Plaintiff v Defendants

2 Mr Kostas Kyriacou and Mrs Kyriacou were directors of Somnium between 6 April 1981 and 28 November 2012 (I will refer to Mr Kostas Kyriacou as Mr Kyriacou). After that, their son Gary Kyriacou (who had been a director since 22 August 2000), took over the company as sole director and secretary.

3 Somnium was previously known as Bulldog Servicentre Pty Ltd. It changed its name to Somnium on 10 March 2015.

4 The fourth defendant, David Brandi ('Mr Brandi') had a longstanding relationship with Mr Kyriacou and Somnium - he was their accountant from the mid-1990s. Mr Brandi looked after the financial affairs of the Kyriacou family and also had a social relationship with the Kyriacous.

5 In about mid-2010, Mr Brandi told Mr Kyriacou that he was involved in a business which was setting up a factory. Mr Brandi approached Mr Kyriacou to see whether he was interested in lending him $250,000 for that venture at an interest rate of 20% per annum. Mr Kyriacou agreed to Mr Brandi's proposal.

6 Mr Kyriacou delivered a bank cheque in the sum of $250,000 to Mr Brandi on 9 July 2010 at ITM's premises at Ravenhall in Victoria. At that time, Mr Brandi gave Mr Kyriacou a loan agreement dated 9 July 2010 ('Loan Agreement') and Mr Kyriacou signed it. The parties to the Loan Agreement were Somnium (as lender), ITM (as borrower) and Robert Arthur Whitbourne (the second defendant, 'Mr Whitbourne'), Mr Wilson and Mr Brandi. The Loan Agreement included a personal guarantee from Messrs Whitbourne, Wilson and Brandi (collectively 'the guarantors'). Each of them guaranteed the obligations of ITM to Somnium.

7 It is alleged that ITM has defaulted under the Loan Agreement.

8 This judgment only concerns Mr Wilson. ITM went into liquidation on 30 June 2014 and leave was not sought to proceed against it. Default judgment was entered against Mr Whitbourne and settlement has been reached with Mr Brandi.

9 At the time of trial, Mr Wilson was self-represented, but did not appear. I am satisfied that Mr Wilson was aware that the matter was proceeding and that he was referred to the court's self-represented litigants' service.

10 The only issue for determination in this proceeding is whether Mr Wilson is liable to Somnium pursuant to the guarantee in respect of the outstanding liabilities of ITM to Somnium under the Loan Agreement.

11 For the reasons set out in this judgment, I give judgment in favour of the plaintiff.

12 There were terms and conditions of the Loan Agreement that:

(a) the term 'Interest Rate' means a rate of 20% fixed per annum (clause 1.1(a));

(b) the term 'Interest Payment Dates' means payable as detailed in Table A attached to the Loan Agreement (clause 1.1(b));

(c) the term 'Loan' means the loan by Somnium to ITM of the Principal Sum in accordance with the Loan Agreement (clause 1.1(c));

(d) the term 'Loan Amount' means the Principal Sum and interest owing from time to time by ITM to Somnium (clause 1.1(d));

(e) ITM must repay the Loan Amount on or before the Repayment Date, namely, 9 July 2015 (being the 5th year anniversary date) (clause 3);

(f) interest is payable by ITM to Somnium on the Principal Sum at the Interest Rate (clause 4.1);

(g) ITM must pay the interest in one instalment on the Interest Payment Date or earlier (clause 4.2);

(h) interest is due and payable on all monies owed under the Loan Agreement at a default rate of 10% higher than the rate prescribed in the Loan Agreement, compounding monthly (clause 4.3);

(i) if any of the Events of Default occurs, the Loan Amount shall at the option of Somnium and notwithstanding any delay or previous waiver of the right to exercise that option become due and payable upon demand by Somnium (clause 6.1);

(j) it is an Event of Default if ITM fails to repay the Loan Amount on the Repayment Date (clause 6.2(a));

(k) it is an Event of Default if ITM fails to perform or observe any of the covenants or terms of the Loan Agreement (clause 6.2(b));

(l) ITM, Whitbourne, Wilson and Brandi by executing the Loan Agreement hereby guarantee jointly and severally to Somnium the due performance and observance by ITM of each and every of the obligations of ITM undertaken by ITM in entering into the Loan Agreement (clause 8.1).

