Matouk v The Entrance Seabreeze Pty Ltd

CATCHWORDS : DEEDS - requirements for valid execution - whether plaintiff can take benefit of deed despite not reading properly or signing document - HELD - plaintiff able to rely on deed - deed validly affirmed in a subsequent deed of variation - LOAN AND GUARANTEE - whether deed constitutes a binding agreement for guarantee supported by good consideration - HELD - deed constitutes valid contract of guarantee under which guarantee extends to repayment of principal, interest and additional moneys - guarantee not contingent on notice or demand - plaintiff able to enforce guarantee against second defendant despite availability of higher remedy against first defendant - plaintiff's inability to establish exact amount remaining due under loan does not preclude recovery - matter to be referred to Associate Justice for determination of exact amount outstanding - relief not available under Contracts Review Act 1980

Contracts Review Act 1980 (NSW) Conveyancing Act 1919 (NSW) LEGISLATION CITED : Corporations Act 2001 (Cth) Duties Act 1997 (NSW) Supreme Court Rules 1970 (NSW)

Adelaide Motors v Byrne [1965] 60 DLR 2(D1) Ankar Pty Ltd v National Westminster Finance (Aust) Ltd (1987) 162 CLR 549 Aveline v Whisson (1842) 4 Man & G 801 Bell v Banks (1841) 3 Man & G 258; 133 ER British Empire Mutual Life-Assurance Co v Browne (1852) 12 CB 723; 138 ER 1088 Cherry v Heming (1848) 154 ER 1367; 4 Exch 631 Clement v Henley (1643) 2 Roll Abr 22 Clyde Industries Ltd v Dittes (unreported, NSWSC, 5 June 1992) Commercial Bank of Australia Ltd v Colonial Finance, Mortgage, Investment and Guarantee Corp Ltd (1906) 4 CLR 57 Cromwell v Grunsden (1698) 2 Salk 462 Custom Credit Corporation Limited v Simcock (unreported, Supreme Court of WA, 13 April 1995) Edwards v Skilled Engineering Pty Ltd (unreported, NSWCA, 14 March 1989) Egbert v National Crown Bank [1918] AC 903 Hancock v Williams (1942) 42 SR (NSW) 252 Lawrie v Lees (1881) 7 App Cas 19 CASES CITED : Maby v Sheperd (1622) Cro Jac 640 Morgan v Pike (1854) 14 CBNS 473; 139 ER 195 Moschi v LEP Air Services Ltd [1973] AC 331 Owen v Homan (1851) 3 Mac & G 378; 42 ER 307 Palindrome Holdings Pty Ltd v Wass [2009] NSWSC 797 R v Goddard (1703) 3 Salk 171; 2 Bl Com (14 Edn) 306 Re Taylor (1995) 130 ALR 723 Rose v Poulton (1831) 2 B & Ad 822; 109 ER 1348 S H Lock Discounts and Credits Pty Ltd v Miles [1963] VR 656 Smith v Parsmore (1883) 4 LR (NSW) 274 Stromdale and Ball Ltd v Burden [1952] 1 Ch 223 Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245; 77 ALR 205 Thoroughgood's Case (1584) 2 Co Rep 9a; 76 ER 408 Union Bank of Australia Ltd v Barry (1897) 23 VLR 505 West Head v Sprosen (1861) 6 H&N 728; 158 ER 301 Wetherell v Langston (1847) 1 Exch 634; 154 ER 269

Halsbury's Laws of Australia, online edition, Butterworths TEXTS CITED : Halsbury's Laws of England, 4th ed, Butterworths, 1975 Norton, R., A Treatise on Deeds 2nd ed, Sweet & Maxwell, 1928 Phillips and O'Donovan, The Modern Contract of Guarantee, 3rd ed, LBC Information Services, 1996

Nicholas Matouk (Plaintiff) The Entrance Seabreeze Pty Ltd (First Defendant) PARTIES : Ghattas George Beshara (Second Defendant) Joseph Jammal (Third Defendant) Fahim Obeid (Fourth Defendant)

COUNSEL : W Carney (Plaintiff) B Loukas (Second Defendant)

SOLICITORS : H K Husseini & Co (Plaintiff) Loukas & Co (Second Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

2009/298771 NICHOLAS MATOUK V THE ENTRANCE SEABREEZE PTY LTD & ORS JUDGMENT 1 HER HONOUR: In this matter the plaintiff, Mr Nicholas Matouk, seeks recovery under a guarantee given by the second defendant, Mr Ghattas George Beshara, of moneys claimed to be outstanding pursuant to a document titled a "Deed of Loan" dated 23 November 2005 and stated to be between The Entrance Seabreeze Pty Ltd (Seabreeze), as borrower, Mr Beshara and two others (Mr Joseph Jammal and Mr Fahim Obeid), as guarantors, and Mr Matouk, as lender. Although there is a dispute as to the validity of this document as a deed, for convenience I will refer to it as the Deed.

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.

