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[2023] VSC 718
General information, not legal advice.
Supreme Court of Victoria
2023-12-04
M Osborne J
Original judgment source is linked above.
MISLEADING OR DECEPTIVE CONDUCT - Whether representations made by the lender or lender's representatives were misleading - Whether borrowers relied on misleading representations when entering into loan - Self Care IP Holdings Pty Ltd v Allergan Australia Pty Ltd [2023] HCA 8; (2023) 97 ALJR 388 - Viterra Malt Pty Ltd v Cargill Australia Ltd [2023] VSCA 157 - Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592.
GUARANTEE - Whether signing execution pages without balance of guarantee constitutes effective act of acceptance - Whether handwritten amendments had effect following removal from contract - Whether variation after execution made without notice discharged liability of guarantor.
PENALTIES - Whether interest payable upon default constitutes a penalty - Where interest rate during term of loan is nil - Compound interest - Arab Bank Australia Ltd v Sayde Developments Pty Ltd [2016] NSWLR 231 - Bay Bon Investments Pty Ltd v Selvarajah [2008] NSWSC 1251 - Aquamore Credit Equity Pty Ltd v Hung [2021] NSWSC 1681 - Bellas v Powers [2023] NSWSC 1198.
For the Plaintiff/First to Third Defendants by Counterclaim
For the Fourth and Fifth Defendants by Counterclaim (9 and 10 October 2023 only)
1 The plaintiff, Jasper Nominees Limited ('Jasper'), seeks to recover amounts alleged to be owing under guarantees given by the first defendant, Pierre Kairouz ('Mr Kairouz') and the second defendant, Antonio Murdaca ('Mr Murdaca'), in relation to obligations of the principal debtor, Global Meat Exports Pty Ltd ('GME') under two short term loan agreements entered into on 5 October 2021. The first agreement took the form of a loan note subscription agreement ('LNSA') and provided in substance for an advance of $36.5 million with $41.25 million required to be paid on the termination date which was 7 December 2021 (the 'Termination Date'), nine weeks after the date of entry of the LNSA. The second agreement was titled 'Additional Advance Deed' ('AAD') and provided for an advance of $2 million with $2.4 million required to be repaid by 5 November 2021 (the 'Repayment Date').
2 The LNSA provided for interest to be charged and capitalised monthly after the Termination Date at an annual rate of 60% per annum whilst the AAD provided for interest to be charged and capitalised monthly after the Repayment Date of 120% per annum.
3 GME did not repay the $2.4 million due under the AAD on 5 November 2021. Nor did it pay the amount of $41.25 million due under the LNSA on 7 December 2021. No payments have been made under the LNSA. 14 payments have been made in reduction of the amount owing under the AAD, 12 of which took place after GME and Jasper had entered into a moratorium deed on 24 March 2023. As at 9 October 2023 the amount owing by GME pursuant to the AAD was $7,424,116.30 and the amount owing by GME pursuant to the LNSA is $121,765,757.69. Thus, the amounts said to be owing by Mr Kairouz and Mr Murdaca as at 9 October 2023 totalled $129,189,873.99.[1]
4 Mr Kairouz and Mr Murdaca defend the claims against them on three broad grounds. First, both Mr Kairouz and Mr Murdaca submit that they entered into the LNSA in reliance upon two categories of misrepresentation made by Jasper's alleged agents, Jason Hopp ('Mr Hopp') and Jack Dahan ('Mr Dahan'), and each have brought counterclaims in which they seek orders setting aside the guarantees given by them contained within the LNSA. Mr Murdaca's counterclaim is brought only against Jasper. Mr Kairouz's counterclaim is also brought against Jasper but is also brought against Mr Hopp personally and his company Santini Group Pty Ltd ('Santini') and Mr Dahan and his company Hennessey Capital Partners Pty Ltd ('Hennessey'). The counterclaim against Mr Dahan and Hennessey was dismissed by consent of Mr Kairouz, Mr Dahan and Hennessey with no order as to costs on day two of the trial although the counterclaim against Jasper, based in part on Mr Dahan's conduct, remains.
5 The two categories of misrepresentation comprise alleged 'Exit Strategy Representations' to the effect that Jasper would be able to procure the refinance of GME's loan at the end of the term, and the alleged 'Working Capital Representations' to the effect that Jasper would not impede GME's ability to obtain another loan for the purposes of working capital. Those representations are said to be misleading as Jasper had no reasonable basis for making the representations (the 'Misrepresentation Issue') and contrary to s 18 of the Australian Consumer Law (the 'ACL') as contained in schedule 2 to the Competition and Consumer Act 2010 (Cth) (the 'CCA'). Mr Kairouz, but not Mr Murdaca, also alleges that the same conduct amounts to unconscionable conduct in contravention of s 21 of the ACL.
6 Secondly, each raise matters particular to the circumstances of their execution of the LNSA (the 'LNSA Execution Issue'). Mr Murdaca submits that these matters have the effect that he is not bound by his signing of the execution pages of the guarantee contained within the LNSA including because its terms were changed after he executed the relevant pages. Similarly, Mr Kairouz submits that the circumstances of his execution of the guarantee are such that he too is not bound or if he is, that the guarantee is limited to the value of the assets owned by Mr Kairouz or by a company of which he was a director at the time of enforcement or recovery.
7 Thirdly, both argue that the LNSA and the AAD provide for high default rates of interest; 60% per annum compounding monthly in the case of the LNSA and 120% per annum compounding monthly in the case of the AAD. Each contends that such high rates of interest constitute unenforceable penalties (the 'Penalty Issue').
8 The Penalty Issue is primarily a question of law. The LNSA Execution Issue requires consideration of a relatively confined number of matters largely evidenced by contemporaneous documents. In contrast, the Misrepresentation Issue compels a fact-laden enquiry to be carried out against the backdrop of contested oral evidence given by each of the main protagonists: Mr Kairouz, Mr Murdaca, Mr Hopp, Mr Dahan, and to some extent Alan Schmidt, a former director of GME who also gave evidence. The reliability of that contested oral evidence must be considered against the background of the accompanying contemporaneous documentary record which illuminates the likelihood or otherwise of the protagonists' contested oral evidence.
9 Jasper's claim is straightforward assuming that the LNSA Execution Issue is resolved in its favour, although the amount of the guarantors' liability may be reduced if the guarantors' arguments on the Penalty Issue succeeds, and of course Jasper's claim is subject to the counterclaims.
10 These reasons are structured by first setting out the salient provisions in the LNSA and the AAD relied upon by Jasper in establishing its claims. Secondly, the Misrepresentation Issue is considered with reference in the first instance to the objective documentary record or facts which are not disputed. The section also sets out in the relevant chronological sequence the pleaded allegations raised by both Mr Kairouz and Mr Murdaca. In the next section, the oral evidence is summarised before analysis of this issue is concluded with the necessary findings. Thirdly, the LNSA Execution Issue is considered followed lastly by the Penalty Issue.
12 Under clause 3.1 of the LNSA,[4] those funds were to be obtained by GME issuing a 'Loan Note', pursuant to a Loan Note Deed Poll at Schedule 7 of the LNSA. The 'Total Face Value Amount' in the Loan Note was $41,250,000, which was the amount to be repaid to the Financiers under clause 3.1(b).
13 The purposes of the financing were set out expressly in clause 3.3. The funds were 'only' to be used for:
(a) refinancing then extant Bank of Sydney and Bridge Street Capital No 2 Pty Ltd ('Bridge Street Capital') debts;
(b) purchasing the Cedar Meats business;
(c) the payment (to the Financiers) of fees and costs due under the LNSA; and
(d) any other purpose 'approved by the Financier'.
14 That is, the permitted purposes of the LNSA did not include any allowance of funding for working capital or for any purpose that was not otherwise 'approved by the Financier' (and Jasper was not a Financier, so could not have approved using funds for any other purpose in any event).
15 By clause 6.1, GME was required to repay each Loan Note (at its Face Value) and all other Secured Moneys in full on the Termination Date, where:
(a) 'Secured Money' meant all debts and monetary liabilities of (inter alios) GME to 'the Finance Parties', on any account and in any capacity, including irrespective of whether the debts or liabilities were present or future liabilities; and
(b) the 'Termination Date', was 7 December 2021, being nine weeks after the LNSA was entered into, on 5 October 2021.
16 Clause 5.3 set out interest rates to apply: '[f]rom the first day following the Termination Date and on each day thereafter...interest will accrue and be calculated in the manner set out in this clause 5.3 on the Principal Outstanding and any money that is due and payable by [GME], but unpaid and on any interest payable but unpaid, at the Overdue Rate'.
17 Sub-clause 5.3(c) provided that the 'Overdue Rate payable under this clause 5.3 shall be capitalised at monthly intervals such that the amount of that interest payable will form part of the Principal Outstanding and interest shall accrue on that amount'.
18 'Overdue Rate' meant 60% per annum and 'Principal Outstanding' meant the aggregate Face Value Amount of all outstanding Loan Notes at that time.
19 By clause 14.1 (Guarantee) the defendants (among others) irrevocably and unconditionally, jointly and severally:
(a) guaranteed 'to each Financier [the] punctual performance by [inter alia GME] all of [GME's] obligations under the Finance Documents'; and
(b) undertook that whenever GME did not pay any Secured Money when due, then the defendants would immediately on demand pay the Secured Money as if they were the principal obligors.
20 Mr Kairouz and Mr Murdaca (and others) also irrevocably and unconditionally indemnified 'each Finance Party' against loss incurred as a result of various things, including failure by an obligor (such as GME) to pay the Secured Money, or if 'a liability to pay the Secured Money or perform any of the obligations under a Finance Document, is unenforceable, invalid or illegal against an Obliger for any reason, whether or not the Financier knew or ought to have known anything about it'.
21 Clause 14.3(c)[5] is relevant as it provided that whilst the guarantee was given 'to the Financiers' (ie not Jasper), the guarantors were nevertheless required to make payments, due to the Financiers under the guarantee, to the 'Security Trustee' (Jasper).[6] A mirrored, although different, requirement, to pay the Security Trustee in respect of losses suffered by 'Finance Parties', was set out in cl 14.2(b).
22 As Security Trustee, and under a related 'Security Trust Deed', made at the same time as the LNSA, Jasper was and is entitled to, 'exercise all Powers under the Finance Documents ... as if the Security Trustee were the beneficial owner of the Finance Documents and the Powers'.[7] 'Powers' is not defined by the Security Trust Deed, but must take its meaning from the 'Principal Agreement', ie the LNSA, and accordingly meant 'any right, power, authority, discretion, or remedy conferred on [the Financiers] ... by any Finance Document or any applicable law'.
23 The Financiers therefore authorised Jasper (as Security Trustee) to take action on their behalf in respect of their rights under the LNSA and AAD. Jasper was and is obliged to hold sums received by it (including under LNSA clauses 14.3(c) or 14.2(b)), on trust for, inter alia, the Financiers.[8] However:
(a) Jasper did not, as Security Trustee, or otherwise, lend or advance moneys to GME (or anyone else); and
(b) Jasper's entitlements to act on behalf of the Financiers (under the Security Trust Deed, or as a consequence of LNSA clauses 14.3(c) and 14.2(b)) did not eradicate the Financiers' own rights to enforce the LNSA, including as the beneficiary of the Guarantee given by the defendants under clause 14 of the LNSA. The Financiers have therefore retained their rights to the benefit of the Guarantee.
24 The LNSA also referred to the AAD as a 'Finance Document'. Relevantly, the AAD provided that:
(a) the Finance Parties under the LNSA agreed to provide an 'Advance Amount' of $2 million to GME, in addition to the sums to be provided under the LNSA;
(b) GME agreed to repay the sum of $2,400,000 ('Repayment Amount') by 9am on 5 November 2021 (the 'Expiry Time'), being one month after monies under the AAD were advanced, also on 5 October 2021;
(c) failure to pay the Repayment Amount would constitute a default under the LNSA and result in all sums (including under the LNSA) becoming payable; and
(d) default interest would be payable on the Repayment Amount from the Expiry Time at a rate of 120% per annum and otherwise to accrue in accordance with clause 5.3 of the LNSA, until the Repayment Amount is paid.
25 There is no dispute that on or about 5 October 2021:
(a) GME issued a Loan Note with a Total Face Value Amount in the sum of $41,250,000; and
(b) $36,500,000 was advanced to GME in accordance with the LNSA and, separately, a sum of $2,000,000 was advanced to GME in accordance with the AAD.
(a) GME did not repay the AAD Repayment Amount sum of $2,400,000 on 5 November 2021;
(b) GME did not repay the LNSA Total Face Value Amount sum of $41,250,000 on 7 December 2021; and
(c) approximately one year later, on 6 December 2022, Jasper (as Security Trustee) made demands to each of the defendants in respect of their liability under the Guarantee (and the defendants have not paid the Secured Money to Jasper).
27 For about 35 years, Cedar Meats (Aust) Pty Ltd ('Cedar Meats') operated an abattoir business trading under the name Cedar Meats from premises located at 5-9 Mitford Parade, Footscray, Victoria (the 'Footscray Property') and 690 Brooklyn Road, Brooklyn (the 'Brooklyn Property').
28 Cedar Meats was a family-owned business run by the Kairouz family which comprised six brothers and their family. Mr Kairouz was the youngest of the six brothers. His nephew, Tony Kairouz ('Tony Kairouz') was also heavily involved in the business and a participant in the relevant events. Tony Kairouz did not give evidence in the proceeding.
29 The Footscray Property was owned by Birrawae Pty Ltd ('Birrawae') and the Brooklyn Property was owned by Jeskan Nominees Pty Ltd ('Jeskan'). Birrawae and Jeskan are companies associated with the Kairouz family.
30 In around 2018, Mr Murdaca became aware that the Kairouz family was interested in selling the Cedar Meats business. The proposed sale involved the sale of both properties and the business including the sale of relevant licences. Mr Murdaca understood that the motivation for the sale was that it was becoming difficult to manage the business within the large Kairouz family.
31 In late 2018, Mr Murdaca, along with various others, procured the incorporation of GME which was incorporated for the purpose of acquiring the Cedar Meat business, including its licences and the Cedar Meats properties. Mr Murdaca became a significant shareholder in GME
32 On 24 December 2018, Jeskan and Birrawae entered into contracts of sale for the Brooklyn and Footscray Properties for $45 million and $11 million respectively. The contracts of sale were signed by Mr Kairouz on behalf of Jeskan and Birrawae, and by Mr Murdaca and his business associate Manny Stamatopoulos on behalf of an unidentified purchaser entity. The Brooklyn contract of sale specified that the contract was subject to the payment of $2 million on 24 December 2018 but was otherwise silent as to the payment of any other amount by way of deposit. Settlement was scheduled for 22 February 2019. The Footscray contract of sale likewise provided that it was subject to payment of $2 million on 24 December 2018 and otherwise that settlement was due to take place on 22 February 2019.
33 Although the name of the purchaser is not identified on the contracts, according to Mr Murdaca the purchaser of the Footscray Property and the Brooklyn Property was another company of which he, along with Mr Stamatopoulos, were directors; Asia Australia Group Pty Ltd ('Asia Australia Group'). Mr Murdaca, via a company which he controlled, also held a substantial shareholding in Asia Australia Group. Mr Murdaca says that the intention was for Asia Australia Group to nominate GME to take the transfer of the Footscray Property and the Brooklyn Property at settlement contemporaneously with the purchase of the business by Asia Australia Group. Asia Australia Group had entered into a business sale agreement with Cedar Meats. Mr Murdaca was a guarantor of the obligations of Asia Australia Group under each of the business purchase contract, the Footscray Property contract of sale and the Brooklyn Property contract of sale.
34 Notwithstanding the contingencies expressed in the Brooklyn Property contract of sale and the Footscray Property contract of sale, only a single payment of $500,000 was paid (by GME) on 2 November 2018. In total, GME made payments of $6,220,028 in connection with the Cedar Meats purchase by way of the payment of $500,000 on 2 November 2018, together with further payments of $2 million on 16 December 2019, $2,250,000 on 21 February 2020, $500,000 on 5 February 2021 and $970,028 on 9 February 2021.
35 On or around 15 August 2020, an unlisted public company called AustAgri Group Ltd ('AustAgri') acquired all the shares in GME from its existing shareholders. The share purchase agreement, among other things, contemplates that the shareholders in GME would receive a shareholding in AustAgri and that AustAgri would procure the settlement of the Brooklyn Property contract of sale, the Footscray Property contract of sale and the Cedar Meats business purchase contract. The directors of Aust Agri included Mr Schmidt, who gave evidence in this proceeding.
36 AustAgri had ambitions to acquire a series of livestock assets including the Cedar Meats assets and an abattoir in Mildura owned by interests controlled by Tony Kairouz as well as acquisitions of other livestock businesses known as Top Cut Foods and Napparoy Agriculture, and to aggregate those assets into a sub-fund controlled by the ASX listed DomaCom Limited. Those who had interests in AustAgri would receive interests in the fund.
37 As part of the proposed AustAgri acquisition, Mr Kairouz and Tony Kairouz were to be retained in executive roles at Cedar Meats and entities controlled by them were to receive shareholdings in AustAgri and interests in the fund. So too were Mr Murdaca and Mr Schmidt among others including interests associated with Paul Fielding. Relevantly, Mr Fielding had mutual business interests with Mr Dahan who also had an interest in AustAgri and was to receive an interest in the fund.
38 In March 2021, Mr Schmidt approached Mr Hopp, the sole director of Santini. Mr Hopp and the Santini carried on a private debt business involving the sourcing of capital from prospective lenders and the advancing of funds to private borrowers. Mr Hopp was approached by way of an email from Mr Schmidt with a view to providing funding to AustAgri and its wholly owned subsidiaries (which included GME) by way of a redeemable convertible note for $7 million to be repaid by no later than 30 June 2021 so as to facilitate the completion of the Cedar Meats acquisition, the Top Cut Foods acquisition and various other purposes.
39 Mr Schmidt's email was also copied to Paul Fielding who in turn forwarded the email on to Mr Dahan. Mr Dahan was a former banker whose work experience included stints at Macquarie Bank, Credit Suisse and Morgan Stanley. In more recent times, Mr Dahan has carried on business, among other things, under the umbrella of Hennessey providing corporate advisory services including the sourcing of debt and equity. Mr Dahan's shared business interests with Mr Fielding included an earlier transaction which also involved Mr Hopp in connection with the Sands Resort in Torquay.
40 On 15 April 2021, Mr Dahan sent a WhatsApp message to Mr Hopp which stated:
$59m is the senior
$1.5m is for working cap
This is where you are with Belgravia (and others) doing the $10.7m
Assuming I have this right I will call at 5pm with Alan [Schmidt] in the call
This was a reference to a request for capital for the funding of the Cedar Meats business by AustAgri and GME. The '$59m' referred to the proposed first ranking or senior debt and the request contemplated that another source of finance, Belgravia, would also contribute $10.7 million which would be used to pay out the existing second mortgagee, Bridge Street Capital. Bridge Street Capital was an entity associated with David Cacciola who also gave evidence in the proceeding. Bridge Street Capital held a second mortgage over the Footscray and Brooklyn Properties. The existing first mortgage was held by the Bank of Sydney. Although this was denied by Mr Kairouz and Mr Murdaca, Mr Dahan gave evidence that his understanding was that Bridge Street Capital was threatening to appoint a receiver.
41 It is common ground that a meeting occurred between around 25-27 April 2021 between Mr Kairouz, Mr Dahan, Mr Hopp, Tony Kairouz, Mr Schmidt, Mr Murdaca and Philippe Barros (the 'April 2021 Meeting'). This was the first time that Mr Kairouz and Mr Murdaca had met Mr Hopp. At this meeting, Mr Hopp is alleged to have made a number of the misrepresentations now relied upon by Mr Kairouz and Mr Murdaca.
42 In Mr Kairouz's defence, he alleges that the following took place at the meeting:
(a) Mr Hopp or Mr Dahan said words to the effect that 'we will have an exit strategy in place to take out the first mortgagee at the end of the Jasper loan' (the 'First Exit Strategy Statement');
(b) Mr Kairouz told Mr Hopp and Mr Dahan that GME would require $20 million to $25 million of working capital as part of the Jasper loan;
(c) Mr Hopp said words to the effect that 'I will allow a carveout of debtors and stock from the loan to facilitate the provision of working capital' (the 'First Working Capital Statement');
(d) Mr Hopp said words to the effect 'Jack will organise the working capital and Jack will take care of it' (the 'First Dahan Statement'); and in response, Mr Dahan said words to the effect that 'he understood working capital was required by GME and there would be access to working capital from day 1' (the 'Second Working Capital Statement').
43 According to Mr Murdaca's defence, at this meeting Mr Hopp said words to the effect that:
(a) Jasper would provide a short term loan to GME for a term of eight weeks in the range of $25 million to $35 million (the 'Short Term Loan');
(b) Dahan had arranged longer term finance for GME as an 'exit strategy' from the short term loan;
(c) Jasper would allow GME to obtain up to $20 million in working capital from another lender that could take security carved out of Jasper's security.
44 It is also common ground that on 30 April 2021, Mr Hopp, Mr Kairouz and Tony Kairouz met at the Atlantic Restaurant in Southbank (the 'Atlantic Restaurant Meeting'). In his defence, Mr Kairouz alleges that the following occurred::
(a) Mr Kairouz said words to the effect that GME needed working capital of $20-25 million;
(b) Mr Hopp said words to the effect of 'not a problem' and 'we will use the debtors and stock to give you the working capital that you require' (the 'Third Working Capital Statement');
(c) Mr Hopp said words to the effect that 'Jack will take care of the working capital' (the 'Second Dahan Statement');
(d) Tony Kairouz said words to the effect of 'we need to ensure that GME has an exit strategy'; and
(e) in response, Mr Hopp said words to the effect of 'I'm only here for a short term' and 'we've got to get it all done' (the 'Second Exit Strategy Statement').
45 On 3 May 2021, Mr Hopp emailed Tony Kairouz and after referring to the enjoyable lunch asked whether it would be possible to come down and meet with him the next day, along with his lawyer, so that they could better understand the Cedar Meats assets.
46 Mr Hopp and his solicitor attended at the Cedar Meats premises as proposed and later on 4 May 2021, Mr Hopp sent what he described as a very high-level term sheet to Mr Schmidt. In his covering email, Mr Hopp noted that he did not have all the facts surrounding the transactions, had not reviewed the relevant documents, had not reviewed any financials and that the figures and conditions on the term sheet may change as due diligence progressed.
47 The attached term sheet was headed 'Term Sheet Cedar Meats Loan Notes' and provided that the note issuer would be GME, the registered landowner was Jeskan and Birrawae and that guarantees would be provided by AustAgri, Mr Schmidt, Jeskan and Birrawae, amongst others, and that the face value of the note would be $67 million. The term of the loan was to be three months and the issue price or principal advance would be $57 million which would be dispersed as to various fees and then $17 million as to discharge the first mortgagee, with the balance of $39,100,000 to be paid into a controlled account which would provide for agreed releases from that account including: $5 million on the exchange of a contract of sale for the two security properties for an aggregate of not less than $72.5 million; $11 million in repayment of the existing second mortgage to be released upon the two sales contracts going unconditional; around $23,100,000 for a business restructure which would take place after the disbursement of a subordinated loan of $14 million which would be secured on second ranking securities with any balance used to repay the facility (without provision for a redraw). The term sheet specified a raft of securities including first mortgages over the Brooklyn Property and the Footscray Property, as well as guarantees from AustAgri, Mr Schmidt, Jeskan and Birrawae, among others, and a general security agreement ('GSA') for all present and after-acquired property over Jeskan, Birrawae and the seller and buyer of the Cedar Meats business.
48 On 5 May 2021, Mr Dahan sent an email to Mr Hopp with the subject line 'Cedar Meats Term Sheet V4 (002)' and attached a copy of what was a markup of the earlier term sheet referred to above. The marked up term sheet included an increase in the face value of the note to $68,000,000 with the issue price/principal advance of $58 million to be disbursed after various fees, as to $17 million in repayment of the outgoing first mortgagee, $39,100,000 into a control account and a new proposed agreed release from the control account of $1,340,000 by way of working capital. The securities had not been changed. Mr Dahan requested that Mr Hopp approve the 'mark ups' (ie the changes).
