Edmond El Khoury v Denis Harsany & Anor; Joseph Taouk v Assure

Background facts

1. The genesis of all these disputes began when Assure engaged Berowra Developments Pty Ltd (the Developer) to develop 17 townhouses at 6-12 Kita Avenue, Berowra Heights NSW (Berowra Development) (principal judgment [2]).
2. The Developer entered into a building agreement on 20 May 2012 with HGH Construction Pty Ltd (the Builder) to carry out the building work under the Development Agreement (Building Agreement). Mr Taouk is the sole director, secretary and shareholder of the Builder (principal judgment [3]).
3. The parties entered into an agreement on 12 June 2012 together with Mr Taouk who provided Assure with a guarantee and indemnity in relation to the Developer's performance (Development Agreement) (principal judgment [2]).
4. Key terms of the Development Agreement signed on 12 June 2012 by Assure, the Developer and Mr Taouk as guarantor are as follows, adopting the defined terms of the document (principal judgment [20]): 1. Developer is required to construct and develop the project by the Date for Project Practical Completion (being 20 May 2013) (clause 1.1, 13.1 and 15.1); 2. Developer indemnifies Assure for losses associated with defects it fails to rectify (clause 13.5(c)), and unreservedly accepts all risks relating to the project (clause 5.1) and is responsible for all costs in relation to the project subject to the agreement (clause 22); 3. Assure is to pay the Consideration Amount to the Developer, calculated with reference to the formula in Schedule 6 and payable upon the sale of the last lot (clause 4); 4. As noted in the Proposal which is annexed as Schedule 8, the maximum chargeable under the Development Agreement is $3.7 million, including GST. Further, the Developer is to arrange finance (including construction finance) for the project and the Developer or the Guarantor must contribute any shortfall; 5. Mr Taouk indemnifies (clause 24.1) and guarantees to (clause 24.2) Assure in respect of the Developer's performance.
5. Clause 24.1 of the Development Agreement provides (CB2 674): The Guarantor and the Developer indemnify the Owner, and must pay the Owner on demand the actual amount of all losses, liabilities, costs and expenses (including, without limitation, legal expenses on a full indemnity basis) in connection with: (a) the occurrence, cure and attempted cure of any Default Event; (b) where the Developer is in default under this Agreement or any other Project Document, the administration, enforcement or attempted enforcement or preservation or attempted preservation of any rights under this Agreement or any other Project Document; and (c) any amendment to, or any consent, approval, waiver, release or discharge of or under, this Agreement or any other Project Document
6. On 27 June 2012, Mr Harsany asked Mr Taouk to contribute $200,000 in funding to purchase the fourth and final lot of the Berowra property. As it is important, I will reproduce exactly what I stated in my principal judgment with respect to this $200,000 contribution (at [21]-[24]): On 27 June 2012, Mr Harsany asked Mr Taouk to contribute $200,000 in funding to purchase the fourth and final lot of the Berowra Property (being Lot 8). Mr Taouk alleged he agreed to do so, and made arrangements to obtain a short term loan of $200,000, following which Mr Harsany agreed to pay Mr Taouk back from the sale proceeds (JT4 [19] - [21]). Mr Harsany agreed to asking Mr Taouk for $200,000, but alleged Mr Taouk said he would ask Mr El Khoury for the loan (DH2 [35]-[36]). In Mr Taouk's most recent affidavit, he said he asked Mr El Khoury for the $200,000, who obtained the funds from Mr Ali Behamd [sic], who then insisted Mr El Khoury be the lender (JT6 [35]-[44]). That same day, on 27 June 2012, Mr El Khoury deposited the $200,000 in Assure's account, as confirmed by an email that same day from Fiona Sephton of Lane & Lane (Assure's solicitor at the time) to Mr Harsany which read "The funds are in. $200,000.00. Deposited by Edward Khoury…" (CB4/1402). On 3 August 2012, the parties formalised this loan by executing a loan agreement between Mr El Khoury as the Lender, and Mr Harsany on behalf of Assure as the Borrower for the $200,000 (Loan Agreement) (CB3/1126-1135). Mr Taouk and Mr Harsany were the guarantors of the loan. On 10 August 2012, Assure acquired Lot 8 in the Berowra Property. According to Mr Harsany, Assure purchased Lot 8 with the money from a loan with the Commonwealth Bank of Australia (CBA) and Mr El Khoury (DH1 [11]).
7. On 27 June 2012 Mr El Khoury borrowed from AB Traders Pty Ltd (a company of which Mr Bahmed is director) an amount of $200,000 due on or before 1 December 2016, with interest of 6% per year compounded monthly from the date of advance (Exhibit D1).
8. On 27 June 2012 at 2:47pm, Ms Sephton of Lane & Lane solicitors emailed Mr Harsany (Ex DH1 1): Hi Denis The funds are in. $200,000.00. Deposited by Edward Khoury. Not deposited as TT therefore we will need to wait for clearance before we can confirm to CBA that we have the funds in our account. Hopefully it is only a couple of days as it was NAB to NAB. Regards Fiona
9. On 2 July 2012, Mr El Khoury emailed Ms Sephton of Lane & Lane, with Mr Taouk and Mr Harsany copied in, stating (Ex DH1 2): Please see attachment and you see a loan agreement in relation to the above matter. We noted that the fund cleared in your trust account last Friday. We notify that you are holding the fund on trust on our behalf until the attached documents executed by all parties and the fund will not release until you receive our instruction.
10. This email attached an unexecuted version of the loan agreement between Mr El Khoury (described as "the Lender") and Assure (described as "the Borrower") (the Loan Agreement) (Ex DH1 3-12). Clause 4 provided (Ex DH1 5):
11. 4. Interest 4.1. The Borrower shall pay to the Lender interest on the loan at the rate specified in Item 6 of the Appendix hereto as the Lower Rate calculated and charged on the rest periods and payable at the times and computed all as specified in Item 6 of the Appendix hereto. 4.2. If any interest payable under Clause 4.1 or any interest payable on arrears of interest capitalised under this clause shall be unpaid on the due date therefore, then in every such case the interest so in arrears shall without prejudice to the right of the Lender to sue for and recover such interest and to the other rights and powers of the Lender be added to the Loan and shall thenceforth bear interest payable at the Higher Rate and at the times specified in Clause 4.1. 4.3. There shall be no refund of interest for early repayment.
12. Items 5-8 of the Appendix to the Loan Agreement provided (Ex DH1 9-10): Item 5: Covenant for Repayment: 8 weeks from the date of the loan advance (27 June 2012) Item 6: Interest Provision: 2% per month if the fund not paid on the due date Item 7: The Securities: Unregistered mortgage secured by caveat over properties located at 6-12 Kita Road, Berowra Height in the State of New South Wales as known Lot 4 in Deposited Plan 232401, Lot 5 in Deposited Plan 232401, Lot 6 in Deposited Plan 232401 and Lot 7 in Deposited Plan 232401 to be lodge [sic] after the settlement with ANZ bank in relation to the construction facilities and also secured by personal guarantee from Joseph Taouk and Denis Harsany. Item 8: Name and address of Guarantor 1: Joseph Taouk of 125 Cosgrove Road, Belfield NSW Name and address of Guarantor 2: Denis Harsany of 36 Walkers Crescent, Emu Plains NSW 2750
