Annandale Street Holdings Pty Ltd v Luux Pty Limited & Ors

The loan agreement dated 21 January 2021

1. Put simply, by the loan agreement dated 21 January 2021 ('the loan agreement'), the plaintiff agreed to loan Conexions the sum of $1,100,000, and Conexions agreed to repay that amount, with interest. The term of the loan was 12 months - the repayment date being 12 months after the drawdown date.
2. The key terms of the loan agreement are as follows: 1. The plaintiffs, upon request of Conexions, agreed to provide Conexions with a "cash advance in the sum of … ($1,100,000) … on the Drawdown date and subject to the terms and conditions set out in the Agreement": cl 2.1. 2. The plaintiff was not obliged to provide the money under the loan agreement unless and until "the Transaction Documents have been completed and delivered to the [plaintiff] and, where applicable, registered": cl 2.2(b). 3. The term "Transaction Documents" means the loan agreement "the Securities and the other transaction documents listed in that schedule and any other document executed between" the plaintiff, Conexions, "the guarantors or any other party from time to time": cl 1.1. The Schedule to the loan agreement identifies as "Transaction Documents" the loan agreement, identified securities as well as: "Guarantee and Indemnity from the Guarantors". 4. The term "Guarantor/s" means "the parties identified as the Guarantors in the schedule": cl 1.1. The first defendant is identified, in the Schedule, as a guarantor. 5. Conexions was required to repay that amount "and any outstanding interest at the end of the Term and any other amounts due … on the Repayment Date": cl 2.4(a). The 'Term' of the agreement was defined as: "Twelve (12) months": cl 1.1 and the Schedule to the loan agreement. 6. Conexions was required to pay interest on the loan as set out in cll 3.2 and 3.3: cl 3.1. Relevantly, there was a higher rate of interest (6% per calendar month) and a lower rate (3% per calendar month), with the lower rate being applicable if the interest is "paid on the due payment date": cl 3.2(a) and the Schedule to the loan agreement. Interest accrued daily and compounded monthly: cl 3.2(b). 7. Interest on the loan was payable six months "in advance on the Drawdown Date and thereafter monthly in advance on the day of each calendar month which corresponds to the Drawdown Date, during the term" of the agreement: cl 3.3. 8. The loan agreement defined 'Event of Default' (cl 5.1), and that included non-payment: Conexions "fails to make, in the manner required, any payment under this agreement on the due date": cl 5.1(a). 9. Upon the happening of an 'Event of Default', the plaintiff may: declare that the loan amount is "immediately due and payable, whereupon the balance … outstanding, together with any accrued interest, shall become immediately due and payable" and Conexions "shall immediately pay" to the plaintiff all such amounts: cl 5.2(a); and "take any action or proceedings necessary or desirable in order to exercise or enforce any right conferred by the loan agreement": cl 5.2(b). 10. Conexions "must on demand indemnify the [plaintiff] against any loss, cost or expense which the [plaintiff] may sustain or incur as a consequence of" defined matters, including: "the occurrence of any Event of Default …" (cl 8(b)) or the plaintiff "receiving payments of principal other than in accordance with this Agreement for any reason" (cl 8(c)).
3. I am satisfied and find that, in accordance with the terms of the loan agreement, the plaintiff advanced the sum of $1,100,000, less a deduction for the first six months of interest (as well as other deductions), to Conexions in accordance with the direction to pay executed by directors of Conexions (Stanton affidavit at [9]), and that advance occurred on 27 January 2021.

The guarantees

1. The plaintiff sues upon two guarantees. The first relates to the first defendant, and is dated 21 January 2021; the second relates to the second defendant, and is dated 28 February 2022.