13 The obligations of the guarantors are set out in clause 8 of the Loan Agreement. In summary and in substance, the Loan Agreement provides:

(a) by execution of the Loan Agreement, the guarantors guarantee jointly and severally to Somnium the due performance and observance by ITM of each and every obligation on them in entering into the Loan Agreement, including the due and punctual payment to Somnium of all money payable under the Loan Agreement;

(b) if there is any default by ITM in making any such payment or upon any breach of the terms of the Loan Agreement, the guarantors shall be responsible to Somnium in the same manner as if the guarantors were jointly and severally liable to it. The guarantors agree to indemnify Somnium against all loss and damage incurred by it arising out of any breach by ITM under the Loan Agreement (clause 8.2);

(c) the guarantee remains in force until all obligations have been satisfied under the Loan Agreement, including the payment of money (clause 8.3); and

(d) in the event of any default by ITM, Somnium can proceed to recover the amount claimed of the debt or as damage from the guarantors without having issued legal proceedings against ITM and without first exhausting any remedy against it (clause 8.4).

14 Forming part of the Loan Agreement is a personal guarantee signed by the guarantors ('the guarantee'). The terms of the guarantee include:

... in consideration of the within named Lender(s) lending to the within named Borrower(s) at our request the monies described in the within agreement for the price, return and upon the terms and conditions therein set forth, do hereby for ourselves, our respective executors and administrators, jointly and severally, covenant with the said Lender(s) that if at any time default shall be made in the payment of monies or residue of money, or interest or other moneys payable by the Borrower(s) to the Lender(s) under the within agreement or in the performance or observance of any term or condition of the within agreement to be performed or observed by the Borrower(s), we will forthwith on demand by the Lender(s) pay to the Lender(s) the whole of such loan, residue of money, interest and other moneys which shall then be due and payable to the Lender(s) and will keep the Lender(s) indemnified against all loss of money, interest and other moneys payable under the within agreement and all losses, costs, charges and expenses whatsoever which the Lender(s) may incur by reason of any default as aforesaid on the part of the Borrower(s).

This guarantee shall be a continuing guarantee and shall not be released by any neglect or forbearance on the part of the Lender(s) enforcing payment of any of the moneys payable under the within agreement or the performance or observance of the agreements, obligations or conditions under the within agreement or by time being given to the Borrower(s) for any such payment, performance or observance or by any other thing which under the law relating to sureties would, but for this provision, have the effect of releasing us, our executors or administrators.

To better secure the Loan the Guarantor(s) hereby charges any land or assets which the Guarantor(s) or their related parties may from time to time own and if required to do so by the Lender(s) at the event of default shall at the cost of the Borrower(s) give to the Lender a registered charge, caveat and registered mortgage to the favour of the Lender(s) over the said land or over any other land owned by the Guarantor(s) to the value of the loan amount due or monies owed as described herein within the terms and conditions of this agreement.

This Guarantee shall not be determined by the death of either or any of us and shall bind our legal personal representatives, our respective executors and administrators joint and severally. This guarantee shall be a continuing guarantee and shall not be released by any neglect or forbearance on the part of the Lender enforcing payment of any of the moneys payable under the within agreement or the performance or observance of the agreements, obligations or conditions under the within contract or by time being given to the Borrower for any such payment, performance or observance or by any other thing which under the law relating to securities would, but for this provision, have the effect of releasing us, our executors or administrators.

I also INDEMNIFY and agree to keep the Lender(s) indemnified against all loss, damage, costs, charges and expenses suffered or incurred by reason of any default under this Agreement.

15 The guarantee is witnessed by a Lee Ronkovich. There was no evidence of the particular circumstances of the execution of the guarantee by Mr Wilson.

16 In summary, the salient features of the guarantee are that Mr Wilson:

(a) agrees to pay on demand moneys due and payable to Somnium in the event of any default by ITM;

(b) indemnifies Somnium against all loss of money, interest and other moneys payable under the Loan Agreement; and

(c) agrees to charge any land or assets which he owns from time to time if required by Somnium.

17 In its statement of claim dated 23 January 2014, Somnium claimed the sum of $250,000, being the principal advanced by it to ITM, interest pursuant to the Loan Agreement (including default interest, a claim for which has now been abandoned) and costs.

18 Somnium claims that, pursuant to the Loan Agreement, on or about 9 July 2010, Bulldog (as it was then known) advanced the principal sum of $250,000 to ITM. It claims that ITM failed to make the interest payment due on 30 June 2012 in the amount of $25,000. It was submitted at trial that no further payments have been made by ITM to Somnium under the Loan Agreement since 30 June 2012.

19 In or about November 2012, Somnium lodged caveats over various parcels of land, including land owned by Mr Wilson. At trial, it was submitted that Mr Wilson took no steps to remove the caveat lodged over his property.

20 Somnium claims that by letter dated 24 December 2012 from its solicitors, a demand was made on Mr Wilson for the payment of $250,000, being the principal outstanding under the Loan Agreement, and interest.