13. On 3 August 2012 at 10:32am Ms Sephton emailed Mr Harsany stating (Ex DH1 29): Hi Denis Have you signed the loan document with Joseph and returned it to his solicitor? I need you to ask his solicitor to send me an email to authorise me to release the funds from my trust account as I had to undertake not to release without his authority. As Monday is a bank holiday, we won't be able to get bank cheques on Monday for settlement so we would need to do it today and I can't do that without his authority.
14. On 3 August 2012 at 12:37pm Mr Harsany emailed Mr El Khoury, Ms Sephton and Mr Taouk a copy of the Loan Agreement executed by Assure and Mr Harsany (Ex DH1 18-28) with the addition and deletion made by hand to Item 5 of the Appendix (in italics): Item 5: Covenant for Repayment Upon receipt of development loan 8 weeks from the date of the loan advance (27 June 2012)
15. On 3 August 2012 at 12:44pm Mr Harsany emailed Ms Sephton stating (Ex DH1 30): Joseph has told me that he has signed the agreement which Edmond already has. I can do the same and email through today as required. I should be able to scan and email mid-afternoon or earlier. Please email Edmond to request the release on that basis. I think he was already satisfied with Joseph's signature as guarantor, however I will sign it off regardless.
16. On 3 August 2012 at 3:31pm Mr El Khoury emailed Ms Sephton, with Mr Harsany and Mr Taouk copied in, stating (Ex DH1 31): We refer to the above matter and confirm that we are instructing you to release the funds you hold in trust account in relation to the settlement of the above matter. Also on settlement to provide a cheque for $1000.00 payable to our office for the preparation of the documents. Also we require the original executed documents to deliver to our office prior to settlement and the development loan will be no later than 3 weeks unless the interest apply. Also we require the caveat form to be executed and attached to the original documents.
17. On 3 August 2012 at 10:38pm Mr Taouk emailed Mr El Khoury, Mr Harsany and Ms Sephton (Ex DH1 32): Thanks Fiona, I have executed my part … We should ok for the settlement on Tuesday …
18. On 27 October 2014, at 125 Cosgrove Road, Mr El Khoury asserts he asked Mr Harsany to repay the amount. The following conversation allegedly took place (2018 Proceedings CB 33): I said: Please pay me the money I loaned to you. Mr Harsany said: Don't worry, when the refinance is completed I will pay you your loan with all of the interest. I haven't forgotten how you helped me with this loan to complete the settlement.
19. The Development Agreement was varied by deed on 28 May 2015 (collectively the Development Agreements) (principal judgment [2]). The variation, in short, primarily affirmed the Development Agreement, simplified the Consideration Amount formula, and stipulated development costs are to be paid before the payment of the Consideration Amount (principal judgment [55]).
20. On 17 May 2016 Mr El Khoury provided Mr Harsany a letter of demand (2018 Proceedings CB 174): We are advising you that in accordance to the loan agreement executed on 3 August 2012 by you as a guarantor and Assure (NSW) Pty Ltd ACN 133 819 619 as trustee for Assure Trust as a borrower, you have failed to repay the loan and fees arising from this loan. The amount remains outstanding and includes the principal amount of $200,000.00 plus 2% interest compounded monthly and calculated from the date of the loan agreement.
21. The Berowra building work was not completed, and the Developer was ultimately deregistered, so that Assure retained a third party to supervise completion of the work (principal judgment [3]). Mr Taouk sought monetary judgment against Assure, claiming he was personally owed money for his contributions to the costs of construction and development of the site, and sought a declaration Assure had breached the Development Agreement (principal judgment [4]-[5]).
22. Assure cross-claimed alleging Mr Taouk was liable for breach of the Development Agreements and breach of guarantee and indemnity (principal judgment [6]).
23. As I have said I delivered the principal judgment on 4 May 2017.
24. I dismissed Mr Taouk's various allegations of breach of the agreement, estoppel, breach of s 21 of the Australian Consumer Law (as in the Competition and Consumer Act 2010 (Cth) Sch 2) and unjust enrichment (principal judgment [381]).
25. Pursuant to the Cross-Claim I found Mr Taouk is liable to Assure for breaching the Development Agreement and liable pursuant to the guarantee and indemnity (principal judgment [342], [356], [381]). However the quantum of this liability has not yet been assessed.
26. As Mr Taouk was entirely unsuccessful in the proceedings in Taouk v Assure (NSW) Pty Ltd [2017] NSWSC 778 (costs judgment) I ordered Mr Taouk pay Assure's costs of the proceedings on an indemnity basis (costs judgment [25]).
27. The matter went on appeal with Meagher JA determining an application for security for costs in Taouk v Assure (NSW) Pty Ltd [2017] NSWCA 160 (security for costs judgment).
28. In Taouk v Assure (NSW) Pty Ltd [2017] NSWCA 227 (appeal judgment) handed down on 8 September 2017 the New South Wales Court of Appeal set aside order 2(c) made by me on 23 May 2017 giving judgment in favour of Assure against Mr Taouk, and remitted the matter to the Equity Division to deal with the question of quantum. The purpose of this was to give Mr Taouk the opportunity to put forward his case that Assure has not suffered loss or damage, or if it has, that the amount recoverable is less than the judgment initially awarded of $3,266,518.14 (appeal judgment [148]-[152]).
29. On appeal my findings as to the conversations that occurred were not challenged (appeal judgment [71]) as was my analysis of the relationship between the Development Agreements (appeal judgment [104]). In addition Mr Taouk disclaimed any intention to challenge the quantum of Assure's expenditure to complete the development (appeal judgment [5]). It did also not appear controversial that Mr Taouk had engaged in a default event (appeal judgment [89]-[90]). Nor did it appear controversial Mr Taouk was liable for breach of the Development Agreement (appeal judgment [87]-[88]).
30. However as is clear from above that the appeal was allowed in part to enable Mr Taouk to challenge the quantum of his liability for breach of the two limbs of (a) breach of the Development Agreement; and (b) breach of his guarantee and indemnity (appeal judgment [140]-[152]).
31. The 2018 Proceedings involve the question of Mr El Khoury's entitlement (pursuant to his Statement of Claim filed 27 June 2018) to judgment against Mr Harsany and Mr Taouk in the sum of $805,740.91 by way of their guarantee to the Loan Agreement for the $200,000 provided by Mr El Khoury.
32. On 1 November 2018, I gave Mr El Khoury leave to file an Amended Statement of Claim, which amended the pleadings to account for the release of the $200,000 from Lane & Lane solicitors in consideration for the parties entering into the Loan Agreement. On 9 November 2018 Mr Harsany filed a Defence to the Amended Statement of Claim (T29/50-T30/8).
33. There was also an issue as to a possible Cross-Claim to be filed by Mr Harsany seeking contribution with respect to the amount owed (T44/48-T45/13). However, no such Cross-Claim was formally filed.