49 On 5 May 2021 at 5:56pm, Mr Hopp emailed Mr Dahan and Mr Schmidt attaching a further amended term sheet for signing. This version of the term sheet was recorded as V5 (version 5). His email addressed to Mr Schmidt and Mr Dahan commenced with 'you drive a hard bargain (marketing applied for Jacks benefit)'. A copy of that annexure does not appear in the documents tendered although Mr Hopp's email states that for consistency the facility would add up to $58 million and he had corrected the working capital figure to be $1,330,000. He requested that all relevant parties sign the term sheet and once this occurred he would commence commercial and legal due diligence in order to make this high-level term sheet become a reality.
50 At 7:16am on 6 May 2021, Mr Schmidt responded by an email sent to Mr Hopp and Mr Dahan, copied to Mr Murdaca, among others. In his email, Mr Schmidt sought working capital of $6 million and various other amendments. Mr Hopp replied by marking up Mr Schmidt's email with comments in red and updating the term sheet to V7. In respect of the working capital component, Mr Hopp's response split the working capital of $6 million into two parts; $4 million which would be made available on financial close which would be incorporated into the disbursement to the Bank of Sydney and $2 million which would be released on the contracts becoming unconditional. The latter would appear to be a reference to the proposed contracts of sale for the Footscray and Brooklyn Properties for a combined price of not less than $72.5 million. Mr Hopp otherwise requested that funds be forwarded to the solicitors' trust account so that due diligence could commence.
51 On 18 May 2021, Mr Dahan sent a further WhatsApp message to Mr Hopp. In reference to the proposed deal contemplated by Mr Hopp, Mr Dahan noted that Mr Hopp would not be deploying more than $32 million and as such asked whether Mr Hopp would consider advancing an additional $3 million with 'penalties kicking in after first mth [sic]'. Mr Dahan's message continued, 'This would ensure family and working capital outcomes. Puts pressure on the boys to bring in the equity.'
52 On 20 May 2021, Mr Schmidt emailed Mr Dahan and Mr Hopp forwarding on an email that had been sent to him by ScotPac Business Finance ('ScotPac') proposing a working capital solution for GME/AustAgri and attaching an indicative term sheet. The indicative term sheet, among other things, proposed a debtor finance facility of $50 million and an export finance facility of $8 million. The security referred to in the indicative term sheet included, amongst other things, finance facility agreements as well as a GSA over GME and the AustAgri Group and second registered mortgage security over all freehold properties which would include the Brooklyn and Footscray Properties for such time as they remained in the ownership of GME and AustAgri. In ScotPac's covering email to Mr Schmidt, among others, ScotPac asked for copies of the contracts of sale for the Brooklyn and Footscray Properties, as well as a full breakdown of the planned acquisitions of Cedar Meats, Top Cut Foods, Napparoy and the Mildura abattoir, and a full update on the DomaCom pathway.
53 On 27 May 2021, Grant Guenther emailed Peter Guy, solicitor, from Kennedy Guy. The email was copied to Mr Murdaca. Mr Guenther was a solicitor at Macpherson Kelley and was acting on behalf of GME. Mr Guy was the solicitor for the Kairouz family. In Mr Guenther's email, he set out what he understood was to be the proposed structure of a new transaction between GME and the Kairouz family. Mr Guenther's email set out the following matters:
1. The current contracts are cancelled.
- The Vendors have agreed to sell GME (or nominee) the properties (both of them) and the business. New contracts will be prepared in this regard for all of:
(a) The cedar meats busines [sic] ($15M);
(b) Mitford Pde [the Footscray Property] ($11M);
I 690 Geelong Road [the Brooklyn Property] ($45M).
- The Vendors will recognise the $8.22M paid as deposit on these contracts.
- [Agriculture Australia Group] will be the purchaser under the land contracts.
- GME/AAG will borrow $41M net from Manda Capital. Jeskan (owner of 690 Geelong Road) will guarantee that loan and offer up the property as security for it.
- The $41M net plus the $8.22M will result in $49.22M having been paid against the contracts as follows:
(a) Business sale ($15M in full). Some adjustments still to be made
(b) Mitford Parade ($11M in full).
(c) The balance (circa $23.22) will be treated as deposit/part payment towards 690 Geelong Road.
7. Business and Mitford will settle quickly (say 14 days).
- 690 Geelong Road will get 6 months to settle (to line up with Manda Capital repayment date).
- GME will lease Brooklyn from Jeskan on the following key commercial terms:
(a) Term: 20 years with a 10 year option.
(b) Rent $2.5M per annum payable monthly in advance
Fixed 2.5% rent increases annually. Market review on commencement of further term.
(d) No security deposit.
The LIV lease format is proposed.
I've sent you some amendments to the Terms Sheet separately.
Kindly confirm the above is also your understanding and acceptable to your client.
Agriculture Australia Group ('AAG') is a wholly owned subsidiary of AustAgri.
The proposed lender, Manda Capital, was a different lender to the lender the subject of the term sheets sent by Mr Hopp.
Mr Guy forwarded Mr Guenther's email to Mr Kairouz and Tony Kairouz who confirmed that it was acceptable, with the only concern raised being the lack of a deposit under the proposed lease between GME and Jeskan being perceived to make it difficult to sell the Brooklyn freehold post-settlement of the transaction.
54 As contemplated by Mr Guenther's email, on 4 June 2021 three new contracts were entered into to give effect to the sale of the Cedar Meats business: a business sale agreement between Cedar Meats and GME (the 'Business Sale Contract') which provided for the purchase of the Cedar Meats business for the price of $13 million plus the value of stock calculated in accordance with a mechanism set out in Schedule 6 to the business sale contract, a contract of sale for the Footscray Property between AAG as purchaser and Birrawae as vendor which provided for the sale of the Footscray Property for $11 million, and a contract of sale for the Brooklyn Property between AAG as purchaser and Jeskan as vendor for $45 million.
55 Settlement of the Business Sale Contract and the Footscray Property was to occur on 11 June 2021; settlement of the Footscray contract of sale was to occur on 11 June 2021, whilst settlement of the Brooklyn Property was to occur on 28 November 2021.
56 Relevantly, in the case of the Business Sale Contract, debtors and the stock on hand was to remain with the vendor unless, in the case of the stock, a separate payment was made after the carrying out of a valuation in accordance with schedule 6. This had the effect that on the first day of operation post-settlement, the new Cedar Meats business owned by GME would not own any stock, unless it bought that stock from the vendor, or have any debtors. This created a need for working capital.
57 On 4 June 2021, Mr Dahan emailed Mr Fielding, Mr Schmidt and Mr Murdaca with the subject line 'Cedar working capital'. Mr Dahan's email stated that 'I have the trade facility for $5m. Now working on the domestic debtor and equipment finance piece'.
58 On 30 June 2021, Mr Dahan emailed Mr Kairouz and Mr Schmidt with the subject line 'Debtors Ledger' in which he requested that Mr Kairouz 'please provide a copy of current debtors...we will make sure that there is enough working capital for Cedar to function correctly at handover' (the 'Fourth Working Capital Statement').
59 Mr Dahan later sent further emails in connection with his attempts to secure working capital to Mr Kairouz and copied to Mr Schmidt, Mr Fielding, Tony Kairouz and Mr Murdaca on 1 July 2021 with subject line 'Debtors ledger' stating 'we will discuss with the financiers about which debtors will be suitable to fund. We are moving nicely on the working capital requirements to support the transaction' (the 'Fifth Working Capital Statement').
60 Later, on 6 July 2021, Mr Dahan emailed Mr Kairouz, asking for copies of a creditors list having acknowledged receipt of the latest aged debtors list. The email was copied to Mr Schmidt and Mr Fielding, along with Brad Coppens, who worked for the working capital lender Earlypay. Mr Dahan's email stated that 'we are at between $11m and $17m for working capital' and advised that the financier wanted to obtain information about those suppliers on the creditors list for whom the business required trade finance, noting that the financier would require copies of supplier invoices or details of the value of purchases each month which required funding, and that 'we will aim to conduct a review of major debtors/creditors and advise terms and confirm currency along with country as necessary'(the 'Sixth Working Capital Statement') .
61 On 19 July 2021, Mr Kairouz emailed Mr Murdaca, Mr Schmidt, Mr Fielding and copied in Tony Kairouz and Mr Dahan as well as another representative at Cedar Meats. Mr Kairouz's email referenced the subject line 'Working Capital' and referred to the fact that 'the Loan Documents have been issued and expected Settlement is on 23rd July 2021'. Mr Kairouz's email continued:
It is very important to ensure our working capital is in place from day one of operations. We must take advantage of the upcoming spring Lamb season.
For the short term (6 months) minimum working capital required will be $10-12m. To maximise production in Brooklyn for the long term, ideal working capital $20-25m.
Mr Schmidt responded to Mr Kairouz informing him that:
We are at $15M now, we can add another A$2.0M to that with P & E - I am thinking probably another at least A$2.0M to that with the addition of my security. Once we commence we will be able to source more before the lamb season kicks in.
62 The question of working capital was again referred to in emails which passed between Mr Dahan, Mr Kairouz, Mr Fielding and others between 21-23 July 2021. On 21 July 2021, Mr Dahan noted that there was $7 million in working capital arranged to support the Cedar Meats new company on day 1 with approximately $2 million being secured against equipment and as such available on day one, with an additional $5 million available to pay suppliers. Mr Dahan requested a forecast of Cedar Meat's expected outgoings for the first nine weeks, noting that the $5 million in working capital was there to pay such costs. Mr Dahan went on to say, 'The $10 million of debtor funding will be activated by the first (non-Chinese at this stage) invoice generated. We expect further equipment finance and funding of equipment to be approved over the rest of this week' (the 'Seventh Working Capital Statement').
63 On 22 July 2021, Mr Dahan sent Mr Murdaca an indicative facility offer from Earlypay which contemplated a facility limit of AUD5 million and USD5 million. The proposed facility was in the form of a debtors finance facility with security to be provided in the form of a GSA over GME, AustAgri and AAG, personal guarantees and indemnity from each of those entities along with guarantees from Mr Schmidt, Mr Fielding and any other director, shareholder or related party required by Earlypay.
64 It is not disputed that a meeting occurred in or around late July to early August 2021, at the Essendon premises of a business owned by Mr Murdaca known as International Vehicle Integrity Centre Pty Ltd ('IVIC'), attended by Mr Hopp, Mr Dahan, Mr Murdaca and Mr Kairouz (the 'First IVIC Meeting') although what took place is the subject of dispute. Mr Kairouz's defence says that the following occurred:
(a) when discussing working capital, Mr Hopp told Mr Dahan to 'take care of it' (the 'Third Dahan Statement');
(b) Mr Kairouz said words to the effect that having an exit strategy and sufficient working capital were critical to the transaction; and
(c) in response, Mr Dahan said words to the effect of 'we have it under control, we will have the exit strategy to take out the first mortgagee and the interest rate (on refinance) will be much cheaper than we are on now, we may be looking at an indicative rate of 10-12%' (the 'Third Exit Strategy Statement') 'and allow for working capital' (the 'Eighth Working Capital Statement').
65 According to Mr Murdaca's defence, at this meeting, Mr Hopp said words to the effect that:
(a) Jasper could provide a loan to GME of about $37-39 million by way of a short term loan for a term of eight weeks;
(b) Mr Dahan had an 'exit strategy' for GME to obtain a loan with another lender to refinance the loan from Jasper at the end of the eight week term;
(c) Jasper would allow GME to obtain up to $20 million in working capital from another lender carved out of the security for Jasper; and
(d) the provision of the further loan for the 'exit strategy' made the Jasper loan a workable option.
66 By 10 August 2021, the settlement date for the business sale and the settlement of the Footscray Property had come and gone and the prospective lender referred to in Mr Guenther's email to Mr Guy of 27 May 2021, Manda Capital, had withdrawn from the transaction.
67 A series of emails involving Mr Hopp, Mr Dahan, Mr Kairouz, Mr Schmidt and Mr Murdaca on 10 and 11 August 2021 record negotiations as to the proposed loan structure involving the following:[9]
(a) settlement would take place early the next week;
(b) Mr Hopp would provide an advance of $36.5 million of which approximately $36 million would be available to the borrower secured by first ranking mortgages over the Footscray and Brooklyn Properties and a first ranking GSA over the business;
(c) the properties would remain within the ownership of the Cedar Group and Cedar Meats would remain for $27 million as a second mortgagee;
(d) the advance made by Mr Hopp would be repaid in 4 months' time with the amount due on repayment coming to $45 million;
(e) the Brooklyn property would be put on the market as soon as possible; and
(f) the transaction would be subject to due diligence by Mr Hopp which would start on payment of $30,000 into Mills Oakley' s account and Mr Hopp would issue a term sheet.
68 In connection with the proposed sale of the Brooklyn property, on 16 August 2021 Mr Murdaca emailed Mr Dahan with the subject line 'Cedar GME Portfolio Update.' In his email Mr Murdaca forwarded on an email from Brad Esler, the director of the Industrial and Logistics Division at Savills Australia ('Savills'), real estate agents, in which Mr Esler provided an update on the current interest for the Cedar Meats real estate portfolio. Mr Esler advised that Savills had been able to attract solid interest on the basis that the Cedar business was transferred to GME imminently. Savills had identified three qualified buyers with the key to the buyers' interest being the completion of the sale of business transaction and hence the entering into of leases with the larger GME entity.
69 On 17 August 2021, Mr Dahan emailed Mr Kairouz and Mr Murdaca, and copied in Mr Schmidt attaching a term sheet that had been sent to him by Mr Hopp, but which had been the subject of some handwritten alterations made by Mr Dahan. In his covering email, Mr Dahan described the attachment as the 'revised Hopp term sheet' and that he and Mr Hopp had gone through it point by point. Mr Dahan noted that section 3.4 of the term sheet needed to stay in some form in order to allow security over the two specific properties. Mr Dahan's email otherwise described the document as a 'reasonably clean first mortgage term sheet with limited CPs now'.
70 The attached term sheet specified that the borrower was to be GME, noted that the land owner was Jeskan and Birrawae, stipulated guarantees from Cedar Meats, AustAgri, Jeskan, Birrawae, as well as the directors of each of those entities including Mr Schmidt, Mr Dahan, Mr Murdaca, Mr Kairouz, Tony Kairouz, 'and others'. The face value of the loan note was to be $40,250,000 with the issue price or principal advance of $36,500,000 and the term was 8 weeks. The principal security was recorded as the Brooklyn Property and Footscray Property and the Cedar Meats business. The purpose of the loan was described as land purchase and refinance and it was provided that the principal advance of $36,500,000 would be dispersed in payment of a work fee, an establishment fee, legal fees and ancillaries, then as to 'repayment of existing mortgagees' and finally, as directed by the borrower. Mr Dahan had crossed out in hand the reference to a GSA over the Cedar business, the borrower, GME and the landowners, in the section headed 'Securities'. Likewise in the section headed Cedar Meats Notes Facility' subsection 'Principal Security' had crossed out the reference to the Cedar Meats business and otherwise sought to cross out various other events of default and conditions precedent. The term sheet for the first time referred to 'Jasper Group Limited and/or Nominee'. Jasper Group Limited ('Jasper Group') is a different entity to Jasper.
71 On 19 August 2021, Mr Schmidt emailed Mr Fielding, amongst others and copied to Mr Murdaca and Mr Dahan, amongst others, forwarding on a term sheet from another financier, Merricks Capital ('Merricks'), who proposed a bridging loan for six months of $37.6 million. Mr Schmidt expressed his view that the Merricks offer was too light and recommended that the Merricks term sheet not be signed and that in the meantime Faro Corporate Advisory Pty Ltd ('Faro') and other sources of finance be pursued.
72 On 20 August 2021, Mr Murdaca sent a text message to Mr Hopp in which he referred to a discussion he had with Mr Dahan and Mr Kariouz, amongst others, in which he asked Mr Dahan to 'get us ten weeks in-stead [sic] of eight'. His text message continued:
the only other concern is the [sic] one of the family trust the ownes [sic] the units in one of the property's [sic] the some trust owns other family assets I totally understand you need to protect your investors is there a way we can not [sic] register anything on it so that the family members agree Pierre is willing to settle using your term sheet...
73 On 20 August 2021, Mr Schmidt, Mr Dahan and Mr Murdaca signed a term sheet which had been prepared by Mr Hopp. The term sheet recorded that the guarantees would be required from the directors of AAG, GME, Jeskan, Birrawae including Mr Kairouz, Mr Murdaca, Mr Schmidt, Tony Kairouz 'and others'. The term sheet had also been signed by Mr Kairouz on his own behalf and on behalf of Cedar Meats, Jeskan and Birrawae. The term sheet provided a space for the signature of Tony Kairouz as well, but he had not signed it and his name had been crossed out. In the section of the term sheet which set out the principal security, there was reference to the Brooklyn Property, the Footscray Property, as well as the Cedar Meats business. The loan term specified was eight weeks but this had been crossed out and replaced with a reference to nine weeks which had been initialled. The section headed 'Securities', listed a first ranking GSA over the Cedar Meats business and the business of GME, as well as the landowners Jeskan and Birrawae, and a first ranking registered mortgage over the Footscray Property and the Brooklyn Property.
74 The term sheet was also accompanied by a further handwritten note signed by Mr Dahan, Mr Schmidt, Mr Murdaca and Mr Kairouz with the words 'as discussed with Jason Hopp and in the absence of any doubt, the security package outlined in section 3 "securities" only extends to the following properties', with the addresses of the Brooklyn Property and Footscray Property then set out. Various witnesses gave evidence to similar effect that this was a motivated by a concern that Birrawae and Jeskan both acted as trustees of trusts which owned property separate to the Footscray and Brooklyn Properties and that it was intended (and the lender accepted) that these additional properties would not form part of the security package.
75 On 22 August 2021, Mr Schmidt emailed Mr Dahan and Mr Fielding amongst others with the subject line 'Faro Term Sheet.' Despite this description what was attached was a letter of mandate dated 9 August 2021 between AustAgri and Faro and Terbium Partners Ltd ('Terbium'), the substance of which provided for the payment by AustAgri of a fee of $100,000 plus GST together with a further success fee in respect of a mandate provided to Faro to secure finance for AustAgri. Mr Schmidt's email explained the rationale for the mandate in the following terms:
Faro and Terbium believe that they can start providing access to the Senior debt and equity that they are arranging within the 8 weeks window that we now have with Hopp.
Situation is, we have the following available potential funding to take out Hopp, being: -
Faro - has a credit approved facility for A$41.0M net, (same T&C's as Manda) - term sheet available 24th August
Kairouz family - have an approved facility of A$50M at 4% for 5 years - Pierre advises this will be ready within 7 weeks.
We have another potential private equity offer of a net A$42M at 8% for 12 months. Term sheet due 24th Aug.
Any of the above, if they materialise will be ready prior to Hopp's initial expiry. The Faro offer has been made in case we are not able (for any reason) to settle the Senior debt within 8 weeks.
76 It is not disputed that a second meeting took place at the IVIC premises, most likely in September 2021 (the 'Second IVIC Meeting') although what occurred is the subject of dispute. In his defence, Mr Kairouz says that the following occurred at the Second IVIC Meeting:
(a) Mr Dahan said that he had arranged working capital for GME of $3 million from Hennessey Capital, USD5 million and AUD5 million from Earlypay, and between AUD200,000 to AUD400,000 from Gold Leaf Capital Partners Pty Ltd ('Gold Leaf');
(b) Mr Kairouz said to Mr Hopp words to the effect that debtors and stock had to be used as security for amounts of that magnitude;
(c) in response, Mr Hopp said words to the effect 'no problem' (the 'Ninth Working Capital Statement');
(d) Mr Dahan said words to the effect of 'I've got it under control.' 'It is well underway, it is under control. We are looking at very attractive interest rate and a good length of loan, the interest rate is in the low double digits. I'm putting it altogether. I have approached Merricks Capital and Chris Oliver from Faro Capital to begin arranging the refinance of the Jasper loan in relation to the exit strategy for the Jasper loan' (the 'Fourth Exit Strategy Statement').
77 In his defence, Mr Murdaca says the following occurred at the Second IVIC Meeting:
(a) Mr Dahan said that he had arranged working capital for GME of $3 million from Hennessey Capital, USD5 million and AUD5 million from Earlypay, and between AUD200,000 to AUD400,000 from Gold Leaf Capital Partners;
(b) Mr Kairouz said to Mr Hopp words to the effect that debtors and stock had to be used as security for amounts of that magnitude;
(c) in response, Mr Hopp said words to the effect 'no problems'; and
(d) Mr Dahan stated words to the effect of 'I've got it under control' in relation to the exit strategy for the Jasper loan.
78 On 7 September 2021, Mr Dahan emailed Mr Kairouz in relation to the Earlypay offer of working capital. In his email, Mr Dahan confirmed with Mr Kairouz that Earlypay 'are looking to provide equipment finance, working capital, as well as debt funding to Cedar post settlement'. Mr Dahan advised that he had shared with Earlypay a number of options 'which we are working on to take out the incoming mortgagee in nine weeks' and requested that Mr Kairouz 'email your signed term sheet for Cedar funding' directly to Earlypay. Mr Kairouz responded advising that Haroon Nathaniel would continue to proceed with his option but Mr Kairouz wished to maintain strict confidentiality with respect to the signed term sheet (clearly a reference to the one that Mr Nathaniel was working on) and encouraged Mr Dahan to continue to work on his options to take out the incoming mortgagee in nine weeks. Mr Nathaniel was an investment advisor who was working at Mr Kairouz's request to source finance. Mr Nathaniel had a Cedar Meats email address. Mr Kairouz's described it as great news that Mr Dahan was pursuing other options and noted that Mr Nathaniel was only one of the options and he did not want it to be the only one.
79 On 7 September 2021, Mr Hopp emailed Mr Kairouz, Mr Schmidt, Mr Dahan and Mr Murdaca, among others, advising that the funds required to settle the Cedar Meats transaction were now in place[10] awaiting the provision of executed documents. He advised that he had not yet received payout figures from the outgoing mortgagees and that these should be provided as soon as possible. In the last paragraph of his email, Mr Hopp stated that subject to further documentation he had made available the $2 million for GME as requested in the meeting the previous Friday.
80 On 9 September 2021, Mr Dahan emailed Mr Kairouz and Mr Schmidt, copied to Mr Murdaca and Mr Hopp, with the subject line 'Working Capital' and stated that the Earlypay working capital facility had been formally approved and that he would advise next steps shortly.
81 On 16 September 2021, Mr Schmidt emailed Mr Kairouz and Tony Kairouz, copied to Mr Dahan and Mr Murdaca, attaching an Excel spreadsheet dated 15 September 2021. The Excel spreadsheet set out Mr Schmidt's understanding of the disbursement that would result from settlement of loan arranged by Mr Hopp (later described in similar versions as the 'settlement waterfall'). The spreadsheet anticipated funds available for settlement of $41,750,000 comprising $35,900,000 (being the Hopp short term facility), an additional $2 million from Mr Hopp, an additional $750,000 from Mr Dahan and 'other possible finance - Cacciola' in the sum of $3,100,000. These funds were to be used to pay out the first mortgagee, the Bank of Sydney, in the amount of $20,300,000, and the second mortgagee in the sum of $13,100,000, with $8 million going to the Kairouz family, leaving $350,000 left over. Working capital was then to comprise $1.5 million paid by Earlypay described as a deposit, along with trade finance of $5 million with the balance of the Earlypay facility of $11,756,756. There was then a raft of other commitments next set out which were to paid in part from the working capital funding.
82 On 17 September 2021, Mr Kairouz emailed his solicitor, Mr Guy, copied to Tony Kairouz and Mr Dahan. In his email, he referred to an earlier email (which he also forwarded on to Mr Guy) from Mr Dahan to Mr Guy which set out the position regarding day one working capital once settlement had occurred of the sale of the business from Cedar Meats to GME. In Mr Dahan's email, he set out that the day one working capital would comprise $2 million provided by the Jasper Group at 4% per month; $3 million from Hennessey Capital at 1% per month and $800,000 from Gold Leaf at 1.5% per month. His email continued that:
Once the business transacts, post the AustAgri EGM (23 September) we have significant equity capital had pledged (between $5 million and $7 million at this stage.).
