Execution of the guarantees
39Mr Steven Pirintji ("Pirintji") is a solicitor who practices under the name Populaw Legal Services. In about March 2008 Michaelson had approached Pirintji, who was selected as the new lawyer for entities associated with Michaelson. The first substantial matter for which he was retained was the proposed refinance. He understood that Suzanna, Simone, Gay and Kimberley (to whom I shall refer collectively as "the female guarantors") would be guarantors for the group.
40Pirintji was asked to act for the borrowers as well as all guarantors. He formed the view that there was a potential conflict of interest between the borrowers and the guarantors and that he could only act for both groups with the informed consent of both. He initially told Michaelson or Ruskin that the female guarantors would need to get independent legal advice from another solicitor.
41From 22 May 2008 Pirintji was in contact with Mr Murray-Nobbs of Kemp Strang, solicitors acting for the Bank on the refinancing.
42In an affidavit sworn 19 October 2012, Wise gave evidence that during the evening of 14 May 2008 she prepared, with the assistance of her assistant, guarantor packs, staying at work late to get the material prepared. She says she prepared letters to be sent, amongst others, to the Michaelsons, the Ruskins, Gay and Kimberley, CPL, Mascot, Eminence, Sunlovers and Tanning. With respect to the personal guarantors, she says she made copies of documents to be included with the letters, put them in A4 envelopes, and wrote the addressees' names on them. She says she put the envelopes for Suzanna and Simone in the postal out-tray for delivery the following day. She says that she personally delivered the packages for Gay, Kimberley, Michaelson and Ruskin at Botany Road on 15 May 2008. The guarantees, which she identified as being in the pack, describe the Guaranteed agreement as "[a]greement between the debtor and us constituted by acceptance of an offer from us dated 14 May 2008 and Variation Letter dated 29 May 2008". Self-evidently, the variation letter was not in existence at 14 May 2008. Wise readily accepted this and revised her evidence, maintaining that, while she was mistaken about the date, the events she described took place, but rather on the evening of 29 May 2008 and during the day on 30 May 2008.
43The facility was varied on 29 May 2008 by including a condition that by 31 December 2008 certain proceeds to be received from the sale of City Road were to be applied to permanent debt reduction.
44In her affidavit sworn 13 July 2012, Suzanna does not deal with the question of whether she received a guarantor pack prior to 4 June 2008. In her affidavit sworn 13 July 2012, Simone says to the best of her recollection, she had not previously been provided with disclosure documents but may have been provided with them at the offices of Kemp Strang on 4 June 2008. She cannot recall. In her affidavit sworn 13 July 2012, Gay does not deal with the question of whether she received a guarantor pack prior to 4 June 2008. In her affidavit sworn 13 July 2012, Kimberley does not deal with the question of whether she received a guarantor pack prior to 4 June 2008. Under cross-examination, Kimberley agreed that she received a guarantor pack before signing, but not before 4 June 2008.
45On 4 June 2008 the following securities, all cross-collateralised, were executed in favour of the Bank:
(a)Mascot and Eminence executed guarantees and a mortgage over Botany Road;
(b)Sunlovers and Eminence executed guarantees and a mortgage over MacIntosh Street;
(c)Michaelson executed guarantees for the obligations of each of CPL (limited to $2.8 M plus interest, fees, costs and other expenses), Mascot and Eminence (limited to $2.675 M plus interest, fees, costs and other expenses), Sunlovers and Eminence (limited to $2.64 M plus interest, fees, costs and other expenses) and Tanning (limited to $350,000 plus interest, fees, costs and other expenses);
(d)Suzanna executed guarantees for the obligations of each of CPL (limited to $2.56 M plus interest, fees, costs and other expenses), Mascot and Eminence (limited to $2.56 M plus interest, fees, costs and other expenses), Sunlovers and Eminence (limited to $2.56 M plus interest, fees, costs and other expenses) and Tanning (limited to $350,000 plus interest, fees, costs and other expenses);
(e)Ruskin executed guarantees for the obligations of each of CPL (limited to $2.8 M plus interest, fees, costs and other expenses), Mascot and Eminence (limited to $2.675 M plus interest, fees, costs and other expenses), Sunlovers and Eminence (limited to $2.64 M plus interest, fees, costs and other expenses) and Tanning (limited to $350,000 plus interest, fees, costs and other expenses);
(f)Simone executed guarantees for the obligations of each of CPL (limited to $1.12 M plus interest, fees, costs and other expenses), Mascot and Eminence (limited to $1.12 M plus interest, fees, costs and other expenses), Sunlovers and Eminence (limited to $1.12 M plus interest, fees, costs and other expenses) and Tanning (limited to $350,000 plus interest, fees, costs and other expenses); and
(g)Gay executed guarantees for the obligations of each of CPL (limited to $2.8 M plus interest, fees, costs and other expenses), Mascot and Eminence (limited to $2.675 M plus interest, fees, costs and other expenses), Sunlovers and Eminence (limited to $2.64 M plus interest, fees, costs and other expenses) and Tanning (limited to $350,000 plus interest, fees, costs and other expenses; and
(h)Kimberley executed guarantees for the obligations of each of CPL (limited to $2.8 M plus interest, fees, costs and other expenses), Mascot and Eminence (limited to $2.675 M plus interest, fees, costs and other expenses), Sunlovers and Eminence (limited to $2.64 M plus interest, fees, costs and other expenses) and Tanning (limited to $350,000 plus interest, fees, costs and other expenses).