The Deed of Guarantee dated 21 January 2021

1. I am satisfied and find that the first defendant entered into the Deed of Guarantee on 21 January 2021 - the guarantee being that attached to the Stanton affidavit at Exhibit CSS-1, pp 39-49. That is because the first defendant admitted, in the (verified) defence that it filed to the amended statement of claim, that it entered into a Deed of Guarantee with the plaintiff dated 21 January 2021; that was also the evidence of Mr Stanton, which I accept (Stanton affidavit at [8]); and it is otherwise clear from the terms of the guarantee itself.
2. Relevantly, the terms of that guarantee are as follows: 1. The Lender was identified as the plaintiff, the Borrower was Conexions and the guarantors included Conexions and the first defendant: Schedule to the guarantee. 2. The "Loan documents" was defined in the Schedule: "loan agreement between [Conexions] and the [plaintiff] dated on or about the date of this guarantee". 3. The guarantee and indemnity relevantly provided: Guarantee In consideration of the [plaintiff] providing financial accommodation to [Conexions] at your request, you unconditionally guarantee the punctual payment to the [plaintiff] of the Debt on the due date. The "Debt" is all money owing at any time by [Conexions] to the [plaintiff] in relation to the loan documents specified in the Schedule. Indemnity You also indemnify the [plaintiff] against all loss, damage and reasonable costs and expenses incurred by the [plaintiff] as a result of any failure by anybody to pay the Debt on the due date, except where such loss, damage, cost or expense arises from fraud, negligence or wilful misconduct by us, our employees, or a receiver we appoint. You must pay on demand If [Conexions] does not pay the Debt to the [plaintiff] on the due date, you must pay the Debt to the [plaintiff] immediately on demand by the [plaintiff]. The [plaintiff] may enforce this guarantee, any security, and any other rights separately or together. 1. The guarantee extended to cover 'Costs and expenses': Costs and expenses You must pay to the [plaintiff] on demand all reasonable costs and expenses (including legal costs and expenses on a full indemnity basis or solicitor and own client basis, whichever is higher) incurred by the lender in respect of this guarantee (including those arising from any default by [Conexions] or by you or both) … 1. The guarantee dealt with how notices are to be given: How notices may be given The [plaintiff] may give a notice to you by personal delivery or prepaid ordinary post sent to your address shown in this guarantee, sent to your registered office (if you are a company), sent to your last address known to the [plaintiff], or by being sent to you by electronic transmission. The notice may be signed by any employee, solicitor or agent of behalf of the [plaintiff].

The deed of guarantee dated 28 February 2022

1. I am satisfied and find that the second defendant entered into the Deed of Guarantee on 28 February 2022 - the guarantee being that attached to the Stanton affidavit at Exhibit CSS-1, pp 74-83. That is because the second defendant admitted, in the (verified) defence that it filed to the amended statement of claim, that it entered into a Deed of Guarantee with the plaintiff dated 28 February 2022; that was also the evidence of Mr Stanton - which I accept (Stanton affidavit at [21]); and it is otherwise clear from the terms of the guarantee itself.
2. In that guarantee, the Lender was identified as the plaintiff, the Borrower was Conexions and the guarantor was the second defendant: Schedule to the guarantee.
3. The "Loan documents" was defined in the Schedule: "loan agreement between [Conexions] and the [plaintiff] dated on or about the 21 January 2021". Otherwise, the terms of the guarantee are identical to the terms of the guarantee between the plaintiff and the first defendant, as set out in [11(3)], above.
4. Given that the terms of each deed of guarantee are essentially identical, it is unnecessary to differentiate between them in what follows.

The Deed of Forbearance dated 15 February 2022

1. On 15 February 2022 the plaintiff, Conexions, the first defendant and others who had guaranteed the performance of Conexions' obligations under the loan agreement, entered into a Deed of Forbearance. That Deed of Forbearance is attached to the Stanton affidavit at Exhibit CSS-1, pp 60-68.
2. Shortly stated, by the Deed of Forbearance: 1. The plaintiff agreed to provide Conexions with an extension to the repayment date, to take no steps to recover money owed under the loan agreement, subject to Conexions complying with its obligations under the Deed of Forbearance: cl 2. 2. The loan was to be repaid, no later than 60 days after the date of the Deed of Forbearance: cl 2.2.1. 3. Conexions was to pay all outstanding interest at the higher rate - that is 6% per calendar month - within 30 days of the date of the Deed of Forbearance: cl 2.3.1. 4. In default of what was agreed by Conexions, then the plaintiff was released from its forbearance: cll 2.4.1 and 3.
3. The Deed of Forbearance, in my view, establishes what was otherwise plain on the evidence: namely, that Conexions had failed to perform, and was in breach of, the loan agreement.
4. It is unnecessary to say anything further about the Deed of Forbearance. That is because neither side has identified in the pleadings filed that the terms of it raise an issue in the proceedings: specifically, neither defendant has raised the operation of the Deed of Forbearance as precluding, in any way, the plaintiff's claim.
5. By way of summary, my findings are as follows: 1. The plaintiff and Conexions entered into a loan agreement dated 21 January 2021. 2. Pursuant to that agreement, the plaintiff performed its obligations under it by advancing to Conexions, on 27 January 2021, the loan amount in accordance with the written direction provided by Conexions. 3. The plaintiff and, relevantly, the first defendant entered into a deed of guarantee dated 21 January 2021. 4. The plaintiff and, relevantly, the second defendant entered into a deed of guarantee dated 28 February 2022.
6. In light of these findings, there remains two further issues: first, whether Conexions failed to perform the loan agreement, and was thereby in breach of it; secondly, if Conexions failed to perform, and was in breach of, the loan agreement, whether the defendants are obliged by the terms of the guarantee to make good the failure by Conexions.