In Mr Kairouz's email to Mr Guy, he stated that the Jasper $2 million, the Hennessey $3 million loan and the Gold Leaf $800,000 did not form part of working capital and that those funds could be used at Cedar's discretion.
83 In a follow-up email sent by Mr Dahan to Mr Kairouz, copied to Mr Schmidt and Mr Fielding, on 22 September 2021, he set out the working capital funding lines for Cedar Meats provided by Earlypay as comprising 1.5 million from the sale and the leaseback of equipment in the boning room; a $5 million working capital facility and debtor funding of AUD5 million and USD5 million. Other sources were then set out in the same terms as his earlier email of 21 September 2021 comprising the funds from Jasper Group ($2 million), Hennessey Capital ($3 million) and Gold Leaf ($800,000).
84 On 23 September 2021, Mr Dahan emailed Mr Kairouz, Mr Schmidt and Mr Murdaca advising that Mr Hopp was advancing 'an additional $3 million in total 'which was all for GME's working capital. He attached a further version of the settlement waterfall spreadsheet earlier prepared by Mr Schmidt and which included some typewritten notes. The spreadsheet now identified available working capital of $17,600,000 which was to be largely provided by Earlypay and in respect of which $1.5 million was to be available on Tuesday (28 September 2021) together with the Earlypay $5 million working capital facility and debtor funding facilities also available from that day.
85 Mr Kairouz's email of 27 September 2021 sent to Mr Guy and copied to Dalia Salloum (Cedar Meat's financial controller), Tony Kairouz, Mr Dahan, Mr Schmidt and Mr Murdaca was largely consistent with the waterfall spreadsheet sent by Mr Dahan to Mr Kairouz on 23 September 2021, although in the comments section Mr Kairouz had written that Mr Dahan was to confirm the timing of availability in respect of the various working capital finance lines.
86 Between 29 September 2021 and 5 October 2021, steps were taken to procure execution of the LNSA and the AAD. On 5 October 2021, GME issued a loan note with a face value amount of $41,250,000 in respect of which GME accessed the utilisation amount provided by the financiers under the LNSA of $36,500,000 and received the additional advance of $2 million made pursuant to the AAD.
87 On 11 October 2021, Mr Kairouz emailed Mr Dahan, copied to Ms Salloum, Tony Kairouz, Mr Schmidt and Mr Murdaca, setting out the Cedar Meats/GME waterfall, which was described in Mr Kairouz's email as the 'waterfall everyone agreed with'. The table largely followed the format of the spreadsheets earlier prepared by Mr Schmidt and recorded available funds at settlement totalling $40,900,000 of which $35,900,000 was said to come from the Santini, along with an additional $2 million coming from the Santini with the notation 'bank cheque in favour of GME. GME to pay Cedar'. $3 million was to be provided by Hennessey which made up the total of $40,900,000. Those funds in turn were then to be disbursed as to $19,863,112 in discharge of the first mortgage owing to the Bank of Sydney, $13,423,733 to the second mortgagee, Bridge Street Capital, with $2,645,241 being received by Cedar Meats which showed excess funds of $4,967,914.[11] Under the heading 'Working Capital', Mr Kairouz listed amounts totalling $17,200,000 which comprised $700,000 from Gold Leaf with the balance from Earlypay recorded in various financing lines: cash at bank (AUD1.5 million); livestock purchases (AUD5 million); trade finance (AUD5 million); and trade finance (USD5 million). In his email, Mr Kairouz stated that 'it is critically important that we meet and deliver on the waterfall'.
88 On or about 12 October 2021, GME and others[12] executed five agreements with Earlypay: a partnership finance facility deed providing for facility limits of AUD5 million and USD5 million, an import finance facility deed with a facility limit of AUD5 million, and two loan agreements in respect of advances of AUD500,000 and AUD1 million and a GSA. The partnership finance facility deed was effectively a debtor finance facility; the import finance facility deed financed purchases by GME. The GSA constituted part of the security sought in relation to each of the facilities and the loan agreements.
89 On 15 October 2021, Mr Dahan emailed Nicholas Alexander, the head of business development at Balance Lending, enclosing a copy of an information memorandum that had been prepared by Savills in connection with the proposed sale of the Footscray Property and Brooklyn Property. The subject of the email was 'Cedar working capital bridge'. In his covering email, Mr Dahan said that 'our preference is not to sell the buildings' but that Savills has interest at around $72 million for the two properties. After noting that the sale of the land, buildings and business had taken place the previous week,[13] Mr Dahan advised that Terbium had been mandated to raise debt and equity capital for the GME food processing aggregation and that they expected to bring in an equity raising at $20 million which would be used to keep the land and buildings in Melbourne as well as the facility owned by Tony Kairouz in Mildura. Mr Dahan's email was also copied to Mr Nathaniel.
90 On 15 October 2021, Mr Dahan emailed Mr Schmidt forwarding on an email that he had received that day from Mr Coppens at Earlypay. In his email, Mr Coppens advised that Earlypay was having their documents certified[14] and caveats were being lodged ahead of the mortgages being lodged for registration. He advised that Earlypay was ready to settle on the term loans totalling $1,500,000 and would be sending the funds overnight to GME, which funds could be used for general cashflow and purchases. He said that they should have the trade finance facility[15] ready to go the next week for direct purchases of livestock which would be paid by Earlypay when each invoice was due. His email concluded by advising that once a pre-settlement audit had been completed and other settlement conditions had been addressed, the debtor finance facility would be fully in place which could be used for advances against invoices owing to GME from domestic and export sales.
91 On 18 October 2021, Mr Dahan sent an email to jaspergroup1@gmail.com, copied to Mr Hopp. The email address was that of Rebecca Loh who is the sole director of Jasper and Jasper Group. The email read:
Good afternoon Rebecca, we have arranged working capital for Cedar Meats through listed EPY.ASX (Earlypay). EPY have prepared an intercreditor deed to sit behind your mortgages against Mitford Parade (Footscray) and Brooklyn.
We would be pleased if you can consider this request favourably as the viability of the Cedar business depends on these funds being made available as a matter of urgency.
Mr Dahan also forwarded a copy of that email to Mr Schmidt on the same day.
92 On 19 October 2021, Mr Nathaniel emailed Mr Dahan, forwarding on a copy of an email sent to Mr Nathaniel by the Commonwealth Bank of Australia which requested various pieces of information in connection with the operation of the Cedar Meats business including, relevantly, a business plan, last three years of audited financial statements, financial forecasts and details of property available for security, as well as valuations of those properties. Mr Nathaniel asked for assistance in compiling the requested information.
93 On 20 October 2021, Mr Dahan emailed Mr Hopp, copied to Mr Schmidt, Mr Kairouz and Mr Fielding enclosing three documents asking that Mr Hopp arrange for them to be signed. He enclosed two priority deeds for the Footscray and Brooklyn Properties which effectively gave Earlypay second ranking security over the two properties, and a document headed 'Release and Undertaking to Amend Registration' which in effect carved out GME's personal property, debtors and inventory from the GSA registered in favour of Jasper. Mr Schmidt's email to Mr Kairouz of the same day, advised that the documents were with Mr Hopp who agreed with them. Mr Schmidt's email noted that Mr Dahan was chasing Mr Hopp.
94 On 22 October 2021, Mr Kairouz emailed Mr Dahan, copying in, Tony Kairouz, Mr Hopp, Mr Murdaca and Mr Schmidt (among others). Mr Kairouz requested confirmation from Mr Dahan that the working capital facility was in place as business had commenced trading under GME. His email noted that GME had incurred expenses that would be due and payable the next week and as a result it was necessary that the full working capital be ready to go.
95 Mr Kairouz's email then set out that the total funds that had been available to GME at settlement totalled $37,494,824 leading to a shortfall of $3,505,176. Mr Kairouz said that he was not chasing the shortfall but wanted Mr Dahan to deliver the working capital into the GME bank account. His email noted that Mr Dahan had pledged that the funding from Earlypay and Hennessey would be immediately available after settlement and they were still waiting for it. Mr Kairouz then set out the anticipated funding from Earlypay for each of the facilities which totalled AUD11.5 million[16] and USD5 million along with the $3 million expected from Hennessey. Mr Kairouz's email concluded with a statement that 'we all must deliver on what we promise, as we have accepted your pledges on face value'.
96 In response, Mr Dahan emailed Mr Kairouz, copying in Mr Schmidt and Mr Hopp, advising that he and Mr Schmidt were with Mr Hopp looking to resolve the working capital impasse. Mr Dahan requested that Mr Kairouz instruct Mr Guy as a matter of urgency to prepare a contract of sale and a section 32 statement for the Footscray Property and the Brooklyn Property as well as an ATO withholding clearance certificate.
97 On 23 October 2021, Mr Hopp emailed Mr Dahan and Mr Schmidt advising that he was instructing Mills Oakley to 'down tools to save costs' as Mr Kairouz is intending to pay us out next Friday. The reference to downing tools evidently related to the documentation needed to address Earlypay's security requirements which would be rendered moot if Jasper's debt was paid out. In his response, Mr Dahan wrote that GME was intending to pay you out and that Mills Oakley was not doing anything as Mr Hopp had not given approval for the working capital facility.
98 Despite this, on 27 October 2021, Mr Dahan emailed Mr Coppens, copied to Mr Kairouz, Mr Schmidt and Mr Nathaniel, requesting that Earlypay's lawyers liaise with Mills Oakley in relation to the drafting of a deed of priority in relation to the 'accounts'. He confirmed that Mr Hopp was agreeable to a second mortgage being lodged by Earlypay on the two properties and advised that Haroon Nathaniel from Nathaniel Capital was comfortably placed with his arrangements to take Jasper out of their first mortgage in a timely fashion.
99 On 28 October 2021, Mr Dahan emailed Mr Kairouz, Mr Schmidt and Mr Nathaniel advising that he had held a very good meeting with Invigo and Fresh Supply Company who were willing to replace and increase the working capital to purchase the livestock which Mr Hopp had restricted from Earlypay by not allowing a carveout of stock from the GSA. Mr Dahan's email noted that 'we had created a structure that will circumvent Hopp while staying compliant with the loan note'.
100 On 1 November 2021, Mr Hopp sent an iMessage to Mr Dahan advising that the documentation was with Mills Oakley after having been reviewed by the financiers. His message advised that he assumed that the amendments would be sent over to Earlypay for consideration that day and that once the amendments had been agreed he would have it executed by the security trustee. Mr Dahan's message in response was to the effect that they were keen to see the signed document down at Cedar Meats as 'the boys' were keen to know everything was in order so they could buy livestock.
101 On 4 November 2021, Mr Kairouz and Mr Nathaniel participated in an email exchange relating to the provision of valuations for the properties being provided to prospective lenders.
102 On 5 November 2021, GME became liable to repay $2.4 million under the AAD. The payment was not made.
103 On 5 November 2021, Mr Coppens from Earlypay emailed Mr Dahan. The subject line in the email read 'Signed GME Earlypay Agreement' and the email attached the copy of the partnership finance facility deed with the facility limits of AUD5 million and USD5 million which had been earlier executed by GME among others on 12 October 2021. Despite the subject line in the email, the documents had not been signed by Earlypay. There was nothing else written in the body of the email.
104 On 9 and 10 November 2021, Mr Hopp and Mr Coppens exchanged a series of emails relating to the terms of a deed of priority between Jasper and Earlypay.
105 On 7 December 2021, GME became liable to make payment of the face value amount of the loan note in the sum of $41,250,000. That sum was not paid.
106 On 3 February 2022, Mr Dahan emailed Mr Kairouz and Mr Murdaca seeking a mandate from GME to engage Hennessey on an exclusive basis to facilitate the appropriate refinance of debt[17] which would incorporate the sale of the Brooklyn and Footscray Properties. GME later executed the mandate in favour of Hennessey and on 3 March 2022, a company by the name of IP Generation made an offer subject to due diligence to purchase the Footscray and Brooklyn Properties for a price of $65 million on the basis, inter alia, that the properties would be sold subject to 20 year leases with 12 month bank guarantee. The proposed sale to IP Generation did not proceed.
107 On 15 May 2022, a term sheet was entered into by GME, among others, and Bridge Street Capital, for a loan of the lesser of 85% of the independent valuation of the security properties and $87,422,500 for a term of six months. Notwithstanding the term sheet, the finance arrangement did not proceed.
108 No refinance of the amounts owing under the LNSA occurred.
109 On 6 December 2022, demands were made by Jasper upon Mr Murdaca and Mr Kairouz of all amounts due and owing under the LNSA.
110 On 16 March 2023, Jasper appointed receivers and managers over the shares held by GME in Cedar Meats and over GME's bank accounts.
111 On 24 March 2023, Jasper and GME, among others including Mr Kairouz, entered into a moratorium deed, the terms of which, among other things, provided that Jasper would not make any further appointments of receivers or receivers and managers to any of the assets of the GME parties before 17 April 2023.
112 Each of the witnesses in the proceeding, with the exception of Mr Dahan, gave evidence-in-chief by way of the tender of an affidavit and was then cross-examined. However, insofar as the evidence-in-chief related to what was said at the meetings where the representations were alleged to have been made, namely the April 2021 Meeting, the Atlantic Restaurant Meeting, the First IVIC Meeting, and the Second IVIC Meeting, each was required to give evidence-in-chief orally and not by way of affidavit.
113 The parties had agreed that the order of evidence would be Jasper first but only in relation to its claim which in effect went only to the LNSA Execution Issue, Mr Kairouz and Mr Murdaca in relation to the counterclaim (effectively the Misrepresentation Issue) followed by Jasper/ Santini and Mr Dahan/ Hennessey in defence of the counterclaim. Jasper tendered a short affidavit from Mr Dahan (the 'Jasper/Dahan Affidavit') in its case without the necessity of Mr Dahan being called or cross examined. That was understandable. At the time of the tender of the Jasper/Dahan Affidavit, Mr Dahan and Hennessey were defendants to Mr Kairouz's counterclaim and an affidavit had been prepared for Mr Dahan by the solicitors for Mr Dahan and Hennessey which dealt with the Misrepresentation Issue (the 'Dahan affidavit'). A day or so after the tender of the Jasper/Dahan Affidavit, counsel for Mr Kairouz and Mr Dahan advised that the counterclaim against Mr Dahan and Hennessey had been resolved, orders were made dismissing the counterclaim against them with no order as to costs and Mr Dahan's counsel were excused.
114 In due course, counsel for Mr Kairouz then called Mr Dahan as a witness and adduced oral evidence in chief from him in relation to the Misrepresentation Issue. After the evidence-in-chief had concluded, on application being made by counsel for Mr Kairouz to cross examine, I accepted that Mr Dahan's evidence as to the exit representations and his authority to act on behalf of Mr Hopp and Jasper was unfavourable within the meaning of s 38 of the Evidence Act 2008 (Vic) and accordingly, I gave leave to Mr Kairouz's counsel to cross-examine him as to those matters, followed by cross-examination from counsel for Mr Murdaca and then counsel for Jasper. During the course of cross examination of Mr Dahan, counsel for Jasper tendered the Dahan Affidavit, excluding those parts that set out what had occurred at the various meetings, without objection.
115 A summary of the oral evidence in relation to the alleged oral representations is matters is set out below.
116 At the first meeting, he was introduced to Mr Hopp who said that he had pulled out of the Manda Capital deal and had $25-35 million short-term lending available. Mr Hopp said that he was in it for the short term and he would have an exit strategy available because it was such a short term loan. Mr Hopp said he knew all about the business because he'd been involved in the Manda Capital deal and would be making at least $2 million on the deal. Mr Hopp wrote up aspects of the deal on a whiteboard and was talking about $36-38 million being available. Mr Hopp said he would have the exit strategy in place.
117 Mr Kairouz said that he also explained that they had a current facility with the Bank of Sydney which included loans, trade facilities and working capital and had short term funding obtained from Bridge Street Capital. Mr Kairouz said that he told Mr Hopp that any new facility would need to have working capital of $20-25 million to enable the business to operate efficiently. Mr Hopp said that would not be a problem and he would carve out the debtors and stock from the Jasper loan facility. According to Mr Kairouz, Mr Dahan said that working capital would be available from day one.
118 In cross-examination, Mr Kairouz accepted that there could be no guaranteed exit until there was a lender and a negotiated facility with the terms agreed and that those terms were likely to include a large amount of security. He accepted that the replacement lender in relation to the implementation of an exit strategy would require an agreement to be in place which would include matters such as security, interest, when the loan was repaid, and default consequences. Mr Kairouz accepted that in normal circumstances for such an exit to be in place there would have to be negotiations and work undertaken by the replacement lender. When Mr Kairouz was asked as to whether Mr Hopp discussed any of the arrangements that he would be prepared to contemplate for a replacement loan for the Jasper loan, Mr Kairouz answered that Mr Hopp relied upon Mr Dahan to do that work for him.
119 The Atlantic Restaurant Meeting was attended by Mr Kairouz, Tony Kairouz and Mr Hopp. Mr Kairouz said that at the Atlantic Restaurant Meeting he reiterated the need for working capital and that they would need $20-25 million. Mr Hopp confirmed that he would carve out the debtors and the stock from the facility. Mr Kairouz said that Tony Kairouz made a comment to Mr Hopp to ensure that there was an exit strategy for GME to which Mr Hopp replied by saying that he was there for the short term and that we'd all have it done or words to that effect.
120 Mr Kairouz said that at the first meeting at IVIC in July/August, he said that they needed $20-25 million in working capital and that he also discussed the exit strategy as well. He said that Mr Hopp reaffirmed that debtors and stock could be used as a carve out. When Mr Kairouz was then asked in chief as to whether anything else was said by anyone about the working capital, Mr Kairouz said that Mr Dahan responded by saying, 'I hear you, we're working on it'.
121 When Mr Kairouz was asked as to what was said about the exit strategy, Mr Kairouz said that he raised both the working capital and the exit strategy and said that we needed to have it. In relation to the exit strategy, Mr Hopp responded by saying that it was under control and that he wanted Mr Dahan to go as a guarantor and put up security on the Jasper loan to which Mr Dahan responded by saying that it was not a problem.
122 In cross-examination, Mr Kairouz rejected the suggestion that the request to carve out debtors and stock came much later after Mr Dahan had apparently failed to obtain working capital from other lenders.
123 He also disputed that carving out debtors and stock would diminish the value of the security held by the Jasper lenders because he said that the business would flourish if working capital was provided
124 In cross-examination, Mr Kairouz also said that Mr Dahan said that the refinance was looking very good and that interest rates were very attractive, that he was meeting with Merricks and Chris Oliver from Faro and that the interest rates were likely to be in the low double digits. When it was put to him that it was Mr Dahan that had promised the exit loan, Mr Kairouz answered no, it was Mr Hopp who had promised the exit loan.
125 When Mr Kairouz was asked about what was said at the Second IVIC Meeting in September, he said that Mr Dahan gave a presentation about the working capital and where it was going to come from. He said that AUD3 million was going to come from Hennessey, USD5 million as well as an additional AUD5 million was going to come from Earlypay and between AUD200,000-400,000 from Gold Leaf Capital. Mr Dahan said that that it would be available from day one.
126 When Mr Kairouz was asked whether Mr Hopp said anything about working capital, he said that Mr Hopp concurred about the carving out of debtors and stock saying that this could be used as security.
127 When he was asked whether anything else was said at the meeting, Mr Kairouz said that they went on to talk about the exit strategy. Mr Dahan said that we've got that well underway, we're looking good, we'll have a facility of low double digits, that he was in communication or meetings with Merricks and Chris Oliver from Faro. He said that Mr Hopp didn't say anything else about the exit strategy.
128 In cross-examination, it was put to Mr Kairouz that he had signed a term sheet which provided for security to be provided over the business as a whole and which contained no reference to a carve out. Mr Kairouz agreed that he signed the term sheet but rejected the suggestion that no carve out was raised at that time.
129 Mr Kairouz accepted that Mr Dahan was looking for working capital during the period but rejected the suggestion that Mr Dahan was not working with Mr Hopp on the working capital.
130 Mr Kairouz accepted that he did not know of any relationships between Merricks, Faro and Mr Hopp.
131 Mr Murdaca said that at the first meeting Mr Hopp had already written numbers up on the whiteboard by the time they got there. He was introduced to Mr Hopp and Mr Dahan. Mr Hopp said that he had been approached through AustAgri to help out with the deal and that he would be able to put up $30-35 million or thereabouts to kick the transaction off and work with AustAgri in relation to the other transactions that AustAgri were thinking about such as the Top Cut acquisition. Mr Hopp said that he could assist in the transaction and come up with at least $35 million and possibly $40 million or thereabouts and he would then work with the group to do the takeout which Mr Murdaca said amounted to paying out the whole family.
132 When he was asked as to what else was said, Mr Murdaca said there was discussion about the AustAgri growth and other things that AustAgri were doing.
133 In cross-examination, he was asked whether he recalled Mr Hopp explaining what a loan note was. Mr Murdaca said he didn't know if he spoke about loan notes but he did mention he could come in and help with the transaction. He could not recall whether Mr Hopp said the term of the loan would be over nine weeks but could recall him saying that it would be short term.
134 Mr Murdaca said that the next meeting was at his office at IVIC. When he was asked when it was, he said it could have been May or June. He said again that Mr Hopp took control of the meeting and wrote things up on a whiteboard. He said that Mr Hopp said that he would be in for the smaller part of the debt - that is $30-35 million to kick it off.
135 He said that Mr Kairouz then took charge of the discussion and said we needed working capital. Mr Kairouz said that they needed working capital and Mr Hopp said that was under control and he was confident they could get the deal done. He said that Mr Kairouz said they needed $15-20 million to bring the business to the next level.
136 Mr Murdaca said he was confident that Mr Hopp would be able to get the deal done because Mr Hopp said that he could come up with the money because he had his own funds and could always access Malaysian and Singaporean money if he needed.
137 When Mr Murdaca was asked whether there was anything said about a take out, he said that Mr Hopp said he'd had discussions with the AustAgri group and obviously Mr Dahan and they were already talking to parties for the take out. Mr Hopp said that he was going to make a few million dollars out of it, maybe two or three or four million dollars or whatever.
138 When Mr Murdaca was asked whether there was a discussion about the duration of the loan, Mr Murdaca said he was not sure which meeting this was mentioned at, but at one meeting Mr Hopp said he would be in and out in eight weeks.
139 When Mr Murdaca was asked as to what was specifically said about the mechanics of the next stage where the balance of the money would be paid out to the Kairouz family, Mr Hopp said that the next stage would involve the pay out of his loan and the (Kairouz) family and that there would be enough money to pay everybody out. He said that Mr Dahan made a comment to the effect that he was well on the way with it with Paul Fielding and Alan Schmidt, and Mr Murdaca was comfortable with that.
140 Mr Murdaca said that the biggest agenda item at the meeting for Mr Kairouz was operating capital. He said that Mr Kairouz mentioned that there was stock that belonged to the family and that at settlement some of the money would go to the family but that he wanted to be sure that there would be enough stock there to allow a carve out or that someone could 'sit behind Mr Hopp for operating capital'.
141 According to Mr Murdaca, Mr Dahan backed that statement up and said that there would be enough there to go in behind Mr Hopp and get operating. He said that Mr Kairouz's main focus was to get the family paid out and that Mr Kairouz was seeking assurances that the exit was well on the way. He said that Mr Hopp gave assurances that the exit was well underway and that Mr Dahan backed it up. Mr Hopp said words to the effect that the exit was well under way through the AustAgri group and that Mr Dahan was working on it with Paul Fielding and others and that Mr Hopp would make his money and move on. He said that Mr Dahan pretty much backed up what Mr Hopp was saying.
142 When he was asked what else was said about the prospect of paying out the Jasper loan at the Second IVIC Meeting, he said that Mr Hopp responded by saying they would have an exit out and that this was backed by Mr Dahan. Mr Dahan said that it was well on the way and he was working on it.
143 When he was asked whether anything else was said, Mr Murdaca responded by saying that 'they'd allow the carve out for the operating capital to satisfy Pierre's needs for the business'. When he was asked whether anything else was discussed, he said the two main topics that were touched on was the exit to get the family out and the operating capital.
144 Mr Schmidt said that the first meeting was an introductory meeting and Mr Hopp indicated that he would be able to fund the Cedar Meats/GME acquisition.