21 Mr Wilson filed a Defence dated 19 March 2014 in which he made various admissions in relation to the allegations in Somnium's statement of claim. In particular, Mr Wilson admitted:

(a) the Loan Agreement, save for the allegation that he requested Somnium to provide a loan to ITM (paragraph 4);

(b) the terms and conditions of the Loan Agreement (as set out in paragraph 12 above) (paragraph 5);

(c) that the Loan Agreement was secured by the guarantee given by him (and Messrs Whitbourne and Brandi) (paragraph 6);

(d) that he received a letter from the solicitors for Somnium on or around 24 December 2012 (paragraph 12); and

(e) that he has paid no money to Somnium pursuant to the demands (paragraph 13).

22 Mr Wilson says that at no time prior to, or at the time of, his execution of the guarantee did Somnium or any other person for and on behalf of Somnium:

(a) explain to him the nature or effect of the Guarantee;

(b) give him the opportunity to ask questions of the plaintiff, or any other person for or on behalf of the plaintiff;

(c) inform him of the consequences of the Guarantee being a joint and several guarantee;

(d) recommend to him that he obtain, or inform him that he was entitled to obtain, independent legal or financial advice prior to signing the Guarantee;

(e) tell him that he could refuse to sign the Guarantee;

(f) make any enquiries of the Third Defendant in relation to his personal financial circumstances in order to ascertain the extent to which he was able to meet his obligations as a joint and several guarantor of the obligations of ITM under the Loan Agreement; or

(g) ask him whether he:

(i) was fully aware of the nature of the Guarantee and of the risks associated with signing it;

(ii) was unwilling or unable to take legal advice concerning it;

(iii) understood that the plaintiff could claim the full amount owing under the Guarantee solely from him even if the ITM was not liable or there were other guarantors;

(iv) understood that the plaintiff could claim amounts from him without first having to exhaust claims against ITM;

(v) understood that he remained liable under the Guarantee, despite him no longer being a director of ITM (paragraph 6).

(a) Somnium knew or ought to have known that he was not fully informed of the consequences of execution of the guarantee or the Loan Agreement and in the premises, the guarantee in respect of the Third Defendant is unenforceable as against him and he is not liable to pay to the plaintiff the sums demanded in the demands, or any other amount pursuant to the guarantee (paragraph 13);

(b) Somnium is estopped from claiming any funds from him as despite no payments being made by ITM in accordance with the Loan Agreement, Somnium has not taken any steps to mitigate its loss or make prior demands for payment (paragraph 14);

(c) he had no responsibility for or role in the negotiation of the guarantee or the Loan Agreement with Somnium and prior to proceedings being issued, had not been provided with a copy of the Loan Agreement or the guarantee and those documents were not explained to him (paragraph 15 and Particulars thereto);

(d) alternatively, at all material times he believed that his liability under the guarantee was a 'Director's Guarantee' and only operative while he remained a director of ITM and that it was extinguished along with any liability to Somnium when he ceased to be a director on 20 August 2012 (paragraph 16); and

(e) he executed the guarantee under a mistake and it is therefore unenforceable (paragraph 17).

24 Mr Wilson did not plead to Somnium's allegations that:

(a) on 9 July 2010 it advanced the principal sum of $250,000 to ITM pursuant to the Loan Agreement (paragraph 8);

(b) ITM failed to pay interest of $25,000 due on 30 June 2012 (paragraph 9);

(c) caveats over certain properties were lodged by Somnium in or about November 2012 (paragraph 10); and

(d) on about 24 December 2012 the Registrar of Titles gave notices to Somnium pursuant to s 89A(3) of the Transfer of Land Act 1958 (Vic) that applications had been made to remove the caveats (paragraph 11);

on the basis that the matters referred to in those paragraphs contained no material allegation against him.

25 Somnium contended that Mr Wilson is deemed to have admitted these allegations pursuant to r 13.12 of the Supreme Court (General Civil Procedure) Rules 2005.

Did Somnium advance funds to ITM under the Loan Agreement?

26 I am satisfied, on the evidence before me, that:

(a) a bank cheque (being cheque number 142899) in the amount of $250,000 made payable to ITM dated 6 July 2010 was procured by Mr Kyriacou from Laiki Bank (Australia) Ltd; and

(b) Mr Kyriacou delivered the bank cheque to Mr Brandi at ITM's premises located at 214 Independent Way, Ravenhall at about midday.

27 I accept that Somnium's failure to pay interest which was due on 30 June 2012 was an event of default under the Loan Agreement.

What payments were made by ITM to Somnium pursuant to the Loan Agreement?

28 I am satisfied on the evidence that ITM made three interest payments in partial satisfaction of the obligations of Somnium under the Loan Agreement, as follows:

(a) 6 January 2011 in the sum of $25,000;[1]

(b) 9 August 2011 in the sum of $25,000;[2] and

(c) 2 February 2012 in the sum of $25,000.[3]

Is Mr Wilson bound by the guarantee and is he liable to Somnium?

