In the recent decision of Agricultural and Rural Finance Pty Limited v Gardiner (2008) 251 ALR 322, the High Court has unanimously determined that the term “punctually” means, not surprisingly, “precisely on time”, “on the assigned day” and “not late”. The consequences of this finding, as well as the Court’s findings about the concept of waiver, are far reaching, especially in the context of the mortgage and lending industry.


Briefly, the facts of the case were as follows. The borrower (Gardiner) obtained a number of loans from the lender (ARF) and also entered into corresponding guarantees with an indemnifier. The purpose of these loans was to create a commercial tea tree oil plantation (which was ultimately unsuccessful). Each of the loan agreements between ARF and Gardiner required periodic repayments and provided that the whole of the principal outstanding would be immediately repayable at the option of ARF “if the borrower defaults in the due and punctual payment of interest... or any repayment instalment”.

The guarantees, to which ARF, Gardiner and the indemnifier were parties, provided that:

“if the borrower punctually paid amounts due under the related loan agreement, and if... the borrower ceased to carry on the business to which the money lent was to be applied, the indemnifier would indemnify the borrower against any demand by the lender for repayment under the loan agreement.”

The guarantees further provided that they were only “effective and enforceable” if Gardiner had “punctually paid” the loan and interest amounts.

Gardiner had made late repayments on three out of the four loan agreements, for which ARF had accepted late payment and had confirmed, in writing, that those payments constituted punctual payment. Upon the collapse of the tea tree oil plantation, Gardiner contended that it was indemnified for the money owing by the indemnifier.

The first issue considered by the Court was whether Gardiner had paid the loan repayments “punctually”. The second issue considered was whether ARF and the indemnifier can rely on the failure to make a payment punctually as a failure to satisfy a condition for the related guarantee agreement being “effective and enforceable”.


Gardiner’s case was dismissed, with the High Court unanimously finding that the borrower did not pay “punctually”. Further, Gardiner’s argument that the indemnifier waived the requirement of punctual payment was rejected in circumstances where the indemnifier, who was not a party to the loan agreements, could not be said to have waived the requirement for punctual payment. All five judges considered that the evidence fell well short of what was required to enliven waiver.

The majority (Gummow, Hayne and Keifel JJ), no doubt conscious of the need to uphold commercial bargains according to their terms, determined that the inclusion of the words “punctual” evinced an intention that something more than bare acceptance of a payment of money was required to satisfy the loan and guarantee agreements. The majority also held that strict construction would be applied to contracts containing such words and anything said later by the parties (such as the letter from ARF accepting the late payment) would not assist in construction of the contract. Kirby J (in his last judgment before retirement) and Hayne J, while agreeing with the ultimate conclusion, determined that indemnity agreements must be construed in their commercial context and that it was legitimate to use as an aid in the construction of a commercial contract anything which the parties said or did after it was made.


This case highlights the danger of creating pro-forma documents to reflect commercial agreements, indemnities and guarantees where words will be given their ordinary meaning and be construed strictly. Parties to such commercial agreements should take notice that failing to hold up their end of the bargain or making an election which is inconsistent with its rights under the contract could have dire consequences.