Legal principles

1. Each of the 2016 Proceedings and 2018 Proceedings in turn raise quite distinct issues. The 2016 Proceedings concern the appropriate principles to be called in aid in assessing Mr Taouk's liability to Assure pursuant to a guarantee and indemnity. The 2018 Proceedings concern whether Mr Harsany and Mr Taouk are liable as guarantors pursuant to the Loan Agreement and the provision of $200,000 from Mr El Khoury to Assure.

Common law damages

1. It is I consider uncontroversial that the object of damages for breach of contract is neither to make the defendant disgorge what it has saved due to its breach, nor to make it disgorge profits it has reaped. In contract, common law damages are compensatory. Their fundamental purpose is to put the person whose rights have been violated, in the same position, so far as money can do so, as if those rights had been observed: Robinson v Harman [1848] EngR 135; 154 ER 363.
2. In Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64; [1991] HCA 54 Deane J said (at 119-20) (citations omitted): It has been truly said that the assessment of damages in contract and tort is "a pragmatic subject ... [which] does not lend itself to hard-and-fast rules". The explanation of that is to be found in the fact that the assessment of common law damages for breach of contract or tort was traditionally seen as a matter for the good sense of the jury. Within the context of the principles laid down in Hadley v Baxendale, the more particular rules for assessing damages for repudiation or breach of contract should be treated not "as rigid rules of universal application" but "as prima facie rules which may be displaced or modified whenever it is necessary to do so in order to achieve a result which provides reasonable compensation ... without imposing a liability upon the other party exceeding that which he could fairly be regarded as having contemplated and been willing to accept". That being so, it is neither desirable nor practicable to seek to formulate an exhaustive comprehensive rule defining the circumstances in which it is appropriate for a court to assess damages on the basis that what has been lost or inflicted is the probability or possibility of benefit or detriment as distinct from the benefit or detriment itself.
3. In Clark v Macourt (2013) 253 CLR 1; [2013] HCA 56 Keane J said (at [106]) (citations omitted): The principle according to which damages for breach of contract are awarded is that the damages should put the promisee in the same situation with respect to damages, so far as money can do it, as it would have been in had the broken promise been performed. The appellant was entitled to claim this measure, rather than a measure based, either on the difference between what she paid for the sperm straws and what they were worth, or on the expense "of undoing the harm which [her] reliance on the defendant's promise has caused [her]". This Court said in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd: "The 'ruling principle', confirmed in this Court on numerous occasions, with respect to damages at common law for breach of contract is that stated by Parke B in Robinson v Harman: 'The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.'"

