2 Broadly speaking, Mr Matouk claims that he lent the sum of $800,000 to Seabreeze in November 2005 in order to assist Seabreeze in relation to a development it was then undertaking at The Entrance and that he did so on the basis that personal guarantees were provided by each of the three directors of the company.
3 These proceedings were commenced against Seabreeze and each of the guarantors by way of a Summons and Commercial List Statement filed on 9 September 2009. Mr Beshara filed a Commercial List response denying liability, in which the Deed is described as a document "witnessing" a loan. On 19 March 2010 default judgment was entered against the first, third and fourth defendants in the sum of $1,251,915.40 (the amount verified by Mr Matouk as owing in an affidavit of debt sworn by him on 3 March 2010) plus costs.
4 Mr Beshara has raised numerous matters in defence of the claim made against him, not all of which were pressed when the matter was heard by me. For the record, I note that in his Commercial List Response, Mr Beshara has itemised his contentions, in essence, as follows:
1. that the Deed (referred to as a Deed of Agreement) "alleged to witness the loan" was not dated;
2. that the Deed "alleged to witness the loan" was not signed by all parties;
3. that Mr Beshara did not derive any benefit from the loan;
4. that there was no consideration given in respect of Mr Beshara;
5. that no notice of demand was served upon Mr Beshara;
6. that the service of notice was required as a pre-condition for the alleged guarantee to be enforceable;
7. that "there is an issue as regards the degree of contribution between the alleged co-defendants in their capacity as alleged co-sureties" with respect to apportionment of liability for the alleged debt, which is denied;
8. that the terms of the Deed are such, upon their proper construction, that the alleged guarantor does not in fact guarantee the payment to the lender of the additional sum of $500,000;
9. that all or part of the sums allegedly owed are in the nature of penalty and unenforceable;
10. that the terms of the Deed were unconscionable;
11. that Mr Beshara did not obtain independent legal advice nor independent financial advice;
12. that, on the correct interpretation of the Deed the guarantors may only guarantee the "performance" of the obligations of the company and not "payment" by the company;
13. that pursuant to the Deed of Variation dated 27 April 2007 Mr Matouk varied the Deed of loan whereby the alleged guarantee was thereby discharged; and
14. that the alleged guarantee is not enforceable at law.
5 Counsel for Mr Beshara, Mr Loukas, did not identify those parts of the contentions which were not being pressed other than by reference to his outline of submissions. However, by reference to the points raised in his outline of submissions and argued before me by way of defence, which I address later in these reasons, I understand that at least points 7 and 9 above were not pressed and that a number of the other complaints were subsumed into the five main areas of contention. Those main areas of contention were as to whether a contract had been formed (given Mr Matouk's admission that he had not read or had only barely read the document, and the lack of evidence that it had been signed; and as to whether there was sufficient consideration to support the making of an enforceable contract of guarantee); the validity or enforceability of the Deed as a deed (given its lack of execution and the fact that it was unsealed); issues as to the proper construction of the guarantee contained in the Deed; issues as to the unfairness or unconscionability of the enforcement of the guarantee; and issues as to the uncertainty of the quantum of the underlying debt.
6 In summary, for the reasons outlined below, I am of the view that the document signed by Mr Beshara in November 2005 was binding on him as a deed and could be relied on as such by Mr Matouk but that even if that had not been the case there was sufficient consideration to support its enforceability as a contract of guarantee; and that, in any event, the 2005 Deed was validly affirmed and varied by the 2007 Deed of Variation; that, properly construed, the guarantee extends to the obligation of Seabreeze both to repay the principal and interest on the loan and to its obligation to pay the Additional Moneys; and that it is not unconscionable for Mr Matouk now to seek to enforce the guarantee.
7 However, I do not consider that Mr Matouk has established the amount owing by Seabreeze under the Deed (and hence the amount recoverable under the guarantee). Mr Matouk's evidence was inconsistent and confused. I do not suggest that he was dishonest but I cannot place reliance on the very vague statements by him as to what was received by or for his benefit in respect of the loan. Unless corroborated by documentary evidence I cannot accept Mr Matouk's oral evidence as to the amounts he says are owing to him.
8 Therefore I consider it appropriate that the matter be referred to an Associate Justice to determine the amount recoverable under the guarantee.
Background facts
9 Mr Matouk has sworn a number of affidavits which were read on this application. By way of background to the claim, Mr Matouk says that he first met Mr Obeid in 1990 when the latter was performing some maintenance and paintwork on Mr Matouk's property (which I understand to be a florist shop) in Mona Vale and that he became friendly with Mr Obeid. Mr Matouk says that he first met Mr Beshara socially, through his friendship with Mr Obeid, in about 2000.
