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The buck stops with you

Contract Law News | April 2017

In the recent case of Hatziplis v Photios [2017] NSWSC 297, the Supreme Court of NSW have reaffirmed the importance of fully understanding the implications and responsibilities of agreeing to guarantee a lender’s repayments under a loan agreement.

In this case, Photios had agreed to act as guarantor for a borrower under a loan agreement for $8.4 million (“Loan”) for the development of a property in the Hunter Valley. The Borrower defaulted on the Loan and the lender (“Hatziplis”) pursued Photios as the guarantor for recovery of the debt arising from the Loan. Hatziplis also sought to recover interest which had accrued on the Loan. Hatziplis’ claim against Photios was for $16 million including the Loan amount and the interest.

Photios argued that he was unaware of the implications of the Loan and claimed that he was assured by Hatziplis’ director that he would never be called on as the borrower’s guarantor.

In coming to a decision in this case, the Court considered whether previous communications between Photios and the borrower could be construed as being false or misleading information given by the borrower which would result in Photios’ misconception of the nature of the guarantee under the Loan.

The judge found that there was no basis to conclude that Photios had been misled or given false information by the borrower and stated that even if a discussion had occurred between Photios and the borrower, it would have to be proven that this discussion was the only thing relied on by Photios when considering whether or not to agree to be the borrower’s guarantor under the Loan.

This case reiterates the grave importance of understanding the full obligations and implications for those who are considering acting as a guarantor for a borrower under a loan.

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