Pickham v Binary Engineering Pty Ltd

Judgment

1. MACFARLAN JA: I agree with Barrett AJA.
2. WARD JA: I agree with Barrett AJA.
3. BARRETT AJA: This appeal concerns a loan of $400,000 made on 30 December 2010. It was not (and is not) in dispute that the loan was made at that time to AJBCA Pty Ltd ("AJBCA").
4. In proceedings commenced in 2016, the District Court was called upon to determine the identity of the lender and the liability of an alleged guarantor. Her Honour Judge Olsson held that the lender was the present respondent (Binary Engineering Pty Ltd) and that the appellant (Anthony Geoffrey Pickham) had guaranteed due and punctual payment of principal and interest. The District Court proceedings were maintained against the alleged guarantor alone after all of AJBCA and two companies for which it had purported to act as agent in making the borrowing (Pickham Services Pty Ltd and TMA Corporate Enterprises Pty Ltd) had become subject to winding up.
5. On 19 June 2017, the primary judge ordered judgment in favour of the respondent against the appellant, as guarantor, in the sum of $400,000 plus interest of $189,000 up to the date of judgment.
6. The background facts may be briefly stated. The appellant was, at material times, a chartered accountant in private practice. In late 2010, he and Troy Apps were partners in an accountancy firm based in the Wollongong area and held, through trusts, interests of 70 per cent and 30 per cent respectively in that firm. They had agreed to buy out two departing partners (Bartlett and Cachia) as of 31 December 2010 and needed to raise cash quickly to make payments on that date. John Reay, a client of the appellant's of some ten years standing, was a successful businessman with whose financial affairs the appellant was intimately familiar. Some time before Christmas 2010, the appellant (apparently unconstrained by strict rules of the kind that bind solicitors) telephoned Mr Reay and asked if he could help by making short-term loan funds available pending the obtaining of bank finance. It is not in dispute that Mr Reay eventually agreed to the proposal and arranged for the required funds to be paid to AJBCA on 30 December 2010. Bank records in evidence establish the date.
7. The liability of the appellant as guarantor was said by the respondent to arise from a provision of a written loan agreement (which is undated) entered into at the time the loan funds were advanced. It is unnecessary to say much about the content of the agreement. The principal sum of $400,000, the loan term of "six weeks from settlement date" and the interest rate are recorded. "Settlement date" is defined as 31 December 2010. Under a heading "Security arrangements", there is reference to a charge over "all the units" in a particular unit trust (which units are described as held by Ablackein Investments Pty Ltd as trustee of a named trust) and then: "Additional security is provided in the form of a personal guarantee provided by Anthony Pickham for the balance of any debt unpaid by AJBCA Pty Limited".
8. The agreement is apparently executed by or on behalf of all of the respondent (as lender), AJBCA (as borrower), Pickham Services Pty Ltd (one of the companies for which AJBCA is said to contract "as agent"), TMA Corporate Enterprises Pty Ltd (the other company by which AJBCA is said to contract "as agent"), Ablackein Investments Pty Ltd (the holder of the trust units the subject of the charge) and the appellant himself (he being, of course, the giver of the "personal guarantees").
9. No point was taken about any aspect of the execution of the document. The appellant maintained, however, that the preparation and execution of the agreement occurred "a few months" after 4 January 2011 (when payment was made to Bartlett and Cachia). Mr Reay's evidence was that the agreement was signed on 29 or 30 December 2010, before the loan was made.
10. The primary judge found that the agreement had been entered into at the time stated by Mr Reay. Although the notice of appeal in its original form mounted an attack on various aspects of her Honour's fact finding, counsel for the appellant ultimately tendered only one issue for determination by this Court, namely, the correctness of the primary judge's conclusion as to the time of creation and execution of the loan agreement. This was on the basis that, if the agreement was not created and executed when the loan was made (or shortly beforehand) but at the later time alleged by the appellant, there was allegedly no consideration for the appellant's guarantee incorporated in it.
11. At the centre of the appeal, therefore, are credibility issues. There were three witnesses of fact: Mr Reay, the appellant and the appellant's partner in the accountancy practice, Mr Apps. [1] As will be seen, the primary judge had reservations about all three witnesses. Her Honour found Mr Apps' evidence essentially unhelpful and preferred Mr Reay's account to that of the appellant. Those assessments played a large part in the decision that the agreement had been made on or about 30 December 2010 and that the appellant was liable as guarantor.
12. The primary judge was confronted by conflicting evidence about the provenance of the loan agreement and the circumstances and timing of its execution. It is to that evidence that I now turn.