Damages payable under indemnities

1. However, amounts payable under guarantees and/or indemnities are of a different nature to common law damages. This is because the amount payable or the action required under a guarantee and/or indemnity is to be determined primarily by the terms and hence scope of the guarantee and/or indemnity. The precise terms of the contractual guarantee and/or indemnity may or may not require payment of a set amount, or require payment according to the compensatory touchstone of common law damages.
2. In Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245; [1988] HCA 11 Mason CJ said (at 254-6) (citations omitted): An indemnity is a promise by the promisor that he will keep the promisee harmless against loss as a result of entering into a transaction with a third party: Yeoman; Total Products; Davys v Buswell. In their endeavours to distinguish between a guarantee and an indemnity the courts have emphasized the difference between the guarantor's secondary liability and the indemnifier's primary liability: see, e.g., the comments of Lord Esher MR in Baynton v Morgan. There is an element of ambiguity in this distinction unless the reference to primary liability is understood to mean ultimate liability. Once default has occurred, the party having the benefit of the guarantee can call on the guarantor to honour his promise before calling on the principal contracting party to perform his obligation, but the guarantor, having honoured his promise, can hold the principal contracting party to account by virtue of the doctrine of subrogation. The distinction is also blurred by the different distinction which has been made in discussing breach of contract, notably by Lord Diplock in such cases as Lep Air Services Ltd v Rolloswin Investments Ltd (reported sub nom Moschi v Lep Air Services Ltd), between the primary and secondary obligations of a party to a contract. And, just to add to the confusion, guarantees are sometimes expressed so as to impose a primary liability on the guarantor. Because many guarantees are given in relation to the payment of debts, it is common to speak of the parties to the relationship as creditor, guarantor and principal debtor. However, the payment of a debt is but one instance of the wide range of obligations the performance of which may be made the subject of a guarantee. Just as I may guarantee the payment of a debt so I may guarantee the performance of a contractual obligation which does not involve the payment of money. So it is that a creditor's rights against a guarantor depend on the terms of the guarantee and the nature of the obligation, performance of which is guaranteed. If the subject of the guarantee is payment of a debt or a sum of money which has accrued due, the creditor may, on default by the principal debtor, sue the guarantor instead of the principal debtor for the debt or sum of money, his claim being for a liquidated amount. If, on the other hand, the subject of the guarantee is the performance of some other obligation, then the person having the benefit of the guarantee may, upon default, sue the guarantor for damages for breach of contract. … My own view of the matter accords with that expressed by Lord Reid in Moschi where his Lordship rejected the notion that there was a common rule applicable to all guarantees and acknowledged that the parties are at liberty to make such agreement as they choose. There are, however, two common classes of guarantee of the payment of instalments by the principal debtor. The first is an undertaking by the guarantor that if the debtor fails to pay an instalment he will pay. This is a conditional agreement. The guarantor's obligation to pay arises on the debtor's failure to pay. The second is an undertaking by the guarantor that the debtor will carry out his contract. Then a failure by the debtor to perform his contract puts the guarantor in breach of his.

What constitutes consideration?

1. In Coghlan v SH Lock (Australia) Ltd (1987) 8 NSWLR 88 the Privy Council observed (at 94): As to the question of consideration, Rogers J was clearly right in holding that the mere "readiness … to entertain … a request" was no consideration and their Lordships have found themselves unable to accept the reasoning of McHugh JA on this point. It is, however, entirely clear that although the mere promise to consider or entertain a request cannot of itself constitute a valuable consideration for the sureties' promise, the actual advance of money in response to a request does provide a consideration for the sureties' liability. Leaving aside for the moment the question, upon which both Rogers J and McHugh JA agreed, of what type of request is, as a matter of construction, sufficient to give rise to a guaranteed liability, Mr Bennett has submitted that the respondent's claim founders immediately on the rock of consideration for there was, he submits, no evidence of any request made either by the appellants or by Industries subsequent to the date of the guarantee for the provision of finance for Products. In so far as there was any request made by Industries, it took place prior to the execution of the guarantee and was therefore a past consideration. Their Lordships find themselves unable to accept this submission. The consideration is not to be found in the making of the request but in the accession to it and there is, in their Lordships' view, no reason why an advance of money pursuant to a request made contemporaneously with or prior to the guarantee should not constitute a good consideration for the sureties' promise to pay. The facts leave no room for doubt that the advances subsequently made to Products were pursuant to the request for a group facility made by Industries on 1 April 1982 and, subject to the question of whether those advances gave rise to a liability on Industries which is covered by the guarantee, their Lordships see no ground for saying that the guarantee was not supported by consideration.
2. In Breusch v Watts Development Division Pty Ltd (1987) 10 NSWLR 311 McHugh JA, with Hope and Glass JJA agreeing, said (at 314): The question, therefore, is whether the document of guarantee should be construed as referring to the procuring of the facility of $8 million obtained in July 1982 or to the procuring of individual advances including future advances. If part of the consideration was the procuring of future advances, then when they were obtained, they represented good consideration and supported the promise to indemnify Watts in respect of both past and future advances: White v Woodward (1848) 5 CB 810; 136 ER 1097 and Johnston v Nicholls (1845) 1 CB 251; 135 ER 535. In Coghlan v SH Lock (Australia) Ltd (1987) 8 NSWLR 88, the Judicial Committee has stated (at 94) that: "…there is … no reason why an advance of money pursuant to a request made contemporaneously with or prior to the guarantee should not constitute a good consideration for the sureties' promise to pay." Acting upon the principle, ut res magis valeat quam pereat, the courts, where possible, have invariably held that the words of a guarantee imported an executory or future consideration rather than a past or executed consideration. The decided cases proceed upon the principle that the words of a guarantee document, referring to the supply of goods or credit, are to be construed, if possible, as including the future supply of those goods or that credit. The cases also establish that, in determining whether the words of the guarantee were intended to have a future operation, it is permissible to ascertain what were the prior dealings between the parties and what was contemplated as to the future course of their dealings.

