Miric v Braams & Ors

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

MONDAY, 23 APRIL, 2001 2930/97 - Peter MIRIC - v - Garry Arnold BRAAMS & ORS. JUDGMENT 1 HIS HONOUR: These proceedings arise from events relating to the establishment of a restaurant known as the "Watermark" at Balmoral Beach, Sydney. The first defendant, Garry Arnold Braams, ("Braams") and his company, the second defendant had an association with David Codling ("Codling") the third defendant and his company, the fourth defendant in various ventures in the building industry. In late 1992 they became interested in a project which involved the completion of the building of the restaurant. That operation had stalled for want of finance and it had become possible for the defendants to obtain an interest in the head lease of the restaurant premises by dint of completing the building work. The details of this interest are not germane to the present case. It was necessary to obtain investors to provide the necessary finance for the completion of the work. There was, also, a need for the work to be completed quickly. 2 Braams and Codling established a company, Starvel Pty Limited ("Starvel") which was intended to hold the relevant share of the head lease of the restaurant premises and which was to undertake the completion of the construction work. The restaurant proprietors were to be sub-lessees. The rental paid by them would be the basis of returns to the investors. It was intended that Starvel would be the trustee of a Unit Trust and that units in the Trust would be provided to investors in numbers representing their share in the project. The Unit Trust was not, in fact, established until May 1993, after the events with which this litigation is concerned. However, it was in contemplation at the relevant time and the parties in this case understood how it was to operate and how units were to be allocated. 3 In late 1992 Braams and Codling invited the plaintiff, Peter Miric ("Miric") to become involved in the Project. There were discussions between the men which continued on into 1993. The evidence does not deal with these in any detail. It appears, however, that it was originally contemplated that Miric would make available certain properties as mortgage security for a loan of $500,000. In consideration of his so doing he was to receive 250 units in the Unit Trust. The money so borrowed was to be utilised by Braams and Codling for the purpose of purchasing units in the Trust, the purchase money being used as working capital for the building project. Miric's role, therefore, was to be one of guarantor, not principal borrower. The contemplated lender was the Beneficial Finance Corporation ("Beneficial") which was then a division of the State Bank of South Australia. In the event, after valuation of Miric's properties, that organisation was prepared to lend only $390,000. 4 The evidence indicates that in February and early March 1993 there were discussions between the parties as to how Miric could be protected in the event of default being made in the repayment of principal and interest in respect of the intended borrowing. In this period Miric was represented by a solicitor, John Peter Byrnes ("Byrnes") who was advising him generally in relation to the protection of his interests and the relevant documentation. At that point, Braams was represented by a solicitor, Ross Koffel ("Koffel"). It was accepted, for reasons that the evidence does not make clear, that Codling could not appear by name in any of the loan documents. One of the topics of discussion was the transfer of the units of Braams, Codling and their respective companies to Miric, in the event of default in the repayment of the loan so that Miric could have control over any funds coming to those units through the operation of the trust. The question of the transfer of voting rights as opposed to a transfer of the units was also under discussion. It would appear, however, that no finality had been reached in regard to these matters and, certainly, no documentation had been put in place. It had been ascertained that the terms of the proposed Trust Deed would prevent Miric from obtaining a mortgage over the other parties' units. 5 By 17 March 1993 two significant matters had arisen. In the first place it became clear that unless finance was obtained urgently and the building work recommenced, there was a serious risk that the whole project would be lost because, apparently, of some ultimatum to that effect being issued by the local Council. Secondly, Beneficial required that Miric be a borrower and not merely a guarantor. The relevant loan documents provided by Beneficial reflected this requirement. 6 On 22 March 1993 there was an unscheduled early morning meeting at Byrnes's office between Byrnes, Miric and Braams, which resulted in the necessary loan documents being executed by Miric. The conversations that occurred at this meeting are critical in this case and I shall return to them later in these reasons. It is Miric's contention that they resulted in Braams agreeing to take responsibility for the payment of both principal and interest to Beneficial in respect of the borrowing of $390,000. In other words he would provide a complete indemnity to Miric in respect of his obligations to Beneficial under the Loan Agreement. 