Failure to perform: the loan agreement

1. The case for the plaintiff is that Conexions and the first and second defendants have failed to repay the loan made to Conexions under the loan agreement: ASOC, pars 13 and 14. The plaintiff also alleges that it has - unsuccessfully - made demands upon each defendant for the repayment of the money owed: ASOC, pars 15 and 16.
2. Neither defendant has made any admissions, in the defence that each filed, that there has been a failure to perform by Conexions or by themselves, nor have they admitted that they are indebted to the plaintiff in any way. The defences do not otherwise identify the ground - or grounds - upon which the liability to the plaintiff is contested.
3. The plaintiff advanced the sum of $1,100,000 to Conexions on 27 January 2021. As the term of the agreement was 12 months, it was repayable on 27 January 2022. The plaintiff was required to pay interest for the first 6 months upon the advance being made (cl 3.3 of the loan agreement), and this amount (being $231,000) was deducted, I find, from the amount at the direction of Conexions. Thereafter, Conexions' obligation to make interest repayments commenced on 27 July 2021 (cl 3.3 of the loan agreement).
4. In relation to the interest payment that was due on 27 July 2021 - an amount of $66,000 - the plaintiff only received part payment: $33,000 was paid in five tranches in the period 27 July to 2 August 2021 (Stanton affidavit at [10]).
5. The next interest payment - an amount of $67,980 - was due on 27 August 2021. The plaintiff only received part payment, being the amount of $33,000 - by way of seven tranches on 30 August 2021 (Stanton affidavit at [11]).
6. The next interest payment - an amount of $70,078.80 - was due on 27 September 2021. The plaintiff only received part payment, being the amount of $33,000 across seven tranches between 28 September and 8 October 2021.
7. The receipt of these payments in the period following July 2021 are recorded in the plaintiff's Macquarie Cash Management account statement: Stanton affidavit at [13], Exhibit CSS-1, pp 51-53.
8. I am satisfied, and find, that the payment of interest made by, or on behalf of, Conexions were confined to the payments that I have set out in [24]-[27], above. They total $330,000.
9. I am also satisfied and find: (a) the plaintiff did not receive any further payments before the term of the loan expired; (b) on 21 February 2022, a payment of $100,000 was made to the plaintiff; and (c) no further payments have been received by the plaintiff since that time.
10. In relation to the payment of $100,000, Mr Stanton's evidence was that that payment was received "under the Deed of Forbearance in partial repayment of interest in arrears owed by Conexions to the Plaintiff under the loan agreement" (Stanton affidavit at [17]). In view of the fact that the Deed of Forbearance had been entered less than a week before the time that this payment was made, on 15 February 2022, and the fact that the Deed of Forbearance required Conexions to pay all outstanding interest "within 30 days of the date of this Deed" (cl 2.3.1) - and envisaged to be paid before discharge of the loan itself (cl 2.2.1) - I am prepared to infer and find that this payment was, as Mr Stanton has suggested, partial payment of interest that was otherwise owing under the loan agreement. There was not, I add, any evidence suggesting that that payment was to be allocated to the reduction of the principal sum owing under the loan agreement.
11. In my view, based upon Mr Stanton's evidence, it is clear that there has been a failure to perform, and a breach of the loan agreement by, Conexions: it was obliged to, but did not, repay the principal sum advanced to it under the loan agreement and, moreover, defaulted in connection with its obligations to pay interest, on a monthly basis, from 27 July 2021. As I have earlier noted, the fact that there was a need to enter into the Deed of Forbearance on 15 February 2022 only reinforces that this was so.