29 I will consider Mr Wilson's grounds of defence, but initially some observations ought to be made about Mr Wilson's role and connection with ITM.

30 Mr Wilson has, at various times, been a director, secretary and shareholder of ITM. In particular, Mr Wilson held the office of director from 16 April 2009 to 20 August 2012. It appears from the Australian Securities and Investments Commission Current & Historical Organisation Extract ('the ASIC Extract')[4] that Mr Wilson was the sole director of ITM from the period 2 September 2010 until his resignation on 20 August 2012.

31 In addition, Mr Wilson held the position of company secretary of ITM from 22 June 2011 until 20 August 2012 and was a former shareholder of ITM, holding four fully paid shares in ITM.[5]

32 In the absence of any appearance by Mr Wilson, and any evidence to the contrary being advanced on his behalf, it appears that he had a close connection with ITM for a reasonable time. In the normal course of business affairs, this would suggest some level of commercial knowledge and sophistication in business matters in general, and the affairs of ITM in particular.

33 I have considered each of Mr Wilson's defences to Somnium's claims (as set out in paragraphs 21 and 22 above). None of these defences are properly particularised. No witness statements were served by or on behalf of Mr Wilson and, as I have said, Mr Wilson did not appear at trial and consequently no evidence was led by him in support of his defence.

34 On the face of the evidence, in light of the admissions made by Mr Wilson in his pleading and given that the evidence is suggestive of (and I put it no higher than that) Mr Wilson's commercial sophistication and connection with ITM, there is no evidence upon which I am able to accept that Mr Wilson was not aware of the nature or effect of the guarantee he signed.

35 Mr Wilson's defence, in summary, alleges unconscionability, mistake and estoppel (based on a failure to mitigate). I am unable, in the absence of any evidence, to find any reasonable or proper basis to establish that those defences are made out.

36 Most importantly, there was no evidence before me to substantiate Mr Wilson's claim that he believed that his liability under the guarantee was only operative up and until his resignation as a director of ITM on 20 August 2012 (and was extinguished after that). Indeed, this is directly contradicted by the express words of the guarantee.

37 Evidence was given by Mr Kyriacou about the circumstances of the execution of the guarantee by Mr Wilson. Mr Kyriacou said that all three guarantors (Messrs Whitbourne, Wilson and Brandi) signed the loan agreement at the same time. He said that he asked the guarantors whether they knew what they were signing, and they all said 'yes'. Mr Kyriacou also gave evidence that Mr Wilson understood that judgment would be entered against him in the event that he did not appear.

38 I have not relied on this evidence in forming my conclusion in relation to this matter, nor in considering the merits of Mr Wilson's defences.

Somnium's submissions on the effect of the signed agreement

39 In Somnium's submission, Mr Wilson's execution of the guarantee binds him to perform the obligations set out in it, unless he was induced to do so by fraud, mistake or misrepresentation or unless he can rely on a defence of non est factum, or have the agreement rectified.[6]

40 It was also submitted that a person who signs a document where it is intended to enter into contractual relations, is bound by the terms of that document whether or not the person reads the document before signing it. It is not necessary that the other party has done what is reasonably sufficient to give notice of its terms.[7]

41 Clearly these propositions are correct, on the authorities cited.

42 There was no evidence in this case of any vitiating factor which would suggest that Mr Wilson could avoid the obligations he undertook by executing the guarantee.

43 In my opinion, Mr Wilson has not established any defence to Somnium's claim.

44 Mr Wilson had the opportunity to appear before the court to agitate his defence, and failed to do so.

45 I am satisfied that Mr Wilson was informed and understood the nature of the proceeding against him, the consequences of not being represented or appearing at the hearing and the availability of assistance for litigants who are not legally represented.

46 I am satisfied, on the evidence, that Mr Wilson was sufficiently commercially sophisticated, and engaged with and aware of the business affairs of Somnium to be able to appreciate the nature and effect of the agreement which he signed.

47 Accordingly, I give judgment in favour of Somnium in this proceeding.

48 I will hear the parties on the appropriate form of order.

[1] Cheque number 000031 dated 6 January 2011 drawn on Bank of Queensland Limited.

[2] Cheque dated 9 August 2011 drawn on Bank of Western Australia Ltd.

[3] Cheque dated 2 February 2012 drawn on Bank of Western Australia Ltd.

[4] Australian Securities and Investment Commission Current & Historical Organisation Extract for Independent Tube Mills Pty Ltd dated 11 June 2015 at 12.39 pm.

[6] Equuscorp Pty Ltd v HGT Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471, 483.

[7] Toll [FCGT] Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165; First East Auction Holdings Pty Ltd v Ange [2010] VSC 72 [133].