13. Mr Reay's affidavit evidence was that it was in the lead-up to Christmas 2010 that the appellant told him that he had an urgent need for funds and asked about a short term loan. Mr Reay's immediate reply was to the effect that he would "get back" to the appellant (Mr Reay explained in oral evidence that this was, in effect, a polite way of saying "No", and that he hoped that the appellant would not raise the matter again). However, conversation on the subject was renewed by the appellant and a consensus was reached (reluctantly, on Mr Reay's part). Mr Reay said in his affidavit that, on or about 29 December 2010, the appellant, when discussing on the telephone the loan about to be made, said, "I'll organise a legally binding document and have it ready to be signed". Mr Reay further said that he went to the appellant's office later the same day and the appellant handed him the document. He read the document in the appellant's presence and noted that "the guarantee and document was [sic] signed by all parties except me". He signed two copies and took one away with him.
14. According to what Mr Reay says he was told by the appellant, the agreement had been prepared at very short notice by a lawyer who owed the appellant a favour. It was in that way that it came to be available for signing on or about 30 December 2010. Mr Reay also testified that the appellant, Mr Reay and Mr Apps were present together when the agreement was signed on that occasion. The appellant's wife was not present. The document had been signed by her at some earlier time.
15. As to the appellant's understanding that he was not (and was not to be) a guarantor, Mr Reay said that "he verbally on the phone sweetened and persuaded me to commit to that loan by offering a personal guarantee at the time on the phone and again verbally at the time I signed that document and it was written into the document". In response to the proposition that the appellant's initial approach to him did not involve a guarantee, Mr Reay agreed but said that that element had been articulated at a later point in the short negotiation culminating in the signing of the agreement and advance of the loan.
16. It was put to Mr Reay in cross-examination that Mr Apps had not been present at a meeting on or about 29 December 2010. Mr Reay accepted this possibility, explaining that he may have extrapolated inaccurately from the fact of Mr Apps's signature on the document.
17. As to the marshalling of the necessary funds at short notice, Mr Reay gave evidence of having attended personally at the Bendigo Bank to make the necessary arrangements. These included breaking a term deposit (with resultant foregone interest and other costs) and ensuring that sufficient funds were in an operating account of Huon Engineering (another company controlled by Mr Reay), from which they were transferred to AJBCA's account with the Commonwealth Bank in accordance with an electronic funds transfer direction signed by Mr Reay for Huon Engineering.
18. Mr Reay also gave evidence of his attempts, from about June 2011, to obtain from the appellant some assurance about when the 60-day loan would be repaid. These attempts continued for more than three years. The appellant continued to reassure Mr Reay that all would be well. After sale of the accountancy practice to Kelly & Partners had been arranged, the appellant said that it was only a matter of waiting for funds from that source.
19. I turn to the appellant's affidavit evidence. He deposed that that the loan was made in December 2010 without documentation and that the question of a written agreement first arose some months into 2011 (perhaps around June) when it was raised by Mr Apps. The appellant's evidence was that, in the context of discussion about various financing matters, Mr Apps referred to the $400,000 loan and said, "we should document this". The applicant further deposed that, at a meeting held soon afterwards and attended by him, Mr Reay and Mr Apps, the form of the loan agreement was produced by Mr Apps. The appellant says that the document had been prepared by Mr Apps and that he had not himself had any input into it; also, that it did not reflect the terms of the loan. Yet strangely, he signed both for himself and for the companies AJBCA and Pickham Services. According to his affidavit, he "felt a little pressured to sign" and did not consider that he was giving a personal guarantee because there was no guarantee clause in the document and he was not described as the guarantor in the execution clause.
20. In the course of his oral evidence, the appellant accepted that the precise identity of the lender was not discussed during conversations he had with Mr Reay before the loan was made. He also testified that Mr Reay had agreed that the money would be provided "without any form of interest" and "with no security at all" (he said that he "distinctly remembered" Mr Reay using the latter words). He denied that he had indicated to Mr Reay that a binding document would be entered into.
21. Mr Apps gave evidence in the plaintiff's case, that is, for the present respondent, not his business partner, the appellant. His affidavit made no reference to the signing of the loan agreement or any meeting in late December 2010 as described by Mr Reay. He deposed that he first met Mr Reay in about August 2014. In his oral evidence, however, Mr Apps accepted that, contrary to his affidavit evidence, he may have met Mr Reay before August 2014. He did not specifically recall a meeting in the last few days of December 2010 and was unsure whether he was available to attend the office during that holiday period. As to the proposition that he had said some time in mid-2011 that the $400,000 loan should be documented (a statement attributed to him by the appellant), Mr Apps said in cross-examination: "I would not be surprised if I did say that if the loan had been provided and wasn't documented, and I'm not sure whether that was the point in time whether there was that sort of statement."