and, in effect, as I understood him, said that the sums from Mr Beshara were paid by direction from Mr Beshara's company (Elma Projects) out of funds payable by the Matouk family to Mr Beshara or Elma Projects on a construction project then being carried out for Mr Matouk and his brother at Turramurra. At T 6.38, Mr Matouk said Mr Beshara had made payments in $10,000 lots "about three times"; at T 6.42 "Three or four. It wouldn't be more than that." At T 6.45, he said "… over five years he [Mr Beshara] wouldn't [pay] more than about $40,000 or $50,000". Later at T 8.29 he said "They only pay me in cheques. You have to get a copy of the cheques. They wouldn't pay more than $50,000." 35 When questioned in cross-examination, Mr Matouk also acknowledged receipt of some payments from Mr Obeid, apparently also referable to the Seabreeze loan (although that was somewhat unclear) in very small amounts - at T 26.49 he said "only little money, thousand dollars or something" and at T 27.2-14 he said that Mr Obeid had not paid much "couple of times 3 times not more". 36 Mr Matouk's evidence of the amounts which had been paid to him was vague and inconsistent, to say the least. Nevertheless, Mr Matouk was adamant (and displayed some indignation in this regard) that the position he had been in was of having to service the monthly interest payments of about $9,400 or $9,500 over the period with only nominal payments very occasionally from Mr Obeid and some $10,000 payments on a few occasions from Mr Beshara. (There was no suggestion that the payments from Mr Beshara were other than in relation to a borrowing from Mr Matouk and thus they were consistent with Mr Beshara appreciating that he had an obligation under the loan documents entered into in late 2005.) 37 Although Mr Matouk referred to the making of numerous demands for repayment of the loan, it seems that most of these were oral and made in the context that there were ongoing dealings between he and Mr Obeid/Mr Beshara in relation to a construction project in Turramurra. This is relevant in the context that there was evidence as to a more substantial repayment of the moneys owing by Seabreeze to Mr Matouk in the form of a direction by Mr Beshara's company (Elma Projects) for payment to Mr Matouk of moneys owing from Mr Matouk and other family members to Elma Projects on the Turramurra construction project. Mr Matouk accepted that Elma Projects had been engaged by him (and one or more of his brothers and one of their wives) to build residential units on property owned by the Matouks in Turramurra (T 21.31) (and that Elma is now claiming an amount owing in respect of that project.) It appears that there are presently on foot in the Consumer Trader and Tenancy Tribunal proceedings in relation to a claim by Elma Projects for moneys owing on that project in the order of $350,000. Put to Mr Matouk in cross-examination (and subsequently admitted as Exhibits 1 and 2) were copies of witness statements sworn by Mr Matouk and his brother Victor in those proceedings. 38 Mr Matouk accepted that it was Victor who was responsible for the financial management of the Turramurra project and said in his own CTTT statement that he relied on the matters in Victor's CTTT statement, and its annexures, as to the financial position relating to the project. One of those annexures (separately admitted, for convenience, as Exhibit 3) was a document purporting to be a certification by Elma Projects of payment to Mr Matouk personally (out of moneys owing to Elma Projects by the Matouks on the construction project) of the sum of $144,000. Strictly speaking, in its terms that document would seem to be a direction by Elma Projects for the payment of that amount to Mr Matouk, not a receipt as it was described during the hearing before me. In any event, the significance of this document is that Mr Matouk accepts that in the CTTT proceedings Victor has asserted this amount as a credit against the moneys claimed against the Matouks by Elma Projects (which could only be the case if there had been compliance with the direction to pay and the sum of $144,000 had been paid or credited in some fashion to Mr Matouk). 39 When taken to this document (and the following annexure, which similarly dealt with a payment of $20,000), Mr Matouk first suggested that the $144,000 included the sum of about $48,000, receipt of which had been acknowledged in one of his affidavits, (T 23.46) but then that the $20,000 was part of the $48,000 (T 26). Those two statements are inconsistent with there being separate directions in relation to payments of $144,000 and then $20,000, whatever might be the case as to how the $48,000 payment fitted in - ie whether it was additional to those two amounts or formed part of one or the other. 40 Victor's statement in the CTTT proceedings (which, as noted, Mr Matouk was readily prepared to accept as accurate as to the relevant financial position - T 33.2 and later saying "whatever is there, that is it" - T 33.6) was to the effect that a total sum of $164,000 had been paid to Mr Matouk in accordance with the written directions of the builder and its manager (Mr Obeid). There is no suggestion that there was any other debt to Mr Matouk in respect of which such sum would be paid. Yet there is no reference to this amount in Mr Matouk's affidavits. (Ultimately, Mr Matouk's Counsel, Mr Carney, indicated that Mr Matouk was prepared to proceed with the guarantee claim on the basis of a concession that the amount of $164,000 could be treated as having been received by Mr Matouk as well as the sum of around $48,000 acknowledged in his affidavit. This concession indicates the uncertainty, and in my view unreliability, of the evidence adduced by Mr Matouk in relation to the quantum of the claimed outstanding debt.) 41 There was also some uncertainty (at least in Mr Matouk's oral evidence) as to what the amount he was claiming in these proceedings actually comprised. In particular, this relates to the issue as to whether the guarantee extends to the obligation for payment of the Additional Moneys (it being contended for Mr Beshara that at most the guarantee covers the repayment of the $800,000 loan not the performance of an obligation to pay the additional $500,000). At T 11.31, T 12.10 and T 28.30, Mr Matouk said that he was claiming $800,000 plus 5 years' interest. That said, my observation of Mr Matouk in the witness box was that he was very confused in his answers and that, in so answering, he was focussing on his principal grievance (namely, that he has not been repaid the amount which he lent to Seabreeze and that he is out of pocket for the interest, adding more than once that he has lost his florist shop, his wife and his health), not that he was intending to forbear from any claim under the guarantee for the additional moneys. 42 It seemed to me that there was force in the submission by Mr Loukas that there was no clear articulation either in the pleading of the claim or in the affidavits as to how the claim under the guarantee is comprised. However, it was not ultimately suggested that Mr Matouk had waived any claim to the Additional Moneys under the Deed or the guarantee contained therein. (I consider in due course the question whether the guarantee on its proper construction extends to the Additional Moneys.) 43 Mr Matouk did not produce any bank statements or other accounts in relation to the receipt of those moneys (although he asserted that there were such documents in existence). He said that the amount outstanding had been calculated by his solicitors from the bank statements. 44 In Mr Matouk's formal affidavit of debt, sworn 3 March 2010, he claimed the sum of $1,250,915.40 (which I note was the amount entered as the judgment debt against the first, third and fourth respondents). Any mistake in the amount he had earlier claimed in the summons was one he attributed to his solicitors (T 6.50; T 8.22). Issues 45 Turning then to the issues as identified in Mr Loukas' written submissions, I set out my reasons as follows: i. Contract formation 46 Mr Loukas submits that there has not been the mutual agreement necessary for the formation of a contract of guarantee at law, in circumstances where Mr Matouk relies on a document which, on his own evidence, he had not read (or had only briefly skimmed) at the time of the making of the alleged agreement. Reference is made to paragraph 11 of Mr Matouk's affidavit of 3 March 2010 and to his evidence in the witness box to that effect. 47 There is, of course, authority that a person may be bound by the terms of an agreement he or she has signed whether or not he or she read and understood it (Thoroughgood's Case (1584) 2 Co Rep 9a, at 9b; 76 ER 408, at 409-410). Therefore, the fact that Mr Matouk did not take the trouble to read and understand the terms of the Deed would not of itself enable him to contend that he was not bound by it had he in fact executed the Deed. Here, however, there is no evidence (other than Mr Matouk's assertion in the witness box on which I do no place any weight) that he did sign the Deed. 48 Is there, in those circumstances, sufficient evidence as to the formation of a binding contract between the parties? I accept Mr Matouk's evidence that he was asked to provide a loan for the purposes of the project (since the loan would surely not have been made without a request made on behalf of Seabreeze and there is no suggestion that the money was provided by way of gift). Mr Beshara accepts that the moneys were provided for that purpose. Mr Matouk's understanding that there were to be personal guarantees from the directors of the company is consistent with the fact that they did each sign a document containing such guarantees. It is accepted that Mr Matouk made available the funds the subject of the alleged agreement and is consistent with an agreement of the kind asserted by Mr Matouk (so as to amount to evidence of part performance of that agreement). Mr Beshara's conduct in making the repayments acknowledged by Mr Matouk is consistent with there being such an agreement and with Mr Beshara having a personal obligation thereunder. The subject matter of the agreement is a commercial arrangement and one in which I would readily infer a common intent on the part of the parties that there arrangement would have contractual force. 49 There is no dispute but that Mr Beshara signed the relevant documents. He did so with the formality imposed by the requirement for independent legal advice and must have understood that this was intended to put in place a binding contractual arrangement. Mr Matouk, by his conduct in making the loan (in the knowledge that loan documentation was being put in place), appears to have left it to the solicitors to deal with the formalities of documentation of the loan agreement and to have adopted and acted in accordance with the substance of the loan agreement (and in the understanding that the guarantees contained therein were being provided). There seems to me to be the requisite mutuality of agreement (that the loan would be made, that interest would be paid and that the loan would be guaranteed), albeit with a measure of faith on Mr Matouk's part as to what precisely the documentation provided in its terms. 50 On the facts I would be prepared to find that a contract was formed, notwithstanding the apparent lack of execution of the contract document by Mr Matouk and his lack of attention to its terms. In any event, for the purposes of Mr Matouk's present claim, the issue raised by Mr Beshara as to whether a contract was formed on the terms of the Deed back in 2005 ultimately goes nowhere, in my view, since (whatever the status of the alleged agreement at that stage), it was clearly adopted and affirmed in 2007 when the parties by deed acknowledged entry into that agreement and formally varied its terms by the Deed of Variation. An estoppel by deed would arise to preclude Mr Beshara from now denying that there was a Deed of Loan entered into with Mr Matouk in November 2005.