7 The loan was duly completed on 25 March 1993 and was then drawn down by Braams and Codling. Initially Braams paid the interest when it fell due, either personally or through entities over which he had control. However, in late 1994, he ceased to make such payments with the result that Miric was required to make them, subject to some occasional contributions from Braams. After a date early in 1995 those contributions ceased and Miric alone made the payments. The loan had been for a period of four years. At the expiration of that period Miric repaid the loan to Beneficial. In these proceedings he seeks to recover both the principal sum and the interest payments that he has made together with interest on those amounts. 8 Initially, Miric made additional claims in these proceedings. Because of some arguments which had been advanced on behalf of Braams, it is necessary to set out the relevant portions of the Statement of Claim. They are to be found in paragraphs 16 and 17 which read as follows:- "16. By 25 March 1993, Miric agreed with Braams and Codling ("the Finance Agreement") to assist Braams and Codling in obtaining finance for the Company from Beneficial to enable the Company to complete the Project. PARTICULARS The Finance Agreement was partly oral, partly in writing and partly constituted by conduct. Insofar as it was oral, Miric relies on conversations between Braams, Codling and Miric in or about late February/early March 1993 and between Miric and Braams during the period 22-25 March 1993. Insofar as it was in writing, Miric relies upon a letter prepared by Maxwell Miles & Company dated 22 March 1993 and counter-signed by Braams on 23 March 1993. Insofar as it was constituted by conduct, Miric relies upon the following:- (a) (i) On 25 March 1993 Braams' solicitors sent to Miric's solicitors an unsigned letter from Braams to Miric and represented, on Braams' behalf, that Braams agreed to the terms set out in the unsigned letter; and (ii) Braams has not subsequently seemed to resile from the terms of the unsigned letter; (b) (i) on 25 March 1993 Miric's solicitors sent to Braams' solicitors a letter setting out certain terms; (ii) on 25 March 1993 Braams' solicitors orally advised Miric's solicitors that Braams agreed in principle) to the terms set out in paragraphs (a) and (c) of the said letter. 17. The following were the terms of the Finance Agreement: (a) $390,000.00 would be borrowed from Beneficial in the names of Braams and Miric; (b) Miric would execute a mortgage in favour of Beneficial over two (2) of his properties as security for the said loan; (c) in return for giving his properties as security for the said loan, Braams would procure the Trust to allot to Miric 250 units in the Trust; (d) the loan moneys would be applied by Braams and Codling as allotment moneys to the Company and/or the Trust to enable the Company and/or the Trust to complete the Project; (e) the Trust would issue 250 units in the Trust to each of Braams or his nominee and Codling or his nominee; (f) Braams and Codling would meet all of Miric's obligations to Beneficial under the loan agreement, including payment of interest and the repayment of the principal when it fell due; (g) Braams guaranteed Codling's obligations under the Finance Agreement; (h) in the event that they defaulted in meeting Miric's obligations to Beneficial under the loan, Braams and Codling or their nominees would transfer to Miric 1,000 units in the Trust." 9 It may be noted at this stage, that the plaintiff did not proceed against Codling at the hearing, the Court being informed that he had become bankrupt. Also, the claim against Codling's company, the fourth defendant, had been settled and leave to discontinue the claim against that company was granted. Consequently, the only parties involved in the hearing were Miric, Braams and Braams' company, the second defendant. Nothing turned, in the hearing, upon the distinction between Braams and his company. 10 In their defence those defendants admitted that the amounts claimed had not been paid by Braams or Codling and that the units in the Trust had not been transferred to Miric. In relation to paragraph 17 they denied "the allegations in paragraphs 17(e), (f) as to interest, (g) and (h) of the Statement of Claim." In reply to paragraph 16 they admitted "that there was an agreement between Miric, and Braams and Codling that Miric would assist them to obtain finance for the company but not that would allow the company to complete the project." 11 Application was made on behalf of the defendants to file an amended defence and cross-claim. This application was made at the hearing and was refused. Reasons for that refusal have been given in a separate judgment. 12 The apparent complexity of these pleadings was reduced by counsel for the plaintiff in his opening address. In it, he made it clear that the plaintiff relied upon a contract, consisting only of oral terms, arising from the meeting of 22 March 1993. He said that the agreement was to the effect that "Mr Braams orally agreed to accept responsibility for the loan and promised to sign a document to that effect, and it was on that basis that the documents were then signed by Mr Miric and went forward to Beneficial." He said further that the evidence would establish that there had been an agreement at the meeting, namely, "that Mr Braams will accept responsibility for the whole of the loan and would indemnify Mr Miric that (?if) he had to pay out to Beneficial." 13 Counsel went on to say that the question of "access to the units" on the evidence was "not as clear." Towards the end of the case, after the evidence was in, he abandoned any claim to an order in respect of the claim made in paragraph 17(h) of the Statement of Claim. He sought only judgment in money terms, based on the alleged agreement to indemnify Miric for monies paid by him, by way of principal and interest in respect of the Loan Agreement with Beneficial. 