145 He said that Mr Hopp said that when people cannot get finance anywhere else they come to him.
146 Mr Schmidt said that at a second meeting in April 2021, Mr Hopp indicated that he could make available up to $43 million for about six months. Mr Schmidt said that Mr Kairouz was always worried about an exit strategy and the cost of the loan. Mr Schmidt said he (Mr Schmidt) raised the question of working capital with Mr Hopp, who said he was not interested in providing working capital to the business.
147 Mr Schmidt said that it would be necessary to carve out debtors and stock so that another lender could be introduced to fund the working capital. Mr Dahan said that would be easy and they would be able to find somebody to do that. When he was asked about Mr Hopp's response to Mr Schmidt's comment about a proposed carve out, Mr Schmidt said, 'From memory, I think it was at that meeting, but just bear in mind that we had a number of meetings over a period of time ... I think Jason Hopp said I'll do that, I'll do the Cedar Meats bit and Jack Dahan will work on the working capital'.
148 In relation to the exit strategy, he said that Mr Dahan said look, if we can get the Hopp loan settled it would be very easy to replace it and he's got a number of people who can replace Mr Hopp, Santini or Jasper Nominees. When Mr Schmidt was asked what Mr Hopp said in response, Mr Schmidt said he couldn't recall the exact chronology but broadly that Mr Hopp said that he could provide the capital and start the process of buying the business but I'm not doing anything with the working capital, I'll get my man Jack Dahan to do the working capital bit.
149 Mr Schmidt said that it was confirmed that at a meeting in around August/September that Jasper would do the loan and that Mr Dahan confirmed that working capital would be provided by Earlypay and that this would be done by a carve out of the debtors and the stock which Mr Hopp said he would be able to do. Mr Schmidt said that this was a meeting at IVIC in about August or September. He said that Mr Hopp said he could provide the capital subject to documentation and final details; that he would carve out the debtors and stock; and that Earlypay would be prepared to do the working capital piece.
150 Mr Dahan recalled numerous meetings in April 2021 attended by either Mr Schmidt, Mr Hopp, Mr Barros, Alan Holmes, himself, and on the odd occasion, Mr Kairouz and Mr Murdaca. AustAgri owned GME and AustAgri was charged with finding the funding. His general sense in April was that the first and second mortgagee needed to be refinanced. AustAgri had a number of parties engaged to try and find the funding to take out the first mortgagee, the Bank of Sydney, and the second mortgagee, Bridge Street Capital.
151 Mr Dahan recalls Mr Hopp at one meeting writing a figure of $68 million in big red letters on a whiteboard, but he cannot recall if that was a short-term figure or a 12 month figure. He said Mr Hopp, in relation to his funding role, was always talking of a short-term loan.
152 When Mr Dahan was asked about what his role was, he said that he was working to provide a working capital solution and that it was discussed early on that Mr Hopp would not be comfortable with someone else having a charge over the equipment, so that was off the table and as a result, Mr Dahan's endeavours were then directed to finding a funder who would take security against the stock and debtors.
153 He can recall a meeting either at IVIC or Collins Street in about September, and that by that stage, Mr Murdaca was representing GME and Mr Barros was no longer attending the meetings. Mr Dahan said that Mr Hopp had a facility of around $36 million, together with an additional amount of working capital of about $2.25 million.
154 He can recall that GME asked about the need for working capital to be available, and Mr Hopp added $2.25 million to the pot for working capital. Mr Dahan said that at the various meetings he attended with any of the Cedar Meat operatives, there was a real focus on working capital and that Mr Kairouz and Mr Schmidt were focused on the need for working capital from day one. Mr Dahan said that in response, Mr Hopp said that the working capital would be sorted. Mr Dahan agreed that he was charged with finding working capital. Mr Dahan said that he was providing AustAgri with updates constantly about where Earlypay was at in relation to the provision of working capital, and that Earlypay had engaged PKF to undertake due diligence. He said that Earlypay did release funds soon after Mr Hopp's facility had been provided, but not the full package.
155 When Mr Dahan was asked about discussions between himself, Mr Hopp, Mr Kairouz and Mr Murdaca about the refinance of the debt to be ultimately provided under the LNSA, he said that he certainly would have spoken to everybody about how the progress of various negotiations with lenders was going on, and that he had participated in many Zoom meetings with various other AusAgri operators and GME operators during the September to November period, and that he might have asked about how a meeting had gone with Terbium.
156 Mr Dahan said he was across how the conversations were going, but he did not lead them. When Mr Dahan was asked whether Mr Hopp had said to Mr Kairouz and Mr Murdaca that he had an exit strategy for GME out of the LNSA, he answered by saying he could not recall any discussions between Mr Kairouz and Mr Murdaca about the provision of longer term debt from Mr Hopp, and certainly not in 2021.
157 In cross-examination by counsel for Mr Murdaca however, Mr Dahan said that he did recall attending a meeting in April with Mr Kairouz, Mr Hopp, Mr Schmidt, Mr Barros and Mr Murdaca, and that he did agree that Mr Hopp said he would provide funding in the order of $25 million, but Mr Hopp wanted to be out within eight weeks. Mr Dahan said he recalled that Mr Hopp was going to make at least $2 million a month from the deal. In cross-examination, he said he could recall Mr Hopp saying words to the effect that 'You or you and/or he or all those present would arrange longer term finance to enable the short-term loan to be satisfied at the end of the nine weeks'.
158 He could also recall Mr Hopp saying that he was prepared to look at structuring a deal which would allow GME to obtain working capital of up to $20 million by carving out stock and debtors, but said that was led by Mr Dahan himself, who was saying that that was what was needed.
159 In cross-examination, Mr Dahan said that he recalled attending a meeting at IVIC in about July 2021, along with Mr Hopp, Mr Kairouz, Tony Kairouz, Mr Schmidt and Mr Murdaca, although this might have been the second later meeting.
160 Mr Dahan agreed that the discussions at the IVIC meetings were similar to those that were held at the April meetings, and there was confirmation of Mr Hopp being able to arrange a facility of roughly $36.5 million, with the possibility of an additional $2 million for working capital.
161 He agreed that Mr Hopp said words to the effect that Mr Dahan was looking into procuring the long-term finance so that Mr Hopp's short-term loan could be discharged in a timely manner.
162 He also accepted in cross-examination that he recalled Mr Hopp saying that he would be happy to extend the transaction beyond the contemplated eight weeks if that was necessary to enable the payout. Mr Dahan also agreed in cross-examination that he remembered Mr Hopp saying words to the effect that he and Mr Dahan were confident they could get the deal done in relation to the exit strategy.
163 As to the second meeting at IVIC, Mr Dahan agreed that discussions were held about a possible $10 million facility that could be obtained from Earlypay and that the working capital discussions included discussions about the need to obtain security over stock and debtors.
164 In cross-examination, he was asked if Mr Hopp ever said anything to indicate that security over stock and debtors would not be available. He answered, 'No. In all the discussions with my resource at Earlypay and his boss the Victorian manager, stock and debtors were a carve-out.'
165 Mr Dahan said that he also took part in a number of meetings with Mr Hopp by himself and with Earlypay where the carve-outs were discussed. There was also discussion about particular clients and how Earlypay would not accept certain debtors. Mr Dahan said they were working out where they were going to go with it, and that they were right down to the weeds of the conversation but 'we had moved away from a conversation but nevertheless were in agreement that stock and debtors had to be carved out'. He said that Mr Hopp had said, 'I'm not going to allow you to carve out the equipment'. He agreed that Mr Hopp said at this meeting that the exit strategy was well under way. He agreed that on one occasion Mr Hopp called him his 'two dollar bitch' and 'far worse', but added that the tone of the meetings was pretty casual and that his banter with Mr Hopp was and remains pretty lively. He did not recall challenging Mr Hopp on that characterisation.
166 Mr Hopp said that at the first meeting, he explained to those that were there, Mr Murdaca, Mr Kairouz, Mr Dahan and Arthur Naoumidis and another gentleman who didn't remain at the meeting, that he had been involved in the Manda Capital deal that had fallen over, but that he had the ability to do a short-term loan. He explained how the loan note facility worked by saying that it was a mortgage backed security like a debenture. He said he thinks he gave them an indication that he could offer between $25 million and $35 million, but only on a short-term basis of two to three months.
167 He agreed that he had lunch with Tony Kairouz and Mr Kairouz at the Atlantic Restaurant. He said there was only one meeting there, contrary to Mr Kairouz's evidence. He said that this was on a Friday, and that he praised the Cedar Meats business, given that they had operated a family business at the site for over 30 years. He can remember asking some questions about why the Kairouz's were taking the approach they were taking in relation to AustAgri and they explained that they were having issues with the family and it was a case of all the family being in or all the family being out. He also said to them if they didn't have a solution to exiting his facility, they shouldn't take out the facility.
168 He denied that at the first meeting, he and Mr Dahan presented a joint proposal for finance, although he accepted that he provided a proposal. He denied that he said that there would be an exit strategy in place to pay out the loan.
169 Mr Hopp denied that he had said he would back the financials of Cedar Meats as he didn't have the financials at that stage. He agreed that he was told by Mr Kairouz that part of the loan would be used to pay out the Bank of Sydney and Bridge Street Capital as first and second mortgagees.
170 He did not accept that he was told that Cedar Meats would require $20-25 million in working capital, and denied that he said words to the effect that he would grant a carve-out of debtors and stock from the Jasper loan to facilitate the provision of working capital. He did not accept that he said that Mr Dahan would organise the working capital.
171 He denied that there was a second meeting at the Atlantic Restaurant and that at this meeting there was any discussion about working capital or the carve-out of stock and debtors.
172 He agreed that there was a meeting at IVIC in around July/August 2021. He can recall that at the first meeting at IVIC, there was a discussion about Mr Dahan becoming a director of GME. He said that he was an advocate for Mr Dahan and others who had 'skin in the game', as well as the Kairouz family becoming directors of GME.
173 He said that there was then a later meeting at Mr Dahan's office, and he can recall there were discussions about the cost of the facility. He can remember defending the amount of the establishment fee and various other fees associated with the loan. He says that he wanted Mr Murdaca to be a guarantor, but cannot remember specifically saying that at any of the meetings.
174 He said that it was his practice to make sure that the term sheet was clearly negotiated, and that critical commercial terms were documented on the term sheet. He explained that the role of the term sheet was to set the rules for all of the players, including the financiers, and that once there is an agreed term sheet, then the term sheet can be taken to the purchaser of the loan note (the financiers) as they are the people who provide the money.
175 He recalls attending a meeting at Mr Dahan's office at 410 Collins Street, where Mr Hopp identified a shortfall in their funding of about $4-5 million.
176 He can recall a second meeting at the IVIC office where he specifically asked how they were going in relation to an exit strategy. He said that he asked how are the other loans coming along. Mr Hopp said that he knew that they were in communication with Merricks and somebody else, and that Mr Dahan responded that things were looking good.
177 When he was asked about working capital, Mr Hopp said he was asked by Mr Dahan to provide $3 million in working capital at some point in late August/early September. He said that he asked his financiers and he was able to get $2 million.
178 Mr Hopp said he was never asked at any of the meetings about releasing stock and debtors as security for the working capital loans, and said that if he had been asked, he would have said he would take it to the financiers and have a discussion with them, and see whether they were prepared to do that, but he was never asked.
179 When he was asked as to whether he knew who had the carriage of arranging the exit loan, he said 'the answer to that is everyone; Mr Murdaca was seeking his own exit strategies, Mr Schmidt was seeking his own exit strategies, Mr Dahan was seeking exit strategies...people who were associates of the Cedar Meats business were seeking exit strategies...AustAgri, in its own right was seeking exit strategies, as was GME in its own right.'
180 He agreed that calling Mr Dahan his 'two dollar bitch' sounded like something that he might say. He said there has always been a lot of ridiculous banter between Mr Dahan and himself. When he was asked if the implication of this statement is that Mr Dahan would do what Mr Hopp said, he did not agree, and couldn't recall the context in which it was said. He said these were informal meetings.
When he was asked whether he would look to Mr Dahan to answer questions about the exit strategy at these meetings, he said Mr Schmidt was the first person he would speak to, but he would also speak to Mr Dahan. He said that Mr Dahan was intimately involved in the restructuring or exit strategies proposed by the borrower. He said that information was provided to him by Mr Dahan and Mr Schmidt at meetings that things looked good in relation to progress being made on the exit strategy.
Evaluation of the evidence as a whole and conclusion in relation to the Misrepresentation Issue
181 Whether or not conduct (including representations) is misleading or deceptive is a question of fact to be determined in the context in which the conduct took place, at the time it took place, having regard to surrounding facts and circumstances.
182 In Butcher v Lachlan Elder Realty Pty Ltd,[18] the majority pointed out that:
it is important that the...conduct be viewed as a whole. It is not right to characterise the problem as one of analysing the effect of its "conduct" divorced from...circumstances which might qualify its character. Everything relevant...must be taken into account.
It invites error to look at isolated parts of the corporation's conduct. The effect of any relevant statements or actions or any silence or inaction occurring in the context of a single course of conduct must be deduced from the whole course of conduct. Thus, where the alleged contravention of s 52 relates primarily to a document, the effect of the document must be examined in the context of the evidence as a whole. The court is not confined to examining the document in isolation. It must have regard to all the conduct of the corporation in relation to the document including the preparation and distribution of the document and any statement, action, silence or inaction in connection with the document.
183 In Viterra Malt Pty Ltd v Cargill Australia Ltd & Anor ('Cargill'),[19] the Court of Appeal approached the necessary analysis by reference to the principles set out by the High Court in Self Care IP Holdings Pty Ltd v Allergan Australia Pty Ltd ('Allergan'),[20] noting that the question of whether a person has breached s 18 of the ACL involved a four-step analysis. In Allergan, the Court said as follows:[21]
Determining whether a person has breached s 18 of the ACL involves four steps: first, identifying with precision the "conduct" said to contravene s 18; second, considering whether the identified conduct was conduct "in trade or commerce"; third, considering what meaning that conduct conveyed; and fourth, determining whether that conduct in light of that meaning was "misleading or deceptive or ... likely to mislead or deceive".
The first step requires asking: "what is the alleged conduct?" and "does the evidence establish that the person engaged in the conduct?". The third step considers what meaning that conduct conveyed to its intended audience. As in this case, where the pleaded conduct is said to amount to a representation, it is necessary to determine whether the alleged representation is established by the evidence. The fourth step is to ask whether the conduct in light of that meaning meets the statutory description of "misleading or deceptive or ... likely to mislead or deceive"; that is, whether it has the tendency to lead into error. Each of those steps involves "quintessential question[s] of fact".
The third and fourth steps require the court to characterise, as an objective matter, the conduct viewed as a whole and its notional effects, judged by reference to its context, on the state of mind of the relevant person or class of persons. That context includes the immediate context - relevantly, all the words in the document or other communication and the manner in which those words are conveyed, not just a word or phrase in isolation - and the broader context of the relevant surrounding facts and circumstances. It has been said that "[m]uch more often than not, the simpler the description of the conduct that is said to be misleading or deceptive or likely to be so, the easier it will be to focus upon whether that conduct has the requisite character". That said, the description of the conduct alleged and identified at the first step should be sufficiently comprehensive to expose the complaint, because it is that conduct that will ultimately, as a whole, be determined to be or not to be misleading or deceptive.
184 In the present case, much of the representations relied upon are oral, alleged to have been made at meetings attended by the relevant participants.
185 Where misleading conduct is alleged to have arisen as a result of spoken words, special care needs to be taken before determining, that the words convey a misleading impression.
186 Spoken words must be proven with a degree of precision sufficient to enable the Court to be reasonably satisfied that they were in fact misleading in the proved circumstances.[22]
187 As McClelland CJ said in Watson v Foxman:[23]
In many cases (but not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition. Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously constructed.
188 In broad terms, the allegations made against Jasper (assuming for present purposes that the allegations made against Mr Hopp were made by him on Jasper's behalf and can be said to constitute statements made by Jasper, and those made by Mr Dahan which again, assuming for present purposes, can if made be said to have been made on behalf of Mr Hopp and hence Jasper) are to the effect that at the April Meeting, the Atlantic Restaurant Meeting and the IVIC Meetings, which all occurred prior to the execution of the LNSA and the AAD, variously Mr Hopp and Mr Dahan made statements which conveyed that:
(a) Mr Hopp would have an exit strategy in place that would take out the first mortgagee and hence repay the Jasper loan (the 'Exit Representations Misleading and Deceptive Conduct');
(b) Jasper would allow GME to obtain $20-25 million in working capital facilities from another lender and could take security carved out from Jasper's security (the 'Working Capital Representations Misleading and Deceptive Conduct').
189 Although the conduct is described slightly differently in Mr Murdaca's defence, the differences in the alleged conduct are insufficient to warrant the need to separately address them.
190 The Exit Representations Misleading and Deceptive Conduct comprise the First to Fourth Exit Strategy Statements. Each is said to be oral and as such it is convenient to deal with them first
191 The First Exit Strategy Statement is said to have been made by Mr Hopp or Mr Dahan at the April Meeting; the Second Exit Strategy Statement is said to have been made by Mr Hopp at the Atlantic Restaurant Meeting; the Third Exit Strategy Statement is said to have been made by Mr Dahan at the First IVIC Meeting and the Fourth Exit Strategy Statement is said to have been made by Mr Dahan at the Second IVIC Meeting.
192 The cases of both Mr Kairouz and Mr Murdaca require Mr Dahan's conduct to be attributed to Jasper; this in turn requires a finding that Mr Hopp and Mr Dahan were both working on behalf of the lender (assuming for present purposes that Jasper can be regarded as the lender).
193 The evidence that Mr Dahan was acting on behalf of the lender (Jasper) so relied upon by Mr Kairouz and Mr Murdaca was sparse to say the least and appeared to be limited to the fact that Mr Dahan and Mr Hopp knew one another prior to the dealings with Mr Kairouz and Mr Murdaca; they had been involved in a transaction together in relation to the Torquay Sands Resort; their joint attendance at meetings at Mr Dahan's office during the relevant period; and finally, in February 2022, after the default had arisen, Mr Hopp referred to Mr Dahan as his 'two dollar bitch'.
195 The fact that they knew one another prior to the relevant period reveals nothing more than just that; they were in fact on opposite sides of the Torquay Sands transaction with Mr Hopp representing in effect the lenders and Mr Dahan being part of the group that acquired the relevant property from the receivers appointed by the lenders. The fact that they were present at meetings reveals nothing more than that they were present at those same meetings, which says nothing at all and is indistinguishable from the fact that Mr Kairouz was at the same meeting as well. The statement made in February 2022 is irrelevant as it occurred after the relevant conduct is said to have occurred and, in any event, is wholly equivocal.
196 In fact, as the documentary trail establishes, Mr Dahan was variously or both part of the borrower group (not the lender group with whose interest Mr Hopp is aligned) and an intermediary who sought to assist the borrower group with securing funding which would take out the Jasper facility including by being separately mandated to do so, and who otherwise sought to assist his borrower group with obtaining working capital facilities. So much is clear from the following:
(a) Mr Dahan had an interest in AustAgri which owned the shares in AAG and GME and was a business associate of Mr Fielding who had a substantial interest in AustAgri and shareholding in GME;
(b) Mr Dahan, along with Mr Schmidt (who was a director of AustAgri, AAG and GME) approached Mr Hopp on behalf of the proposed borrowing entity for funding on 15 April 2021;
(c) Mr Dahan was seeking to obtain changes to various term sheets that had been proffered by Mr Hopp including on 5 April 2021 in ways that were favourable to and evidently on instructions of the proposed borrower;
(d) Mr Dahan, evidently to the benefit of the borrower requested that Mr Hopp facilitate a loan of further moneys on 18 May 2021;
(e) Mr Dahan sought to obtain a working capital facility and procure lending facilities for GME independently of Mr Hopp, including from Mr Hopp by way of a request for an additional $3 million; Mr Dahan did so on 18 May 2021,[24] 4 June 2021,[25] 1 July 2021,[26] 6 July 2021;[27] between 21-23 July 2021,[28] 7 September 2021,[29] 9 September 2021,[30] 22 September 2021,[31] 28 October 2021,[32] 5 November 2021;[33]
(f) Mr Dahan was involved in Mr Schmidt's attempts (in some cases) and aware of Mr Kairouz's attempts to secure finance that could be used either in lieu of the Jasper loan (prior to it being agreed and the funds drawn down) or subsequently that could be used to take out the Jasper loan; doing so on 19 August 2021,[34] 22 August 2021,[35] 15 October 2021,[36] 19 October 2021,[37] 3 February 2022;[38] and
(g) Mr Dahan had carriage of GME's attempts to obtain a working capital facility and in that capacity sought to obtain Jasper's consent to a partial release of Jasper's security so as to enable the working capital facility to proceed. In doing so, on 18 October 2021,[39] 20 October 2021[40] and 23 October 2021,[41] Mr Dahan was clearly acting as a representative for the borrower group, not the lender.
197 Mr Kairouz and Mr Murdaca's mistaken perception and characterisation of Mr Dahan's role constitutes a serious impediment, to put it mildly, to their defence and counterclaim. If Mr Dahan engaged in either the Exit Representations Misleading and Deceptive Conduct or the Working Capital Representations Misleading or Deceptive Conduct, then such conduct cannot be laid at the door of Mr Hopp and Jasper. As both have cast their claims in a way which seeks to combine and aggregate the statements made by Mr Dahan with those of Mr Hopp and to attribute both to Jasper, the determination that any conduct on the part of Mr Dahan cannot be regarded as conduct of Jasper inevitably affects the proper characterisation of Mr Hopp's conduct alone. It also calls into question the accuracy of the accounts given by Mr Kairouz and Mr Murdaca and poses significant if not insuperable problems to any reliance on Jasper's misleading and deceptive conduct because such conduct is said to involve conduct of both Mr Hopp and Mr Dahan.
198 Before turning to the specific alleged oral statements, it is convenient to set out some observations about the reliability of the evidence given by the principal witnesses.
199 I found Mr Kairouz's oral evidence as to the matters discussed at the meetings unconvincing. It was robotic and amounted to a fairly clear recitation of scripted lines. The improbability of the alleged statements is highlighted by the fact that on Mr Kairouz's version of events Mr Hopp and/or Mr Dahan repeated that 'the exit strategy was under control' at virtually every meeting but without ever being asked or explaining what its terms were or what the exit was to involve. The flaws in Mr Kairouz's evidence seem likely to be a product of his flawed and in all likelihood retrospective recharacterization of the role played by Mr Dahan which now seeks to attribute statements or conduct of Mr Dahan as conduct of Jasper. The other critical flaw in Mr Kairouz's evidence was that it did not engage with the chronology of events established by the documentary record. Mr Kairouz's evidence was conspicuously absent contemporaneous documentary support with a large body of contemporaneous documentary evidence which is either directly contrary to or, as a matter of logical probability, inconsistent with his account. I would not accept his evidence unless it is corroborated by contemporaneous documentary evidence.
200 Mr Murdaca's oral evidence suffered from a different defect. It lacked, for the most part, the scripted certainty of Mr Kairouz's account, but was vague and lacked specificity. Such vagaries of account are largely what one would ordinarily expect of a witness asked some four years later to give an account of what was said at specific meetings attended by many people. However, in the context of evaluating claims for misleading and deceptive conduct based on oral statements, the vagaries and uncertainty in the accounts given are obviously problematic in establishing the case sought to be made out as Watson v Foxman, among others, recognises. I would not accept his evidence unless it is corroborated by contemporaneous documentary evidence.
201 In his evidence in chief, I considered that Mr Dahan was making an attempt to recall matters as best he could but his recollection as to the timing of relevant events lacked specificity. I was unimpressed by his evidence when cross examined by counsel for Mr Murdaca; when counsel put a series of propositions to Mr Dahan in cross-examination by way of leading questions, Mr Dahan readily agreed to a number of them in a manner which was quite inconsistent with his far more believable inability to recall the relevant sequence of events when non-leading questions were asked of him in chief. His evidence as to the Working Capital Representations Misleading and Deceptive Conduct, sat uneasily with the documentary trail and sought to present a sequence of events which glossed over the fact that his attempts to satisfy Mr Kairouz's requests that he secure working capital ran into difficulty. In respect of that difficulty he sought to blame Mr Hopp. There is also the fact that some of the shortage in working capital resulted from Mr Dahan's failure, which was not addressed in the evidence, to contribute the $3 million in working capital that he promised on Hennessey's behalf. I approach Mr Dahan's evidence with some caution unless it is supported by the documentary evidence.