ii. Enforceability of unsealed deed 51 A number of submissions were made in relation to the enforceability of the Deed as a deed. 52 First, it was submitted that the purported Deed was not a deed because it was not signed in accordance with s 38 of the Conveyancing Act 1919 (NSW) by Mr Matouk. In that regard, as noted above, I found Mr Matouk's evidence in the witness box to be so inconsistent as to be generally unreliable as far as any detailed recollection of what had occurred is concerned (as opposed to his broad brush understanding of what took place which in general is consistent with the documentation signed by Mr Beshara and his associates). Therefore, I cannot confidently accept Mr Matouk's assertion as to his execution of the Deed in the absence of any copy of a document bearing his signature, although there may well be a counterpart deed in existence somewhere (it seeming odd that, having gone to the trouble of putting in place formal documentation of the loan, Mr Wehbe would not have sought to ensure its completion as a matte of formality). 53 It was submitted by Mr Carney that s 38 prescribes simply the mode of execution and does not in terms require that a deed be signed. While it is true that s 38 makes provision for what amounts to sufficient signing and attestation of a deed, s 38(1) commences with the requirement that "Every deed, whether or not affecting property, shall be signed as well as sealed…". (Pursuant to s 38(3), every instrument expressed to be a deed or to be sealed, which is signed and attested in accordance with s 38, is deemed to be sealed.) 54 It is thus a statutory requirement that a deed must be signed (s 38 of the Conveyancing Act 1919 (NSW); see Stromdale and Ball Ltd v Burden [1952] 1 Ch 223, at 230 (in relation to section 73 of the Law of Property Act, 1925 (UK)); Halsbury's Laws of Australia, at [140-30] and Norton, R., A Treatise on Deeds 2nd ed, Sweet & Maxwell, 1928, at 7). 55 In contrast, I note that at common law there was no absolute requirement that a deed be signed (Maby v Sheperd (1622) Cro Jac 640; Cromwell v Grunsden (1698) 2 Salk 462, per Holt CJ; R v Goddard (1703) 3 Salk 171; 2 Bl Com (14 Edn) 306; Aveline v Whisson (1842) 4 Man & G 801; Cherry v Heming (1848) 154 ER 1367; 4 Exch 631, at 636; Lawrie v Lees (1881) 7 App Cas 19; Stromdale and Ball Ltd v Burden [1952] 1 Ch 223, at 230; Halsbury's Laws of England, 4th ed, Butterworths, 1975, at [1328]; A Treatise on Deeds, at 7). 56 In A Treatise on Deeds, the author noted that (at 7); signing is not necessary to make a deed valid as such at common law, nor contrary to Blackstone's opinion, by the statute of Frauds