46Pirintji gave evidence that on 4 June 2008 he attended a meeting at Kemp Strang's offices, having been earlier informed that the transaction documents would be available for review by him.
47He says he was shown into a meeting room where present were Michaelson, Ruskin and the female guarantors. One of the female guarantors had a toddler in a pusher. On the table were various piles of documents, each approximately the thickness of a couple of telephone books. On the top of each pile was a covering letter from Kemp Strang addressed to the individual guarantor referring to the documents to be executed. He cannot recall the specific details of his initial conversation, but he says that he asked each female guarantor to tell him her name and her relationship to the CPL Group.
48Pirintji had with him a copy of Rule 45 of the Solicitors' Rules which concerns solicitors advising on loan or security documents. The rule says that a solicitor should advise the proposed signatory of those matters that the solicitor, in exercising the professional skill and judgment called for in the circumstances of the particular case, considers appropriate, but goes on to describe a number of matters of which a solicitor, where necessary, should advise. In evidence is a copy of the rule that Pirintji took with him, on which appears ticks made by him adjacent to individual matters stated in the rule as appropriate for advice.
49The rule also contains as Schedule 5 a form of consent by guarantors to legal advice from a solicitor after having been informed that the interests of the parties to the transaction may conflict and the solicitor may only act for more than one such party with the informed consent in writing of those parties to the solicitor acting for them.
50Pirintji says that he said words to the effect:
I can't advise any of you individually. I am acting for the companies. You need to take these documents away and see another solicitor and get advice before you sign them as there is a potential conflict of interest.
51One of the female guarantors, to the best of his recollection Gay, said words to the effect:
We can't it's urgent. We are all in the same boat. We do not want to go and seek legal advice from someone else.
52He says the other female guarantors nodded and he said words to the effect:
If you are not going to see another solicitor, I will need you to sign a form which acknowledges that you have decided to waive your right to seek independent legal advice.
53Each of the female guarantors either said words to the effect of "ok" or nodded.
54During the course of the meeting, Michaelson and Ruskin were walking in and out of the meeting often speaking on their mobile phones.
55Following the initial discussion, Pirintji sat down with Michaelson and Ruskin and ran through the documents which he understood to be relevant to them, namely, loan documents, security documents, the corporate guarantees and the guarantees given by Michaelson and Ruskin themselves. Thereafter, they signed those documents in his presence.
56He says that he then dealt with each of the female guarantors in turn, although he does not now recall in which precise order. Each in turn provided him with identification. Following identification, he sat with that female guarantor for approximately 15 to 20 minutes.
57He says that his invariable practice when advising guarantors, following identification, is to run through and explain all aspects of each individual document that he considers to be salient to their interests, particularly the risks for them that he perceives.
58Although he cannot recall the specific details of his conversation with each female guarantor, he says he ran through with each female guarantor in turn a form of document giving consent to him giving them advice. In his presence, each signed the form.
59Once each female guarantor had signed the form, in accordance with his invariable practice, he went through the salient features of the loan documents and guarantees with each female guarantor prior to each signing. At the conclusion of that process, each female guarantor signed the guarantees and related documents, including a declaration of having received independent legal advice and an acknowledgement of having received disclosure documents prior to signing.
60Simone holds degrees in education and teaching. She worked as a teacher for a short time and then in a succession of marketing and public relation roles and presently works as a marketing assistant for a coffee company. She says she had no involvement in or understanding of the commercial operations of the CPL Group. She says that Ruskin told her she needed to guarantee the new facilities and give the Bank a mortgage over their house. She says that she asked him whether the guarantee would be capped at the value of the house and that he answered that that was all they had to offer and that is all the Bank could claim back.
61She gave evidence of attending the meetings on 4 June 2008 and of Pirintji explaining to her and the others the importance and seriousness of becoming a guarantor of the obligations of the CPL Group. She says she assumed that Pirintji was acting on behalf of all guarantors. She understood that the Bank would not lend the money to the CPL Group if she did not guarantee its obligations.
