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Note: As part of a commercial lease of realty, Chop Ltd (Tenant/Applicant) obtained an independent guarantee in the amount of AUS 100,000 in favor of Kingsmeade Ltd (Landlord/Beneficiary) funded by Commonwealth Bank of Australia (Issuer). Good Living (Surety) promised to reimburse issuer to enable Tenant/Applicant to obtain the independent guarantee.

When Tenant/Applicant was placed in voluntary receivership, Landlord/Beneficiary terminated the lease and obtained a new tenant which provided a replacement guarantee. Although preliminary evidence suggested that the rent was not in arrears, Landlord/Beneficiary drew on the independent guarantee for its total amount, alleging recovery of legal and management costs incurred due to Tenant/Applicant’s default.

Surety sued Landlord/Beneficiary for unconscionable action under s 20(1) of the Australian Consumer Law 2010.This provision states “a person must not in trade or commerce engage in conduct that is unconscionable within the meaning of the unwritten law from time to time.” Australian Consumer Law 2010 (ACL). Surety moved for an order requiring Landlord/Beneficiary to provide discovery of documents indicating that it was entitled to draw on the guarantee. The New South Wales Supreme Court, Hammerschlag, J., granted the motion.

Surety asserted that it had a right to discovery of the documents establishing default of obligation on applicant’s part which would have caused beneficiary to collect the guarantee, and a right to claim relief for unconscionable business practice under Uniform Civil Procedure Rules 2005 (UCPR) and ACL. Landlord/Beneficiary opposed this claim, asserting that Surety lacked privity to access the documents.

The Justice held that Surety was entitled to claim relief from the drawing of the independent guarantee under ACL Section 236, providing damages for individuals suffering a loss. The Justice stated, “I consider it sufficiently arguable for present purposes, that if the defendants had no right to call on the bank guarantee, their conduct in doing so [was] unconscionable within the meaning of the section”. The Justice rejected the assertion of Landlord/Beneficiary that Surety lacked privity to seek the documents, ruling “There is sufficient [evidence] before me to be satisfied to the requisite degree, that the plaintiffs may have suffered loss or damage by the defendants calling on the bank guarantee and so have claim under s 236 ACL.”

[JPJ]

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