(there observing that the requirement that a deed be in writing means that the terms of the deed must be in writing, not that a signature be affixed.) 57 In Stromdale v Burden, the position in England was stated as follows (at 230): Time was when the placing of the party's seal was the essence of due execution; signature was not indeed necessary to make a deed valid: (see Norton on Deeds (2nd ed., 1928), at p. 7). But with the spread of education, the signature became of importance for the authentication of documents and, since 1925, has become essential by reason of the provisions of section 73 of the Law of Property Act, 1925. Meticulous persons executing a deed may still place their finger on the wax seal or wafer on the document, but it appears to me that, at the present day, if a party signs a document bearing wax or wafer or other indication of a seal, with the intention of executing the document as a deed, that is sufficient adoption or recognition of the seal to amount to due execution as a deed. 58 Similarly, it is noted in Halsbury's Laws of England, that (at [1328]): it was regular practice for a person executing a deed to sign his name near the place where his seal was affixed as an acknowledgment that the seal was his and as a guarantee of authenticity. 59 The position now being dealt with by statute (s 38), in the absence of signature by any of the parties the document could not take effect as a deed. In the absence of signature by only one of the named parties (Mr Matouk), the document will not take effect as a deed at least for the purpose of it being contended as against Mr Matouk that he is bound thereby. However, Mr Matouk is not attempting to deny that he is bound by the Deed. (Moreover, for the reasons indicated above, nothing ultimately seems to turn on this since the Deed was ratified by entry into the April 2007 Deed of Variation which was signed by Mr Matouk.) 60 There is, nevertheless, authority indicating that a person may still be able to rely on a deed for his or her benefit, despite not having executed the deed, provided that person is named as a party to a deed (Clement v Henley (1643) 2 Roll Abr 22; Rose v Poulton (1831) 2 B & Ad 822, at 830; 109 ER 1348, at 1351; Wetherell v Langston (1847) 1 Exch 634, at 643-4; 154 ER 269, at 273-4; British Empire Mutual Life-Assurance Co v Browne (1852) 12 CB 723; 138 ER 1088; Morgan v Pike (1854) 14 CBNS 473; 139 ER 195; Edwards v Skilled Engineering Pty Ltd (unreported, NSWCA, 14 March 1989) at 4, 5 per Priestley JA). In Halsbury's Laws of Australia, at [140-190]), this is stated as follows: A party to a deed who executes the deed in accordance with the necessary formalities becomes conclusively bound by the provisions of the deed from the moment of such execution (notwithstanding that the other party or parties to the deed does not, or do not, thereafter execute the deed) and cannot thereafter resile from it or recall it. This is so whether or not the deed has come into the possession of the party intended to benefit by it, and indeed even if this party does not know of it, has or has not assented to the making of the deed. (footnotes omitted)

61 Therefore, the failure by Mr Matouk to sign the Deed (if that be the case) does not necessarily preclude his later reliance on that Deed as binding Mr Beshara, who clearly did comply with the requirements for execution of the Deed. 62 The next submission raised by Mr Loukas is that if (which I have found but only in terms of its enforceability against Mr Matouk) the Deed when executed was not enforceable as a deed, then to be enforceable as a contract it must be supported by consideration. In this regard, Mr Loukas contends that the Deed provides for a tripartite arrangement, namely a loan from Mr Matouk to Seabreeze, supported by consideration which is acknowledged by Mr Beshara (ie the making of the loan) and an alleged guarantee between the individual directors of Seabreeze and Mr Matouk, which Mr Loukas submits was not supported by additional consideration. 63 Mr Loukas relied upon the principles outlined in Phillips and O'Donovan, The Modern Contract of Guarantee, 3rd ed, LBC Information Services, 1996, to the effect that unless the contract of guarantee is under seal, it must be supported by consideration; that the onus of proof is on the party seeking to enforce the guarantee to establish that there is sufficient consideration; and that consideration for the guarantee must move from the person to whom the guarantee is given. Mr Loukas noted that, in the context of a guarantee, consideration will usually be in the form of a creditor incurring some detriment in reliance on the promise of the guarantee rather than conferring a benefit upon the guarantor. Mr Loukas submitted that it was not sufficient for consideration for the party receiving the guarantee to point to consideration supporting the making of the loan itself. He therefore submits that some additional consideration must be found. 64 I note, however, that after the passage to which my attention was drawn in Phillips and O'Donovan, the authors go on to state that "the usual form of consideration provided by the creditor is his action of entering into the principal transaction", giving by way of example the making of advances to the principal (there referring to Smith v Parsmore (1883) 4 LR (NSW) 274; S H Lock Discounts and Credits Pty Ltd v Miles [1963] VR 656; West Head v Sprosen (1861) 6 H&N 728; 158 ER 301.) It is noted that in cases where the consideration is the actual act of entry into the principal transaction, the guarantee will only become binding when the act occurs. 65 It seems to me that in circumstances where the lender (Mr Matouk) has agreed to make a loan to the borrower (Seabreeze) at the request, or for the ultimate benefit through their interest in the company, of the guarantors, then the fact that the arrangement is documented in the one deed of loan does not mean that the only consideration there evidenced is between lender and borrower and that no consideration has passed from the lender to the guarantor to support the making of the guarantee. Mr Beshara was cross-examined and conceded that the circumstances in which the loan was provided were that the development project at The Entrance was in trouble and that there needed to be a refinancing of the project (T 38.4) and that part of that refinance was the loan given by Mr Matouk (T 38.7). He said that he was not aware at that time that Mr Matouk was only prepared to lend the money on the giving of personal guarantees (T 38.11) but nevertheless accepted that Mr Matouk had lent the money to the company. He accepted that he had signed the guarantee and had signed it in front of a solicitor, Mr Doyle; he conceded that Mr Doyle had explained it to him (T 38.28) (though he insisted that Mr Doyle was not an independent legal adviser because he was the company's solicitor); while he insisted that Mr Doyle was not independent, he nevertheless understood that unless he signed the guarantee, no money would be provided by Mr Matouk to the company (T 38.47, 50) and he accepted that he understood that that was part of 'what the deal was' (T 39.3). 66 I consider that there was ample consideration for the provision by Mr Beshara of the guarantee so as to support the enforceability of the contract of guarantee (even if the Deed were not enforceable as a deed due to deficiencies in its execution) and hence the contention to the contrary fails. 67 In any event, as already noted, whatever the position as to the enforceability of the Deed (whether as a deed or as a simple contract) in late 2005, the parties expressly affirmed that document when entering into the Deed of Variation of 27 April 2007. iii. Interpretation of the terms of the deed 68 The next broad ground of attack was as to the proper interpretation of the Deed. It seemed at first to be the submission for Mr Beshara that any liability under the guarantee subsisted only for the period up to the actual date for repayment of the principal (by reference to the words in clause 6 "until such time as the Principal and any interest due and payable have been repaid") but on reflection I think that submission, properly understood, was one put as to the time at which any interest should become payable by the guarantor (assuming the guarantee was enforceable) or as part of the submission as to the unfairness of a claim for interest made on the guarantor until such time as demand had formally been made on the guarantor under the guarantee). If, however, it is the position of Mr Beshara that the guarantee subsisted only until the due date for payment (which has long since passed) then as a matter of construction of clause 6, I can see no basis for that submission. 69 Turning to the more substantive objection based on the construction of the guarantee, it was submitted for Mr Beshara that the Deed, as properly interpreted, rendered the guarantors liable only for payment of principal and interest due from the borrower, not for payment of the Additional Moneys. It also seemed to be submitted (somewhat inconsistently with and therefore presumably as an alternative to the above) that there was a distinction to be drawn between a guarantee of "performance" of obligations and a guarantee of payment of moneys (this seeming to be the basis on which Mr Beshara contends that his understanding was that he had promised no more than to endeavour to ensure that Seabreeze perform its obligations).