22. Mr Apps went on to say that the loan agreement looked like "a template that we had available on our office system" and that there was "a good chance" that he "may have either provided or pre-filled the document". He doubted that it had been provided to the appellant by a solicitor. He doubted that it was he who had prepared the document, without input from the appellant, but accepted that he and the appellant had discussed the loan. Mr Apps did not have a copy of the loan agreement until receiving one from Mr Reay in November 2014.
23. Mr Apps's evidence threw virtually no light on any matter in issue. That left the primary judge with the fundamental conflict between Mr Reay's evidence and that of the appellant. Key to her Honour's resolution of that conflict are the following parts of her reasons: 1. Mr Reay was "not a particularly impressive witness". He continually gave "lengthy and unresponsive answers in cross examination "apparently designed to advance or reinforce his case". 2. Mr Reay downplayed his knowledge of accounting practices when in fact he understood the purposes for which the several companies he owned had been created. 3. The appellant was "a most unimpressive witness". On certain crucial aspects of the matter "he was not truthful". 4. "Taking all that evidence into account and in line with the assessment I have made with the credibility of the witnesses, I draw the inference that it is more likely or more probable than not that the loan agreement was signed and assets pledged prior to the advance rather than many months later as the defendant asserts." 5. The evidence of Mr Reay was to be preferred where it conflicted with that of the appellant; and the objective evidence also supported the respondent.
24. The primary judge undertook a careful analysis of the evidence of the appellant and that of Mr Reay and isolated a number of matters taken into account in reaching the conclusion that Mr Reay's evidence was to be preferred where it conflicted with that of the appellant. It is necessary to examine that analysis.
25. One matter to which the adverse assessment of the appellant's credibility related was his evidence to the effect that he knew, at the time the loan agreement was made, that the supposed security over trust units held by Ablackein Investments Pty Ltd was virtually worthless because of encumbrances to which underlying real property was subject and that any guarantee by him was likewise virtually worthless because all assets of any value were owned by his wife or housed in trusts. He put this forward in cross-examination as a reason why there should be no finding that he had agreed to give a guarantee. The primary judge did not accept that proposition, taking the view that the matter in truth reflected adversely on his probity. That assessment was clearly open.
26. The primary judge gave particular attention to certain draft documents created in the period December 2014 to January 2015. Her Honour regarded the appellant's conduct in relation to the draft documents as particularly damaging to his credibility. By the period in question, the 60-day loan had been outstanding for some four years. Mr Reay's inquiries of the appellant over the years about when payment would be made were routinely met by statements that all would be well, particularly when the appellant received funds in consequence of the sale of the accountancy practice to Kelly & Partners.
27. One of the draft documents submitted by the appellant to Mr Reay in the period mentioned was a form of deed entitled "Deed of Release and Variation of Loan Agreement" which had been prepared by a firm of solicitors in Sydney. The parties were the respondent, AJBCA, Pickham Services and TMA Corporate Enterprises. The deed began by reciting the pre-existing $400,000 loan by the respondent to AJBCA. A copy of the loan agreement itself was annexed by way of identification. The deed then recited that the respondent had agreed to release TMA Corporate Services from its obligations in respect of the loan and that the respondent, Pickham Services and TMA Corporate Services had agreed to amend the loan agreement. The operative clauses of the draft deed recorded an agreement of all parties to "amend" the loan agreement by causing "the borrower", as defined therein, to be Pickham Services alone and an agreement of the respondent to release and discharge TMA Corporate Services from all its obligations under the agreement. Certain warranties were given by Pickham Services to TMA Corporate Services. This form of deed was never executed.
28. Another form of deed was prepared at around the same time by the same solicitors on the instructions of the appellant. It too was never executed. The parties are the appellant and Mr Reay. It is unnecessary to refer to all the provisions. It is sufficient to note that the deed purported to set out terms on which Mr Reay had, in the past, made a loan of $400,000 to the appellant. These included that there was to be no interest, that the debt was payable solely from moneys generated by certain trust distributions, a loan to a Mr Nehme and the obligation of Kelly & Partners in respect of the purchase of the accountancy practice; and that the liability of the appellant for the $400,000 loan was limited to those proceeds. A third unexecuted document was a loan agreement between Mr Nehme as lender and the appellant as borrower.