Failure to perform: the guarantees

1. The next issue is whether or not, having found that there was a breach of the loan agreement, the guarantees require the defendants to guarantee, and make good, the plaintiff's loss caused by Conexions' breach of the loan agreement.
2. Although, as I have earlier noted, the defendants disputed their indebtedness, and obligation to indemnify, in the defences that each of them filed, the basis for doing so was not identified. I am unpersuaded there is any defence to the plaintiff's claims.
3. In my view, bearing in mind the terms of the guarantee and indemnity (as set out in [11(3)], above), there is no serious issue about the liability of each defendant under the deeds of guarantee. The failure of Conexions to perform the terms of the loan agreement is, I find, clearly an event triggering the unconditional guarantee and is clearly, I also find, within the indemnity provided: the failure to repay the loan with interest as Conexions was required to do is loss or damage etc incurred by the plaintiff "as a result of any failure by anybody to pay the Debt on the due date …".
4. The defence does not raise any question about a demand being a condition precedent to enlivening each of the defendants' obligations under the guarantee, or to obliging the defendants to indemnify the plaintiff. Even if that was so, I am satisfied that a demand was so made to each defendant: by letter dated 22 April 2022, the plaintiff made a demand on the first defendant under the terms of the guarantee (Stanton affidavit at [25], Exhibit CSS-1, p 91); and, also by letter dated 22 April 2022, the plaintiff made a demand on the second defendant (Stanton affidavit at [25], Exhibit CSS-1, p 93).

Damages: quantification of the plaintiff's loss

1. In my view the plaintiff is, following on from the failure of Conexions to perform the terms of the loan agreement, entitled to judgment for breach of the guarantee and indemnity in the amount of $1,100,000.
2. The plaintiff is also entitled to interest on the amount in accordance with cl 3.2(c) of the loan agreement. That has been calculated by the plaintiff (up to 19 August 2022) to be $1,045,709.47 and contained within a schedule that forms part of Mr Stanton's evidence: Stanton affidavit at [19], Exhibit CSS-1, pp 69-71. Mr Parrish handed up an updated schedule (MFI 2) that represented the plaintiff's entitlement to interest under the loan agreement. That forms the basis of the plaintiff's claim for damages and represents the judgment sum that is sought.
3. Conexions had, based upon the evidence of Mr Stanton, made interest payments - including the initial payment when the funds were advanced to Conexions - totalling $430,000: see [24]-[27], [31]. These have been taken into account in the schedules, to which reference has been made in [38], above.
4. The plaintiff also seeks an order that its costs be payable on an indemnity basis. That order should also be made. The entitlement to costs on that basis is provided for under the guarantee and under the loan agreement. In relation to the guarantee, it is provided by 'Costs and expenses' (set out in [11(3)], above). By that clause the guarantor is required to pay the plaintiff on demand all reasonable costs and expenses (including legal costs and expenses on a full indemnity basis or solicitor and own client basis, whichever is higher) incurred by the [plaintiff] in respect of this guarantee (including those arising from any default by [Conexions] or by you or both).
5. In relation to the loan agreement, it is provided by cl 9.2(c). By that clause, Conexions must, upon demand, reimburse the plaintiff for its expenses (including out-of-pocket expenses) in connection with the enforcement of, or the preservation of any rights under, this Agreement including, without limitation, any expenses incurred in retaining independent consultants to evaluate matters of material concern to the [plaintiff]; including in each case legal costs and expenses (on a full indemnity basis).
6. In my view, and I find, the legal costs are clearly reasonable costs, and they have been incurred by the plaintiff "in respect of this guarantee" (self-evidently, the proceedings are based on it), and the default of Conexions and the defendants. In my view the incurring of legal costs are also "in connection with the enforcement of" the loan agreement. I add: here, whether the plaintiff recovers this as part of the guaranteed sum (or under the indemnity) or as forming part of the breach of the agreement, or independently of the agreements by separate order for costs, is in my view, of no moment. That is because generally speaking, in situations where costs are covered under an indemnity (or, relevantly here, a guarantee of like effect), ordinarily an order for indemnity costs should follow: Tanevski v Trenwick International Limited & Ors [2003] NSWCA 374 at [14]-[15].

Orders

1. For the above reasons, I make the following orders: 1. Judgment for the plaintiff against the first and second defendants in the sum of $3,043,729.89. 2. The proceedings are otherwise discontinued. 3. Order the first and second defendants to pay the plaintiff's costs of and incidental to these proceedings on an indemnity basis.

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