70 The interpretation of clause 6 in this regard is in my view clear. On its face the clause comprises a joint and several guarantee of the "performance" of Seabreeze under this deed. Therefore, to determine what the guarantors have guaranteed it is necessary to see what Seabreeze is obliged to do by way of performance under the Deed. That must, in my view, include the repayment of interest on a monthly basis and the repayment of principal and outstanding interest from the due date (or earlier once clause 1(b) has been triggered). (The triggering of 1(b) is irrelevant in circumstances where the due date is well past, other than insofar as it mandates that there be a higher rate of interest payable and that the whole of the principal then became owing (so that interest would strictly run from the initial default on the whole of the borrowed sum).) 71 Whatever be the correct calculation of the amount owing by Seabreeze, the position is that at least by the due date (if not before), if Seabreeze has not repaid in full the principal and interest thereon accrued to that date then its obligation to do so is one covered by the guarantee. 72 Further, in my view, the obligation to pay the sum of $500,000 by way of Additional Moneys provided for in clause 2(b) must have accrued at the latest (though probably only at that time) on the due date for repayment of the principal and interest and that also is covered by the guarantee (it being an obligation required to be preformed by the borrower). 73 It was submitted for Mr Beshara that the guarantor's liability to pay the principal was only activated once there was a demand (or once the principal and interest were due and payable by the borrower) and that the guarantor should not be held liable for any interest prior to the due date of repayment. I see no basis for that construction of the clause. Seabreeze was liable to make interest repayments during the course of the loan. The quantum of that interest (as it accrued due) forms part of the amount for which the guarantor is liable. There was nothing in the Deed to require the making of a demand as a condition precedent to liability arising under the guarantee contained in the Deed. (There was in evidence, I note, a copy of a letter dated 29 June 2009 making a formal demand on Seabreeze in respect of the loan which was copied to each of the guarantors demanding total amount of the debt at $1,375,000.) 74 In a related submission, it was also said that it would be unfair for the guarantor to become liable for payment of interest accruing before a formal demand on the guarantee was made.

75 Unless, on the terms of the guarantee there is a requirement for notice or for a demand to be made, it is not otherwise necessary for a demand or notice to be given before a guarantor becomes liable under a guarantee, as the guarantor's obligation to pay arises on the debtor's failure to fulfil its guaranteed obligations (Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245, at 256; 77 ALR 205; Palindrome Holdings Pty Ltd v Wass [2009] NSWSC 797, at [73]; [87]; Clyde Industries Ltd v Dittes (unreported, NSWSC, 5 June 1992); Re Taylor (1995) 130 ALR 723).

76 A guarantor's liability is co-extensive at common law with that of the principal debtor. Actual liability, in the absence of a contrary agreement, arises from the date of default by the principal debtor (Commercial Bank of Australia Ltd v Colonial Finance, Mortgage, Investment and Guarantee Corp Ltd (1906) 4 CLR 57; Union Bank of Australia Ltd v Barry (1897) 23 VLR 505).

77 Whilst some uncertainty may have arisen from the High Court's disapproval, in Sunbird Plaza, of Lord Diplock's statements in Moschi v LEP Air Services Ltd [1973] AC 331, it seems that such disapproval (as explained by Davies J in Palindrome Holdings) related only to Lord Diplock's explanation for the general principle that no notice or demand is necessary for a guarantor's liability to arise, and not to the general principle itself.

78 Specifically, in Moschi, Lord Diplock said, at 348; It is because the obligation of the guarantor is to see to it that the debtor performed his own obligations to the creditor that the guarantor is not entitled to notice from the creditor of the debtor's failure to perform an obligation which is the subject of the guarantee, and that that creditor's cause of action against the guarantor arises at the moment of the debtor's default and the limitation period then starts to run. … It follows from the legal nature of the obligation of the guarantor to which a contract of guarantee gives rise that it is not an obligation himself to pay a sum of money to the creditor, but an obligation to see to it that another person, the debtor, does something: and that the creditor's remedy for the guarantor's failure to perform it lies in damages for breach of contract only. That this was so, even where the debtor's own obligation which was the subject of the guarantee was to pay a sum of money, is clear from the fact that formerly the form of action against the guarantor which was available to the creditor was in special assumpsit and not in indebitatus assumpsit.