10 Mr Matouk says that in November 2005, Mr Obeid contacted him about a need for finance in respect of a development then being carried on at the Entrance. Mr Matouk says that Mr Obeid told him that the bank was about call in the debt in respect of the development; that the matter was of some urgency; and that he and his partners (Mr Beshara and Mr Jammal) were desperate and needed $800,000. Mr Matouk gave oral evidence that he had a discussion with Mr Obeid, in Mr Beshara's presence, to that effect (T 14.24). There was some confusion on the part of Mr Matouk in the witness box as to the precise sequence of events, but the upshot was that Mr Matouk says that he agreed to raise the money by mortgaging his florist shop and that Mr Obeid asked him to attend at his solicitor's office in Parramatta, which he did the following day (23 November 2005).
11 The solicitor whose office Mr Matouk attended was Mr Robert Wehbe. Mr Matouk said in the witness box that the documents had already been prepared in respect of the transaction when he attended that meeting (although the conversation to which he deposed as taking place at the meeting suggests that the terms of the arrangement were still being agreed at that stage). Mr Matouk's recollection was that there was some urgency as to the refinancing of the development project (and Mr Beshara in the witness box seemed readily to accept that there was some financial difficulty in relation to the project at that time).
12 In Mr Matouk's affidavit evidence, he deposes that the three named guarantors were in attendance at the meeting in Mr Wehbe's office. Mr Beshara adamantly denies that he was present on that occasion and there is no documentation before me which would suggest that he was. In the witness box, Mr Matouk was inconsistent as to whether or not Mr Beshara was at that meeting. At T 15.8, Mr Matouk said all of the defendants were present at the office. At T 15.11, he said he did not remember if Mr Beshara was there. At T 15.22, .25 and .40 he again said that Mr Beshara was there. At T 15.29, he said he did not remember 'every little detail' but that the three did attend to the signing of the document at the solicitor's office. At T 15.43, he said "I told you, I don't remember but I am sure, not sure, 99% he was there". Mr Beshara gave evidence with conviction that he had never attended Mr Wehbe's offices.
13 Mr Matouk also gave inconsistent evidence as to the party or parties for whom he understood Mr Wehbe to have been acting on the transaction, apparently regarding Mr Wehbe as Mr Obeid's solicitor. I think that this may have been due to some confusion on Mr Matouk's part in the witness box as to what he was being asked, in that he says that 'his' solicitor was a Mr John Ajaka at Rockdale (T 16.9) and that he went to Mr Wehbe's office in relation to the transaction at Mr Obeid's request. From that, it seemed to me that the basis for Mr Matouk's denial that Mr Wehbe was his solicitor was that he had personally previously retained Mr Ajaka as his solicitor on other matters and had not previously retained the services of Mr Wehbe, who was introduced to him in the course of this transaction by Mr Obeid. In paragraph 11 of his affidavit Mr Matouk says that at all times during the transaction Mr Wehbe acted for "all" the parties concerned including himself. It was put to Mr Matouk in cross-examination that the account Mr Matouk has given in his affidavit of the negotiation for the arrangements for the loan would suggest that Mr Wehbe was acting to some extent to look out for Mr Matouk's interests and (although Mr Matouk was reluctant to accept this) it seems to me that there is some force in that suggestion. However, I think, other than as another instance of the unreliability of Mr Matouk's recollection of events, nothing ultimately turns on this.
14 The Deed was dated 23 November 2005. The copy that is in evidence is not signed by Mr Matouk (a matter on which Mr Beshara relies). At paragraph 11 of his affidavit Mr Matouk said that he "had no time to even read the document overnight". This was another issue on which Mr Matouk gave inconsistent evidence. In the witness box he said that he did not read the document (T 17.44), then that he did (T 18.6), then that he did not go through details (T 18.9), and then that he did not read it and did not know what was written there (T18.15).
15 Mr Matouk asserted that he had signed the Deed (and other documents put before him) (T 18.18, T 19.47, T 20.1). When a call for production of the signed Deed bearing Mr Matouk's signature was made, no copy was able to be produced.
16 As to the signing of the Deed by the guarantors, Mr Matouk could not remember whether the three guarantors had signed in front of him in Mr Wehbe's office (T 19.8) but thought so, then he said he was not inside and that he was probably outside the room (T 19.8) when the Deed was signed. (In fact, the attestation of the Deed seems to have taken place in front of another solicitor, Mr Peter Doyle of Mauric & Doyle, and most likely took place in his offices, given Mr Matouk's own evidence that Mr Wehbe referred the guarantors to another solicitor for independent advice and Mr Beshara's denial that he ever attended Mr Wehbe's offices.)