29. The appellant submitted the draft documents to Mr Reay and, on 6 January 2015, emailed him expressing a wish that the documents be finalised "so we are on top of everything". Mr Reay demurred. He replied by email of 8 January 2015: "We already have a document that we all signed about four years ago, I guess a [sic] this point I still consider that a binding agreement".
30. The appellant's response of 11 January 2015 was: "The original agreement is still binding and will continue to be so. The additional agreements are simply to provide you with more security which the original agreement did not have and to provide you with greater comfort in relation to the matter."
31. Mr Reay had said in an earlier email (5 December 2014): "I have looked at each of the three contracts that you provided. I am sure that we both know that there is no advantage to me from these contracts as there is already an existing contract/deed".
32. In the course of cross-examination, the appellant accepted that he had, in the email correspondence, said that the "original agreement" was still binding and would continue to be so. He maintained, however, that he was referring to the oral contract made at the time of the advance in late December 2010. Asked how it was that the second of the draft documents produced in late 2014 had referred to himself as borrower and Mr Reay personally as lender, the appellant said that the solicitor had misunderstood the instructions given.
33. The primary judge classified the tendering of the draft documents by the appellant to Mr Reay as "a roguish attempt" by the appellant to limit his liability in circumstances where, as the appellant well knew, he was Mr Reay's trusted professional adviser. Her Honour's assessment was fully justified. The events of December 2014 to January 2015 were an entirely unworthy attempt by the appellant to take unconscionable advantage of his trusting client. To say that additional documents were "simply to provide you [Mr Reay] with more security which the original agreement did not have and to provide you with greater comfort in relation to the matter" was a gross distortion when, under the original arrangements, the respondent had the benefit of promises to pay from both AJBCA's principals (Pickham Services and TMA Corporate Enterprises) and the objective of the first draft document was to leave the lender with an obligation owed by Pickham Services only. And if the second document was, as it appears, intended by the appellant to vary the contract between the respondent and the lender of the $400,000, its effect (or, at least, its apparently intended effect) would have been to strip away the entitlement to interest and to allow the lender to recover the loan solely from whatever might be yielded by the particular trust distributions and performance by Mr Nehme and Kelly & Partners of payment obligations owed by them to persons other than the lender itself.
34. Reference has been made to the fact that the appellant said in an email to Mr Reay dated 11 January 2015 that "the original agreement is still binding and will continue to be so". His statement in cross examination that he was there referring to the oral contract made at the time of the advance in December 2010 is glaringly implausible when it is remembered that the discussion, at the time, was about draft documents one of which included, as an annexure, the written loan agreement at the centre of these proceedings. The primary judge correctly concluded that this part of the appellant's evidence demonstrated lack of credibility.
35. In her assessment of the appellant, the primary judge gave attention to a statutory declaration made by the appellant on 23 September 2015. The appellant there declared that Mr Apps had provided him with $120,000 which was Mr Apps' allocated portion of the loan from the respondent, which loan had been taken over and dealt with by the appellant and his entities (it will be recalled that Mr Apps was a 30 per cent partner). The appellant further declared that he had an understanding and agreement with Mr Apps that Mr Apps owed $120,000 and that Mr Apps had, in that connection, "taken over" $120,000 of a debt owed by the appellant to Westpac. The statutory declaration continued: "I take full responsibility for the Hyper Engineering Pty Ltd loan and its settlement."
36. The primary judge regarded this statutory declaration as an admission by the appellant of his liability to the respondent for the $400,000 advanced by the respondent to AJBCA under the loan agreement ("Hyper Engineering Pty Ltd" is a former name of the respondent). That, with respect, was a misinterpretation. The statutory declaration was part of the mechanics of a financial separation between the appellant and Mr Apps. The "full responsibility" to which it referred was, in the context, responsibility as between the appellant and his entities, on the one hand, and Mr Apps and his entities, on the other. The statutory declaration was not speaking of liability of the appellant to the respondent and Mr Reay's interests.
37. The primary judge was also critical of Mr Reay as a witness. I have already mentioned her Honour's reference to his "lengthy and unresponsive answers". Beyond that, there was one matter relevant to credibility. At the time the loan was made, Mr Reay was engaged in (or about to be engaged in) matrimonial property proceedings. Following the making of the loan, he failed to disclose, in that context, the debt of $400,000 to which the respondent was entitled as a result of the making of the loan. His wife discovered the asset only when documents were subpoenaed in the proceedings determined by the primary judge.
