Charter Finance v M Abou-Antoun & Ors

[2009] NSWSC 247

CITATION:	Charter Finance v M Abou-Antoun & Ors [2009] NSWSC 247
HEARING DATE(S):	16/03/09-18/03/09 23/03/09
JUDGMENT DATE :	14 April 2009
JURISDICTION:	Common Law Division
JUDGMENT OF:	Kirby J
DECISION:	(1) Judgment for Charter Finance against John Abou-Antoun in the sum of $863,882.89. (2) The third defendant should pay half the plaintiff's costs.
CATCHWORDS:	CIVIL LAW - mortgage - fraud by broker - loan documents not signed - whether broker signed as agent for borrower - no liability under loan contract - RESTITUTION - mistake: restitution arising from a plaintiff's mistaken actions - recovery of money paid under mistaken belief that loan documents were signed - EVIDENCE - standard of proof in civil case - weight and sufficiency of evidence - inference from circumstantial evidence - inference from failure to give evidence.
LEGISLATION CITED:	Evidence Act 1995
CATEGORY:	Principal judgment
CASES CITED:	Fox v Percy [2003] HCA 22; 214 CLR 118 Palmer v Dolman [2005] NSWCA 361 Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1 David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 Perpetual Trustees Victoria Ltd v Ford [2008] NSWSC 29; (2008) 70 NSWLR 611 Lumbers v W Cook Builders Pty Ltd [2008] HCA 27; (2008) 232 CLR 635
TEXTS CITED:	Mason & Carter on 'Restitution Law in Australia'
PARTIES:	Charter Finance Pty Limited (ACN 119 212 010) (Pl) Michael Abou-Antoun (1st Def) Hanne Abou-Antoun (2nd Def) John Abou-Antoun (3rd Def)
FILE NUMBER(S):	SC 2007/13658
COUNSEL:	M R Elliott (Pl) S F Hughes (1st Def) No appearance (2nd Def) A J Tudehope (3rd Def)
SOLICITORS:	Landers & Rogers, Lawyers (Pl) Low Doherty & Stratford, Solicitors (1st Def) Not represented (2nd Def) Damien Francis Tudehope O'Hara & Co (3rd Def)

THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

KIRBY J

Tuesday 14 April 2009

2007/13658 CHARTER FINANCE PTY LIMITED (ACN 119 212 010) v MICHAEL ABOU-ANTOUN & ORS

JUDGMENT

1 KIRBY J: Charter Finance Pty Limited (“Charter Finance”) by Further Amended Statement of Claim seeks to recover money said to be payable under a Loan Agreement of 7 September 2006. The action named three parties as defendants:

· Mr Michael Abou-Antoun, the first defendant, husband of the second defendant and father of the third defendant.

· Mrs Hanne Abou-Antoun, the second defendant.

· Mr John Abou-Antoun, the third defendant.

2 The matter began on 16 March 2009. It was common ground that the first defendant’s wife, Hanne Abou-Antoun, had died on 17 June 2006 and had therefore not executed the Loan Agreement. Mr Michael Abou-Antoun and his son, John, were separately represented. Without intending any disrespect to either of them, it is convenient to refer to Mr Michael Abou-Antoun as “Michael”, and his son as “John”. The matter proceeded until Day 3 (18.3.08) when the parties sought time to discuss their differences. At 2.00 pm that day, counsel for John said this: (T 127)

“TUDEHOPE: I have received instructions to ask your Honour to enter a verdict against the third defendant, plus costs.”

3 Counsel then elaborated: (T 128)

“TUDEHOPE: No amount. We are saying that that is for your Honour to decide, but we are consenting to judgment against us in the amount your Honour decides is appropriate, after hearing from the plaintiff, because it is for the plaintiff to prove its case as to the amount. You will no doubt hear something from my friend as to the proper amount. We are consenting to a judgment against us in whatever sum your Honour then determines is the appropriate amount.”

4 A discussion took place. The plaintiff put its claim against John upon a number of different bases:

· First, Charter Finance claimed that the Loan Agreement had either been signed by John, or had been signed by his authorised agent, Mr Samer Hraiki (“Hraiki”), the finance broker.

· Secondly, and alternatively, Charter Finance claimed that a substantial proportion of the monies advanced were paid on behalf of the Abou-Antouns (including John) to discharge their joint and several liabilities under a previous loan contract to another lender, the Silkwater Group Pty Limited (“Silkwater”). That payment had been made as a result of a mistake, namely, an assumption that the Abou-Antouns (including John) had executed the Loan Agreement or authorised their agent to do so. Restitution was claimed upon the basis of mistake, as well as other bases.

5 At the end of the discussion with counsel, once the third defendant had consented to judgment, I made the following comment summarising what had emerged: (T 128)

“HIS HONOUR: I do not quite know where that leaves me. You consent to judgment. You do not identify which of the causes of action. You fundamentally say the plaintiff has the onus of proof. You acknowledge that one or other of the causes of action is valid, and you consent to a judgment in whatever amount.
TUDEHOPE: That is right.”