Compound or simple interest

1. In Agricultural and Rural Finance Pty Ltd v Atkinson [2010] NSWSC 1396 Einstein J said (at [129]-[134]): A contractual provision which merely prescribes that interest is to be payable at a particular percentage rate per annum, imposes an obligation to pay simple and not compound interest. That is the ordinary and natural meaning of such words as appear in clause 5.2. In Bakker v Chanbri Pty Limited (1986) 4 BPR 9234 at 9236 Young J held that unless there is a clear agreement to pay compound interest, interest is taken to be simple interest (see also TSB Developments Pty Limited v HCH & K Fisheries Pty Limited [2003] TASSC 136; Farrow Mortgage Services Pty Ltd (In Liq) v Tunevitsch Pty Ltd (1998) 8 TAS R 65; Polaris Holding Co v Airservices Australia [1997] FCA 208). It should be noted that what is required, in accordance with these authorities, is not merely "agreement" but "clear agreement". In Stein v Torella Holdings Pty Limited [2009] NSWSC 971, McLachlan AsJ cited Chitty on Contracts, 30th ed, 2008, Vol 2, p922, [38.269] for the proposition: "It is settled law that compound interest is payable either by agreement or by custom, but not otherwise". Exceptionally, by reason of a recognised custom or practice on the part of banks, compound interest is payable on bank overdrafts: see Weaver & Craigie's, The Law Relating to Banker and Customer in Australia, 3rd ed, [3.2010-2080]. A contract with a non-bank, which requires interest to be payable at the rates or on the conditions imposed by a bank may thus be construed as requiring the payment of compound interest: Saunders v Nash [1991] 2 VR 63; Morton v Elgin-Stuczynski [2008] VSCA 25. There is nothing at all in the terms of the loan documentation here under consideration to displace the ordinary meaning of clause 5.2 as prescribing interest on a simple basis and not otherwise.
2. In Stein v Torella Holdings Pty Ltd [2009] NSWSC 971 McLaughlin AsJ said (at [32]-[33] and [42]-[44]): The Plaintiff relied upon the decision of the English Court of Appeal in Re Marquis of Anglesey; Willmott v Gardner [1901] 2 Ch 548 and the decision of the Court of Appeal of the Supreme Court of Victoria in Morton v Elgin-Stuczynski [2008] VSCA 25 (22 February 2008). In that latter case Neave JA (with whom Kellam JA and Cavanough AJA agreed) said, at [27] - [28], In my opinion the words of this contract are capable of bearing the meaning that either simple or compound interest is payable. Although both counsel relied on case law in support of their submissions, a comparison of the meaning which courts have given to the words used in other contracts of loan provides little assistance in interpreting the words used in this particular contract. Whether interest is to be calculated on a simple or compound basis depends on the true construction of the contract, read in the light of surrounding circumstances. Whatever may have been the case historically, today there is no presumption that interest payable on a loan made by a private lender is to be calculated as either simple or compound interest. His Honour cited with approval the following passage from the judgment of the New Zealand Court of Appeal in Alington Group Architects Limited v Attorney-General [1998] 2 NZLR 183 at 189, The question whether the interest payable ... is to be simple or compound interest is to be approached without reference to any predisposition the Courts may have demonstrated in favour of simple interest as against compound interest. It is purely one of contractual interpretation. The agreement is to be interpreted so as to give effect to the meaning intended by the parties. Hence, any ... "presumption" in favour of simple interest is out of place in determining the meaning of the words in issue. … To the extent that the Plaintiff's claim for compound interest is grounded upon the practice of bankers, I reject that claim. As I have already observed, not only is the Plaintiff not a banker, and has never been a banker, but in his dealings with the joint venture the Plaintiff's role cannot in any way be equated to that of banker. To do so would be to disregard the essential fact that the Plaintiff himself was one of the joint venturers. He was not an independent lender. He was advancing money to an enterprise in which he had a personal financial interest, beyond and above the extent of the loan and its repayment. Further, irrespective of the truth or accuracy of the foregoing assertion in the judgment of the High Court of Australia in Hungerfords v Walker, the sentiment behind that statement cannot be substituted for the exercise of establishing, upon the facts of the present case, the terms of the agreement between the parties. Accordingly, a determination of whether the Plaintiff is entitled to compound interest or simple interest will, in the circumstances of this case, depend solely upon the terms of the agreement of the parties, without the need for resort to inferences which may be drawn from any practices in the finance or banking industry, or to general sentiments expressing subjective perceptions of fairness.

Contribution from co-sureties

1. It is settled law that persons who are under co-ordinate liabilities to make good the one loss must share the burden pro rata: Albion Insurance Co Ltd v Government Insurance Office (NSW) (1969) 121 CLR 342 at 350; [1969] HCA 55 (Kitto J). That is, guarantors for the same principal debtor and for the same debt or obligation have a common interest and a common burden, as long as if the liabilities are "of the same nature and to the same extent": Burke v LFOT Pty Ltd (2002) 209 CLR 282; [2002] HCA 17 at [15] (Gaudron ACJ and Hayne J).