79 In relation to Lord Diplock's judgment, Mason CJ stated in Sunbird Plaza, (at 255); Lord Diplock stated that by the beginning of the nineteenth century the contractual promise of a guarantor to guarantee the performance by a debtor of his obligations to a creditor arising out of contract gave rise to an obligation on the part of the guarantor "to see to it that the debtor performed his own obligations to the creditor". According to his Lordship, it was because the guarantor's obligations took this form that the guarantor is not entitled to notice from the creditor of the debtor's default and that the creditor's cause of action against the guarantor arises at the moment of that default. This chain of reasoning led Lord Diplock to conclude that the obligation of the guarantor "is not an obligation himself to pay a sum of money to the creditor, but an obligation to see to it that another person, the debtor, does something; and that the creditor's remedy for the guarantor's failure to perform it lies in damages for breach of contract only". Lord Simon of Glaisdale was of the same opinion.

80 After referring to the passages of Lord Diplock's judgment, Mason CJ went on to say (at 255 - 256): It may be that as a matter of history the view that the guarantor has an obligation "to see to it" that the debtor performs his obligation explains why the guarantor is not entitled to notice of the debtor's default and why the creditor's cause of action arises on that default. But the view certainly does not accord with the nature of the guarantor's obligation as it is understood today. Rarely do guarantors have control of, or a capacity to influence, the principal debtor such that they would willingly assume an obligation to ensure that he performs his primary obligation. It is fictitious and quite unrealistic to suggest that this version of the guarantor's undertaking, rather than a promise to "answer for" the debt or default of the debtor, is the true nature of the guarantor's obligation. And it may be doubted whether that view takes sufficient account of what has been said over the years in the long line of cases on s 4 of the Statute of Frauds. The fact that at common law the creditor sued the guarantor in special assumpsit gives some support to the view that the guarantor's cause of action is for damages for breach of contract. However, the modern view that the guarantor promises to answer for the debtor's debt or default has led to the practice of suing the guarantor for the money sum which the debtor has failed to pay, a practice which may well have been adopted on the introduction of the Judicature Acts. 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. (my emphasis)

81 As Davies J concludes in Palindrome Holdings, it would seem that Mason CJ's disapproval of Lord Diplock's view goes only to the reasons or explanation for the general principle not the general principle itself (at [73], [80]). O'Donovan and Phillips, in their text, The Modern Contract of Guarantee, at 36 say on this topic (at 486-487): Is a demand necessary? A guarantor is liable upon the principal debtor's default. … There is no necessity for the creditor to make a demand upon the guarantor before enforcing the guarantee, unless the terms of the guarantee so require.

82 Thus, in Clyde Industries Ltd v Dittes, Cole J said: The obligation under a guarantee, and thus the cause of action, arise upon default of the principal debtor unless the guarantee contains a condition precedent to liability, such as the making of demand upon the guarantor. 83 Similarly, in Re Taylor, Burchett J (at 725) stated: The general rule as to whether a demand is necessary before liability attaches under a guarantee is stated in Rowlatt on the Law of Principal and Surety (4 December 1982) at p 115, as follows: 'A surety has not, unless his contract so provides, any right to require a demand to be made upon him before action. If a surety gives a bond conditioned to be void on the payment of a similar sum 'on demand', or covenants or promises to pay the principal debt 'on demand', a demand must be made upon him before he can be sued. His obligation is to pay the collateral sum, and differs from a promise to pay on demand a present debt owing by the promisor. In the latter case an action can be brought once without any other demand than the writ.'

The broad proposition, that the surety whose contract did not stipulate for notice became immediately liable when due payment was not made, is supported, with reference to a guarantee of payment under a bill of exchange, by the judgment of Lindley LJ in Barber v Mackrell (1892) 68 LT (NS) 29 at 31; see also Bank of Montreal v Hache (1982) 38 NBR (2d) 54 at 57-8; G Andrews and R Millett, Law of Guarantees (1992) p.163.

84 This was also the approach of Scott J in Custom Credit Corporation Limited v Simcock (unreported, Supreme Court of WA, 13 April 1995).