6 There was a significant variation in the amount recoverable, depending upon the cause of action proved by Charter Finance. In broad terms, the differences were as follows:

· First, under the Loan Agreement, Charter Finance was entitled to the following:

o The $720,000 advanced on 13 September 2006;

o Interest at the rate of 84% per annum from 13 September 2006 until 22 January 2007;

o Interest at the default rate (108% per annum) from 23 January 2007 to date.

· Secondly, if the basis of entitlement was restitution, Charter Finance could recover the following:

o $688,000 being the joint liability of John and his parents to Silkwater which Charter Finance mistakenly discharged on 13 September 2006;

o Interest at the rate fixed by the Supreme Court.

7 The monetary difference between the alternative causes of action was substantial. The default rate of interest under the Loan Agreement was $777,600 per year, whereas the total interest payable at Supreme Court rates for the entire period was calculated to be $171,736.11 as at 23 March 2009 (Ex Q).

8 After counsel for John withdrew, the case continued against Michael, his father (the first defendant). Michael Abou-Antoun is approximately 80 years old (Ex M(1) para [3]). In the course of brief evidence, issues emerged concerning his comprehension and recollection. The matter was then adjourned until the following Monday.

9 When the matter resumed on Monday 23 March 2009, counsel for Michael made an application for an adjournment. The application was supported by a medical certificate (MFI 4) which, if accepted, cast doubt upon Michael’s capacity to give evidence (s 13 Evidence Act 1995). An adjournment was granted. The claims against John, however, proceeded. Counsel for Charter Finance tendered a number of documents in reply, and then addressed.

10 As I will shortly explain, there appears to be little doubt in respect of the claim for restitution. However, the claim for the higher amount, based upon the Loan Agreement, is dependent upon whether the Court can be satisfied, as a matter of probability, that John authorised the finance broker, Mr Hraiki, to execute the loan documents of September 2006 on his behalf. It was conceded by Charter Finance that the signature was not that of John. Counsel for Charter Finance, in helpful written submissions, identified a number of specific matters which he suggested would persuade the Court to make that finding. However, before identifying these matters, I need to describe the context.

Background.

11 In 1999 the Abou-Antoun family purchased a property at 31 Woodside Avenue, Burwood. The property became the security for various loans as I will shortly describe. The land was held as follows:

· By Michael and Hanne Abou-Antoun as joint tenants in a 5/6th share; and

· John Abou-Antoun as to a 1/6th share, as tenants in common.

12 At the time of purchase, the sum of $130,000 was borrowed under a mortgage to Aussie Mortgages (Ex G). The mortgage was executed by Michael, Hanne and John. It was replaced by another mortgage to the Perpetual Trustees in March 2002 ($175,000) (Ex H). The mortgage was signed by Michael, Hanne and John. The property was refinanced again the following year. On 15 May 2003, Michael, Hanne and John executed a mortgage in favour of Permanent Custodians as security for an advance of $400,000 (Ex J).

13 In November 2004, a company, Spessels Investments Pty Limited (“Spessels Investments”) was incorporated. John was the sole director and secretary. He was also a shareholder (one share), the remaining shareholders being Michael and Hanne (who each held one share). The principle place of business was identified as 31 Woodside Avenue, Burwood (Ex A: p 1/2).

14 On 29 April 2005, the property was once again refinanced. A Deed of Loan for $640,000 between Spessels Investments and Challenger Managed Investments Limited (“Challenger”) was executed by John (Ex O). The purpose of the loan was described in these terms: (Ex O – First Schedule)

“To refinance existing loan of $400,000 and $240,000 for business investment. The Borrower has declared to the Lender that the whole or predominant purpose of the facility is for investment or business endeavours ... ”

15 Security was once again given over the Burwood property, the mortgage being executed by Michael, Hanne and John (Ex K). At the same time, a Deed of Guarantee was executed by Michael, Hanne and John (Ex L). A letter in respect of the drawdown of funds showed that the balance, following payment of the existing mortgage, was $192,415 (Ex N). Challenger was directed to pay that sum to Skyder Financial Pty Limited (“Skyder”) which was Mr Hraiki’s company. It is clear, therefore, that as at April 2005, monies were being borrowed against the Burwood property to enable Spessels Investments to pursue investments, its funds being placed in the hands of Mr Hraiki.

The Silkwater transaction.

16 On 17 March 2006, Mr Michael Dwyer, a valuer, was allowed to inspect 31 Woodside Avenue, Burwood, for the purposes of preparing a valuation. I infer that he was given access by Michael, Hanne or John. He valued the property at $1.9 million (Ex M). On 20 March 2006, Silkwater agreed to advance Spessels Investments $550,000 for three months, with an option to renew for a further three months. This was a second mortgage, the interest rate being 5.5% per month, with a default rate of 8% per month (Ex A: p 11). Michael, Hanne and John were required to execute a number of documents. John, by his defence, accepts that he signed such documents. He and his parents’ signatures were witnessed by Mr Hraiki. The documents included the following:

· A Loan Agreement dated 20 March 2006 between Spessels Investments and Silkwater (Ex A: pp 5-20).