202 Mr Schmidt presented as a generally honest witness who did his best to recall the relevant events but the reliability of his evidence is undermined by the fact that he too was extremely vague on the sequence of events.
203 In contrast, Mr Hopp appeared as a more careful witness whose evidence was more concordant with the documentary record and hence more reliable. Mr Kairouz and Mr Murdaca attacked Mr Hopp's credit in closing submissions by reference to answers given by Mr Hopp in cross-examination on the question of how much money Mr Hopp stood to earn on the transaction. Both Mr Kairouz and Mr Murdaca gave evidence that Mr Hopp said he would make '$2-3 million out of the deal'.
204 In cross examination of Mr Hopp by counsel for Mr Kairouz, there was the following exchange:
What was, in relation to Jasper, how were you remunerated in respect of these transactions? Say in respect of this transaction, I'll ask you about this transaction?
Yeah. In this transaction, my normal remuneration would be a fee of $5,000 per month while the facility was on foot should it be repaid within terms.
Is it pursuant to a verbal agreement with Jasper?
Yes...I get paid $5,000 per month but I only get paid if the facility is repaid within terms.
205 This answer was criticised in closing submissions as being inherently unbelievable and contrary to evidence given by Mr Hopp in answer to later questions from counsel for Mr Kairouz:
Did you state [at the first meeting] that you'd make at least $2 million out of the deal ?
On a $25 million to $30 million loan, that would be my expectation.
There was no further follow up question and the asserted inconsistency in the answers given by Mr Hopp was not explored.
206 At first blush, the answers are difficult to reconcile. Given, however, that they were both proffered by Mr Hopp openly, it is difficult to draw any adverse inference as to Mr Hopp's credit simply because he volunteered two apparently inconsistent answers. Had the inconsistency been explored, more light may have been shed on the matter. However as matters presently stand, I am not persuaded that the asserted inconsistency means that I should form a detrimental view as to Mr Hopp's credit and I do not do so, particularly where, his evidence is far more consistent with the contemporaneous evidence than evidence given by others. In fact, the most likely explanation is that Mr Hopp's first answer reflected the remuneration he received from Jasper, which was not in fact the lender, whereas the latter answer may reflect his arrangements with the financiers, who are also parties to the LNSA.
207 Turning more specifically to the Exit Strategy Representations, I do not accept that at the April 2021 Meeting Mr Hopp said words to the effect that 'we will have an exit strategy in place to take out the first mortgagee at the end of the Jasper loan', and as such he did not make the First Exit Strategy Representation. Nor do I accept that anything that he said at the Atlantic Restaurant Meeting suggested that he would arrange the exit strategy from the loan that Mr Hopp was seeking to put in place. Nor do I accept that Mr Hopp said or did anything at the First or Second IVIC Meetings, where Mr Dahan is said to have made the Third and Fourth Exit Strategy Representations, which in some way amounted to Mr Hopp adopting them or otherwise conveying that he would have an exit strategy in place which would repay the Jasper loan.
208 Mr Hopp denies making such statements and they are at odds with the matters set out below:
(a) Mr Hopp was acting in the (prospective) lender's interests; in that context, assuming responsibility for the putting in place of a facility for the borrower to pay out the lender gives rise to an obvious potential conflict of interest and is inherently unlikely as a consequence;
(b) there is no documentary evidence that suggests that Mr Hopp did so;
(c) there is no documentary evidence that suggests that Mr Kairouz and Mr Murdaca expected or believed that Mr Hopp was doing so. The documentary trail is to the contrary;
(d) there is a substantial body of documentary evidence that suggests that Mr Schmidt (and Mr Kairouz), in some cases with Mr Dahan's assistance, were seeking to obtain finance that would be obtained either in lieu of the Jasper loan or after the Jasper loan had been made to take out the Jasper loan. So much is clear from the material described above and in particular that which occurred on 19 August 2021,[42] 22 August 2021,[43] 7 September 2021,[44] 15 October 2021,[45] 19 October 2021,[46] 3 February 2022;[47]
(e) Mr Hopp is alleged to have made statements that he would organise a takeout (the exit strategy) from as early as 25 April 2021 which was well before the terms of the Jasper loan had been agreed and where, in fact, GME was still exploring the Manda Capital facility.[48] It is untenable to suggest that Mr Hopp gave any statement which could reasonably be construed as amounting to an assurance that he would arrange for a takeout of a facility, the terms of which had not yet been agreed.
209 Overall, Mr Kairouz and Mr Murdaca's case with respect to the Exit Strategy Representations is wholly unsupported by any form of reliable evidence and is illogical and untenable.
210 Mr Kairouz and Mr Murdaca's case with respect to the Working Capital representations also falls well short, although I accept that Mr Kairouz expressed the view that GME would need to have access to working capital from the first day of trading of the new Cedar Meats business under the name of GME, and that at various stages he referred to the need for an amount in the order of $25 million.
211 Of the Working Capital Representations, only the First Working Capital Statement alleged to have been made at the April 2021 Meeting, the Third Working Capital Statement said to have been made at the Atlantic Restaurant Meeting and the Ninth Working Capital Statement, alleged to have been made at the Second IVIC Meeting, are alleged to have been made by Mr Hopp.
212 Mr Hopp is also said to have made the First Dahan Statement, the Second Dahan Statement and the Third Dahan Statement. I am not satisfied that he made those statements but nothing turns on this because even if he did, those statements were not misleading, as Mr Dahan was in fact seeking to arrange working capital. The relevance of the statements is therefore confined to context in which the alleged conduct of Mr Hopp needs to be assessed. Further, the Fourth Working Capital Statement, the Fifth Working Capital Statement, the Sixth Working Capital Statement and the Seventh Working Capital Statement are all contained in emails sent by Mr Dahan. For reasons set out above, Mr Dahan's conduct in sending those emails, to which Mr Hopp was not party in any event, cannot be attributed to Jasper. In any event, the emails evidence Mr Dahan's reporting to the prospective borrower interests of his progress in obtaining working capital funding and there is nothing misleading or deceptive about those reports.
213 The case against Jasper must therefore be confined to whether Mr Hopp made the First Working Capital Statement, the Second Working Capital Statement and the Ninth Working Capital Statement.
214 I do not accept that Mr Hopp made any of the statements said to have been made by him.
215 In particular, I do not accept that at the April 2021 Meeting, which occurred between 25 and 27 April 2021 Mr Hopp said words to the effect that, 'I will allow a carveout of debtors and stock from the loan to facilitate the provisional working capital', or that at the Atlantic Restaurant he said words to the effect that 'we will use debtors and stock to give you the working capital that you require', or statements to similar effect at the Second IVIC meeting.
216 In regard to the alleged statements (denied by Mr Hopp):
(a) They are not verified by any contemporaneous documentation;
(b) They are inconsistent with reasonable inferences that may be drawn from contemporaneous documentation.
(c) It is illogical, to put it mildly, that Mr Hopp gave such an assurance as early as between 25 and 27 April 2021 and on 30 April 2021 before the terms of the Jasper loan had been agreed, including the security upon which the Jasper loan would be made.
(d) When Mr Dahan, acting on behalf of the borrowers, sought to carve out the GSA over the Cedar Meats business from the suite of securities proposed to be taken by the lender on 17 August 2021,[49] Mr Hopp responded by reinstating it on the version of the term sheet which he provided the next day on 18 August 2021 and security in that form remained on the term sheet executed by the borrowers.
(e) It is illogical and most unlikely then that at the Second IVIC Meeting, Mr Hopp gave an assurance to contrary effect, which contrary conduct was then restated in the security documentation later prepared;
(f) The security documentation executed by the borrowers provided for a GSA over the Cedar Meats business and contained no other assurances. The proffering of security documentation in that form by the lender constitutes a representation which is diametrically at odds with the alleged oral statements made by Mr Hopp to the effect that debtors and stock would be carved out from the scope of such securities;
(g) It is illogical, to understate it, that contemporaneously with the making of a loan secured by a suite of securities, the lender would simultaneously reduce the value of the securities provided by virtue of the carveout.
(h) Notably, the allegation that Mr Hopp gave such assurance is not verified by the documentation and is inconsistent with inferences which may fairly be drawn from such documentation. For example, Mr Hopp is alleged to have said at the meeting held between 25 and 27 April 2021 that he would allow a carveout of debtors and stock from Jasper's proposed security in connection with a working capital facility of $20-25 million. In fact, on 6 May 2021, Mr Schmidt sought working capital from Mr Hopp of $6 million and on 18 May 2021, Mr Dahan sought $3 million from Mr Hopp under cover of a request which said that the $3 million sought would 'ensure working capital outcomes'. Requests for such lesser amounts is completely at odds with the idea that shortly prior to those requests Mr Hopp had given assurances as to the availability of security that would facilitate working capital loans of amounts far in excess of those sums.
(i) Mr Hopp was largely not a participant in GME's attempts to obtain working capital.
(j) There is no evidence of Mr Kairouz, Mr Murdaca or anybody else complaining to Mr Hopp that Mr Hopp's subsequent refusal to allow a carveout of the securities taken by Jasper was contrary to a series of representations made by him to contrary effect which preceded the LNSA and the AAD. The closest one that gets to this is Mr Dahan's email to Mr Kairouz, among others, on 28 October 2021, well after the LNSA had been executed in relation to the proposed alternative working capital facility from Invigo and Fresh Supply which was necessary because Mr Hopp had not allowed the carveout from Jasper's GSA.[50] In fact, when Mr Kairouz complained to Mr Dahan on 22 October 2021 that Mr Dahan had not been able to deliver on his promise that funding from Earlypay and Hennessey would be immediately available after settlement, Mr Dahan's response to Mr Kairouz was to the effect that he and Mr Schmidt were working with Mr Hopp looking to resolve the impasse.[51] If it was the case, as both now allege, that Mr Hopp had given a series of assurances to the effect that debtors and stock would be carved out from the Jasper security to allow such working capital facilities to be put in place, then one would have expected that Mr Kairouz would have responded forcefully calling out Mr Hopp on his failure to adhere to what he had earlier promised. There is no evidence to this effect.
217 I do accept that there is some basis to consider that Mr Schmidt and Mr Dahan may have had what in hindsight proved to be an excessive level of confidence in the ability to obtain replacement finance to take out the Jasper loan and a working capital facility backed by security that would be acceptable to both the working capital lender and Jasper. I have little doubt that Mr Kairouz and Mr Murdaca have conflated various positive statements made by Mr Schmidt and Mr Dahan along those lines and now sought to cast those statements as having been made by Mr Hopp and Jasper notwithstanding little or no credible evidence to support such a characterisation.
218 I also accept that prior to the execution of the LNSA and the AAD, Mr Kairouz and Mr Murdaca no doubt believed that that GME would be able to repay these loans. It hardly makes sense for them, or GME to have entered into the transaction if that were not so. Mr Hopp no doubt believed that GME would likely be able to repay the loans as well; again, it makes no sense for Jasper to have made the loan to a borrower who would not repay. Of course, all knew that there was a risk that GME might not. The risk of course explains the need for security and the high borrowing costs associated with the facility. Mr Kairouz and Mr Murdaca well knew that there were various possibilities by which that could be achieved and these were explored. One of them was the sale of the Footscray and Brooklyn Properties which sale was to occur on the basis of a secure long term lease to the AustAgri backed GME. A sale at the prices mooted would have realised significant capital, paving the way for a long term loan at far lesser rates secured by mortgages over the properties leaving the assets of the business (eg debtors and stock) readily available as security for a working capital lender such as Earlypay. There were also discussions on foot by Mr Schimdt and Mr Nathaniel with other lenders, including Mr Cacciola's Bridge Street Capital. But both Mr Kairouz and Mr Murdaca, as experienced businessmen, well knew that those arrangements were not in place until all terms had been agreed and the necessary documentation signed. In any case, there is no evidence of a remotely credible character to the effect that Mr Hopp was involved in obtaining such finance much less assuring Mr Kairouz and Mr Murdaca that such finance would be obtained.
219 The analysis so far in relation to the Working Capital Representations has proceeded on the basis that there is no material difference between the alleged representations relating to working capital as pleaded by Mr Kairouz and Mr Murdaca. That remains largely so and the conclusions above are sufficient to reject the claims made by them. However, there is a further difficulty with Mr Murdaca's plea.
220 The relevant question is whether the statements in their proper context convey to a reasonable person in the position of Mr Murdaca that:
(a) Jasper would, or Mr Dahan and Hennessey Capital would, assist GME to obtain working capital and would allow a release of debtors and stock from the security of the Jasper loan to enable GME to obtain working capital; and
(b) in relation to the conduct alleged in paragraph 69 of Mr Kairouz's counterclaim, Jasper:
(i) agreed for GME to obtain another loan of up to $20m for the purposes of working capital and for the lender to take security subject to any security provided to Jasper;
(ii) would not exercise its rights or powers as a registered first mortgagee to impede GME from raising further funds up to $20m from another or other lenders (paragraph 41 of Mr Murdaca's counterclaim).
221 Whilst there is no basis to consider that Jasper agreed for GME to obtain another loan of up to $20 million for the purposes of working capital, there was no later objection from Jasper for the working capital lender (Earlypay) making the loan, subject to Jasper's prior security. A deed of priority to that effect was signed. The difficulty arose when GME wanted to obtain a release of part of its security so as to provide ranking security for Earlypay. Nor did Jasper's unwillingness to agree to such release mean that it 'exercise[d] its rights or powers as a registered first mortgagee to impede GME from raising further funds up to $20m'. The failure to agree to release security does not amount to an exercise of rights or powers as first mortgagee such as to render any alleged representation to that effect misleading.
222 I do not accept that the Exit Strategy Representations or the Working Capital Representations were made, and accordingly I do not accept that Jasper engaged in misleading or deceptive conduct, even if Mr Hopp's conduct can be attributed to Jasper.
223 Necessarily, I do not accept that Mr Kairouz or Mr Murdaca took any steps or refrained from taking any steps as a result of that conduct, such that either of them suffered or was likely to suffer loss and damage as a consequence of such conduct.
224 For completion, I note that there are a number of further difficulties with any claimed reliance on the conduct. Both Mr Kairouz and Mr Murdaca pleaded that they relied on the Exit Strategy Representations and the Working Capital Representations and their evidence-in-chief given by affidavit was to the same effect; that is to say the asserted reliance did not condescend to distinguishing between the Exit Strategy Representations on the one hand and the Working Capital Representations on the other, much less to the particular representations that constitute the collective Exit Strategy Representations and the Working Capital Representations. The evidence therefore is not clear as to what each would have done had some only but not all of the representations been made. The case with respect to reliance on the Exit Strategy Representations, even if they were made, which they were not, was particularly weak. Consistent with Mr Hopp's evidence, each of Mr Kairouz, Mr Schmidt and Mr Dahan, among others were working on their own exit strategies. This was what Mr Kairouz and Mr Murdaca were relying on, not anything Mr Hopp said; so much is obvious from inter alia the interactions with Savills[52], the role of Haroon Nathaniel[53], and Mr Dahan's attempts to secure replacement finance.[54]
225 The pleading and more particularly the evidence did not condescend to evidence as to reliance by Mr Kairouz and Mr Murdaca on the Working Capital Representations alone. Their case was a 'no transaction' case and as such the burden is on them to establish that they would not have entered into the LNSA but for the Working Capital Representations. They did not establish that; and it is not obvious that they would not have entered into the LNSA only because of the absence of some assurance directed to obtaining working capital of $20-$25 million. The term of the LNSA was only nine weeks. Mr Dahan's email of 21 July 2021[55] referenced a lesser amount of working capital being available on day one which is consistent with Mr Kairouz's email of 19 July 2021[56] which stated that ' for the short term (6 months) minimum working capital required will be $10-$12m. To maximise production in Brooklyn for the long term, ideal working capital $20-$25m' (underlining added). These communications are not only at odds with the Working Capital Representations but sit uneasily to say the least with any relevant reliance on them in the context of entering into a short term nine week LNSA. As long as the borrower was confident of its capacity to repay the loan within the nine week term, then the inability to access the full suite of desired working capital is unlikely to have been problematic.
226 It is not necessary to consider the unconscionable conduct claim , as the conduct relied upon is the making of the representations. If they were not made or not relied upon that claim too fails.
Miscellaneous ancillary matters in relation to the Misrepresentation Issue
Did Mr Hopp engage in condcut on behalf of Jasper?
227 I have concluded that Mr Dahan's conduct cannot be attributed to Jasper but have been prepared to assume that Mr Hopp's conduct could be attributed to Jasper. That was convenient, including because Mr Hopp and Santini were defendants in their own capacity to Mr Kairouz's counterclaim and the claim against them in that capacity had to be considered regardless of whether they were acting on behalf of Jasper. Given my conclusion that the misleading and deceptive conduct claim fails in any event, it is not necessary to consider two further issues; first, whether Mr Hopp's conduct can be attributed to Jasper and secondly, and even if that is so, whether the failure of Mr Kairouz and Mr Murdaca to join the financiers who were also parties to the LNSA to the proceeding and the associated absence of any allegations of disentitling conduct on their part means that the relief as sought to the effect that the LNSA be declared void as against Jasper cannot be obtained.
229 Both Mr Kairouz and Mr Murdaca submit that the conduct of Mr Hopp and Mr Dahan was relevantly conduct on behalf of Jasper within the meaning of s 139B(ii) of the CCA because:
(a) Mr Hopp was, at all relevant times, an agent of Jasper; and
(b) Mr Dahan was a person who acted at the direction of Mr Hopp, alternatively with the consent or agreement of Mr Hopp, who was the agent of Jasper as alleged.
230 Section 139B(ii) requires the resolution of three questions:
(a) the relevant individual must have engaged in conduct on behalf of Jasper;
(b) the relevant individual must be either a director, employee or agent of Jasper, alternatively any other person at the direction, or with the consent or agreement, of a director, employee or agent of Jasper; and
(c) the conduct or direction, consent or agreement (express or implied) given was within the scope of authority of the relevant director or agent of Jasper.
231 The phrase 'on behalf of' has no strict legal meaning. It can apply to a wide range of relationships. It will involve the standing of a person as auxiliary to or representative of another person or thing. It is sufficient that there is 'some' involvement that is 'real or genuine' of the individual in the relevant conduct; there is no requirement that it be significant involvement.[57]
232 On question 2, the issue to be considered is whether the individual engaged in the relevant conduct at the behest of the corporation ie at the behest of a director, employee or agent of the corporation (behest has been described as an 'apt and succinct way of encapsulating the words in that sub-section: "at the direction or with the consent or agreement (whether express or implied) of"'.[58]
233 On question 3, the task is for the Court to examine the authority of the individual; was it actual or apparent?[59] The scope of the apparent authority relies on the representation made by the principal to the third party. As Elliott J in Cargill Australia Ltd v Viterra Malt Pty Ltd (No 28) ('Cargill No 28') stated:
For apparent authority to exist, the representation itself may be made through words or conduct, expressly or impliedly or by acquiescence; and it is sufficient that the agent is placed in a position by the principal to allow her or him to give the appearance of authority.[60]
234 Whether two persons have a relationship of agency is subjectively determined. The label they apply to a relationship, or expressly disclaim, is not determinative of the nature of their relationship.[61]
235 I have already concluded that the conduct of Mr Dahan was not conduct carried out on behalf of Jasper, nor was it conduct which was carried out by him at the direction of Mr Hopp, alternatively with the consent or agreement of Mr Hopp, assuming Mr Hopp was the agent of Jasper.
236 As stated above, Mr Dahan was relevantly acting, at all relevant times, on his own behalf and on behalf of Hennessey and in his capacity as a representative of or participant in the borrower group.
237 In the case of Mr Hopp, Mr Kairouz and Mr Murdaca rely upon the following:
(a) Mr Hopp was listed as a contact person for Jasper in the LNSA - this is true, although he is listed as a contact person alongside Jasper's sole director and shareholder, Rebecca Loh, who was also the sole director and shareholder of the Agent (as defined under the LNSA), which is Jasper Group;
(b) Mr Hopp's email address appears in the LNSA (as is the case with respect to his role as a contact person for Jasper);
(c) Mr Hopp undertook various conduct during the period from about April 2021 onwards, in which he introduced the potential loan to GME;
(d) Mr Hopp introduced that potential loan in turn to his pool of lender contacts, which relevantly included Ms Loh, and so it is submitted, the financiers at Jasper Nominees and in that capacity sought to bring business to the financiers and to their security trustee Jasper;
(e) Mr Hopp was the sole person who provided instructions to Mills Oakley, who prepared the LNSA on behalf of Jasper and the financiers;
(f) Mr Hopp has had an ongoing role on behalf of Jasper in enforcing the obligations of the LNSA, including receipt of information from Cedar Meats as bookkeeper in July and August 2023.
238 The difficulty which confronts Mr Kairouz and Mr Murdaca in establishing that Mr Hopp engaged in conduct on behalf of Jasper is that the conduct which they seek to impugn was engaged in in the period from April 2021 to about September 2021 (being the date of the Second IVIC meeting), and yet for the most part the matters relied upon with respect to the submission that Mr Hopp was acting on behalf of Jasper are matters that occurred subsequently and, in particular, are contained within the LNSA which was executed on 5 October 2021.
239 The mere fact that it is possible to derive from the LNSA that Mr Hopp was acting in certain defined respects on behalf of Jasper after the LNSA had been entered into does not establish a conferral of authority or a holding out by Jasper that Mr Hopp was so authorised to do anything on behalf of Jasper prior to that time.
240 There was in fact no mention of the name 'Jasper' at all in any of the relevant documents until the time at which the term sheet was signed by the parties on 20 August 2021. This is the first time at which the name 'Jasper' appears, and in any event, that is not Jasper, but rather the separate entity, Jasper Group. Earlier versions of unsigned term sheet were either silent as to the borrower's counterparty or in the case of the May 2021 term sheet referred to Hero Group Ltd.
241 Further, Mr Hopp gave evidence to the effect that it was only once he had procured a signed term sheet which set out the relevant commercial terms in respect of a proposed loan, that he sought to syndicate that loan amongst his lender contacts, which, in the present case, included Ms Loh, who in turn was described by Mr Hopp as an arranger. Mr Hopp's evidence was to the effect that Jasper was never a lender and was only determined to be the security trustee in September 2021, close to finalisation of the LNSA.
242 In the result, there is no evidence of any involvement of Jasper, much less any conferral of authority or holding out by Jasper of Mr Hopp as anyone authorised to act on their behalf, until the LNSA was drafted and various drafts were circulated from about late September 2021 onwards. At its highest that conveyed only a holding out at that time to the effect that Mr Hopp was authorised to undertake those activities on Jasper's behalf that were identified in the draft LNSA.
243 The fact that Mr Hopp was the person who provided instructions to Mills Oakley on behalf of the financiers, Jasper and Jasper Group does not assist. This occurred after the making of the alleged misrepresentations; Mr Kairouz and Mr Murdaca were unaware of it as the communications with respect to the terms of and requirements in the LNSA were conducted between the parties' respective solicitors and in any event, Mr Hopp gave evidence which was relevantly unchallenged that he provided those instructions to Mills Oakley after obtaining instructions from Ms Loh and the financiers.
244 In the result there is no evidence that suggests any conferral of actual authority or a conferral by Jasper of authority prior to late September 2021. Such evidence as exists after that point is irrelevant as it occurred after the alleged misrepresentations and in any event is of a far more limited nature and is confined to the defined roles which Jasper had under the terms of the LNSA.