38. It may be accepted that Mr Reay's failure to discharge his legal obligations of full disclosure in the family law context reflects adversely on his honesty. But he did explain his reasons. He was apprehensive that his wife, if she knew about the loan, would be angry and would ridicule him for having been rash and foolhardy in making the funds available. That, coupled with his continuing expectation, fostered by the appellant's conduct, that what was a 6-week loan would be repaid in time to make disclosure of it unnecessary caused him to omit the $400,000 asset from his disclosure. The explanation goes some way towards blunting the adverse effect of the non-disclosure on credibility.
39. Where, as here, the appeal turns wholly on questions of credibility, the course to be followed and the principles to be applied are not in doubt. Because brought under s 127 of the District Court Act 1973 (NSW), the appeal is by way of rehearing and this Court is empowered to make any finding or assessment which ought to have been made by the District Court and to give a judgment that ought to have been given by that court: Supreme Court Act 1970 (NSW), s 75A. Because the appeal court is asked to displace the trial judge's findings of fact, its task is as described by French CJ, Bell, Keane, Nettle and Gordon JJ in Robinson Helicopter Company Incorporated v McDermott [2016] HCA 22; (2016) 90 ALJR 679 (at [43]): "A court of appeal conducting an appeal by way of rehearing is bound to conduct a 'real review' of the evidence given at first instance and of the judge's reasons for judgment to determine whether the judge has erred in fact or law. If the court of appeal concludes that the judge has erred in fact, it is required to make its own findings of fact and to formulate its own reasoning based on those findings. But a court of appeal should not interfere with a judge's findings of fact unless they are demonstrated to be wrong by 'incontrovertible facts or uncontested testimony', or they are 'glaringly improbable' or 'contrary to compelling inferences'."
40. The quoted words in this passage come from Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 and Devries v Australian National Railways Commission (1993) 177 CLR 472; [1993] HCA 78. In the last-mentioned case, Brennan, Gaudron and McHugh JJ (at CLR 49) described the approach that is to be taken where the factual challenge goes to credibility: "If the trial judge's finding depends to any substantial degree on the credibility of the witness, the finding must stand unless it can be shown that the trial judge 'has failed to use or has palpably misused his advantage' or has acted on evidence which was 'inconsistent with facts incontrovertibly established by the evidence' or which was 'glaringly improbable'."
41. An appeal court's task was referred to by Bathurst CJ (Macfarlan and Leeming JJA concurring) in Szeto v Situ [2017] NSWCA 136 in these terms (at [25]-[26]): "As was pointed out in Fox v Percy (2003) 214 CLR 118; [2003] HCA 22, within the constraints marked out by the nature of the appellate process, the appellate court is required to conduct a real review of the trial and of the judge's reasons whilst observing the 'natural limitation' that exists in proceeding on the record which include the disadvantage an appellate court has compared to the trial judge in the assessment of a witness' credibility: Fox v Percy supra at [23]-[25]. That disadvantage particularly arises in a case such as the present where the judge based his conclusion, to a significant extent, on the credibility of the principal witnesses. However, if a conclusion based on credit is shown by uncontroversial facts or uncontested testimony to be erroneous, the appellate court is obliged to intervene: Fox v Percy supra at [28]. One instance where this may occur is where contemporaneous and apparently reliable documentary evidence is contrary to the credibility based finding of the trial judge: State Rail Authority (NSW) v Earthline Constructions Pty Ltd (in liq) (1999) 73 ALJR 306; [1999] HCA 3 at [62]-[63], [93]."
42. In the present case, the issue on appeal is whether, in deciding the central question of the time at which the loan agreement was executed, the primary judge fell into error by believing Mr Reay rather than the appellant where their evidence conflicted. The only aspect of the evidence that could conceivably call into question the correctness of her Honour's adverse assessment of the appellant's credibility is the incorrect conclusion about the meaning of the statutory declaration dated 23 September 2015. But even when that aspect of the primary judge's decision is put to one side, there remains a significant and highly compelling body of evidence supporting the judge's finding that the appellant was an unreliable witness whose evidence should be rejected in favour of Mr Reay's on all matters on which the respective accounts conflicted. The judge's assessment and conclusion on credit have not been shown to be wrong by incontrovertible facts or uncontested testimony, or to be glaringly improbable or contrary to compelling inferences. To the contrary, the compelling inferences made available by the evidence are those adverse to the appellant that the primary judge drew after a careful review of all matters before her and after having enjoyed the advantage (not shared by this Court) of observing the protagonists in the witness box.
43. Having regard to the approach to be taken in appeals of this kind, as indicated by the authorities to which I have referred, the decision of the primary judge does not exhibit error justifying intervention by this Court. I propose orders as follows:
44. Appeal dismissed.
45. That the appellant pay the respondent's costs of the appeal.