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ARTICLE · 22 JUNE 2016

Guarantors must - pay now, sue later

Corrs Chambers Westgarth
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A properly drafted suspension clause will prevent guarantors from deferring payment, except in limited circumstances.

AustraliaFinance and Banking
David Abernethy
David Abernethy
Jason Salman
Jason Salman
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This week's TGIF considers Palaniappan v Westpac Banking Corporation [2016] WASCA 72 in which the Court clarified the scope of 'suspension clauses' in guarantee agreements.

BACKGROUND

Suspension clauses are commonly found in loan and security documents and other commercial transactions. Suspension clauses typically provide that the guarantor or borrower agrees not to raise any set-offs, counter-claims or deductions until after the debt has been repaid in full. They therefore 'suspend' any rights of a borrower or guarantor against the lender until after the loan has been repaid.

WHAT HAPPENED?

Westpac Banking Corporation granted overdraft and loan facilities to Murray Riverside to the value of $18 million which were secured by mortgages and a guarantee from Palaniappan (a director of Murray Riverside).

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