Generally speaking, in deciding whether to set aside a Personal Guarantee a court may have regard to the public interest and to “all the circumstances of the case”. If the court it satisfied that in the circumstances of the case it would be unfair and unjust to enforce the Guarantee , then the Guarantee will be liable to be set aside.
In New South Wales The Contracts Review Act 1980 (“the Act”) provides a further list of more particular matters which the court may look to when considering all the circumstances of the case.In broad terms these matters focus on:
a) the characteristics and circumstances of the parties and the nature of the relationship between them,
b) the nature and characteristics of the contract and the circumstances surrounding its negotiation and formation; and
c) the commercial context of the transaction.
Specific examples referred to in the act are:
- whether there was material inequality in bargaining power between the parties;
- the relative economic circumstances, educational background and literacy of the parties;
- whether independent legal or other expert advice was obtained by the party seeking relief;and
- whether any undue influence, unfair pressure or unfair tactics were used on the party seeking relief.
Based on each individual circumstance, elements which would be taken into consideration at common law would be that of the relative economic circumstances and perhaps, literacy of the parties insofar as reading and understanding the legality of the guarantee in which you were entering into.
Elements, similar to that of the common law provisions above would also be considered under the Australian Competition and Consumer Act 2011 (formerly referred to as the Trade Practices Act 1974) with reference to the unfair and unjust provisions contained within that act.
The laws with respect to unfair and unjust contracts are largely governed by the common law however some of these principles have been embodied in legislation such as the Australian Competition and Consumer Act 2011 (formerly referred to as the Trade Practices Act 1974). Personal guarantees subject to the laws of New South Wales have the benefit of the Contracts Review Act 1980 (“the Act”). Whilst Queensland has made some progress in legislating against unfair contracts, there remains no Queensland equivalent of the New South Wales Contracts Review Act 1980.
If you believe you have signed personal guarantee in unfair and unjust circumstances contact one of our litigation lawyers for some advice on whether the guarantee is liable to be set aside.