17 The Deed is expressed to be signed under seal by each of Mr Beshara, Mr Jammal and Mr Obeid in the presence of a solicitor as witness, (Mr Peter Doyle). The Deed was executed for Seabreeze under the signature of Mr Beshara, as director/secretary, and Mr Jammal, as director, pursuant to s 127 of the Corporations Act 2001 (Cth).
18 The Deed (on the face of the document having been prepared by Mr Wehbe's firm) recited that Mr Matouk (defined as the lender) had agreed to grant to Seabreeze (defined as the borrower) "during his pleasure the sum of Eight hundred thousand dollars ($800,000) ("the Principal") at the interest rate of 8% per annum ("lower rate") for a period of twenty-six (26) months from the date hereof ("the due date")". The loan was thus due by 22 March 2008. The Deed went on to recite that "For the purposes of evidencing and securing such loan the Borrower and the Guarantor (defined collectively as Messrs Beshara, Jammal and Obeid) have agreed to enter into this deed." The Deed then provided, in its operative part, that it was agreed that "in consideration of the premises and of the sum of $800,000 lent to the Borrower by the Lender, the receipt of which is acknowledged the Borrower covenants with the Lender" as set out in the following clauses.
19 Interest was to be calculated at the 'lower rate' on the principal sum and payable each month by Seabreeze, the first interest instalment to be paid one month from the date of the deed (clause 1(a)), but if an interest instalment was not paid within three days of its due date, then interest at the higher of 12% per annum was payable and the principal and any unpaid interest owing and due were thereupon to become immediately repayable in full without any notice to Seabreeze (clause 1(b)).
20 Clause 2(a) obliged Seabreeze to repay to Mr Matouk the principal (or such balance as then owing) by the due date, together with any accrued interest.
21 Mr Matouk deposed in this affidavit to a discussion at the meeting with Mr Wehbe in November 2005 in which he says that Mr Obeid (in response to a question as to the interest payable which Mr Matouk attributes as having been raised by Mr Wehbe) proffered the suggestion that a payment of $500,000 would also be made to Mr Beshara "for saving this project". (That, other than the interest component, would seem to be the only commercial incentive for Mr Matouk to have entered into such an arrangement.)
22 Clause 2(b) of the Deed (consistently with Mr Obeid having agreed to the above) provided that, in addition to the principal, Seabreeze was to pay to Mr Matouk the sum of $500,000 (defined as "Additional Moneys"). No date on or by which those moneys were to be paid was specified in the Deed. However, clause 2(c) provided that, notwithstanding 2(a) and (b),
…in consideration of the Borrower repaying the Principal and Additional Moneys the Lender will deduct from the Additional Moneys the total amount of interest installments [sic] paid by the Borrower to the Lender up to and including the actual date of repayment of the Principal and, Additional Moneys.
23 Logically, if there was to be a deduction from the Additional Moneys to represent interest repaid up until the repayment of the principal sum, it could not be said that the final amount of the sum payable by way of Additional Moneys would necessarily be known at least until the due date (when repayment should, if not before, have taken place). Therefore, clause 2(c), on its proper construction would arguably not impose an obligation on Seabreeze to make payment of the Additional Moneys until the due date, though that obligation might be accelerated if it chose to make repayment of the principal sum earlier than that (a matter relevant when considering what interest was outstanding on the moneys owing by Seabreeze for the purposes of the call on the guarantee).
24 Clause 3 made provision for Seabreeze, upon request of Mr Matouk (so long as any part of the principal remained unpaid), as security for the money advanced, to execute in favour of Mr Matouk a mortgage over certain units at The Entrance (which I assume were the units the subject of the then development for which finance was required by Seabreeze).
25 Clause 6 provided as follows:
The Guarantor hereby guarantees jointly and severally the performance of the Borrower under this Deed until such time as the Principal and any interest due and payable have been repaid in full to the Lender.
26 Annexed to Mr Matouk's affidavit of 4 March 2010, were copies of various declarations signed by the directors of Seabreeze, including Mr Beshara, in their capacity as directors of Seabreeze as to the receipt of independent legal advice regarding the loan and security documents. It is clear that the potential conflict between the positions of the borrower and each of the guarantors was recognised by the solicitor from whom that legal advice was given and drawn to the attention of the relevant parties. Mr Beshara (as did Mr Obeid and Mr Jammal) signed a separate document headed "Consent by Borrower/Guarantor to Legal Advice" acknowledging that Mr Doyle had been requested to advise him regarding certain loan or security documents between Seabreeze and Mr Matouk, relating to the property at The Entrance, in company with his co-guarantors and that his solicitor had given him certain information (as to potential conflicts between the interests of the parties to the transaction), before providing the advice; and stating that he consented to his solicitor (Mr Doyle) advising him, together with the abovenamed other parties, notwithstanding the possible conflict between the interests of the parties to the transaction.
