3737/07 FAHRUDIN SISIC V ADNAN KRPO
JUDGMENT
1 In these proceedings the plaintiff, Mr Fahrudin Sisic, claims from the defendant, Mr Adnan Krpo, reimbursement of or an indemnity in relation to moneys paid by Mr Sisic under a contract of guarantee and indemnity ("Guarantee") between Mr Sisic and Westpac Banking Corporation ("Westpac") to secure borrowings under a business finance agreement entered into between Mr Krpo and Westpac.
2 It does not appear to be disputed, although Mr Krpo made no admissions in his defence in this regard, that Westpac made demand on Mr Sisic under the Guarantee in September 2006 and that on or about 19 March 2007 Mr Sisic paid the sum of $174,532.22 to Westpac (being the principal outstanding plus other charges and interest).
3 Mr Sisic's claim, as pleaded, is that, in the premises set out in the statement of claim, it was an implied term of the Guarantee entered into by him with Westpac that Mr Krpo was obliged to reimburse or indemnify him for any moneys paid out to Westpac under the Guarantee.
4 The basis on which such an obligation is said to arise is, in essence, that Mr Sisic entered into the Guarantee at the express request of Mr Krpo. The making of such a request is denied by Mr Krpo.
5 The critical question for me to determine, on the case as pleaded, is whether as a matter of fact, a request was made by Mr Krpo for Mr Sisic to provide the Guarantee.
Background
6 For some time prior to July 2004 Mr Sisic and Mr Krpo had a business relationship. Mr Krpo admitted that the parties together established a company (R & A Comino Pty Limited) ("the Company") (formerly known as Streamline Partitions Pty Limited) and that the parties were co-directors of the Company. Mr Krpo also admitted that the parties each held 50% of the shares in the Company and that the Company opened and operated a restaurant (La Scala) which was managed on a day to day basis by Mr Krpo.
7 Mr Sisic tendered a copy of a loan agreement relating to a business mortgage fixed rate instalment loan entered into by the Company with National Australia Bank ("NAB") on 12 September 2001 for $310,000 for a term of five years. It appears from that document that the loan was to be secured by, amongst other things, a guarantee and indemnity jointly to be given by Mr Sisic and Mr Krpo and supported by registered mortgages over two properties owned by Mr Sisic. Mr Sisic accepted that he had guaranteed the NAB loan. Mr Krpo denied that he had given a guarantee in relation to that loan. Although Mr Krpo accepted that the NAB documentation required him to provide a bank guarantee, his evidence was that he could not provide it. There is no dispute that the NAB loan was provided to the Company and remained on foot up to the time the business finance agreement was entered into with Westpac.
8 It does not seem to be in dispute that in mid-2004 the parties were looking to sell the restaurant business that had been operated through the Company and there were discussions between the parties in relation to the re-financing of the NAB loan. Mr Sisic, in cross-examination, (though he said at first that he did not recall who had made the suggestion) ultimately said that it probably was he who had suggested Mr Krpo enter into the (2004) finance arrangements with Westpac. Mr Sisic said that this was because he knew a number of people at Westpac and he was willing to help Mr Krpo. Mr Sisic denied that he obtained any benefit from that arrangement. He said that his understanding of the re-financing was that it was to pay for Mr Krpo's share of the business.
9 Mr Krpo gave evidence (consistent with Mr Sisic's evidence that there was a meeting between Mr Krpo and a bank manager at a restaurant) that he signed the business finance agreement when a representative from Westpac attended at his restaurant (which, by then seems to have been a different restaurant, Tuscany) with the necessary forms for Mr Krpo to sign in relation to the business finance agreement. Mr Krpo's evidence was, in effect, that he was indifferent as to whether there was a change in the loan facilities and that the change was at Mr Sisic's initiative. Mr Krpo also gave evidence that he had expected the Westpac borrowing to be in the name of the Company but that the loan was (instead) given to him under his name.
10 It is accepted by both parties that the arrangements with Westpac were entered into in the course of the refinancing of the then existing loan arrangements between NAB and the Company, and that the effect of the refinancing was that the financing of the business was assumed by Mr Krpo personally.
11 The business finance agreement is dated 6 July 2004 and appears to have been entered into by Mr Krpo on or about 6 July 2004. Mr Krpo signed and dated the acknowledgement and acceptance forms in relation to the business finance terms and conditions on 6 July 2004 and signed a redraw request with a drawdown date of 6 July 2004. The business finance agreement in its terms provided that the facility for Mr Krpo's borrowing was to be secured by a guarantee to be taken from Mr Sisic, limited to $160,000 and supported by a registered all moneys mortgage by Mr Sisic over his properties at Sandringham. On 9 July 2004 Mr Sisic entered into the Guarantee with Westpac.
12 There was in evidence an acknowledgement form for completion by business guarantor, which was signed by Mr Sisic. In response to Item 5 of the acknowledgement, Mr Sisic acknowledged that he had waited at least a day to sign the Guarantee after receiving all of the information provided to him. I note this because some reliance was placed by Mr Krpo's counsel on the fact that the documentation in relation to the business finance agreement was dated 6 July 2004 but the documentation in relation to the Guarantee was dated 9 July 2004, indicating that it was signed at a later time. The explanation for this may well be that, as might be inferred from Item 5, the bank representative preferred there to be some interval before the Guarantee was executed. In any event, I do not believe anything turns on the fact that the Guarantee was entered into shortly after the business finance agreement. Mr Krpo accepts that he knew at the time he entered into the business finance agreement that Westpac required a guarantee to be provided by Mr Sisic to support the borrowings under the business finance agreement.
13 Mr Krpo denied that there was any conversation with Mr Sisic about the Guarantee and explained the absence of any such conversation by reference to his understanding that, as the previous loan was guaranteed by Mr Sisic, the guarantee was "just continuing".
Mr Sisic's case
14 Mr Sisic's case, as pleaded, is based on the making of an express request by Mr Krpo for Mr Sisic to enter into the Guarantee (paragraph 2 of the statement of claim), by reason of which (Mr Sisic having acceded to that request) Mr Sisic alleges it was an implied term of the Guarantee that Mr Krpo was obliged to indemnify Mr Sisic for any moneys paid out by him under the Guarantee (paragraph 4 of the statement of claim).
15 The difficulty with such a proposition in this case, and the basis of the defence as pleaded, is that the Guarantee is a contract between Mr Sisic and a third party (Westpac). Hence what Mr Sisic is seeking is the implication, into a contract to which Mr Krpo is not a party, of a term imposing an obligation on Mr Krpo. Mr Sisic's claim must fail on that ground.
16 During the course of the hearing I sought to clarify the basis on which it was contended that there was an implied obligation on the part of Mr Krpo to reimburse or indemnify Mr Sisic. Initially, Mr Sisic's counsel confirmed that Mr Sisic's case rested solely on an implied term of the Guarantee (ie an implied promise to indemnify) said to have arisen from the making of the alleged express request.
17 In submissions, Mr Sisic's counsel broadened the basis on which Mr Sisic put its position and submitted that Mr Sisic's case could be framed in one of two ways - as an implied term in the Guarantee or as an implied obligation or implied contract (arising outside of the Guarantee).
18 In each case, as I understand it, the term or obligation is said to arise as a matter of law from the entry into the Guarantee at the express request of Mr Krpo. I was referred to the statement by the authors of Modern Contract of Guarantee (4th ed) at 12-100 that:
Where the guarantor gave the guarantee at the valid request of the principal debtor, there is, in the absence of an express right of indemnity, an implied contract of indemnity or an implied term in the contract of guarantee to a similar effect.