14 It may be noted that, in the written submissions of counsel for Braams, some point was taken as to the discrepancy between the claim formulated in paragraphs 16 and 17 of the Statement of Claim and that which was orally formulated by counsel for the plaintiff in his opening address. I am quite satisfied that no legal defence can be based upon this discrepancy. The issue was, in my view, clearly stated and no protest or claim of prejudice was made at the commencement of the hearing. It was open to counsel, having the conduct of the case, to so limit the issues for determination, there being no extension of the pleaded claims but merely a contraction of them. (Banque Commerciale S.A. v Akhil Holdings Limited (1990) 169 CLR 279 at 293, 296-7). 15 Substantially, the issues that remained after counsel for the plaintiff's opening were those defined by the portions of the statement of defence which I have cited above. The plaintiff's claim was based upon paragraphs 17 (f), (g) and (h) of the Statement of Claim and to the allegation of agreement in paragraph 16. The question of the issues arising from these paragraphs was debated from time to time in the course of the hearing, in relation to objections taken as to relevance. Because of lack of clarity in the matter, I allowed a number of questions subject to objection, for further consideration. There is no need to visit the individual objections in these reasons. I am prepared to accept that the plea to paragraph 16 of the Statement of Claim, set out above, admits that there was a concluded agreement between Miric, Braams and Codling but does not admit that it was in the terms asserted by the plaintiff. This may be a somewhat benevolent view of the paragraph, but I think it a reasonable one in the circumstances. 16 As to the issue posed in relation to the defence to paragraph 17(f), the question is more difficult. The plea only denies the allegations in 17(f) "as to interest." It thereby admits the claim for repayment of the principal amount of the loan. My re-reading of the whole of the evidence and exhibits since the conclusion of the hearing and the receipt of counsels' written submissions has caused me some concern as to whether there was not some obvious mistake in this plea. In his evidence, which was not remarkable for its clarity, Braams appears, fairly definitely, to accept that he had a primary obligation to pay the interest on the loan but disputed any obligation to pay the principal. This stance appears to be confirmed in correspondence after 25 March 1993. I can, however, put my concerns in this regard to one side as, in my view, the evidence clearly establishes that Braams undertook the obligation to pay the principal as well as the interest. This will appear from the discussion later in these reasons. I have already referred to the fact that counsel for the plaintiff ultimately abandoned any claim based upon 17(h) of the Statement of Claim. 17 I turn, then, to the evidence relating to the meeting between Byrnes, Miric and Braams on 22 March 1993. The question is, as I see it, whether, at the conclusion of that meeting, Miric had an enforceable agreement for Braams, either personally or through entities under his control or by way of guaranteeing an obligation of Codling, to provide indemnity to Miric in respect of any obligations owed by Miric to Beneficial consequent upon Miric becoming a co-borrower and mortgagor in relation to the loan of $390,000 by Beneficial to Miric and Braams. 18 The evidence in relation to this conversation was given by affidavit and orally by Byrnes and Miric on the one hand and Braams on the other. I should record that I was impressed by the evidence of Byrnes and Miric and considered them to be reliable witnesses. I did not have the same view of Braams. Indeed, whilst the evidence of Byrnes and Miric was, subject to understandable discrepancies, clear on the main issues, that of Braams was confused, somewhat incoherent, and to a degree opportunistic. I have no hesitation in accepting the evidence of the former witnesses where there was conflict with the evidence of Braams. 19 There is no purpose to be served in setting out in full the evidence. It is clearly recorded in the affidavits and oral testimony. It is sufficient, in my view, to refer to the following statement in Miric's affidavit, which is substantially corroborated in the testimony of Byrnes. The statement was made in the circumstances, which I accept, that the matter of obtaining the finance had become significantly urgent and Byrnes had not been appraised, up to that point, of the fact that Beneficial required Miric to be a borrower as well as a guarantor. The statement, in Miric's affidavit, reads as follows:- " PM: "Garry and I will be borrowing $390,000.00 from Beneficial Finance to assist funding of the Balmoral restaurant project. As you know, I'll be putting up security of my home units and I'll be issued 250 shares in the project. Garry together with David Codling will use the money to subscribe for a further 500 shares in the project. Garry and David will be responsible to pay the interest and principal to Beneficial. Garry has agreed to guarantee the full repayment of the loan and interest for himself and David. If at the end of the 4 years Garry and David do not repay the loan, I want 1,000 of their shares. In the meantime, I want a mortgage over their 1,000 shares. I must control those shares during the loan, if they default." 