Sisic v Krpo [2008] NSWSC 1086 | Case summary

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.

and that he responded yes, but said words to the effect that he would need to see the documentation. 28 It was Mr Sisic's oral evidence in cross-examination that the Westpac bank manager was present when Mr Krpo requested Mr Sisic to provide the Guarantee. Mr Krpo agrees that there was a meeting at which a Westpac bank manager gave him the documents. There was no evidence from any Westpac bank manager as to the conversation which took place. 29 It was put to Mr Sisic that his recollection about conversations was pretty hazy. Mr Sisic seemed to accept that as a general proposition. Mr Sisic, in response to a question as to the transfer of the Company loan to Westpac, said that he really could not remember all the details and was under a lot of stress involving his accountant and people doing work in his organisation. He could not remember exactly when Mr Krpo asked him to enter into a contract of guarantee and said that he was not really sure what Mr Krpo was doing with the bank. When pressed he said that what was said by Mr Krpo was, "do I like to be his guarantor again on finance the business?" but he was unable to remember what Mr Krpo had said about a guarantee. 30 Mr Sisic said that he had to rely on other people, his accountant and people in his office who did all the work with the bank, and said that basically he did no work with the bank. 31 As noted earlier, Mr Krpo denies making a request that Mr Sisic enter into or give a guarantee. His evidence is that it was Mr Sisic who suggested that he enter into the arrangements with Westpac (something conceded as probable by Mr Sisic) and that there was no conversation between him and Mr Sisic in relation to the giving of a guarantee. Mr Krpo, when pressed on this issue, said his understanding was that the guarantee was just continuing. (Of course, in relation to that loan, any indemnity arising from a request by the Company for such a guarantee would be an obligation on the part of the Company and not on the part of Mr Krpo. Hence any such understanding would clearly have been incorrect. However I accept Mr Krpo's evidence that this is what he understood at the time). 32 I was urged by Mr Krpo's counsel to have regard to the vagueness with which Mr Sisic gave evidence in the witness box as to any conversations with Mr Krpo in 2004 in relation to the Westpac loan and the Guarantee. My observation of Mr Sisic was that he was quick to disclaim any detailed recollection of events relating to the Guarantee and seemed to distance himself from implementation of the re-financing, though conceding his role in suggesting and arranging it. 33 While it appears to be common ground that there were discussions in relation to a proposed refinancing with Westpac for some time prior to entry into the business finance agreement, Mr Sisic was unable to recall the discussion in which he says the request was made for him to provide a guarantee other than a bare statement as to whether Mr Krpo would like to be his guarantor again. Mr Sisic explained his lack of recollection by saying that he was under a lot of stress, and that he left the details to his accountant and others in his organisation or office. From this I infer that Mr Sisic did not pay much attention to the detail of the refinancing transaction. 34 While I do not think it is of much significance that Mr Sisic cannot now put an exact date on the conversation in which he says Mr Krpo requested him to provide the Guarantee (ie whether that be in early May or on or about 6 July 2004) I am left with real doubts as to the accuracy of Mr Sisic's recollection in relation to the discussion recounted by him in his affidavit about the request for the Guarantee. 35 Mr Sisic's counsel contends that, in having regard to the conflicting evidence as between Mr Sisic and Mr Krpo on this issue, I should take into account the improbability of a businessman providing a guarantee of this kind without having been requested to do so. (I should say that neither Mr Sisic nor Mr Krpo struck me as sophisticated businessmen in this regard.) 36 However, the context in which the guarantee was given must be taken into account. Here, the refinancing came about at Mr Sisic's suggestion. Mr Krpo was being invited to assume a personal liability in place of the liability of the Company (of which Mr Sisic was then a part-owner) in circumstances where the parties seem to have understood this was in the context of the unwinding of the overall business arrangements between Mr Sisic and Mr Krpo. 37 It seems to me consistent with what transpired that both parties simply assumed that the existing security arrangements under the NAB loan would continue when the loan was refinanced (notwithstanding that the new loan was to be taken out by Mr Krpo) and that Mr Krpo and Mr Sisic would sign whatever was necessary for that to happen, without turning their respective minds to the consequences of that in relation to the guarantee. 