Lloyd's Maritime and Commercial Law Quarterly
RETHINKING THE VARIATION RULE FOR GUARANTEES
Wayne Courtney *
The variation rule, commonly known
as the rule in Holme v Brunskill, protects a guarantor against variations to a contract which it has guaranteed. Two aspects of the rule have generated controversy in recent times. First, it is said that the rule applies to guarantees of a “specific contract”, but not to guarantees of a “course of dealing”. Secondly, the concept of the “purview” of the guarantee has been used to limit the operation of some terms in guarantees, including terms that prevent the guarantor from being discharged by the variation rule (“anti-discharge clauses”). This article attempts to clarify and settle both controversies. It argues that a distinction between “specific contract” and “course of dealing” guarantees is too crude. It further argues that the “purview” concept for anti-discharge clauses is not co-extensive with the “purview” concept for scope of liability, though they share common features. It proposes several factors that can, by construction, place a sensible limit on the operation of anti-discharge clauses.
I. INTRODUCTION
Guarantors are the objects of favour in English law. That favouritism is manifested in an array of maxims,1 rules and presumptions. This article considers one such rule, known as the variation rule. In simple terms, the rule protects the guarantor in the event of a variation of the principal contract which has been guaranteed. Unless certain conditions are satisfied, the guarantor is “discharged” from liability by the variation. The rule is considered in more detail below.2
* National University of Singapore; Senior Fellow, Melbourne Law School. I thank John Carter for comments on an earlier draft of this article. The usual disclaimer applies.
The following abbreviations are used:
Andrews & Millett: G Andrews and R Millett, Law of Guarantees, 7th edn (Sweet & Maxwell, London, 2015);
Courtney & Phillips: W Courtney and J Phillips, The Modern Contract of Guarantee, 3rd English edn (Sweet & Maxwell, London, 2016);
McGuinness: KP McGuinness, The Law of Guarantee: 2nd edn (Carswell, Toronto, Ontario, 1996); 3rd edn (LexisNexis Canada, Ontario, 2013);
Rowlatt: Sir Sidney Rowlatt’s The Law of Principal and Surety, 1st edn (1899); G Moss and D Marks, Rowlatt on Principal and Surety, 6th edn (Sweet & Maxwell, 2011).
1. Bacon v Chesney (1816) 1 Stark 192, 193; 171 ER 443, 443 (strictissimi juris).
2. See post, text to fn.9.
Rethinking the variation rule for guarantees
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