Submissions in the Taouk v Assure matter (2016 Proceedings)

Mr Taouk

1. With reference to the principal judgment (particularly at [330] and [335]) Mr Taouk submits that the starting point of this assessment of quantum is that Assure has had the benefit of the expenditure of the amount claimed as damages totalling $3,266,518.44 (submissions [1]-[5]). He contends that there is no evidence to suggest that this amount represents the loss incurred by Assure (submissions [5]).
2. Further, Mr Taouk asserts that Schedule 8 clause 12 of the Development Agreement makes it clear that it was part of the agreement that the finance which would be obtained by the Developer was going to be deducted from the consideration amount of $9,550,000 (inclusive of GST) (submissions [6]). His case is that the correct interpretation of Schedule 8 of the Development Agreement is that Assure was liable to pay for the first $3,700,000 of the development and finance costs, and Mr Taouk is liable under his guarantee and indemnity only for funding costs linked to a "Default Event". He denies there was any obligation to indemnify Assure because the Developer's breach caused no loss, cost, expense or liability to Assure (supplementary submissions [1]-[9]).
3. Therefore, Mr Taouk contends the damages arising from his non-performance of the development contract is to be ascertained by comparing the position of Assure had the Developer performed the contract, with Assure's current position given the found non-performance of the contract (submissions [6]-[8]).
4. Mr Taouk submits that Assure therefore has not factored in that the breach of the Development Agreement has nevertheless provided Assure a benefit, being the release from having to pay the Consideration Amount, whilst still enjoying the benefit of a large portion of the construction work (submissions [8]).
5. Mr Taouk also criticises the invoice issued by Devlan referred to by Assure, stating that the invoice proves nothing and does not prove the work invoiced was work done to fix defects (submissions [9]). With respect to outstanding payment for equity, Mr Taouk submits that the Developer has not received any equity in the subject land, and in order "to make good this claim Assure must be willing to perform its obligations to give the equity" (submissions [10]).
6. With respect to the "funding costs" claimed by Assure as damages, Mr Taouk repeats that this issue is likewise to be determined by comparing the position of Assure had the Developer performed the contract with the current position given non-performance (submissions [11]). He further says it is insufficient to say that Assure has had to pay interest on money borrowed by it, and that this interest acts as a measure of damages. Rather, he says pursuant to Schedule 8 clause 4 the Developer was not obliged to pay interest costs and fees (submissions [12]).

Assure

1. The starting point of Assure's argument is that Mr Taouk's liability for breach of the Development Agreement and liability pursuant to his guarantee and indemnity were not successfully challenged on appeal (submissions [1]-[3]). In addition, on appeal, counsel for Mr Taouk expressly disclaimed any intention to challenge Assure's expenditure to the builder, subcontractors and to Devlan, and is thereby bound by the finding that Assure made payments of $3,266,518.14 (submissions [4]-[8]).
2. In addition, Assure claims payment of an additional $73,411 to Devlan pursuant to an invoice dated 21 February 2016 for defect rectification work, contending this amount has since been identified (submissions [9]-[12], supplementary submissions [25]-[28]).
3. Assure claims $220,000 from Mr Taouk as payment for equity in the land, as the Developer was liable for this amount, and to the extent that the Developer did not pay this amount Mr Taouk is liable as guarantor (submissions [13]-[16], supplementary submissions [29]-[30]). Assure also claims $1,748,284.14 for funding costs incurred in financing the project (submissions [17]-[23]). Assure also notes the $200,000 provided to Assure by Mr El Khoury is also a claim open on the pleadings (supplementary submissions [31]). It also claims the "Baccus loans" set out in its schedule of damages, rejecting any argument these loans are not within the scope of Mr Taouk's liability (supplementary submissions [32]-[34])
4. Assure rejects Mr Taouk's argument that if Assure borrowed money to pay for construction costs, then Assure has not suffered any loss because irrespective of who borrowed the funds, the funds would have been paid from the proceeds of sale of the townhouses (submissions in reply [7]). Assure rejects this argument on the basis that Mr Taouk was responsible for paying the construction costs, and had no right of reimbursement in respect of any contributions he and the Developer made to the project (submissions [24]-[27]). Assure denies Mr Taouk can suggest damages should be calculated by this broad compensatory principle (supplementary submissions [9]-[14]).
5. Assure rejects Mr Taouk's argument as based on the false assumption that his liability should be determined by general common law principles of loss and damage. Assure submits this is wrong because the scope of Mr Taouk's liability should correctly be determined by his guarantee and indemnity in clause 24.1 of the Development Agreement, which indemnifies for "all losses, liabilities, costs and expenses (including without limitation, legal expenses on a full indemnity basis)". Assure submits this clause invites quite a different calculation that ordinary common law damages, as the question of quantum is simply what sum ought to have been paid pursuant to the indemnity (supplementary submissions [1]-[8], submissions in reply [1]-[6]).