38 Accordingly, I am not assisted by any inference that might otherwise be able to be drawn from the asserted improbability of a businessman giving a guarantee without a request to do so. 39 Mr Krpo was adamant that there was no mention by Mr Sisic of the Guarantee in the conversation which took place when the business finance agreement was presented to him. His evidence that he said nothing to Westpac about the Guarantee and that it was his understanding that it was "just continuing", seems to me to be credible in circumstances where it was Mr Sisic's initiative to change the financing arrangements; it was Mr Sisic who had suggested that the loan be transferred to Westpac (the bank with whom Mr Sisic already had a banking arrangement); and there was no evidence that Mr Krpo had obtained (or had any real opportunity to obtain) any independent advice in relation to the transaction which took place at Mr Krpo's place of business. Indeed Mr Krpo's evidence that he had expected the Westpac loan to be given to the Company but proceeded nonetheless to sign the documents put before him by the bank manager (apparently without any prior review of these documents) suggests that he may not have understood the full impact of the refinancing and may not have turned his mind to what would happen with any guarantee in relation to the borrowing. 40 Mr Krpo agreed in cross-examination that he was aware of Westpac's requirement that a guarantee be provided by Mr Sisic of his obligations under the business finance agreement and that he knew that Mr Sisic had provided such a guarantee. This is not inconsistent with Mr Krpo having an understanding simply that what was happening was a continuation of the existing loan arrangements (with a different bank), albeit with the substitution of Mr Krpo for the Company as the borrower. 41 Ultimately, in balancing Mr Sisic's assertion that (at a meeting in the context of discussions as to which his memory was not strong) Mr Krpo asked him to provide a guarantee (which was required under the refinancing arrangements into which Mr Sisic had himself suggested Mr Krpo enter) against Mr Krpo's denial that there was any such request and his evidence, which I accept, that he understood the previous loan position was "just continuing", I consider Mr Krpo's version of events more likely. 42 I think it that it is more likely, on the evidence, that Mr Sisic provided the Guarantee (assuming that he had turned his mind to this issue at all rather than leaving all aspects of the documentation of this refinancing to others) based on an assumption that he would be indemnified, rather than because of any express request from Mr Krpo. There is no evidence that Mr Krpo was aware of (or induced) any such assumption by Mr Sisic. 43 What the cases relied upon by Mr Sisic stand, as authority for is the principle that where a guarantor gives a guarantee at the request of the debtor the courts will readily imply an obligation on the part of the debtor to indemnify the guarantor. It is by no means clear from those cases that such an obligation will be implied as a matter of law in the absence of a request (express or implied) by the debtor for the guarantee to be provided. 44 Those circumstances make it difficult in my view to imply any request for the provision of a guarantee solely from the fact that Mr Sisic entered into the Guarantee. I do not understand the authorities on which Mr Sisic relies to stand for the proposition that in all cases such a request must be implied. 45 I do not think that the facts that Mr Krpo was aware that Mr Sisic would have to provide a guarantee of his borrowings if the bank were to proceed with the loan and that Mr Krpo ultimately may be said to have accepted or obtained the benefit of that guarantee, are sufficient of themselves to give rise to an implied request by Mr Krpo for the provision of the Guarantee in circumstances where this occurred in the context of the mutual unwinding of a business relationship; the fact of entry by Mr Sisic into the Guarantee may equally have been referable to other aspects of the overall arrangements between the parties; and where there was no evidence that Mr Krpo was aware of any belief or expectation by Mr Sisic that if he entered into the Guarantee he would be indemnified. Conclusion 46 I am not satisfied, on the balance of probabilities, that an express request was made by Mr Sisic for Mr Krpo to guarantee the Westpac loan. 47 On the case as put by Mr Sisic, that determines the matter against Mr Sisic. 48 In circumstances where Mr Sisic did not seek relief on any basis other than the making of an express request, and any other claim for equitable or restitutionary relief was expressly disavowed during the hearing (and hence Mr Krpo was not asked to meet any such claim), it would not be appropriate for me to make any finding in respect of such a claim (Farah Constructions Pty Limited v Say-Dee Pty Limited (2007) 230 CLR 89 at 149-150). 49 Accordingly, I find for Mr Krpo and, subject to any submissions as to costs, propose to dismiss Mr Sisic's claim with costs. **********

Sisic v Krpo

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Judgment (12 paragraphs)

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