27 Also in evidence was an Acknowledgment of Legal Advice By Proposed Guarantor which was signed by Mr Beshara (separate acknowledgments being signed in similar terms by the other two guarantors), noting advice given to him by his solicitor (Mr Doyle), including advice that if Seabreeze failed to make any payment on time, he as guarantor would be liable to remedy that failure and that could involve him in payment to Mr Matouk of all amounts owed by Seabreeze to Mr Matouk including principal interest, default interest and Mr Matouk's costs of rectifying the default. The acknowledgement also noted that Mr Matouk could exercise its rights against him as guarantor even if Mr Matouk had not pursued Seabreeze. It was acknowledged in the document that, by making a statutory declaration verifying the giving of the advice, Mr Beshara was making a statement having the force of an oath which could be relied upon by Mr Matouk. The document concluded "After receiving the above advice I freely and voluntarily signed the loan documents". (This is significant in light of the evidence now given by Mr Beshara, inconsistent with that acknowledgement, to the effect that he understood that his guarantee was to do no more than to endeavour to ensure that Seabreeze complied with its obligations and the suggestion that he did not understand he could be personally liable for the whole of the debt and other moneys payable under the Deed.)
28 Although Mr Matouk was cross-examined as to the manner in which the loan funds were paid to Seabreeze, there seems no real dispute but that, pursuant to the arrangement recorded in the Deed, the sum of $800,000 was provided to or for the benefit of Seabreeze in late 2005. Unfortunately for the respective parties, it seems that the underlying transaction was not a success notwithstanding the infusion of the funds procured by Mr Matouk.
29 Although the copy Deed does not bear Mr Matouk's signature, Mr Matouk claims that he signed it, and a number of other documents on that day. Mr Matouk also says that he understood that various caveats and mortgage documents were also prepared by Mr Wehbe, although copies of those were not in evidence.
30 On 26 April 2007, a Deed of Variation was entered into between the persons recorded as being party to the initial Deed. That Deed was signed, sealed and delivered by Mr Matouk in the presence of Mr Wehbe and was signed, sealed and delivered by the respective guarantors, including Mr Beshara, in the presence of a Justice of the Peace. That Deed of Variation recited that Mr Matouk and Seabreeze had entered into a Deed of Loan dated 23 November 2005 and that the parties now wished further to vary the terms of the Deed. The operative part of the Deed of Variation obliged Mr Matouk to provide a withdrawal of caveat over the property of Seabreeze at The Entrance (providing some corroboration of Mr Matouk's recollection that caveat(s) had been drawn up by Mr Wehbe) and recorded that Seabreeze, in consideration of the withdrawal of caveat, had offered a replacement as security and consented to the lodgement of a replacement security over the property. (There is nothing to suggest whether any replacement caveat was lodged on the title but even if it had it seems likely that the bank which had financed the project would have been entitled to realise its security before Mr Matouk. Relevantly, there is no suggestion that Mr Matouk obtained any funds from the sale of the land at The Entrance.)
31 Mr Matouk has sworn inconsistent evidence as to the status of any repayment of the loan. Mr Matouk's affidavit of 4 March 2009 deposes to the fact that he received some interest payments totalling $48,084.67 but that the loan was never repaid. By affidavit on 10 November 2009, he swore that he had made numerous personal requests to the guarantors and had not received any repayment of money, and that he calculated the current sum outstanding as being $1,413,500. He asserted in paragraph 3 of that affidavit that at no time had any repayment of the principal, the Additional Moneys or interest ever been made (a statement which was belied by his earlier affidavit and from which he resiled in the witness box).
32 In his Summons, however, Mr Matouk sought repayment of the sum of $3,796,000 (which amount, in the witness box, he says was a mistake and attributes to his lawyers) and similarly in his Commercial List Statement he contended that the sum of $3,747,915.40 remained outstanding under the Deed.
33 In his evidence in court Mr Matouk accepted, variously, that the sum of about $48,000 had been paid (or received) by him, that he had received some payments of $10,000 from Mr Beshara (those being, as I understand it, included in the $48,084.67 he acknowledges receiving), and some additional payments of $1,000 each from Mr Obeid.
34 At T 6.21, Mr Matouk said:
I am paying $9,400 [a month for interest]. He [Mr Beshara] gave me $10,000 and $10,000, here and there, once in a blue moon, which is all written down.