the big four banks and the real situation is common in practice. In its decision, the court upheld the recognized principle that an agreement to ”amend” an existing agreement can either modify the existing agreement without affecting its existence, or terminate and replace the existing agreement. This question arises in the light of the objective intentions of the parties. The decision of the Western Australian Court of Appeal in Australia and New Zealand Banking Group Limited v.
Manasseh (issued March 10, 2016) focused on the legal nature and effect of an amendment and reformulation. The case concerned a claim by the bank under a guarantee granted when the facility was granted for the first time. The result was a victory for the guarantor, who successfully argued that the guarantee granted at the beginning of the facility did not extend to the modified arrangements of the facility, which were ”modified and adjusted” at a later date. The decision will come as a surprise to many financiers and lawyers, who would normally view a ”change and reformulation” as a continuation of the existing installation agreement, rather than a new agreement terminating the old one. The distinction can have radically different consequences, as was the case here. In Manasseh, two of the three members of the Court held that the ”modification and reformulation” had the effect of replacing (and thus terminating) the previous facility agreement to which the guarantee referred. Since the guarantor had not accepted the replacement installation, his warranty did not extend to him. ”Lexology is a very relevant and interesting resource for South African in-house lawyers. News feeds are a good measure of a law firm`s expertise and offer interesting insight into recent legal developments.
I highly recommend Lexology to my colleagues. The bank`s case was not helped by giving the guarantor a form of consent that had been rejected and therefore had to argue that the consent it had requested as a condition of the amendment was not actually required. Clearer wording in the correspondence that had the intended effect of the amended agreements may have helped the bank`s case to some extent, although the result would have been the same given the conclusions on exclusions. As usual, the guarantee document took into account future contracts and changes to the original credit agreements that would fall within the scope of the description of the covered obligations. Some of these future changes required the consent of the guarantor, others did not. Overall, the outcome depended on whether the rules documented in the ”Amendment and Reformulation” were properly classified as follows: If there are to continue to be extended safeguards to amended agreements (regardless of how they are documented), the consent of guarantors should be obtained to avoid litigation, whether or not the terms of the warranty themselves require it. If consent is refused, at least the financier is aware of the risk of a subsequent challenge. The bank had given the guarantor some form of approval of the amended agreements as a condition of their entry into force, although the guarantor refused to sign and return them. The court correctly concluded that the bank had waived the condition. These exceptions reflect the common law principle (confirmed by the High Court in Ankar Pty Ltd v. National Westminster Finance (Australia) Ltd) that a guarantor is exempt from security if the underlying contract giving rise to the covered obligations is altered without the consent of that guarantor in a manner that is material or affects the guarantor.
In the present case, the Bank had submitted a number of proposals for the extension and maintenance of the defaulting facility with cover letters, which were not entirely clear as to the intended legal nature of the amended arrangements. This left open the question of whether there was a replacement or simply a variation (it was clearly not a ”new” arrangement). If it were determined that the amended plant arrangement was either a ”new” or a ”replacement agreement”, the original warranty would extend to the plant only with the consent of the guarantor. However, if there was a ”change” where existing installation agreements would continue to exist otherwise, the guarantor`s consent was not required to extend the liability of the guarantee to the modified arrangements, unless:. .