245 Tonto Home Loans Australia Pty Ltd v Tavares ('Tonto Home Loans')[62] relied upon by Mr Murdaca is of no assistance. Mr Murdaca drew attention to this case in support of a proposition that Mr Hopp's efforts in seeking to bring business to his financier clients on the promise of a potential commission was akin to the role of a canvasser or introducing agent in the sense that that phrase is used by the authors of Bowstead and Reynolds on Agency (19th edition) at Article 1(4). The complete reference to the relevant passage in Bowstead and Reynolds is instructive. The passage recited by their Honours in Tonto Home Loans[63] is taken from Bowstead and Reynolds on Agency, where the authors, in referring to Art 1(4), state the following:[64]
Article 1(4) seeks to achieve completeness by taking in a well-established type of intermediary who makes no contracts and disposes of no property, but is simply hired, whether as an employee or independent contractor, to introduce parties desirous of contracting and leaves them to contract between themselves. In effecting such introductions he is remunerated by commission, which he may sometimes take from both parties. Such a person is a common figure in most western legal systems and may well be referred to as an agent. The most obvious example of such an intermediary in English cases is the estate agent, who introduces purchasers to vendors and tenants to lessors of houses and vice versa...Canvassing agents are on the fringe of the central agency principles used by the common law, since their powers to alter their principal's legal relations are at best extremely limited. They often, however, have authority to receive and communicate information on their principal's behalf, and in so doing have the capacity to alter their principal's legal position. They also usually act in a capacity which may involve the repose of trust and confidence, and hence may be subject in some respects to the fiduciary duties of agents towards their principals.
246 Had Mr Kairouz and Mr Murdaca been able to point to a hiring or engagement by Jasper of Mr Hopp in the period prior to late September 2021, the circumstances may have been different. Had they been able to do so, then Mr Hopp's position would have been akin to that of the estate agent, who had been hired by his principal (Jasper) to introduce a prospective borrower to them. However, there is no evidence that this was so.
247 Accordingly, I do not accept that Mr Hopp's conduct at the time of the alleged misrepresentations was conduct undertaken by him on behalf of Jasper.
248 The other issue, which is not necessary to decide but which was the subject of submissions, is not so easily disposed of. Jasper submitted that there was another difficulty with the counterclaims in that both seek orders that the guarantee be declared void or be rescinded. Jasper submits that because the guarantee under the LNSA was a guarantee given to the 'Financiers' (Baltic River Ltd and Taurus Advisers Ltd, not Jasper), and the Financiers are neither the subject of any allegations in the counterclaims, nor parties to the proceeding, the Court cannot make orders declaring the LNSA void or have it rescinded, because the beneficiaries of the guarantee (namely, the Financiers) are not before the Court.
249 In order to understand this allegation, it is necessary to return to the matters set out above as to the structure of the LNSA and the AAD, which distinguish between the Financiers, Baltic River Ltd and Taurus Advisors Ltd, and the Security Trustee.
250 As set out above by clause 14.1 of the LNSA, both Mr Kairouz and Mr Murdaca irrevocably and unconditionally jointly and severally guaranteed the due and punctual performance of GME's obligations under the Finance Documents which relevantly included the LNSA and the AAD..
251 By clause 14.3 they also irrevocably and unconditionally indemnified 'each Finance Party' against loss incurred as a result of various things, including failure by an obligor (such as GME) to pay Secured Money, or, if 'a liability to pay the Secured Money or perform any of the obligations under a Finance Document, is unenforceable, invalid or illegal against an Obliger for any reason, whether or not the Financier knew or ought to have known anything about it', and otherwise by clause 14.3(c) were required to make payments, due to the Financiers under the guarantee, to the 'Security Trustee' (Jasper), whilst a mirrored although different requirement arose under clause 14.2(b) to pay the Security Trustee in respect of losses suffered by 'Finance Parties'.
252 Jasper was the Security Trustee and a Finance Party but it was not a Financier.
253 Mr Kairouz's counterclaim seeks in the alternative orders that the defendants to the counterclaim, being Jasper, Mr Hopp and Santini, indemnify him against any liability to Jasper under the LNSA and alternatively damages pursuant to s 236 of the ACL of an amount equivalent to any liability which he might have to Jasper pursuant to the LNSA, which relief is not affected by those same difficulties. Mr Murdaca's counterclaim seeks alternative relief pursuant to ss 237 and 243 of the ACL in refusing to enforce the guarantee.
254 Both Mr Kairouz and Mr Murdaca submitted that any order or declaration to the effect that the LNSA be declared void made in this proceeding could only bind Jasper and otherwise that an order refusing to enforce the guarantee the subject of Jasper's suit could only bind Jasper.
255 Jasper in response submitted that such an order should not be made as it would be of no utility as Mr Kairouz and Mr Murdaca would still be amenable to a suit from the Financiers, which do not include Jasper. Whether that is so may depend on whether they may be regarded as privies in interest of Jasper, which is a potentially complicated question barely addressed by the parties. It is difficult to see how Jasper would not be amenable to an order for damages or requiring it to indemnify the defendants in respect of any liability to Jasper, assuming that Jasper breached the ACL. An order for avoidance may raise different issues which are not free from complexity and, in any event, do not need to be resolved as the counterclaims fail for other reasons.
256 The relevant sequence of events relating to the LNSA Execution Issue occurred between 17 September 2021 and 5 October 2021 and for the most part comprised communications between solicitors. GME was represented in the negotiations concerning the documentation of the transaction by Mr Guenther from Macpherson Kelley solicitors. Cedar Meats, Mr Kairouz and the Kairouz family generally were represented by Mr Guy from Kennedy Guy. AustAgri's interests were represented by Mr Vagg from Oakley Thompson whilst Mills Oakley acted for the lenders. The principal solicitor having carriage of the matter at Mills Oakley was Mr Constable. Relevantly, Mr Murdaca did not retain separate legal representation although he did have an interest in both GME and AustAgri.
257 On 17 September 2021 Mr Constable emailed Mr Guenther and Mr Guy copied to inter alios Mr Hopp and Mr Dahan with the subject line 'Global Meat Exports - finance documents' attaching numerous documents for execution. The documents so enclosed included a copy of the LNSA which among other things provided for the issue of a loan note with a total face value of $40,750,000, the payment of an establishment fee of $402,500, an interest rate of 0.00% per annum, an overdue rate of 60 per cent per annum and a termination date nine weeks after the date of the agreement. Clause 3.1(b) of the LNSA provided for the loan note to be issued at a discount to the face value amount of $36,500,000 with the financiers only being required to lend the discounted amount to GME. The LNSA also included a guarantee and the guarantors were listed in the schedule and relevantly including Mr Kairouz, Mr Dahan and Mr Murdaca.
258 Mr Constable's covering email explained that the documents enclosed comprised final versions of the finance documents for execution as well as among other things an Australian Legal Practitioners Certificate to be completed for each individual guarantor. The email contained instructions in the event that the documents were to be executed electronically.
259 On 19 September 2021 Mr Vagg emailed Mr Constable copied to inter alios Mr Guenther and Mr Guy advising that the documents there set out had been executed by the AustAgri parties and would be delivered to Mills Oakley's office the next morning. The documents executed by the AustAgri parties were listed and comprised among other things; a specified security agreement over GME's shares, AAG's shares and Australian Legal Practitioner Certificates executed by Mr Schmidt, his wife and by Messrs Bahl and Chan. The email otherwise advised that Mr Fielding was not guaranteeing the facility. Mr Fielding's name had been included in the schedule to the LNSA sent by Mr Constable on 17 September 2021.
260 Mr Vagg's email concluded by advising that the remaining documents were being delivered to the Cedar Meats parties that day for their execution. Otherwise, Mr Vagg's email requested that Mr Constable 'complete the reference errors in these documents and provide us with a complete copy following settlement'. This was a reference to a number of apparent errors in the index to the LNSA which in respect of the relevant page number, stated 'Error! Bookmark not defined'.
261 Mr Murdaca gave evidence that he had in fact attended at Oakley Thompson's office in mid-September 2021 to execute documents but had been told by Mr Vagg that he was no longer required to sign anything and as a result his name was crossed out on the guarantors execution page. In his affidavit, tendered as his evidence in chief, he gave a slightly different version saying that he attended at 'a meeting in September 2021 at Macpherson & Kelly [sic] wherein various documents including the LNSA, were signed by the other parties. I did not sign the LNSA and put a line through my name.' The discrepancy was not raised and in any event, Mr Murdaca was not challenged on either aspect of his evidence. In any event, it is not in issue that Mr Murdaca did not sign the guarantee on 19 September 2021 or at any stage around that time.
262 In the version executed by Mr Kairouz on 21 September 2021, the total face value amount was $41 million (not the $40,750,000 contained in the version attached to Mr Constable's email, although there was no explanation for this in the evidence). More relevantly, in the version executed by Mr Kairouz, he had written in by hand words at the end of paragraph 14.1 of the draft LNSA and he and Tony Kairouz had initialled those handwritten alterations. Clause 14.1, which appears on page 48 of the LNSA, read as follows (with the handwritten additions in italics and underlined):
14.1 Guarantee
Each Guarantor irrevocably and unconditionally jointly and severally:
(a) guarantees to each Financier punctual performance by each Obligor of all that Obligor's obligations under the Finance Document;
(b) undertakes with each Financier that:
(i) whenever an Obligor does not pay any Secured Money when due (or anything which would have been due if the Finance Document or the amount was enforceable, valid and not illegal), that Guarantor will immediately on demand pay the Secured Money as if it was the principal obligor; and
(ii) if an Ipso Facto event has occurred or is continuing, then immediately on demand that Guarantor shall pay all Secured Money, accrued interest and other amounts referred to clause 13.2(a) as if it was the principal obligor.
(c) Notwithstanding anything to the contrary in the Finance Documents, the maximum amount the Security Trustee can recover from Jeskan Nominees Pty Ltd, Birrawae Pty Ltd, Rachel Elette Schmidt, Pierre Kairouz, P and K Kairouz Pty Ltd and Hennessey Capital Partners Pty Ltd is the value, at the time of any enforcement of recovery, of those assets that are the subject of the Property Mortgage for which that guarantor is the Landowner or in the case of Pierre Kairouz, the property mortgages of which Pierre Kairouz is a director of the Landowner.
263 Whilst Mr Kairouz' completion of the execution clause in the draft LNSA was witnessed by Mr Guy; Mr Guy did not initial this handwritten change.
264 On 29 September 2021, Mr Vagg emailed Mr Constable copied to inter alios Mr Guenther and Mr Guy with the subject line 'Global Meat Exports- Finance documents' attaching 43 documents in PDF form. Mr Vagg's email advised that the documents set out had been executed and were being delivered to Mills Oakley's office. Mr Vagg's email advised that the legal practitioners certificate for Mr Pierre Kairouz, which was also attached, had not been signed and requested that Peter (evidently a reference to Peter Guy) arranged for its execution and return to Mr Constable. The list of documents set out included relevantly the LNSA, as well as a loan note deed pool executed by GME and a note certificate executed by GME.
265 On 1 October 2021, Mr Constable emailed Mr Guenther and Mr Guy. The attachments to Mr Constable's email comprised the following:
266 Mr Constable's email advised that he had sought 'instructions on what remains outstanding in order to settle'. The next sentence of his email commenced 'With respect to the outstanding signatures:', followed by a table, an extract of which appears below:
A page swap to the LNSA has been prepared and is attached (see page 48)
SSA and share transfer form to be provided for the shares he holds in AustAgri. His guarantee in the LNSA is to be limited to the value on enforcement of these shares
A page swap to the LNSA has been prepared and is attached (see page 48). Please arrange for Paul to sign the LNSA (he can sign the copy attached) and the Security Trust Deed.
Please also find attached an SSA to be signed by Paul and a blank share transfer form.
Please also arrange for a certificate of independent legal advice to be signed for Paul
Required to sign LNSA and related documents as an unlimited guarantor
Required to sign deed poll, then is otherwise not required to sign the finance documents
A deed poll has been prepared and circulated yesterday for execution.
I am instructed that Antonio is required to sign the LNSA and the Security Trust Deed.
Please also arrange for a Certificate of Independent Legal Advice to be signed for Antonio.
We are still seeking instructions on what is required in lieu of the unitholders signing. Will revert as soon as we have any confirmation.
Share Transfer Form (Tony Kairouz for shares in AustAgri)
I understand Peter is arranging for this to be re-executed with an independent witness. Peter, I have re-attached this transfer for convenience.
With respect to other matters:
I have instructions that the Face Value of the Loan Note is to increase by $250,000. Please find attach a mark-up of the LNSA and an updated Loan Note. Could you each (Peter and Grant) authorise us to swap pages 12, 18, 48, 70 and 73 of the signed LNSA with those contained in the attached mark-up. Please also find attached an unamended loan note to be signed by Alan.
I am still awaiting original share certificates, which were not included in the bundles of documents delivered to our office.
There are also some minor hand amendments to be made to the signed documents. Could you please authorise us to:
(a) hand amend clause 7(a) of the Deed Poll (Cedar Meats) so that it reads 'is received or recovered by Cedar from the Borrower';
(b) annex the deed of variation to the Minutes of Meeting of Unit Holders in respect of Birrawae;
(c) hand amend the reference to Runner Investment Limited (Seychelles company number 224221) to Taurus Advisers Limited (Seychelles Co No 228887) in Schedule 1 of the deed poll (DomaCom).
268 Also on 1 October 2021 at 10.46am, Mr Dahan[65] forwarded on Mr Constable's email with the same attachments to Mr Murdaca and Mr Kairouz. Mr Dahan's covering email read 'Gents, P Guy has doc foe [sic] Pierre to sign.' Mr Dahan gave evidence that his email attached the LNSA and the note certificate, although it not clear whether his email attached the other documents.[66]
269 On 1 October 2021 at 11.58am Mr Guy emailed Mr Constable copied to various others including Mr Guenther. Mr Guy's email reads:
I have been instructed to advise:
- My clients consent to the swap of pages 12, 18, 48, 70 and 73 in the signed LNSA.
- The share transfer for Tony Kairouz has been returned. Mr Kairouz undertakes to provide the original you within 7 days.
3. I authorise you to:
(a) hand amend clause 7(a) of the deed poll (Cedar Meats) so that it reads 'is received or recovered by Cedar from the Borrower';
(b) annex the deed of variation to the Minutes of Meeting of Unit Holders in respect of Birrawae; and
(c) hand amend the reference to Runner Investment Limited (Seychelles Co No 224221) to Taurus Advisers Limited (Seychelles Co No 228887) in schedule 1 of the Deed Poll (DomaCom).[67]
270 At 12.14pm, Mr Dahan emailed Mr Murdaca with the subject line 'PLEASE SIGN'.
271 Mr Dahan sent the same email again to Mr Murdaca at 12.15pm this time attaching a page of the LNSA which relevantly provided for signature by Mr Murdaca in his own capacity in the presence of a witness. Mr Murdaca's signing page was on the same page as that which provided for signature from Mr Jaffe, Mr Stamatopoulos and Ms Schmidt).
272 At 12.20pm on 1 October 2021, Mr Constable emailed Mr Dahan (copied to among others Mr Hopp) with the subject line 'Independent legal advice' and attached a waiver of legal advice for Mr Murdaca. Mr Constable wrote that he understood that MK did not act for Mr Murdaca so he requested Mr Dahan to forward the certificate on to Mr Murdaca 'as well as the LNSA and security trust deed which needed to be signed'. His email attached a document which was headed 'Waiver of Independent Legal Advice: Statement by Guarantor'. At around this time, possibly before, Mr Murdaca received a telephone call from Mr Schmidt telling him that the matter was proceeding to settlement and that he (Mr Murdaca) needed to sign some documents, which would be sent to him.
273 In accordance with Mr Constable's request, at 12.22pm Mr Dahan forwarded the waiver of independent legal advice document to Mr Murdaca. At about the same time, Mr Dahan emailed Mr Constable copied to Mr Hopp. His email read:
With the LNSA, it's a page swap right. He has signed just the signing page (having received the entire doc) this is being brought to your office shortly.
274 At 12.39pm, Mr Constable emailed Mr Guenther and Mr Guy providing an update on the outstanding documents. He attached a table in similar format to that the subject of his earlier email which relevantly included a row relating to Mr Murdaca with a status relating to him reading 'documents have been sent to Antonio for signing (via Jack Dahan)'. His email concluded by seeking confirmation from Mr Guenther with respect to the page swap and the making of minor handwritten amendments in the same terms as his email sent earlier in the day to Mr Guy. In his email to Mr Guenther and Mr Guy sent at 12.39pm, Mr Constable confirmed receipt of Mr Guy's earlier authorisation.
275 At 12.51pm, Mr Guenther emailed Mr Constable and Mr Guy telling Mr Constable that he understood that Mr Schmidt was dropping a number of documents at Mills Oakley's office including Mr Murdaca's documents. Mr Guenther further advised that he was getting instructions on the page swaps and hand amendments and would reply to Mr Constable soon. He otherwise enquired of Mr Constable as to whether there was anyone at Mills Oakley to collect the documents/'send you a scan'.
276 At 1.07pm, the reception desk at Mills Oakley emailed Mr Constable with the subject line 'Hi Will, please see attached documents regarding settlement today, dropped off at reception'. The documents attached included the page of the LNSA contained within the section for signature by the guarantors signed by Mr Murdaca; a second document headed 'Waiver of Independent Legal Advice Statement by Guarantor' which inter alia identified the relevant loan document as an LNSA for a note with a face value of $41,250,000.00 as well as a Note Certificate in respect of a note issued by the borrower, GME, which certified that Jasper was the holder of the note. Mr Murdaca had signed each of the three documents including the note certificate in the presence of Mr Schmidt who had signed as the witness.
277 At 1.09pm, Mr Guenther emailed Mr Constable copied to Mr Guy confirming that Agriculture Australia Group Pty Ltd and GME consented to and authorised the swap of pages 12, 18, 48, 70 and 73 of the signed LNSA with those contained in the mark-up circulated that morning and the various handwritten amendments to the signed documentation.
278 At 1.24pm, Mr Constable emailed Mr Guenther and Mr Guy confirming receipt of the documents from Mr Schmidt and attaching the documents received. His email advised that Mr Schmidt had witnessed Mr Murdaca's execution and that Mr Murdaca had not executed his counterpart of the security trust deed. As a result Mr Constable requested that Mr Guenther ask Mr Schmidt to have Mr Murdaca re-execute the solicitors certificate with an independent witness as well as the security trust deed. His email concluded that if required we can settle on scans with the originals of Tony's documents to be sent to Mills Oakley the next week.
279 By email sent at 2.29pm, Mr Guenther advised that Mr Murdaca was sorting out his re-execution and that Mr Constable should have the documents shortly.
280 At 2:48pm, someone at IVIC using the email address admin@ivic.com.au emailed Mr Schmidt attaching a waiver of independent legal advice document and a copy of the execution page of the facility agreement both executed by Mr Murdaca now in the presence of Alba Furci, who was an employee at IVIC.
281 Mr Schmidt forwarded the documents by email, on to Mr Constable and Mr Guenther advising that this should be the last of the documents from Mr Murdaca and himself and that Mr Schmidt's understanding was that 'we are set to go'.
282 On 5 October 2021, Mr Constable emailed Mr Guenther and Mr Guy thanking them for their help in getting the matter to settlement advising that the work spaces appeared to be in order and that he was seeking final instructions to sign off on the work spaces and settle the transaction. His email then stated:
One final matter - page 3 of the LNSA (attached) refers to the Establishment Fee being $402,500 (being 1 per cent of the original face value of the note). Could you please authorise us, on behalf of your respective clients to amend to $412,500 (being 1 per cent of the current face value of the notes). This is consistent with the destination uploaded in PEXA.
Once your authorisations are obtained, I anticipate receiving instructions to settle upon which I will also issue the signed consent requested.
283 By emails sent at 2:33pm and 2:36pm respectively, Mr Guy and Mr Guenther consented to the amendment to the LNSA so as to provide for an increase in the establishment fee to $412,500.
284 The documents tendered at the hearing included an executed version of the LNSA which has been executed by relevantly all parties including the financiers, Baltic River Ltd, and Taurus Advisers Ltd, and by Jasper Group and Jasper. The executed version does not include page 48 in the form which includes Mr Kairouz's handwritten words of limitation. The execution by Jasper Group is preceded by reference to the capacity in which it executed the document being the 'Agent' whilst in the case of Jasper it is preceded by description of the capacity in which it executed the document being the 'Security Trustee'.
285 Against the background of those matters Mr Kairouz submits that the only version of the LNSA which he executed was that which provided for his liability as a guarantor to be capped in the manner referred to by the handwritten amendments which he made and accordingly if a version in that form was not executed by the financiers, or the security trustee, then there is no binding LNSA containing any guarantee to which he was part. Alternatively, Mr Kairouz submits that if he is bound his liability is capped by clause 14.3 in the terms set out in the handwritten amendment.
286 Mr Murdaca submits that his execution of the execution page alone and the waiver of independent legal advice is not sufficient to constitute his execution of the LNSA in a way which binds him or alternatively, if his execution is sufficient to bind him, then he is not bound by the same version of the LNSA (and guarantee) as his co-guarantors because they consented to the amendment to the amount of the establishment fee from $402,500 to $412,500 the subject of the emails which passed between Mr Constable and Mr Guenther and Mr Guy in the afternoon of 5 October 2021. Mr Murdaca was not party to those emails and there is no evidence to suggest that he was informed of that change.
288 It is not in dispute that Mr Murdaca signed the execution page of the guarantee (twice) on 1 October 2021. Mr Dahan also gave evidence, which was unchallenged, that at 10:46am on 1 October 2021, he sent a copy of the LNSA (together with a number of other transaction documents, including a note certificate for $41,250,000) to Mr Murdaca and Mr Kairouz.
289 Mr Murdaca gave conflicting evidence as to whether he had received the LNSA before he signed the execution page. In his evidence-in-chief, he denied that he had been given a copy of the agreement at the time he executed the execution page. This was inconsistent with his affidavit, tendered as his evidence-in-chief, which deposed to his receipt of Mr Dahan's email and attachment. The attachments which Mr Murdaca exhibited to his email included the final version of the LNSA. I accept, therefore, that Mr Murdaca received the LNSA in its final form by the time that he signed the execution page, save that I accept that the amount of the establishment fee was changed subsequently without his knowledge or communicated assent. This issue is considered further below.
290 Regardless, Mr Murdaca submitted that he was not bound by the guarantee, notwithstanding his completion of the execution clause because:
(a) The form of the guarantee had changed from that which was in existence on 19 September 2021 when he arrived at the offices of Oakley Thompson and was told that he did not need to sign the guarantee
(b) there was no reason for him to have been alerted to any changes by Mr Dahan's email sent at 10:46am, which although sent to Mr Murdaca, in fact stated, 'Gents P Guy has doc foe [sic] Pierre to sign'.
In other words, Mr Murdaca submitted that the email although sent to him as a co-recipient was directed to and in substance an email to Mr Kairouz;
(c) Mr Murdaca did not in fact read the LNSA in the form sent to him on 1 October 2021.
291 As such, Mr Murdaca submits that his signing of the execution page of the LNSA on 1 October 2021 did not constitute an act of acceptance in respect of the final LNSA now relied upon, because the only agreement to which Mr Murdaca could have been assenting was that which was presented to him at Oakley Thompson on or about 19 September 2021.
292 This argument is rejected. By affixing his signature to the execution page, Mr Murdaca was conveying his assent to be bound by the form of the guarantee then in existence on that date. Mr Murdaca also signed at the same time, the document titled 'Waiver of Independent Legal Advice: Statement by Guarantor' the content of which makes clear that the document was required to support 'my guarantee and indemnity (which is) detailed in Schedule 3 (guarantee and indemnity), in relation to the loan note subscription agreement being provided by Baltic River Ltd ... and Taurus Advisers Ltd...(Financiers) to the borrower as set out in Schedule 4.' The waiver otherwise identifies in Schedule 1 that the guarantor was Mr Murdaca and in Schedule 2 to the document that the relevant loan documents in respect of which the guarantee applied was the LNSA for notes with a face value of $41,250,000. This correlated to the face value of the loan note in the LNSA as it existed on 1 October 2021, which was higher than that which existed on 19 September 2021.
293 Whether Mr Murdaca took the trouble to read the LNSA or not, from his affixing of the signature to the execution clause and his signing of the waiver of independent legal advice, Mr Murdaca's signature is taken to amount to his execution of the guarantee and indemnity in respect of the Loan Note Subscription Agreement for notes with a face value of $41,250,000 in the form in which it existed on 1 October 2021, which in any event had been provided to him.