85 I therefore find that this contention raised by Mr Beshara also fails. iv. Higher remedy 86 The fourth main basis on which Mr Beshara seeks to resist the claim is by reference to the principle considered by Phillips and O'Donovan, in their text, at p 373, namely: It is a general principle that where a creditor takes a security of a higher nature than that which he already possesses for the enforcement of the obligation, his remedies on the minor security or cause of action are normally merged in the higher remedy by operation of law and are extinguished. 87 Authority for this general principle is placed on Owen v Homan (1851) 3 Mac & G 378; 42 ER 307; Bell v Banks (1841) 3 Man & G 258; 133 ER. However the example given by Phillips and O'Donovan indicates that what is there contemplated is the taking of a higher security from the party from whom the minor security was granted "thus if the creditor after the execution of the guarantee subsequently takes a higher security such as a mortgage from the guarantor, the creditor's remedies against the guarantor will be confined to those embodied in the mortgage" (my emphasis). It also noted that the general principle of merger is subject to the intentions of the parties. 88 In Owen v Homan, what was considered by the Lord Chancellor was an objection that the right of action for the original debt against the principal debtors had been extinguished by the taking a bond for the whole of the debt from one of the debtors. The Lord Chancellor noted "the general rule is clearly laid down in all the text books; … a creditor accepting a statute from a joint debtor discharged the co-debtors and … a release to one of several obligors released all the obligors …" and said: … in this case there was a debt due upon simple contract from Bowers v Harris; and for that simple-contract debt Bowers gave a specialty, and of necessary consequence a higher remedy; and if the simple contract remain, I see no reason why the creditor might not sue upon both, which I think would not be consistent with the general principles of law. 89 The Lord Chancellor noted that the bond was a distinct instrument given by one of the debtors to the creditors perfect in all its parts as a bond giving all the rights and remedies which a bond could have by law and having no terms or conditions contained limiting or restraining its effect, and said: It is a general rule of law, that a party by taking on or acquiring a security of a higher nature in legal operation than the one he already possesses, merges and extinguishes his legal remedies upon the minor security or cause of action, that is to say, the taking a bond or covenant or the acquiring a judgment for a simple contract debt, merges and extinguishes the simple contract. 90 (There, however, the Lord Chancellor also seems to have considered that the question whether the parties had succeeded in obtaining the benefit of the bond (and excluding the ordinary legal consequence extinguishing the simple contract remedy) might possibly be a question at the hearing "not unaccompanied with difficulty".) 91 It seems to me difficult to argue here that, by the borrower (Seabreeze) agreeing to provide mortgage securities to the lender (Mr Matouk), this in some way operated to merge the remedies available to Mr Matouk on the guarantees provided by the third party guarantors. Rather, the present is a case where the lender obtained security in different forms from different parties and there is no reason (subject to there being no recovery of more than the amount due) for Mr Matouk not to enforce those securities as he chooses. v. Contribution 92 There was a point of contention raised as regards the degree of contribution between the alleged co-defendants in their capacity as alleged co-sureties in respect to apportionment of liability for the debt. This was not argued before me. It was conceded by Mr Loukas that this was raised in contemplation that there might have been a cross-claim against the remaining defendants, which cross-claim has not been pursued due to the circumstances of the defendants. It is therefore not necessary for me to consider this issue.

vi. Quantum 93 It was noted that the amount allegedly owing had not been particularised and that it appeared (across the pleadings and affidavits) in substantially different amounts. I have outlined above the varying figures put on the amount claimed by Mr Matouk in this regard.

94 Mr Carney accepts that it could be found that Mr Matouk had received a total of $215,000 (being $164,000 paid to Mr Matouk or otherwise for his benefit by way of a credit in the ongoing building dispute, plus the sum of $48,084 which Mr Matouk in his affidavit acknowledged he had received and which he says was deposited into his bank account in miscellaneous amounts, and an amount of approximately $3,000 from Mr Obeid in monthly payments). It was also submitted by Mr Carney that (in circumstances where the actual date of the repayments was not known), Mr Matouk would press for no more interest than would be payable on the assumption that there had been an immediate repayment of the full amount of that sum of $215,000 on the date of making of the loan, such that interest would only run on the sum of $800,000 less the $215,000 from the date on which the loan was made. 95 In relation to the Additional Moneys, there is an issue as to when those moneys were payable. Logically, they cannot be finally quantified until actual repayment of the principal sum, therefore the earliest date at which (absent a triggering of clause 1(b)) the Additional Moneys could have been assumed, as at the entry into the Deed, to have become due and payable must have been to the due date for payment of the loan. What the arrangement contemplated was that on the repayment of the principal, there would be account taken of the amount paid by way of interest instalments on the loan to that date. It seems to me that there is some uncertainty as to the date on which the additional payment was to be made but that it can reasonably be assumed that as the principal sum was to be paid, if not before, on the due date for repayment of the principal (ie, 26 months from 23 November 2005), that was the date on which the Additional Moneys would also become payable (and therefore that interest on that particular sum would only be payable from that date). 96 It does not seem to me that it is a satisfactory answer to the concerns legitimately raised by Mr Beshara in relation to the quantum of the interest repayments which have been made over the period for Mr Matouk simply to assert, in effect, that it is sufficient for the court to proceed on the assumption that no more than the amounts conceded in cross-examination have been or may have been received over the period in repayment of the loan, particularly where it cannot be said to be a matter necessarily within the knowledge of Mr Beshara as to what sums may or may not have been paid by Mr Obeid or Mr Jammal over the period in question. (Mr Matouk was adamant, I note, that there had been no amounts paid by Mr Jammal in that period). It is for Mr Matouk to prove on the balance of probabilities what amounts are outstanding under the Deed. In circumstances where Mr Matouk's evidence was wildly contradictory in that regard, I cannot accept his assertions as to what is owing without corroboration from admissible evidence. Mr Matouk was adamant that there would be bank records of deposits but none was in evidence. It may be that there was no anticipation on his or his lawyers' part that there would be a challenge in this regard but if so he or they were sorely mistaken. Mr Beshara was entitled to put Mr Matouk to proof of the amounts he claims are owing and payable under the guarantee and did so. I am not satisfied that Mr Matouk has adequately established the position in that regard. vii. Miscellaneous other allegations 97 In the contentions contained in the Commercial List response, there was a suggestion that the Deed of Variation had operated to vary the Deed and had thereby discharge the alleged guarantee. It is not clear whether this was ultimately pressed. If it were to be still pressed, then I note that while there are circumstances where a variation of an indemnity in respect of a loan agreement may operate to discharge the guarantor, I do not consider this to be such a case.

98 The general scope of the rule is that the guarantor is liable only for the obligations which he or she has guaranteed and therefore that if the principal and the creditor, without the guarantor's consent, agree between themselves to alter the nature of the principal obligation, then the guarantor is discharged because the obligation in its altered form is not that which he or she has guaranteed (Hancock v Williams (1942) 42 SR (NSW) 252; Ankar Pty Ltd v National Westminster Finance (Aust) Ltd (1987) 162 CLR 549, at 558-559. In those circumstances to hold the surety to its bargain the creditor must show that the nature of the alteration can be beneficial to the surety or that by its nature it cannot in any circumstances increase the surety's risk. 99 The Deed of Variation did not waive or affect any rights in relation to the guarantee, and in any event it was consented to by Mr Beshara. Therefore, I see no room in this case for the operation of the rule that a variation of the principal contract may in certain circumstances discharge the guarantor.