20 I accept that the balance of the conversation is recorded with sufficient accuracy in the following portion of Miric's affidavit, as follows:- "GB: "David wants to be left out of the documentation." JB: "Garry, that means that you'll be guaranteeing the whole loan. Are you happy with that?" GB: "Yes". JB: "I'll try to prepare the documents." GB: "We are very close to settlement; it's urgent." JB: "I can't let my client settle until the documents are in place." GB: "It's very urgent. The project needs money straight away or the Council will take the project away from us." PM: "Look, we're in this thing, we have to keep going. Garry, will you sign the documents later?" GB: "Yes, of course. We must settle the loan urgently." JB: "You realise that you will be responsible for all of the debt?" GB: "Yes." PM: "In that case, let's sign the Bank's documents and get going." JB: "If you and Garry agree to all this, we can sign the Bank's documents." GB:1 "I agree."" 21 The relevant documents of Beneficial were then signed in the presence of Byrnes and the loan was finally settled on 25 March 1993, being followed by the drawing down of the amount of $384,884.00, which allowed for some deductions made by Beneficial. 22 Byrnes was concerned that it had not been possible for appropriate documentation to be set in place recording the obligations of Braams to Miric in relation to the loan. He sought to remedy this situation by writing the following day to a solicitor whom he thought was acting for Braams. It appears that he was mistaken in this regard and, the mistake being discovered, he then sent a letter in similar terms to the solicitor, Koffel. Thereafter he wrote a series of letters, extending into 1995, to Koffel and to other solicitors that appeared to be acting for Braams from time to time. These letters, inter alia, consistently sought concurrence on the part of Braams to the agreement to indemnify reached in the meeting of 22 March 1993. There is no need to set this correspondence out. For the most part it was unanswered or quite inadequately responded to. Moreover, throughout the period there were conversations between Miric and Braams in which Braams asserted that he would honour his obligations in respect of the Beneficial loan. Also, as already indicated, he paid the appropriate amounts of interest until a time in 1994 when he ceased to do so. 23 The correspondence I have referred to makes assertions over and above the agreement of indemnification. It goes into the question of whether Miric's position should be secured by his having control over the units of Braams, Codling and their associated companies or over the voting rights associated with those units. I accept that these were matters which were probably mentioned in the meeting of 22 March 1993. Counsel for Miric has accepted that he cannot, on the evidence, ,maintain that any final agreement was reached in respect of these ancillary questions. I accept his submission, however, that failure to establish agreement in respect of these matters does not, despite submissions to the contrary on behalf of Braams, militate against the acceptance of the indemnification agreement, as being the core agreement arrived at on that day. 24 I am quite persuaded that Braams, in consideration of Miric's accepting the obligation of a borrower as well as mortgagor, agreed that he would ensure that Miric's obligations to Beneficial in relation to both principal and interest in respect of the loan agreement would be met by him or out of resources under his control; additionally he agreed that he would meet Codling's obligations in this regard, if Codling failed to do so. In this regard, it is clear that Codling has failed to make any payments of interest or principal. 25 It follows from what I have said that I am satisfied that there was a concluded agreement arising from the meeting of 22 March 1993, in these terms. It was not conditional, as submitted on behalf of Braams, upon a subsequent written agreement being entered into, although Mr Byrnes quite reasonably wished that there be a written record of it. His attempts to secure this result and to include terms intended to further protect Miric's position do not, in my opinion, affect my conclusion that the core indemnification agreement was established on 22 March 1993. Moreover, the defendants' admission in the pleadings of the existence of a concluded agreement precludes any submission that there was absence of agreement because of an unfulfilled condition that it be reduced to written form. 26 I am satisfied that Miric is entitled to judgment in the amount calculated in accordance with his counsel's submissions, which have not been disputed. The calculation produces the figure of $744,792.30, including interest to to-day. Although the defendant has achieved success on the issue relating to the transfer of units or their voting rights, I do not think that, in the overall circumstances of this case, this should prevent a full cost order being made in favour of the plaintiff. I am also satisfied that proceedings were properly commenced in the Supreme Court and that costs should be calculated in accordance with this Court's scale. 27 Accordingly, I make the following orders: 1. Judgment for the plaintiff against the First and Second Defendants in the sum of $744,792.30.

2. The First and Second Defendants pay the plaintiff's costs of the proceedings. *********************

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