Guarantees are a contractual arrangement where one party (the guarantor) agrees to answer for the liability of another party (the principal) to another party (the guaranteed party).

The common law has developed over time to provide considerable protection for guarantors.

The main rationale behind the protections is that a guarantor should have certainty about the amount, type and terms of the obligations it is guaranteeing and to protect the rights that the guarantor acquires as a result of being a guarantor. For more information on the rights of guarantors, see Practice Note: Guarantor rights and how to defer them in guarantee documentation—no competition clauses.

Guarantor protections could prejudice a lender's position and it is common practice for lenders to seek to exclude these rights in guarantee documentation.

This Practice Note summarises:

1. •

   the key protections that apply to guarantors, and

2. •

   common provisions that are used to exclude guarantor protections in guarantee documentation and whether such provisions are effective

In most typical finance transactions:

1. •

   the guaranteed