100 I note that it has been said that the guarantor will only be discharged from his obligation to guarantee the original loan if the subsequent loan agreement expressly or impliedly amounts to a rescission of the original agreement (see Phillips and O'Donovan, at p 295, citing Adelaide Motors v Byrne [1965] 60 DLR 2(D1)). 101 Reliance was placed by Mr Carney on Egbert v National Crown Bank [1918] AC 903 for the proposition that a variation which does not alter the original deed in the amount of the debt and on which the parties and all operative provisions remain the same, and are expressed on the face of the variation, save for the requirements of certain caveats over certain properties would not discharge the original deed and its guarantees (and in any event all the guarantors agreed to the variation). 102 I accept Mr Carney's submission that the Deed of Variation not only did not discharge the guarantee contained in the Deed itself but operated to affirm that guarantee. viii. Contracts Review Act/Unconscionability 103 Finally, there was a submission based (although not articulated in the contentions as such) on the Contracts Review Act 1980 (NSW). It was submitted that the terms of the Deed were unconscionable and that the guarantee was unenforceable. 104 Under the Contracts Review Act the court may grant relief in respect of unjust contracts where the court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made. Mr Beshara gave evidence that his understanding of the document was that his duties as guarantor were "to include guaranteeing the best endeavours of the first defendant in the performance of their duties including allowing the plaintiff to secure additional mortgages over the remaining units if they require such security". He says that he was not aware of the financial circumstances of the third and fourth defendants (Messrs Jammal and Obeid). It was suggested that there was some fraud operating as between the various defendants such that it was unfair for him to be held liable (given his understanding of the document). 105 There is nothing to suggest that Mr Matouk was in any way implicated in any of those matters of dispute as between Mr Beshara and his co-guarantors. Further, it cannot in my view be said that Mr Beshara obtained no benefit from the transaction when the loan assisted the company of which he was director to continue with the project and thus preserve for some further time the prospect that the company might profit from the development. 106 On the face of the Deed, this is a commercial transaction with no evidence of any unconscionable conduct. The mere fact that Mr Beshara asserts that he did not understand what he was agreeing to do does not in my view render it unjust, absent any relevant conduct on the part of Mr Matouk, for Mr Matouk to enforce the agreement. 107 The matters to which the court is to have regard in determining whether a contract is unjust include whether there was any material inequality in bargaining power; whether or not the contract provisions were the subject of negotiations; whether or not it was reasonably practicable for the parties seeking relief to negotiate for the alteration of any of the provisions of the contract; whether or not the provisions of the contract imposed conditions which were reasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract and the like. Reliance was particularly placed on the factors itemised in sub-ss9(2)(g), (h) and (i) - the physical form of the contract and the intelligibility of the language on which it is expressed; whether or not and when independent legal or other expert advice was obtained by the parties seeking relief under the Contracts Review Act; and the extent, if any, to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the parties seeking relief and whether or not that party understood the provisions and their effect. 108 Here, a solicitor independent of the party to whom the guarantee was provided (albeit a solicitor acting also for the borrower on earlier aspects of the transaction not in relation to this particular loan), gave advice to Mr Beshara. Mr Beshara attested to this by signing the declaration - both as to his understanding of the documents and as to what had been explained to him. He attested to the fact that no independent financial advice had been provided to him and that he freely and voluntarily entered into the transaction. It makes a mockery of the purpose for which independent solicitors' certificates are relied upon in financial transactions for Mr Beshara now to say that none of the advice which he acknowledged receiving had been provided to him (or, more precisely, to assert that it was not independent). Mr Beshara knew (because he acknowledged expressly that this was the case) that Mr Matouk would be relying on the acknowledgement he would be providing and that it had the force of an oath. 109 It seems to me that there is nothing as between Mr Matouk and Mr Beshara to make it unjust for Mr Matouk now to rely on the terms of the documents as signed. The fact that Seabreeze (the company of which Mr Beshara was a director) has had the benefit of the moneys advanced and the consequences as between the different defendants of their respective financial positions, while unfortunate for Mr Beshara as things have turned out, are not matters for which it is suggested that Mr Matouk has any responsibility nor are they matters which suggest that as between Mr Matouk and Mr Beshara the former should bear the ultimate loss.

110 I find that Mr Beshara is liable as guarantor to Mr Matouk for such amount as is presently outstanding by way of principal and interest on the principal sum of $800,000 lent to The Entrance Seabreeze Pty Limited on or about 23 November 2005 in accordance with the Deed, together with the sum of $500,000 (as Additional Moneys payable under the Deed) less any amounts received by way of interest on the principal sum in the period to the due date for repayment of the principal sum, and together with interest on those amounts from the due date for repayment of the principal sum. I propose to make a declaration to that effect. 111 For the purpose of ascertaining the actual amount recoverable, however, I consider that it would be appropriate for the matter to be referred to an Associate Justice of this Court. 112 Accordingly the orders I make are as follows:

1. Declare that Mr Beshara is liable as guarantor to Mr Matouk for such amount as is presently outstanding by way of principal and interest on the sum of $800,000 ("principal sum") lent to The Entrance Seabreeze Pty Limited on or about 23 November 2005, such interest to be calculated in accordance with the Deed of Loan of that date, together with the sum of $500,000 (as Additional Moneys payable under the Deed) less any amounts received by Mr Matouk way of interest on the principal sum in the period from 23 November 2005 to 22 March 2008 on the principal sum. 2. Order that the matter be referred to an Associate Justice for determination of the amount payable by Mr Beshara in accordance with the above declaration. 3. Order Mr Beshara to pay to Mr Matouk such amount as is determined by the Associate Justice to be owing in accordance with the above orders within 28 days of the Associate Justice's determination and that interest calculated at court rates be payable on the outstanding sum thereafter.

113 I will hear Counsel as to any submissions on costs, including costs of the referral to the Associate Justice. **********

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