294 Accordingly, the first basis upon which Mr Murdaca contends that he is not bound by the LNSA is rejected.
295 The second basis relied upon by Mr Murdaca relates to the fact that after Mr Murdaca had signed the execution page, the solicitor for Mr Kairouz, Mr Guy, and the solicitor for GME, Mr Guenther, consented on behalf of their clients to the request conveyed by Mr Constable on behalf of Jasper and the Financiers to an amendment to the LNSA so as to provide for an increase in the establishment fee to $412,500 from the amount of the establishment fee specified in the LNSA as at the time Mr Murdaca executed the document, which was $402,500.[68]
296 Mr Murdaca contends that this change, in respect of which he was not given notice, has the effect of discharging him from any liability that he would otherwise have had under the guarantee.
297 I reject that submission too; first, the change in the establishment fee from $402,500 to $412,500 had no effect on the scope of the liability and indemnity the subject of the guarantee and indemnity. It did not affect the Face Value Amount of $41,250,000, and nor did it affect the Discounted Amount, which was the amount payable by the financiers of $36,500,000.
298 Clause 3.3 of the LNSA provided that the borrower (GME) could only use the proceeds of a utilisation (which in substance meant $36,500,000) for purposes confined to:
(a) assisting GME with the refinance of Cedar Meats and Jeskan's existing secured debts owed to the first and second mortgagee;
(b) the purchase of the business from Cedar Meats;
(c) the payment of fees and reimbursable costs of the financier in accordance with the agreement; and
(d) such other purpose as approved by the financier in its absolute discretion.
299 The fees and reimbursable costs of the financier in accordance with the agreement included the establishment fee which, by the terms of clause 5.5, was payable by the borrower prior to or at the time when the initial utilisation was made. The borrower (GME) authorised the Security Trustee (Jasper) to withhold the establishment fee from the initial utilisation.
300 In other words, GME was required to pay the establishment fee from the funds provided by the financiers. The effect of the increase in the establishment fee from $402,500 to $412,500 meant that the borrower had to deploy an additional $10,000 of the borrowed funds for that purpose. It did not change the amount of the principal or the extent of the obligations otherwise assumed by Mr Murdaca as guarantor. As such, the nature of the principal obligation was not altered such as to discharge Mr Murdaca's guarantee.[69]
301 The principle by which a guarantor's liability can be discharged by alterations in respect of the primary obligation can, in any event, be excluded or modified by agreement.
302 The LNSA includes clause 14.5(f), which provides as follows:
The obligations of each Guarantor under this clause 14 will not be affected by an act, omission, matter or thing which, but for this clause, would reduce, release or prejudice any of its obligations under this clause 14 (without limitation and whether or not known to it or the Financiers) including ...
(f) any amendment, novation, supplement, extension, restatement (however fundamental and whether or not more onerous) or replacement of any Finance Document or any other document or security including any change in the purpose of any extension of or any increase in any facility or the addition of any new facility under any Finance Document or other document or security.
303 The change in the establishment fee from $402,500 to $412,500 amounts to an amendment of a finance document (the LNSA) in the form of a change in the purpose of the facility provided under that LNSA by providing that the purpose now extended to paying an establishment fee of $412,500 instead of $402,500.
304 By reason of clause 14.5(f) of the LNSA, if such a change otherwise discharged Mr Murdaca's liability, which I do not accept, then his liability as guarantor is preserved by reason of this clause.
305 Next Mr Murdaca relied upon the fact that he did not execute the Security Trust Deed. The Security Trust Deed was executed by inter alia the Security Trustee (Jasper); the Original Beneficiaries (Jasper Group, Baltic River Limited and Taurus Advisors Limited) and some but not all of the Obligors (who included inter alia GME, Cedar Meats, Jeskan, Hennessey, AustAgri, Mr Kairouz) as well as Mr Murdaca who did not execute the document. Clause 7.1 provided that the Security Trustee was entitled to exercise all Powers[70] under Finance Documents (which included the LNSA) as if it were the sole beneficial owner of the Finance Documents and the Powers.
306 However, clause 14.2(b) of the LNSA provides that the Guarantors (which included Mr Murda) must immediately pay the Security Trustee the amount of the Loss demanded whilst clause 14.3 (c) provides that if an Event of Default occurs, the Guarantors must immediately on receipt of a written demand by or on behalf of the Financiers pay the Secured Money to the Security Trustee. Thus, independently of the powers conferred by the Security Trust Deed, the Security Trustee (Jasper) has an independent right of action against the Guarantors under the LNSA, and it is those rights which it is seeking to vindicate in this proceeding. As such, Mr Murdaca's non-execution of the Security Trust Deed is of no consequence.
307 Accordingly, I reject Mr Murdaca's submission that he is not bound by the guarantee.
308 Mr Kairouz submits that he executed the guarantee on 21 September 2021, but that the form executed by him on that day contained his handwritten amendment to clause 14.1(c) in a way which capped his liability. Given that neither Jasper nor the financiers executed the LNSA in a form which contained a clause with the handwritten words of limitation, Mr Kairouz submits that there is no agreement, arguing that his offer was to provide a guarantee in the form of that executed 21 September 2021 which was thereafter rejected by Jasper, such that no binding agreement came into existence.
309 That submission must confront Mr Constable's email to Mr Kairouz's solicitor, Mr Guy on 1 October 2021, in which Mr Constable advised that Mr Kairouz's guarantee had to be unlimited and, as such, the page containing Mr Kairouz's handwritten amendment had been swapped out and replaced with a new page at page 48. Mr Constable requested that Mr Guy authorise the swap of certain pages in the signed LNSA (meaning those already signed by Mr Kairouz) with those contained in the attached marked-up version, as well as certain handwritten amendments to the signed documents, as set out in the body of the email.
310 By an email sent on the same day, Mr Guy conveyed Mr Kairouz's consent to such a course.[71]
311 Mr Kairouz did not advance any case to the effect that Mr Guy did not act with his instructions when he sent the email to Mr Constable on 1 October 2021. Rather, he submitted that the extent of the authorisation and its content was simply confined to the page swap and handwritten amendments as sought, but that this did not mean that Mr Kairouz was then bound, without more, to a guarantee contained within the LNSA as amended, without the further step of fresh execution of the LNSA in the form which reflected the amendments.
312 I reject this submission. It is inconsistent with the objective intention of the parties as revealed by both the terms of Mr Constable's email and that which is conveyed objectively by the surrounding circumstances and the matters set out in those emails. First, Mr Constable's email of 1 October 2021 is sent in the context of the prior execution by Mr Kairouz, among others. His email of 1 October 2021 set out a list of that which is required in order for the transaction to settle, which relevantly in the case of Mr Kairouz required only the page swap in contrast to the position of Mr Murdaca, for example, who was required to do something which he had not yet done, which was sign the LNSA. The entire exchange took place in circumstances which objectively conveyed the mutual intention of the parties that once the outstanding matters had been attended to (which did not include re-execution by Mr Kairouz), the transaction would settle in the sense that the funds would be provided. So much is clear, among other things, from the content of Mr Constable's email to Mr Gunther and Mr Guy on 5 October 2021. If that were not the case, there is no reason why the handwritten changes to the signed document had to be the subject of consent; instead a fresh copy of the LNSA incorporating all the changes would then have been prepared and sent to the parties for fresh execution.
313 Returning to the concept of offer and acceptance as deployed by Mr Kairouz, Mr Guy's email of 1 October 2021 at 11:58pm conveyed an offer on the part of Mr Kairouz to provide a guarantee in the form the subject of his execution and return on 21 September 2021 as altered in the manner set forth in Mr Guy's email of 1 October 2021. That offer was then accepted when Jasper and the financiers executed the LNSA on or about 5 October 2021.
314 The defendants submit that clause 5.3 of the LNSA and clause 12 of the AAD constitute penalties and are therefore void or unenforceable.
(a) From the first day following the Termination Date and on each day thereafter, as well as on each day where an Event of Default is subsisting interest will accrue and be calculated in the manner set out in this clause 5.3 on the Principal Outstanding and any money that is due and payable by it, but unpaid and on any interest payable but unpaid at the Overdue Rate.
(b) The interest payable under this clause 5.3 accrues from day to day from the first day following the date of the Event of Default or the Termination Date (whichever is earlier) until the day that Principal Outstanding and other amounts due under any Finance Document is repaid in full.
(c) The Overdue Rate payable under this clause 5.3 shall be capitalised at monthly intervals such that the amount of that interest payable will form part of the Principal Outstanding and interest shall accrue on that amount.
(d) Failure to repay the Principal Outstanding and other amounts due under any Finance Document in full before or on the Termination Date is an Event of Default.
316 As noted earlier, the Overdue Rate is 60% per annum and is to be contrasted with the rate payable absent default, defined in the LNSA as the Interest Rate which is 0.00% per annum. Termination Date as earlier noted is the date falling nine weeks after the date of the agreement (5 October 2021), which was 7 December 2021.
317 It will also be recalled that the LNSA provided that the Financiers advanced the Discounted Amount of $36,500,000 to GME and GME was required to pay the Face Value Amount of $41,250,000 on the Termination Date.
318 Thus a failure to pay $41,500,000 on 7 December 2021, meant that interest was payable at 60% per annum compounding monthly. The rate and its compound effect mean that the $36,500,000 borrowed by GME on 5 October 2021, now equates to an amount outstanding as at 9 October 2023 (about two years later) of $121,651,759.61.
That any failure to pay the Repayment the Original Beneficiaries by the Expiry Time will result in default interest being charged at a rate of 120% per annum on the Repayment Amount. Interest accruing under this paragraph 9 shall accrue in accordance with 5.3 of the Facility from the Expiry Date until the Repayment Amount is repaid.
320 Recital 2 to the AAD provides that the Original Beneficiaries agree to advance $2,000,000 to GME (Additional Advance). Recital 3 provides that GME agreed to repay $2,400,000 (Repayment Amount) to Jasper by 9:00 am on the date falling one month after the date the additional advance is made (Expiry Time, here 5 December 2021) in repayment of the Additional Advance with a failure to do so resulting in interest being payable at the rate of 120% per annum compounded monthly. Thus, having borrowed $2,000,000 on 5 October 2021, the amount payable under the AAD as at 9 October 2023 is $7,424,116.30.[72]
321 The legal principles governing the circumstances in which a provision of a contract will be treated as a penalty have been considered by the High Court in a number of recent cases.
322 The principles conveniently stated by McDougall J (with the agreement of Gleeson JA) in Arab Bank Australia Ltd v Sayde Developments Pty Ltd ('Arab Bank')[73] as follows (with the reference to Dunlop being to the decision of the House of Lords in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd[74]:
...
- In Ringrow, the Court (Gleeson CJ, Gummow, Kirby, Hayne, Callinan and Heydon JJ) accepted at [12] that Lord Dunedin's speech in Dunlop set out "the principles governing the identification, proof and consequences of penalties in contractual stipulations", and that the decision in Dunlop "continues to express the law applicable in this country".
- The relevant aspect of Lord Dunedin's speech (Dunlop at 86 - 87) reads as follows (omitting citations):
2. The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage ...
3. The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the making of the contract, not as at the time of the breach ...
4. To assist this task of construction various tests have been suggested, which if applicable to the case under consideration may prove helpful, or even conclusive. Such are:
(a) It will be held to be penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach ...
(b) It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid ...
(c) There is a presumption (but no more) that it is penalty when "a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage".
In Andrews, the Court (French CJ, Gummow, Crennan, Kiefel and Bell JJ) referred to Dunlop at [69] and following. Nothing that their Honours there said cast any doubt on the position stated in Ringrow, to the effect that the principles identified by Lord Dunedin expressed the legal position in this country. That is perhaps not surprising, because the real point of the decision in Andrews was to identify that the equitable jurisdiction to relieve against penalties remained alive and well. It followed, in the Court's view, that the penalty doctrine was not only applicable in the case of breach of contract. Since the present case involves a stipulation operative on breach of contract, that aspect of the decision in Andrews is of no significance.
I turn to the decision in Paciocco. In that case, the High Court held by majority (French CJ, Kiefel, Gageler and Keane JJ) that a late payment fee imposed by the respondent bank on its credit card customers was not a penalty. Their Honours gave separate reasons: Kiefel J (with whom French CJ agreed on this point); Gageler J; and Keane J. The majority judgments paid close attention to the reasoning of Lord Dunedin in Dunlop. The following propositions emerge from the majority decision:
- Lord Dunedin's propositions were not "rules of law", but "distillations of principle": (Gageler J at [143]; compare Kiefel J at [32] and Keane J at [260]).
- The essence of a penalty is that it is a collateral stipulation, the (or a predominant) purpose of which is to punish the borrower for breach, and thus to compel performance (Kiefel J at [29]; Gageler J at [127], [159], [166]; Keane J at [254], [259], [273]).
- One way of testing whether the impugned stipulation is penal - intended to punish - is to inquire whether the sum that it stipulates to be payable on breach (as I have indicated, the equitable origins and continuing equitable operation of the principle have no present relevance) is to ask whether the stipulated sum is extravagant or out of all proportion to, or unconscionable in comparison with, the maximum amount of damage that might be anticipated to follow from the breach: (Kiefel J at [29], [54]; Gageler J at [158] to [162]; Keane J at [221]).
- "Damage" in this sense is not limited to damages recoverable upon breach of contract, but may extend to damage, or losses, caused by the impairment of other legitimate commercial interests that were intended to be protected by the stipulation: (Kiefel J at [33], [42] to [47]; Gageler J at [145], [160] to [162]; Keane J at [216], [283]).
- The analysis is to be made at the time, and taking into account the circumstances applicable, when the contract was made; not at the time of breach; the analysis is prospective, not retrospective (or as is said in some judgments, is ex ante, not ex post): (Kiefel J at [62]; Gageler J at [169]).
- Mere disproportion between the stipulated sum and the possible damage is not enough to indicate "penalty"; the disproportion must be such that it is unconscionable for the lender to rely on the stipulation: (Kiefel J at [54], Gageler J at [164]; Keane J at [221], [240], [279]).
There are two remaining relevant points to be derived from the decision in Paciocco. The first is that the onus of proving that a contractual stipulation amounts to a penalty rests with the person asserting it. As Gageler J said in Paciocco at [167]:
167 ...The customers bore the evidentiary and persuasive onus throughout that inquiry.
- The second point relates to the "presumption" identified by Lord Dunedin in Dunlop at his point 4(c). That presumption is the subject of the first ground stated in the notice of contention. As Keane J said in Paciocco at [265], that presumption is "a weak one". Further, as Gageler J said at [168], the invariable nature of the penalty compared to the amount overdue or the length of delay, although it cannot be ignored, is "only weakly indicative of the character of the late payment fee as a punishment".
323 The defendants argue that clause 5.3 and clause 12 of the LNSA and AAD constitute a collateral stipulation which is engaged upon the failure of a primary stipulation[75] such that clauses 5.3 and 12 are susceptible to challenge as penalties.
324 Next, the defendants submit that a basal comparison of the interest rate payable prior to default (ie 0.0%) with that payable in the event of breach (60% per annum and 120% per annum under the LNSA and the AAD respectively) speaks to the proposition that the (or a) predominant purpose of clauses 5.3 and 12 is to punish the borrow upon default and as such compel performance of the primary stipulation. Both rely upon the presumption which arises from the fact that the Overdue Rate payable under clause 5.3 of the LNSA is applicable in the wide array of circumstances set out in clause 13.1 of the LNSA encompassing no less than 40 separate events, ranging from the obvious, a failure to pay (clause 13.1(a)) to more atypical events of default, including 13.1(f), which enlivens the payment of interest of the Overdue Rate in the event of a breach by GME of clause 12.19 of the LNSA, which clause provides:
(a) provide any information, including but not limited to passwords, in order to allow the Security Trustee to effectively exercise its powers as set out in the GME POA;
(b) open, use or allow for funds to be deposited in any account other than a GME account;
(c) not remove, or cause to be removed, Jason Hopp as an authorised signatory of any GME account.
325 The defendants argue that the breadth of events which engage the Overdue Rate is illustrative of its hair trigger operation, arguing that on no view could a breach of the less serous events of default be causative of any loss to Jasper and/or the Financiers of a kind which required the imposition of a 60% per annum interest rate compounded monthly.
326 Whilst the defendants accept that they bear the onus of establishing that the relevant provisions are penalties, they argue that in the circumstances of this case, where Jasper has not sought to adduce any evidence justifying the default rate, the onus is not a heavy one and is discharged by pointing to the relevant provisions in the LNSA and AAD themselves.
327 In support of such submission, they point to a series of decisions in the Supreme Court of New South Wales. Thus in Bay Bon Investments Pty Ltd v Selvarajah ('Bay Bon Investments'),[76] where the Court upheld as a penalty a default rate of 240% per annum compared with a standard rate of 60% per annum, White J observed:
Whilst I accept that the onus is on the defendant [the borrower] to show that the provision is a penalty, it appears to me that once some evidence is adduced which may be sufficient to satisfy that onus, there is an evidentiary onus on the plaintiff [the lender] to explain the nature of its business, the rates at which it is able to lend, and how, when the contracts were entered into, it would have been anticipated that the moneys would be re-deployed on repayment of the loans. This information was entirely in the plaintiff's camp. Evidence is to be weighed according to the power of a party to produce it. Where facts are peculiarly within the knowledge of one party, comparatively slight evidence may be sufficient to discharge the onus of proof lying on the opposite party.
328 In First Cash Flow Solutions Pty Ltd v Saad,[77] Robb J held that a payment default fee was penal and stated:
There may be cases, of which I think the present is one, where the plaintiff must tender the contract upon which it sues in order to make out its case, and the contract itself is then evidence that is capable of establishing a sufficient basis for the Court to find that a particular term is a penalty so as to cast an evidentiary burden on the plaintiff to call evidence to explain why it is not.
329 Robb J made substantially the same point in concluding that a default rate of 9.75% per 30 days in light of a standard rate of 1.75% per 30 days was a penalty in Bellas v Powers ('Bellas'):[78]
Consequently, although the burden of proving that a contractual provision is a penalty always remains on the party who makes that claim, which in the context of a loan agreement will generally be the borrower, the lender will need to tender the contract to prove the debt claimed, and the terms of the contract will constitute evidence that may cause an evidentiary onus to shift to the creditor. As the interests that the challenged provision is intended to protect will be the interests of the creditor, and as the information relevant to the need for the creditor to be able to rely upon the provision to protect those interests may be solely within the creditor's province, the failure of the creditor to lead evidence beyond the contract may have the effect that the presumption operates, notwithstanding its weakness.
330 In Bellas, Robb J followed the same approach as followed by Meagher JA in Aquamore Credit Equity Pty Ltd v Hung ('Aquamore Credit'),[79] where his Honour held that a higher rate of 5% per month payable on default was a penalty and hence unenforceable in circumstances which included a lower rate of 2% per month payable absent default.
331 In the present case, Jasper did not lead any evidence that sought to justify the rates at which the Financiers would have been able to lend or how the moneys could have been redeployed on repayment of the loans.
332 Whether or not the defendants have discharged the onus then of establishing whether the relevant provisions are penal depends solely on the proper analysis of the clauses in question. Jasper submits that it is artificial to compare the overdue rates of 60% and 120% per annum with the 0% payable under the LNSA and the AAD. Jasper emphasises that the law of penalties is 'unquestionably concerned with substance, not form'.[80] In the case of the LNSA, it argues that GME received the Discounted Amount of $36,500,000 but was required to pay the Total Face Value Amount of $41,250,000 nine weeks later, arguing therefore that as a as a matter of substance, there was no '0.00% interest rate' applicable for the duration of the nine week loan term and that the cost of borrowing the $36,500,000 for that period was $4,750,000, or approximately 13% of $36,500,000, which is the equivalent of an annual 'interest rate' of 75.11% (that is, 13 divided by 9 (weeks) and multiplied by 52 = 75.11).
333 Jasper notes that the 'Overdue Rate' calculable on the 'Principal Outstanding' under clause 5.3 of the LNSA is 60%, per annum, calculated daily and compounded monthly, which equates to an effective annualised (compounded) interest rate of 79.58%.
334 Accordingly, Jasper argues that the difference between the initial cost of borrowing (75.11%) and the rate following the termination date (79.58%) is only 4.47% per annum, which, expressed in percentage terms, is an increase of approximately 5.95% of the initial rate (ie 4.47 is approximately 5.95% of 75.11 or approximately one seventeenth of the initial rate).
335 By way of comparison, Jasper notes that an increase from an initial rate of 25% per annum to a 30% rate represents an increase of 20% or one fifth of the initial rate, which, in substance, is no different from an increase from 5% to 6%. In B & G Properties v Fayad ('B & G Properties'),[81] Bell J described a default interest rate of 30% in light of an initial rate of 25% as 'plainly ... not' a penalty.[82]
336 Thus, Jasper points to the percentage increase in the present case under the LNSA being significantly lesser (i.e. 5.95%) which percentage increase would, in the case of a 5% per annum rate, result in an increase in rate to a default rate of 5.29%. Thus, the comparison of the overdue rate with that which substantively amounts to the rate prior to default is the mathematical equivalent to an increase from a 5% rate to a rate only of 5.29%, which Jasper submits, by parity of his Honour's reasoning in B & G Properties, is plainly not a penalty.
337 Jasper makes substantially the same argument with respect to the AAD, but observes that the effective annualised rate of interest imposed by clause 12 of the AAD is less than, not more than, the initial borrowing costs, such that there is no occasion to compare increased rates at all. That is:
(a) the AAD repayment amount, $2,400,000, represents a tangible $400,000 cost of borrowing, the $2,000,00 'additional advance' for a short term of one month;
(b) the $400,000 cost of borrowing (ie 20% of the advance, loaned for one month) equates to an annualised 'initial' rate of 240%; and
(c) in comparison, the default rate calculable on the 'repayment amount' under clause 12 is 120% per annum (calculated daily and compounded monthly in accordance with clause 5.3 of the LNSA), and that this equates to an effective annualised (compounded) interest rate of 213.84%, which is demonstrably less than the 240% rate of interest referable to the initial borrowing cost (ie it is a 10.9% decrease on the initial rate).
338 Jasper illustrates the above calculation and examples by reference to a simple reckoner:
339 Jasper's mode of comparison involves as the initial step in the case of the LNSA, the determination of the effective cost of borrowing $36,500,000 for 12 months based on annualising the effective rate of borrowing that amount over the initial nine weeks; this is the step which produces the equivalent annual rate of 75.11%.
340 The defendants challenge the appropriateness of this step; they argue that the $4,750,000 is a lump sum figure which compensates Jasper and the Financiers for the costs incurred by them in preparing to lend, such as the fees, costs and time/resource costs in processing the application, loan set up fees commission fees and document preparation fees as well as the Financiers' desire to make a profit on the short term loan. They submit that the profit margin figure accounts for the fact that the money was only to be deployed for nine weeks and would not be 'working' for the rest of the year. In short, they submit that a 'lump sum' approach is fundamentally different to a daily interest rate approach and hence the derivation of an annualised equivalent rate.
341 If simple interest is calculated at the rate of 75.11% per annum for one year on the initial effective advance of $36,500,000, the interest payable is $27,415,150 which results in the amount due at the end of year 1 being $63,915.150. The Overdue Rate is in fact 60% per annum compounded monthly, not 79.58% per annum compounded annually and the period in which it continues is not limited to one year, it continues for as long as there is a default. The 79.58% per annum compounded annually is the equivalent of 60% per annum compounded monthly provided that the comparison is undertaken only for one year. A rate of 79.58% compounded annually over a term of 1 year only is no different to simple interest for one year at the rate of 79.58%. If the amount of interest is calculated at the end of year 1, the interest is $29,046,700 which is not a significant increase in the amount payable upon the application of the effective initial simple interest rate of 75.11 % which results in interest of $27,415,150.
342 If the analysis is undertaken at the end of year 2, a different picture emerges, because the compounding nature of the provision which arises on default begins to impact. Thus, the interest payable at the end of year 2 by applying an effective annual rate of 79.58% compounded annually on the original effective advance of $36,500,000 is $81,208,763 which equates to a balance outstanding of $117,708,763. Interest of $81,208,763 over two years on a principal of two years equates to an annual simple interest rate of 111.24 %, which is well above the rate which Jasper contends is the effective annualised pre default simple interest rate of 75.11%. If the effective annualised pre default simple interest is applied over a 2 year period, the interest payable is $54,830,300 which is less than half the effective annual rate of 79.58% compounded annually if the default continues to the end of year 2. The differential becomes even greater the longer the period of default.