62Under cross-examination she agreed that Pirintji spent around 15 to 20 minutes with her. She understood that it was an important and serious matter that she was undertaking in becoming a guarantor of the obligations of the CPL Group.
63Suzanna gave affidavit evidence that on 4 June 2008 Michaelson told her she needed to go into the city to sign some documents for the refinancing. She left Seaforth and went to an office in the city to sign the documents. She had her son Ollie with her at the time. She remembers having to wait for a while before she was taken into a large boardroom. Pirintji was sitting at one end of the table. There were piles and piles of documents on the table. Gay and Kimberley may have been there and Simone arrived later. They were not all there at the same time. Michaelson was not there. She remembers having to wait for a while before she was given a number of documents to sign.
64She says this was the first time that she had seen the documents. She understood that she would have to sign contracts as part of the refinancing and knew that the documents related to the refinancing but she could not read the documents properly as there were so many of them. She signed the documents and her signature was witnessed by Pirintji. She believes that she left and came back again at some point for a reason which she cannot now recall. She cannot recall any specific conversations that she had whilst in the boardroom or when she was signing the documents. She knew at the time that as part of the documents she was signing she was signing guarantees for the CPL Group. Whilst she now understands what a guarantee is, it was not so clear to her at the time.
65She says that at the time, she did not fully understand the limit of the guarantees and did not know the value of the loans, businesses or properties which formed part of the refinance which she was guaranteeing. She understood that she was required to sign the documents because she was Michaelson's wife, and that their home was being used as security for the refinance. She signed the documents to do with the refinance because she wanted to support her husband and she believed in the CPL Group. She did not believe it would fail.
66Under cross-examination she gave evidence that she formed the belief that there was not a significant risk associated with the guarantees having regard to what she knew about the businesses and the brands associated with them, Indio in particular. Under cross-examination she agreed that she was prepared to put at risk everything she had.
67Although she did not say so in her affidavit, under cross-examination she gave evidence that she was of the understanding that she was guaranteeing her home as security and not the full exposure of the loan because her home was all she had to offer apart from a business (in which she was the sole trader) which was worth nothing.
68She did not recall Pirintji giving specific numbers as to what the exposure was and does not know what the full amount of the exposure was.
69She denied that at any point Pirintji spoke to her one on one. It was put to her that Pirintji spoke to her on a range of matters over 15 to 20 minutes relating to her obligations and her risks under guarantees. Her response was that she did not recall.
70Gay gave affidavit evidence of working in the business of the CPL Group as an office administrator responsible for paying bills, ensuring orders were dispatched on time, paying accounts and entering data in the MYOB system.
71She gave affidavit evidence of undergoing medical treatment after mid 2009 and that she has since suffered some memory loss. She says she only recalls having to sign documents at Kemp Strang once, that she thought she was signing something for the business and understood that it had to be done fairly quickly but cannot recall the reason for any urgency.
72She had no recollection of spending time individually with Pirintji. She cannot remember meetings on 4 June 2008.
73Kimberley gave affidavit evidence of her employment history. Her roles have generally been of an administrative nature and she has not been involved in management or in substantial or complex financial transactions. She became involved in the Michaelson family business in about 1997, then known as Eminence, subsequently known as the CPL Group. She was told about the refinancing in April or May 2008 and that she needed to sign some documents in connection with it. She assumed that BankWest would provide more favourable commercial terms than the prior bank.
74As to the 4 June 2008 meeting, her affidavit evidence was that Pirintji was not acting in her interests and that his role was to obtain her signature for the refinancing of the CPL Group. She says that she thought her signature was a formality to give effect to the loan facilities for the benefit of the family business. She says that at the time she signed the guarantees no one took any steps whatsoever to explain how the guarantees worked and what the nature and effect of her obligations under them were. She says she agreed to sign the guarantees because it was for the benefit of the CPL Group which was the family business and it was needed to move forward. She totally believed in the products and the brand and did not actually believe there was a risk being a guarantor because she did not believe that the family business had any chance of failing. She says that whilst at the office of Kemp Strang on 4 June 2008, she was not offered the opportunity to obtain legal advice and did not observe her mother being afforded such an opportunity. She says that neither her mother nor her were asked by anyone whether they had received legal advice or wished to receive any and that when she signed the declarations she had not received any legal advice regarding the guarantees or the commercial terms of the facilities she had guaranteed.
75The facility was varied by letter dated 11 June 2008 signed on behalf of the CPL Group and by all guarantors on 12 June 2008 in a manner which is not material.
76On 13 June 2008 Simone executed a mortgage in favour of the Bank over Allambie Heights securing her obligations as direct borrower on the refinanced home loan and under the guarantees she had given.
77On 13 June 2008 the Michaelsons executed a mortgage in favour of the Bank over their interests in Seaforth, securing their direct obligations to the Bank under their home loan and their obligations under the guarantees given by them.