Guarantees: Proper Drafting Wins, Assumptions Lose

Signing Is Binding: Intention to Be Legally Bound

A properly executed guarantee carries real weight. Courts will not relieve guarantors of obligations merely because they failed to inform themselves of the terms. Signing has consequences, and the law treats it that way.

In Mukerji v Commonwealth Bank of Australia; Davies v Commonwealth Bank of Australia [2025] QCA 226, the Queensland Court of Appeal reaffirmed a fundamental principle: if you sign a guarantee, the law will usually treat you as having agreed to the whole thing even if you did not read every page.

In this case, the guarantors had only signed the execution pages of several guarantees over numerous years.  The guarantors later argued that they were not bound because they had not looked at the full terms. The Court rejected this finding that by signing the document, especially where they were clearly labelled as the “guarantor”, they showed they intended to be bound by it.

Construction of Charging Clauses: Courts stick to the text

Courts take a straightforward approach to charging clauses: they enforce what the document actually says, not what someone later hoped it meant. For creditors, this is a reminder that the scope of any security interest depends entirely on the wording.

In ASICS Oceania Pty Ltd v Otto [2026] VSC 8, the Supreme Court of Victoria considered whether a charging clause covered property the guarantor acquired after signing the guarantee. The clause referred to “any land in which the guarantor has any interest.”

The Court held that the guarantee only applied to property the guarantor owned at the time of signing. The use of present tense (“has”) was deliberate, particularly when other clauses referred to a guarantors’ “present and future” obligations. A reasonable person would have read the clause as covering existing property only, not anything acquired later.

The takeaway is simple: if you want a guarantee to cover after-acquired property, you need to say so clearly and expressly. Assumptions about commercial purpose will not fix vague or incomplete drafting.

Guarantees and Caveats: Why Precision in Drafting Matters

Two recent decisions confirm that guarantees can create a security interest strong enough to support a caveat but only when the wording is clear.

In Westgyp Pty Ltd v Du [2025] WASC 513, the Supreme Court of Western Australia held that a credit agreement and personal guarantee that expressly created an equitable charge over “all property” of the guarantor gave rise to a valid caveatable interest. Even though the caveat had some small drafting errors, the Court allowed them to be fixed and kept the caveat in place stressing that minor technical mistakes will not defeat a genuine underlying security right.

Key Takeaways

Taken together, these decisions reinforce several well‑established principles:

1. If someone signs a guarantee, the courts will usually enforce it as written – even if the person did not read or fully understand it
2. Courts will not rewrite guarantees or extend charging clauses beyond their actual language.
3. Guarantees can create enforceable equitable charges (and support a caveat) when the document clearly provides for a security interest.

For creditors, the message is clear: clear, precise drafting is critical.

For guarantors, it is important to understand that courts continue to place significant weight on objective intention and the plain wording of the document.

Proactive steps to avoid problems

To ensure your guarantees provide the protection you expect, it is important to:

1. Engage Legal Professionals Early: Work with experienced commercial lawyers who can prepare clear, precise guarantee terms – especially around execution wording and charging clauses
2. Be clear about what the Guarantee Covers: If you want the guarantee to extend to things like after-acquired property, make sure the document says so expressly. Courts will not fill in the gaps.
3. Check the wording before signing a Personal Guarantee: Ensure the execution pages are accurate, complete and clearly identify each guarantor. A signature carries real legal consequences, even if you have not read every page.
4. Review Guarantees when circumstances change: If your credit agreements evolve, revisit your guarantees to confirm they still reflect the commercial deal and provide the security you expect.