Submissions in the El Khoury v Harsany matter (2018 Proceedings)

Mr El Khoury

1. Mr El Khoury submits that the chronology of emails and the findings of fact in my principal judgment demonstrate that Mr El Khoury advanced $200,000 to Assure after execution and delivery of the Loan Agreement by Mr Harsany to Mr El Khoury (submissions [1]-[2]). His case is that the delivery of the signed Loan Agreement to Mr El Khoury by Mr Harsany was Mr Harsany's request that money be advanced to Assure, and the consideration was Mr El Khoury acting on the request (supplementary submissions [1]-[7]).
2. Mr El Khoury notes that Mr El Khoury in fact required execution and return of the Loan Agreement (containing Mr Harsany's guarantee) before allowing Lane & Lane to release the $200,000 to Assure. He also contends this was a precondition, and without Mr Harsany's guarantee in the Loan Agreement, the $200,000 would not have been advanced (submissions [2]).
3. Although Mr El Khoury originally submitted that the document was a deed, this was no longer pressed (submissions [5]-[6], T37/13-41). Mr El Khoury, however, denies that the obligations of guarantee under the Loan Agreement have been discharged, as Assure's failure to repay the loan is ongoing (supplementary submissions [8]-[9]).
4. As the debt has not been repaid, and interest is referred to in Item 6 of the Loan Agreement as 2% per month, Mr El Khoury asserts he is entitled to separate judgments for the same amount of $200,000 plus interest compounded monthly from the date of advance of 7 August 2012 against both Mr Harsany and Mr Taouk as joint and severable guarantors (submissions [7]-[13]). With reference to clause 4.2, which reads "interest so in arrears shall without prejudice to the right of the Lender to sue for and recover such interest and to the other rights and powers of the Lender be added to the Loan and shall thenceforth bear interest payable", Mr El Khoury states interest should be charged every month on a compounded basis (supplementary submissions [10]-[11]).

Mr Harsany

1. The primary argument put forward by Mr Harsany with respect to the $200,000 provided by Mr El Khoury is that the guarantee he entered into jointly with Mr Taouk (guaranteeing Assure's obligations under the Loan Agreement) was not supported by consideration (submissions [1]-[4]).
2. Mr Harsany contends that because the $200,000 was advanced on 27 June 2012, and the Loan Agreement was only executed on 3 August 2012 after the provision of the money, the actual guarantee in the Loan Agreement was entered into with no consideration (submissions [5]-[18]). Therefore, the provision of the $200,000 into the solicitors' account effected the creation of a trust, which is not capable of supporting a contract (supplementary submissions [1]-[16]).
3. Mr Harsany contends the "release" of the $200,000 was no consideration, because the termination of a trust cannot amount to consideration (submissions [19]-[23], supplementary submissions [17]-[22]).
4. As an alternative, Mr Harsany contends the loan was also provided purely for the purposes of a short-term bridging loan awaiting time for receipt of a development loan for Assure, which was an implicit term of the Loan Agreement (supplementary submissions [23]-[29]). As that did not eventuate, he argues the purpose of the guarantee has now been discharged (submissions [34]-[38]).
5. With respect to the interest rate, Mr Harsany notes that whilst clause 4 of the Loan Agreement refers to a "Higher Rate" and a "Lower Rate", Item 6 of the Appendix only refers to "2% per month if the fund not paid on the due date" with no rest periods, due date for instalment or arrears. Accordingly, he contends the interest rate should be 2% simple interest per month, reinforced by the background to the arrangement by way of informal bridging loan (submissions [41]-[45], supplementary submissions [30]-[38]).
6. Mr Harsany asserts Item 6 of the Loan Agreement provided interest was to be payable when the amount was "not paid on the due date" and the due date was "upon receipt of development loan" being 27 July 2013, when the development loan was obtained (principal judgment [33], supplementary submissions [39]-[44]).
7. If he is found liable, Mr Harsany would seek contribution by Mr Taouk as co-surety, as reflected in the Defence to Amended Statement of Claim at [19] (submissions [46]-[56]).

Mr El Khoury

1. Mr El Khoury swore two affidavits on 18 October 2018 and 30 October 2018.
2. In his first affidavit (18 October 2018) he largely annexed relevant contemporaneous documents and other documentation.
3. However he did state on or about 27 October 2014 that he met with Mr Harsany at 125 Cosgrove Rd and asked for the money he loaned to him. He said Mr Harsany replied by stating when the refinance was completed he would pay him the loan.
4. In his second affidavit (30 October 2018) he further attached the Loan Agreement dated 3 August 2018 and stated as at 30 October 2018 he had not received any payment or debt of the $200,000 he advanced to Mr Harsany and Mr Taouk.
5. In cross-examination Mr El Khoury said he had borrowed the $200,000 from someone else, which was AB Traders Pty Ltd managed by Ali Bahmed (T10/46-49). He said he still owed them the $200,000 plus interest and produced the loan document he had with AB Traders Pty Ltd (T11/13-39). He said during the 2016 Proceedings he was aware of this document (T12/9-10). He said he thought Mr Taouk was aware of this document when he borrowed the money, and had spoken to Mr Taouk very often about it because he wanted his money back (T12/21-25).

