Supreme Court New South Wales Medium Neutral Citation: Bank of Western Australia Ltd v Tumuluri [2011] NSWSC 834 Hearing dates: 21/07/2011 Decision date: 21 July 2011 Jurisdiction: Equity Division - Commercial List Before: McDougall J Decision: Judgment for plaintiff against third defendant for $2,445,958.90 with costs. Catchwords: CONTRACT - guarantee - whether third defendant liable under personal guarantee - construction: whether loan contract was a 'guaranteed agreement' Category: Principal judgment Parties: Bank of Western Australia Limited ACN 050 494 454 (Plaintiff) Sastry Tumuluri (First Defendant) Sanjay Srinivasan (Second Defendant) Mahalingam Srinivasan (Third Defendant) Representation: Counsel: P T Russell (Plaintiff) J A Raine (Third Defendant) Solicitors: Blake Dawson (Plaintiff) Avondale Lawyers (Third Defendant) File Number(s): 2011/33949 Judgment (ex tempore) 1HIS HONOUR: The plaintiff (the Bank) sues the third defendant (Dr Srinivasan) on what it says is his guarantee of the obligations to the Bank of a borrower known as 1037 Investments Pty Ltd (the Borrower). 2The Bank made an initial offer to the Borrower on 23 June 2006. There is no evidence that that offer was ever accepted or returned to the Bank. 3On 27 June 2006, the Bank made what can best be described as a "revised offer" to the Borrower. Somewhat confusingly, the letter of 27 June 2006 (the 27 June offer) was headed "variation of facilities" and recorded an agreement "to vary your existing Facilities". 4The substantial difference between the two offers was, I think, that the 27 June offer required, in addition to other security, a fixed and floating charge over the assets of the Borrower; this had not been required by the earlier offer. 5The 27 June offer was accepted by being executed by the first defendant and Dr Srinivasan in their capacities as directors of the Borrower. There is some confusion as to the date on which this occurred, but I think no confusion otherwise. Although Dr Srinivasan said in his affidavit that he did not recall executing the 27 June offer either as a director or in his capacity as proposed guarantor, nonetheless he agrees that the signature purporting to be his appeared to be his. There is independent evidence, from a witness employed in Dr Srinivasan's practice, that Dr Srinivasan did execute other documents connected with the guarantee, and there can be no question that, at least to the untrained eye, both the signatures on the 27 June offer purporting to be Dr Srinivasan's signatures are the same as the undoubtedly authentic signature on the document that was witnessed. 6The 27 June offer stated a number of conditions precedent, and stated in cl 5 that the Bank would require certain stipulated securities before it would provide any of the facilities to the Borrower. One of the stipulated securities was a guarantee and indemnity signed by Dr Srinivasan for an amount of $2,250,000. 7It is clear, as I have indicated, that Dr Srinivasan did execute a form of guarantee and indemnity, and that he did so on the evening of 27 June 2006. His case is that this document was not sent to him (or to the Borrower) as part of the 27 June offer but that, rather, it was a document that had accompanied the earlier offer. The executed guarantee was, I infer, returned to the Bank along with the executed facility offer, because there is otherwise no explanation as to how it came into the Bank's possession. 8The executed guarantee stated that the "guaranteed agreement" was one "constituted by acceptance of an offer from the Bank dated 23 June 2006". That can only be a reference to a contract that was intended to come into existence on the Borrower's acceptance of the earlier offer; as I have said, no such contract came into existence. 9The guaranteed amount was $2,250,000 together with costs, expenses and interest as set out in the standard terms and conditions referred to in the guarantee. 10Those terms and conditions provided, by cl 2.1, that Dr Srinivasan guaranteed payment to the Bank of "the guaranteed money". The expression "guaranteed money" was defined in cl 27 to mean "all amounts payable under each guaranteed agreement". In the same clause, the expression "guaranteed agreement" was defined to mean the agreement described in the guarantee itself (i.e. that which it was said, came into existence on acceptance of the earlier offer) and also "any credit contract between the debtor and us that you acknowledge in writing to be a credit contract to which this guarantee and indemnity extends". 11Returning to the 27 June offer, Dr Srinivasan signed it (as I find it) not only in his capacity as a director of the Borrower but also in his capacity as a guarantor. He signed as guarantor under the following words: Where the security given or to be given by a Guarantor includes a Small Business and Consumer Guarantee and Indemnity or a Consumer Guarantee and Indemnity, each Guarantor acknowledges and agrees that: (a) In the case of the Small Business and Consumer Guarantee and Indemnity, the guaranteed money (as defined in that guarantee) will be the amount set out in the section headed "Security" within the Offer Letter; and (b) the Offer Letter and any other document under which additional financial accommodation referred to in the Offer Letter is provided are Guaranteed Agreements for the purpose of the Small Business and Consumer Guarantee and Indemnity of the Consumer Guarantee and Indemnity. 12It will be seen from paragraph (b) that Dr Srinivasan (and, but it does not matter, the other guarantors) acknowledged that the offer letter (and by necessary implication the contract coming into existence on its acceptance) was a guaranteed agreement for the purposes of his guarantee. 13Mr Raine of counsel, who came into this matter on late notice and who did all he could to put what could properly be put for Dr Srinivasan, submitted that the guarantee did not apply to the contract between the Bank and the Borrower created by acceptance of the 27 June offer because: (1) the guarantee in terms applied to a contract that either did, or was intended to, come into existence on acceptance of the earlier offer; (2) no such contract came into existence; (3) the Bank had confirmed (as indeed it did) that it did not sue on any such earlier contract; and (4) thus, the guarantee "died with the offer to which it was attached". 14I do not accept that submission. The terms of and incorporated in the guarantee which undoubtedly Dr Srinivasan signed provided that it would apply not only to the "guaranteed agreement" specifically described in it, but also to any other agreement which Dr Srinivasan and the Bank agreed was a "guaranteed agreement". The terms of the 27 June offer that I have set out above make it clear that Dr Srinivasan and the Bank so agreed (upon Dr Srinivasan's signature, as guarantor, on the 27 June offer) in respect of the contract created by acceptance of the 27 June offer. It follows, in my view, that the guarantee applied to the obligations of the Borrower to the Bank under that offer. 15Although other issues had been raised in Dr Srinivasan's list response, they were not pressed. Accordingly, the conclusion that I have expressed is sufficient to entitle the Bank to judgment on its claim. 16The unchallenged evidence for the Bank is that the amount owing, as at today's date and including interest, is $2,445,958.90. That is made up of the amount guaranteed together with interest at the overdue rate (and not at the even higher rate for which the guarantee provided) from the date of default to the present time. There is no doubt (and it was not disputed) that the terms of the loan contract and the guarantee entitle the Bank to interest at the overdue rate. 17In those circumstances, I direct entry of judgment for the plaintiff against the third defendant in the sum of $2,445,958.90. 18I direct that this judgment take effect as of today's date. 19For convenience, the parties are agreed as to the orders that should be made, in the event that I have reached the conclusion that I have just expressed, and accordingly, I make orders also in accordance with paragraphs 2 and 3 of the form of judgment initialled by me and dated today's date. 20The exhibits should remain with the file for 28 days and should thereafter be dealt with in accordance with the Rules. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 15 August 2011