343 If the equivalent analysis is undertaken in relation to the AAD a similar picture emerges; according to Jasper the effective annual simple interest rate for the 3 month loan is 240% per annum (by which $2,000,000 is borrowed and $2,400,000 is repayable 1 month later which equates to 240% per annum). Jasper submits that this is higher than the equivalent annual rate compounded annually of 213.84 %, which is true but as is the case with the LNSA, Jasper's calculation is performed at the end of the first year before any compounding takes effect. Thus the interest payable at the end of year 1 (before compounding) is $5,132,160 which is less than the effective pre default simple interest rate of 240% per annum which equates to $5,760,000. However, if the calculation takes place at the end of year 2 after the compounding has taken place at the end of year 1, the interest is $21,238,930 which dwarfs the equivalent effective pre default simple interest of $11,520,000 (two years simple interest on $2,400,000 at the rate of 240% per annum).
344 Clause 5.3 of the LNSA and clause 12 of the AAD are susceptible to review as to whether they give rise to penalties because they clearly arise on breach. That being so, the critical question as to whether the provisions in fact amount to a penalty or not is a question of construction to be decided on the terms and inherent circumstances of each contract judged at the time of the making of the contract, not at the time of breach.[83]
345 Turning first to the LNSA, the alleged penal aspect of clause 5.3 which requires payment of interest at the Overdue Rate of 60% per annum compounded monthly, must be considered in the context of the LNSA as a whole. The relevant provisions which call for analysis include clause 5.1(a) which provides that 'the borrower (GME) must pay interest in advance at the Interest Rate (0.00%) on the Principal Outstanding (being the Total Face Value Amount of $41,250,000) and any other amount which is owing to the Financier'; clause 6.1 which requires the borrower (GME) to repay each Loan Note (at its Face Value of $41,250,000) and all other Secured Money which fall due on the Termination Date (nine weeks after the date of the agreement) and otherwise as required under the Agreement. The latter requirement to repay the Loan Note at its Face Value and all other Secured Moneys 'otherwise as required under the Agreement' could arise in the event that Event of Default occurred within the meaning of clause 13.1, which included a failure to pay an amount when due (such as the Face Value of the Notes on the Termination Date) provided the Event of Default was subsisting, provided that the Agent (Jasper Group) inter alia declared that the Secured Moneys are immediately due and payable, and the Finance Documents are immediately enforceable (see clause 13.2).
346 Further, by clause 14.1, each guarantor guaranteed to each Financier punctual performance by each Obligor (which included GME) of all that Obligor's obligations under the Finance Documents and under clause 14.2, each guarantor indemnified each Finance Party against any loss which arose inter alia because of an obligor (including GME) failing or being unable to pay the Secured Money on time, or observe or perform its obligation under a Finance Document to which it is party on time. The Finance Documents included first ranking mortgage securities over the Brooklyn Property and the Footscray Property and a GSA over the assets and undertaking of the Cedar Meats business.
347 Thus, the terms of the LNSA, aside from clause 5.3, give rise to a series of consequences or potential consequences arising from an Event of Default whilst that event subsists. The prospect of those consequences, including the taking of steps to enforce the securities which form part of the Finance Documents to call on the guarantee or the indemnity provided by the guarantors undoubtedly constituted an incentive for the borrower and guarantors to avoid, if possible, the happening of any event of default, including that which arises on the failure to pay the Face Value of the Notes on the Termination Date.
349 When Meagher JA asked that question in Aquamore Credit, he framed the inquiry as one which involved determining the purpose of a provision which 'doubles an already substantial interest rate upon the happening of any event of default, whether serious or otherwise and provides that interest at that rate be paid only whilst the relevant event subsists'.
350 Having posed the question in that way, his Honour reasoned as follows:[86]
It may be taken as not controversial that the lower interest rate charged by the Financier at the commencement of the loan reflected what the parties regarded as a commercial acceptable interest rate having regard to the Financier's then assessment of the borrower's credit risk, and the nature of the finance as short term lending for the purpose of property development. The effect of clause 7.1 was to double that rate to one which could not have been proffered at the commencement of the loan as a genuine pre-estimate of the or an interest rate which would have taken account of the increased credit risk that the borrower in default would have represented on the happening of any one of the events of default. First, it was not possible, at the time the agreement was made, to make other than a very conservative estimate because of the many different events which could constitute the occurrence of the Event of Default. Secondly, the effect of clause 7.1 is not to increase the underlying interest rate for the balance of a loan period on the basis of an increase in the credit risk represented by the borrower. If clause 7.1 had been intended to have that outcome, it would have provided for the higher Rate to apply during the remaining term. Thirdly, an increase from 30% to 60% per annum imposed an interest rate which on the face of it was out of proportion to any increased credit risk that the Borrower was likely to represent on the happening of any Event of Default.
On the other hand it was plainly in the Financier's interest to discourage any actions or inactions on the part of the Borrower and the guarantors that might result in an increased credit risk. In circumstances where the Financier had not imposed any express obligation on the Borrower to prevent the occurrence of Events of Default, the effect and purpose of cl 7.1 becomes clear. It was to discourage any action or inaction which might result in an Event of Default and did so by the imposition of a sufficiently exorbitant interest rate to have that consequence.
351 His Honour contrasted the circumstances before him with those addressed by Coleman J in Lordsvale Finance PLC v Bank of Zambia ('Lordsvale Finance'),[87] in which case the bank's funding facility provided that where there was default in payment of any sum due under the facility, interest was payable from the date of the default until the facility was repaid in full at a 'default rate', which was to be 1% above the applicable rate. In that case, Coleman J observed:[88]
... the borrower in default is not the same credit risk as the prospective borrower with whom the loan agreement was first negotiated. ... Merely for the pre-existing rate of interest to continue to accrue on the outstanding amount of the debt would not reflect that the borrower no longer has a clean record. Given that money is more expensive for a less good credit risk than for a good credit risk, there would in principle seem to be no reason to deduce that a small rateable increase in interest charged prospectively upon default would have the dominant purpose of deterring default ...
If the increased rate of interest applies only from the date of default or thereafter, there is no justification for striking down as a penalty a term providing for a modest increase in the rate. I say nothing about exceptionally large increases. In such cases it may be possible to deduce that the dominant function is in terrorem the borrower. But nobody could seriously suggest that a 1% rate increase could be so. It is ... consistent only with an increase in the consideration for the loan by reason of the increased credit risk represented by a borrower in default.
352 Meagher JA, in Aquamore Credit, considered that in respect of the agreement before him, there was good reason to deduce that the only purpose of doubling a rate of interest charged whilst a default subsisted was to secure as far as possible that there would be no event of default and that if there were, it would be remedied so far as possible. The means by which the lender sought to achieve that purpose was by the imposition of such a substantial detriment on the borrower, which could not be justified in any other way such as by reference to the enhanced credit risk.
353 As noted by McDougall J in Arab Bank, where his Honour quoted extensively and approvingly from the majority judgements in Paciocco v Australia and New Zealand Banking Group Ltd ('Paciocco'); the essence of a penalty is that it is a collateral stipulation, the (or a predominant) purpose of which is to punish the borrower for breach and thus to compel performance.[89] One way in which to test whether the purpose of the impugned provision is to punish is to ask whether it is extravagant or out of proportion or unconscionable in comparison with the maximum amount of damage that might be anticipated to follow from the breach. It is in the context of that exercise that courts have compared the pre default rate of interest with the default rate of interest contained in loan agreements, and after taking account of inter alia the extent of the differential and the period in which the default rate may apply, determined whether the clause imposing the higher rate is penal or not. Thus, it was so found in Bay Bon Investments, Aquamore Credit and Bellas but not in Arab Bank, B & G Properties, or Lordsvale Finance.
354 Against the background of such an approach, it is understandable that Jasper concentrated much of its submission on the comparison between what it contended was an annualised pre-default rate and its alleged equivalent default rate, whilst the defendants concentrated their submissions on the inaptness of seeking to determine an annualised pre-default rate. There are difficulties with the approaches of both Jasper and the defendants. In the case of the defendants, the assertion that the lump sum in effect represents a recoupment of the lender's costs plus a high profit component for a short term loan fails to pay regard to the fact that the LNSA provided for the costs of Jasper and the Financiers to be paid by the borrower and the LNSA provided for the payment of an Establishment Fee of $412,500 with its payment being effected by part of the Discounted Amount being held back for that purpose. The assertion that the money would otherwise lie idle apart from during the loan period is also speculative. Moreover, the characterisation is one viewed solely from the viewpoint of the lender when in fact regardless of the use to which the lender would put the lump sum, the inescapable fact is that the price charged to the borrower for use of $36,500,000 for a nine week period, was $4,750,000. Jasper's approach is also somewhat problematic, particularly insofar as the relevance of the comparison it seeks to rely on is largely dependent on a calculation which stops at the end of the first year, whereas the Overdue Rate continues for as long as the default is subsisting. Given the structure of the LNSA and the AAD, such an approach presents difficulties both as to the appropriateness of calculating a pre-default rate and then the validity of the comparison with the default rate, particularly in light of the complications which arise from compounding in the default rate which are not present in the pre-default rate.
355 The understandable but contested nature of the different approaches, should not obscure that the critical question is whether the (or a) predominant purpose of the impugned provision is to punish the borrower for breach and thereby compel performance.
356 In the present case, if this question is kept at the forefront of the analysis, then the answer presents itself more clearly. As was the case in Aquamore Credit, there was a range of incentives in the LNSA for the borrower to ensure that there was no Event of Default; ensuring that there was no default under the mortgages of the properties in which GME carried on its business, or the guarantees were called upon to name but a few. In that context, it is not easy to see why the obligation to pay interest at the Overdue Rate, would be so burdensome as to compel performance in light of the other factors which incentivised performance.
357 But there is another purpose for the imposition of the Overdue Rate which can be inferred from reading the LNSA (and AAD) as a whole. As noted above, GME received $36,500,000 and nine weeks later had to pay $41,250,000. Because this was the structure of the LNSA, the Interest Rate was specified at 0.00%. Importantly, but for the impugned clause 5.3, clause 5.1 continues to have operation which means that after the Termination Date, when $41,250,000 becomes payable, the $41,250,000 carries an interest rate of 0.00%. Clause 5.3 serves the purpose of ensuring that after the Termination Date, the $41,250,000, if unpaid, earned interest under the LNSA as opposed to earning 0.00% interest. It is no answer to say that the lender may have been able to sue for damages or be entitled to interest under the Supreme Court Act 1958 (Vic). The borrower, or here the defendants, bear the onus of establishing that the, or a, predominant purpose of clause 5.3 was to punish the defendants, and thereby secure compliance with the primary obligations to pay at the Termination Date or ensure that there was no unremedied Event of Default. This is not a case, unlike Bay Bon Investments, Aquamore Credit and Bellas, where the lender had both a suite of other remedies available in the event of default, as well as the contractual right to continue to derive interest under the loan agreement.
358 Whilst it is true that the Financiers did not derive interest prior to the Termination Date, hence the specification of the Interest Rate at 0.00%, the Financiers did anticipate obtain a return for providing the $36,500,000 of $4,750,000 at the end of the nine week period. From the perspective of the borrower, this represented the price or cost in obtaining access to and use of the $36,500,000 for the nine week period. As Jasper's calculations set out above provided, this cost represented an annualised equivalent simple interest rate of 75.11%.
359 However, having been required to pay that price for the nine weeks between the date of the Agreement and the Termination Date, the borrower would, absent a clause such as clause 5.3, thereafter obtain free use of the money until the Secured Moneys were payable in full. Clause 5.3 prevents this; without it, paradoxically, the cost of finance to the borrower lessened after default.
360 The fact that the Overdue Rate also becomes payable in the event that various matters constating an Event of Default arise and only when the default subsists does not warrant any different conclusion. Whilst the defendants appropriately sought to rely on the presumption that a clause which applies in such circumstances is penal because the consequence arises on the occurrence of one or more or all of several events, some of which may occasion and others but trifling damage, the strength of the presumption, described by Keane J in Paciocco at [265] as a weak one, nevertheless pales into insignificance in the present context, where there is another purpose for the imposition of the rate after the Termination Date.
361 The same analysis applies with respect to clause 12 of the AAD, arguably with even stronger force, because in the case of the AAD, the only relevant event which gave rise to the imposition of default interest being charged at a rate of 120% per annum was the failure to repay the facility by the Expiry Time.
362 If the LNSA and the AAD are construed as a whole, the defendants are not able to establish that a, or the predominant purpose of clauses 5.3 and 12 is to punish them for a default; there are other clauses which become operative on default which have significant consequences whilst clauses 5.3 and 12 simply ensure that the Financiers derive interest under the agreements after the Repayment Date and Expiry Date in the event that the amounts due to be paid are not paid.
363 Whilst the rates payable are undoubtedly high, particularly having regard to the effect of the amount of interest being compounded monthly, it is tolerably clear on the evidence that the request for finance of the magnitude which subsequently were provided under the LNSA and the AAD were perceived as extremely high risk loans. The borrower, GME, as well as its parent, AustAgri, both had separate legal advice at the time the loans were entered into, as did the Kairouz family as a significant stakeholder, and the evidence pointed to a series of prior difficulties in seeking to obtain finance that would have facilitated the completion of the Cedar Meats acquisition. Those attempts among other things, included an unsuccessful attempt to procure finance from another private lender, Manda Capital. As Mr Dahan said in his evidence, lenders whose funds were made available by people such as Mr Hopp are the type of lenders that borrowers seek out when no-one else is prepared to lend them money.
364 Each of the parties to these arrangements were persons of considerable commercial sophistication and had no shortage of legal advice, or access to legal advice. As well advised, sophisticated and apparently rational actors, it stands to reason that the terms on offer in the LNSA and the AAD were the best terms that could be obtained by the borrower in the circumstances in which it was seeking the finance and, as such, should be regarded as representing market rates.
365 The observation of McDougall J in Arab Bank is salient:[90]
... One is that, within the confines of statutory encroachment, the doctrine of freedom of contract remains important. See Keane J in Paciocco at [220]. The contracts in this case were made between parties who, it may be assumed, were capable of understanding and protecting their respective interests. Those parties chose to provide for a default interest regime, and chose to make the Bank's various rights on default discretionary. They did not stipulate for any requirement that those rights be exhausted before the default interest rate could be applied.
Of course, the penalty doctrine is an exception to freedom of contract. That was recognised in Paciocco. But its very existence as an exception was seen to underline the need for, not mere disproportion, but extravagant or unconscionable disproportion, before it could be concluded that a particular stipulation was punitive, or penal, in character.
367 Translated to the instant case, the LNSA and the AAD were contracts made between parties who were capable of understanding and protecting their respective interests. They chose to provide for a regime as set out in the LNSA and the AAD which provided for a 0.00% interest rate to be applicable during the term of the loans, and for the amount required to be repaid at the end of the loan to be greater than the amount originally borrowed. The parties then chose to enter into agreements to provide for a regime where interest would be payable in the event that the loans were not repaid, or otherwise fell into default at high rates of interest, compounded monthly. At the time the parties entered into the agreements, the circumstances in which the default might arise was varied but given the short term nature of the two loans and the absence of other payment obligations during the term, was most likely to involve the failure to pay the Face Value of the Notes (in the case of the LNSA) or the Repayment Amount under the AAD on the Termination Date or by the Expiry Time respectively. In the event of a failure to do so, the period of default may have subsisted for a short or long time. The fact that the longer the period of default, the greater the compounding effect does not make the Overdue Rates penal; there is nothing per se penal about compounding interest; 'the requirement to pay interest on interest compensates a creditor for the fact that the creditor is out of pocket for the interest and consequently is unable to invest that interest in other profit-making investments.'[93]
368 In my view, the clauses are not penal, and hence are not invalid.
369 Jasper also submitted (albeit faintly) that because the primary borrower, GME, asserted that the default interest provisions in the LNSA and the AAD were unenforceable penalties and then abandoned its claim when it entered into the moratorium deed on 24 March 2023, the guarantors, Mr Kairouz and Mr Murdaca, were prevented from resisting the claims made against them by the finance parties under the LNSA.
370 In its written submission Jasper observed that this argument presented an interesting question (but which, it is not necessary to decide) because of its anterior submission that the Overdue Rate did not impose any penalty at all.
371 To the extent to which the matter does have to be decided, I reject the submission. Simply because GME, for its own reasons, chose not to press the argument does not disentitle the guarantors from seeking to have the question determined in this proceeding.
372 Mr Kairouz and Mr Murdaca are liable as guarantors under the LNSA for the amount repayable by the primary borrower, GME, at the Termination Date and Expiry Date respectively under the LNSA and the AAD, together with interest payable under those agreements.
373 As at 9 October 2023, the amount owing was $129,075,873.99.
374 In an email sent to the Court on 27 November 2023, the solicitors for Jasper, with the consent of the solicitors for Mr Kairouz, advised the Court that settlement occurred on 23 November 2023 in respect of the sale of one of the security properties, resulting in a net amount recovered by Jasper of $535,997.94.
375 The amount owing as at 9 October 2023 will have to updated to the date of judgment and to take account of the sale of the security property.
376 I will hear from the parties as to the sum owing and otherwise as to costs. The counterclaims of Mr Kairouz and Mr Murdaca will be dismissed.
JASPER NOMINEES LIMITED (SEYCHELLES COMPANY NUMBER 224 224)
Plaintiff/First Defendant by First Counterclaim and Second Counterclaim
HENNESSEY CAPITAL PARTNERS PTY LTD (ACN 063 732 025)
[1] Certificate signed by Rebecca Loh as authorised officer of Jasper dated 9 October 2023 given pursuant to clause 17.8 of the LNSA.
[2] 'Financiers' are defined as Baltic River Ltd and Taurus Advisors Ltd in the LNSA.
[3] Pursuant to clause 4.8 of the LNSA: '[GME] acknowledges and agrees that the Commitment [ie $36,500,000] will be drawn down in full on first Utilisation...'.
[4] Clause 4 of the LNSA additionally described how GME was to make 'utilisations' of the facility. Clause 4.5 stated, '[o]n each Utilisation Date, the Borrower shall issue Loan Notes to each Financier with an aggregate Face Value Amount equal to that Financier's Pro Rata Share of the Face Value Amount of the Loan Notes specified in the applicable Utilisation Notice'.
[5] Clause 14.3(c) of the LNSA provides, 'if an Event of Default occurs, the Guarantors must immediately on receipt of a written demand by or on behalf of the Financiers pay the Secured Money to the Security Trustee'. An 'Event of Default' included where, 'an Obligor [including GME] fails to pay or repay any part of the Secured Moneys when due and payable by it,...' where the '[Guarantee] is enforced or becomes enforceable'.
[6] Security Trustee is defined in the LNSA and LNSA Schedule 2 to mean Jasper.
[7] 'Finance Document' has the same meaning as in the LNSA, and relevantly included the LNSA and the AAD.
[8] See clause 1.1 of the Security Trust Deed, which defines 'Trust Fund' at (c) as 'all money paid to the Security Trustee under any Finance Document for the account or benefit of a Beneficiary or for application in accordance with this deed'.
[9] The structure is set out firstly in Mr Kairouz's email to Mr Murdaca of 10 August 2021; this in turn was forwarded on by Mr Murdaca to Mr Schmidt and copied to Mr Dahan and the latter forwarded it on to Mr Hopp, who replied to the proposed structure by adding in comments in red. That which is set out in [67] summarises the structure taking account of Mr Hopp's comments.
[10] In fact in a PEXA settlement account.
[11] For reasons which were not explained on the evidence, the waterfall described this figure as a shortfall with a 'minus' placed in front of it.
[12] The documents were also executed by the guarantors; Austagri, AAG, Mr Schmidt (and his wife Rachael), Mr Kairouz, Birrawae and P & K Kairouz Pty Ltd.
[13] This was not accurate and could only refer to the sale of the shares in Cedar Meats to GME as there had been no change in the ownership of the two properties.
[14] It is difficult to reconcile this email with the fact that the agreements are dated 12 October 2021; see [88] This inconsistency was not addressed in the evidence.
[15] Evidently a reference to the import finance facility.
[16] In his email, Mr Kairouz broke up the various amounts attributing USD5 million to a trade finance facility; AUD5 million to a trade finance facility; $5,000,000 to livestock (evidently a reference to the import finance facility and $1,500,000 to cash at bank (evidently a reference to the two loans totalling $1.5 million).
[17] Clearly a reference to the Jasper debt.
[19] [2023] VSCA 157 ('Cargill').
[20] [2023] HCA 8; (2023) 97 ALJR 388 ('Allergan').
[22] Julstar Pty Ltd v Hart Trading Pty Ltd [2014] FCAFC 151, affd Watson v Foxman [1995] NSWCA 497; (1995) 49 NSWLR 315, 318-319.
[57] Cargill Australia Ltd v Viterra Malt Pty Ltd (No 28) [2022] VSC 13, [3083]-[3084] ('Cargill No 28').
[58] Bennett v Elysium Noosa Pty Ltd (in liq) [2012] FCA 211; (2012) 202 FCR 72, 134-135, [223] (Reeves J).
[59] Cargill No 28 (n 57) [3087]-[3089].
[60] Ibid [3090] (citations omitted).
[61] Australian Competition and Consumer Commission (ACCC) v Cornerstone Investment Aust Pty Ltd (in liq) (No 4) [2018] FCA 1408, [286] (Gleeson J).
[62] [2011] NSWCA 389, [178] ('Tonto Home Loans').
[64] Peter G Watts and Francis MB Reynolds, Bowstead and Reynolds on Agency (Sweet & Maxwell, 19th ed, 2012) 9-10 (1.019).
[65] It was not clear how Mr Dahan received this email as he was not on the original email chain from Mr Constable.
[66] In fact, paragraph 3 of Mr Dahan's affidavit is ambiguous.
[67] Page 48 was the page which contained the guarantee provision and in which the earlier version was the subject of Mr Kairouz's handwritten addition.
[69] Ankar Pty Ltd v National Westminster Finance (Aust) Ltd [1987] HCA 15; (1987) 162 CLR 549.
[70] Although Powers is capitalised in the Security Trust Deed it is not in fact defined.
[72] Exhibit P1; the calculation allows for various moratorium periods and some repayments.
[73] [2016] NSWCA 328; [2016] 93 NSWLR 231, [69]-[76] ('Arab Bank').
[75] Andrews v Australia and New Zealand Banking Group Ltd [2012] HCA 30; (2012) 247 CLR 205.
[76] [2008] NSWSC 1251, [51] ('Bay Bon Investments').
[77] [2023] NSWSC 686, [56].
[78] [2023] NSWSC 1198, [67] ('Bellas').
[79] [2021] NSWSC 1681 ('Aquamore Credit').
[80] Fayad v B & G Properties [2022] NSWCA 129, [36] (Leeming JA, with whom Bell CJ and Basten AJA agreed).
[81] [2021] NSWSC 1382 ('B & G Properties').
[82] The increase of 5% represented a 20% increase on the initial rate.
[84] See the judgment of Lords Neuberger and Sumption in Cavendish Square Holding BV v Makdessi [2015] UKSC 67; [2016] AC 1172, [28].
[85] See the judgment of Ward JA in Australian Capital Financial Management Pty Ltd v Linfield Developments Pty Ltd [2017] NSWCA 99, [368], quoted with approval by Robb J in Bellas v Powers.
[86] Aquamore Credit (n 79) [142]-[143].
[87] [1996] QB 752 ('Lordsvale Finance').
[88] Ibid 763; Paciocco v Australia and New Zealand Banking Group Ltd [2016] HCA 28; (2016) 258 CLR 525, [263] (Keane J) ('Paciocco').
[89] See [322] above; Paciocco (n 88) [29] (Kiefel J); [127], [159], [166] (Gageler J); [254], [259], [273], (Keane J).
[90] Arab Bank (n 73) [104]-[105] (McDougall J).
[91] B & G Properties (n 81) [28]-[29].
[92] [2022] NSWCA 129, [33] (Leeming JA with whom Bell CJ and Basten AJA agreed).
Jasper Nominees Limited
Kairouz and Murdaca [2023] VSC 718
(2023) 97 ALJR 388
(2004) 218 CLR 592
(2005) 224 CLR 656
(2012) 247 CLR 205
(2016) 90 ALJR 835
(1995) 49 NSWLR 315
(2012) 202 FCR 72
(1987) 162 CLR 549
(2016) 258 CLR 525