Mr Harsany

1. Mr Harsany swore two affidavits on 19 December 2016 and 29 October 2018
2. In his first affidavit (19 December 2016), which was before me in the original proceedings, Mr Harsany described the background to the dispute including asking Mr Taouk on 27 June 2012 to provide $200,000 in funding to the purchase of one site in the development. He said the conversation was in words to the effect: Mr Taouk: Denis, I've got the $200,000. Mr Harsany: That's great. Without it, we can't get the project going. When can you pay it in? We need it ASAP. I'm really stressed with all these delays. Mr Taouk: I've got the loan from Edmond but he wants security over the property. He doesn't feel comfortable otherwise. Mr Harsany: What? It's a loan? Mr Taouk: Yes, just until I get the development finance. Mr Harsany: But we can't give security over the property. The bank won't allow it. I thought you had got the money yourself. Can't you just borrow from him? Mr Taouk: Come on, he needs to feel safe with his money. Mr Harsany: But you're protected by the Development Agreement and you're supposed to contribute that money. Mr Taouk: I can't. I don't have any money at the moment. So poor these days, because of problems on the San Souci project. Don't worry, I will get the development finance very soon after. Mr Harsany: I guess I don't have much choice.
3. He said Mr El Khoury deposited the funds into the trust account of Lane & Lane solicitors.
4. In his second affidavit (29 October 2018) Mr Harsany set out the background to the $200,000 provided by Mr El Khoury, namely that Assure had needed to obtain bridging finance in order to complete its acquisition of the fourth lot of property at 8 Kita Avenue. He said he had a conversation on 27 June 2012 with Mr Taouk where he asked for $200,000 to be advanced to Assure, where Mr Taouk said "[y]es, just until I get the development finance".
5. He said on 2 July 2012 he received an email from Mr El Khoury which attached an unexecuted copy of the Loan Agreement and security documentation. He said prior to receiving the email he had not been informed that he was supposed to execute any guarantee. He said he signed the Loan Agreement on 3 August 2012, and received an email on that date from Mr Taouk who said he had also signed. He said he sent an email to Mr El Khoury on 3 August 2012 attaching a copy of the Loan Agreement signed by him, and later that day received an email from Mr El Khoury in which he told Mr Sephton of Lane & Lane solicitors to release $200,000 which had been paid into the firm's trust.

2016 Proceedings

1. The key controversy in the 2016 Proceedings is the quantum of Mr Taouk's liability to Assure, which was entered into for judgment at $3,266,518.14 before being overturned on appeal to give Mr Taouk the opportunity to advance any arguments he wished on quantum. Assure now has provided an updated schedule of damages seeking $5,289,893.48 (Amended Schedule).
2. On appeal, there was no issue that Mr Taouk was liable to the cross-claim. However, what remains in issue is the quantum of liability under the cross-claim.
3. In addition, what is not in issue is the legitimacy of some of the payments. In the course of argument on appeal senior counsel for Mr Taouk accepted that during the trial there was no issue concerning the amounts actually paid out by Assure (appeal judgment [148]). That is, there is no suggestion the amounts paid out by Assure were not legitimately incurred or were incurred with insufficient causal connection to the Development Agreements and the Berowra Development. However, I do note that Mr Taouk has challenged the "Baccus loans" and construction costs invoiced to Devlan in the Amended Schedule provided by Assure.
4. Nevertheless, the question is only quantum. Mr Taouk submits that because Assure has reaped the benefit of the profits of the Berowra Development, quantum should be calculated by the compensatory mechanism of comparing Assure's position had the Developer performed the contract, with its current position given its non-performance.
5. This argument is in my view misconceived. This is because it incorrectly frames the basis upon which Mr Taouk is liable to Assure. He is liable to Assure not only for breach of the Development Agreement but also liable for his breach under the terms of the guarantee and indemnity. Importantly, the guarantee and indemnity, including clause 24.1 sets out the basis for Mr Taouk's liability as requiring the payment of "all losses, liabilities, costs and expenses" in connection with: 1. The occurrence, cure and attempted cure of any Default Event; 2. Where the Developer is in default under this Agreement or any other Project Document, the administration, enforcement or attempted enforcement or preservation or attempted preservation of any rights under this Agreement or any other Project Document; and 3. Any amendment to, or any consent, approval, waiver, release or discharge of or under, this Agreement or any other Project Document.

2018 Proceedings

1. Mr Harsany's argument is that at the time the $200,000 was deposited into the account of Lane & Lane solicitors, it was subject to a trust but not subject to any agreement and not susceptible to any guarantee.
2. Mr Harsany's evidence was that Mr Taouk told him he would organise finance of $200,000, and Mr El Khoury entered the scene as it were as a "white knight" to pay the $200,000 himself, entering into his own agreement with AB Traders Pty Ltd for the money.
3. From the contemporaneous emails it is clear that although the $200,000 was placed into the account of Lane & Lane solicitors prior to Mr Harsany signing the Loan Agreement, the parties intended that the release of the $200,000 from the solicitors' account was subject to the requirements of the Loan Agreement including the guarantee.
4. Furthermore, it is reasonable to draw the inference in my view that as at the time the $200,000 was paid into the solicitors' account, it was contemplated that there would be some arrangement and conditions attached to its release.
5. The $200,000 was not paid out pursuant to some oral arrangement. On the contrary, it was clearly paid out as per the terms and conditions of the Loan Agreement signed prior to its release. The argument that the guarantee was given absent consideration is, in my view, without merit. The release of the $200,000 was clearly the consideration and had clearly been contemplated by all the relevant parties prior to its release.
6. The Loan Agreement is therefore binding upon the parties, including the guarantee of Mr Taouk and Mr Harsany.
7. There is an issue as to the interest provided for in the Loan Agreement. Clause 4 provides for a "Higher Rate" and "Lower Rate". However Item 6 of the Appendix to the Loan Agreement simply states the interest provision is "2% per month if the fund not paid on the due date". The draftsperson has clearly not made provision for two interest rates and does not specify whether interest is to be simple or compound. Likewise, clause 4.2 confusingly provides: 4.2. If any interest payable under Clause 4.1 or any interest payable on arrears of interest capitalised under this clause shall be unpaid on the due date therefore, then in every such case the interest so in arrears shall without prejudice to the right of the Lender to sue for and recover such interest and to the other rights and powers of the Lender be added to the Loan and shall thenceforth bear interest payable at the Higher Rate and at the times specified in Clause 4.1.

Conclusion

1. I will hear the parties as to the precise form of orders to be made in each case, and on the question of costs if they cannot be agreed. 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: 23 November 2018