· An unregistered Second Mortgage in favour of Silkwater in respect of 31 Woodside Avenue, Burwood (Ex A: pp 31-49).

· A Caveat in respect of the same property (Ex A: pp 50-53).

17 John acknowledged that the monies borrowed were deposited in the account of Spessels Investments (Ex A: p 54) and were immediately transferred to Mr Hraiki. On settlement, the solicitors for Silkwater wrote to Spessels Investments at Woodside Avenue, Burwood, confirming that the loan would conclude on 20 June 2006 (Ex A: p 54).

18 On 20 June 2006, the solicitors for Silkwater again wrote to Spessels Investments at Woodside Avenue, Burwood. Their letter began with these words:

“Despite having not exercised your right to extend the term of the Loan by a further three (3) months pursuant to clause 22 of your Loan Contract, we have been instructed by Sam Hraiki that you seek to exercise same.”

19 The letter then identified the requirements for an extension. They included the payment of $90,750 interest in respect of the initial three month term.

20 On 25 July 2006, a statutory demand was made upon Spessels Investments, addressed to 31 Woodside Avenue, Burwood (Ex A: pp 59-62). On 21 August 2006, the solicitors for Silkwater again wrote to Spessels Investments (at Burwood), identifying the amount outstanding. Their letter began with these words:

“We are instructed by Mr Sam Hraiki of Lendwide Finance that you are obtaining finance to discharge your debt with our client. We are also instructed that these loan monies will be forwarded to our trust account.”

21 In anticipation of the mortgage being discharged, the solicitors said that they would prepare a withdrawal of caveat.

The Charter Finance loan.

22 Mr Hraiki, as mentioned, was a finance broker trading under the name of Lendwide Finance Pty Limited (“Lendwide Finance”). He had an office at Cronulla and a substantial clientele. In August 2006, he took a number of steps towards the refinancing of 31 Woodside Avenue, Burwood. On 23 August 2006, Challenger (the first mortgagee) wrote to Mr Hraiki saying that it would consent to “a proposed second mortgage in favour of RAB Finance Pty Limited in the sum of $730,000” (Ex A: p 83). On 31 August 2006, DTS Property Services Pty Ltd inspected the property at Burwood for the purposes of preparing a valuation certificate. The property was valued at $1.7 million (Ex A: p 79). I accept that either John, his mother or father gave the valuer access to the property.

23 Charter Finance opened for business as a finance company in Brisbane in March 2006. Its business began slowly. In early September 2006, Mr Hraiki rang Mr Morris, its Managing Director. He said that he had a large client base and Charter Finance could expect quite a bit of work in the coming months (Affidavit Morris: 29.1.08, para [5]).

24 Charter Finance had a website from which the loan application form could be downloaded. In early September 2006, it received an application for loan from Mr Hraiki on behalf of Michael, Hanne and John Abou-Antoun. Only one page of the application could be found in the records of Charter Finance (Ex A: p 68). The handwriting on that page was not identified, although there was a suggestion that it was that of Mr Hraiki. At about the same time Charter Finance received an email from Mr Hraiki, dated 4 September 2006, requesting second mortgage finance in respect of 31 Woodside Avenue, Burwood. The sum of $720,000 was sought. The email attached a valuation from DTS Property Services.

25 Mr Morris made an assessment of the application. What was sought was short-term bridging finance for a period of four weeks (Ex A: p 78) (although the eventual loan was for a term of two months). Mr Morris, in his affidavit, said this: (Ex B)

“12.3 A suitable exit strategy to be in place for repayment of the loan. The exit strategy for this loan was stated to be a funding package with Bleier Mortgage Corporation Pty Limited dated 5 September 2006 to refinance the first mortgage with Challenger, create a second mortgage over the Property and therefore repay Charter Finance. This is set out in the copies of the letters at [74] to [102] which were provided to me by Sam Hraiki.”

26 Documents from Bleier Mortgage Corporation were later sent by Mr Hraiki to Charter Finance.

27 On 6 September 2006, Mr Morris prepared a memorandum on the application for the investors who had agreed to provide finance (Pooled Investments Pty Limited). The security was described in these terms: (Ex A: p 86)

“ Security: 1. Registered Second mortgage over 31 Woodside Avenue, Burwood, Sydney NSW.
2. Registered Caveat over 31 Woodwide Avenue, Burwood, Sydney NSW.
3. Personal third party Guarantee & Indemnity from Samer Mark Hraiki.”

28 There was a note to the memorandum in these terms: (Ex A: 86)

“NOTE: In addition, this loan is being personally guaranteed by Sam Hraiki who is in business with Mr John Abou-Antoun in the Lithgow development where a $2.6M rebate fee is being paid to Mr Hraiki. Mr Hraiki is the owner of Lendwide Finance and is one of the borrowers of funds security being the Cronulla unit and house at Burraneer, Sydney.”

29 The suggestion that Mr Sam Hraiki was in business with Mr John Abou-Antoun in respect of a development at Lithgow was a representation by Mr Hraiki to Mr Morris. Mr John Abou-Antoun did not give evidence. Charter Finance has submitted that the Court can infer from John’s failure to give evidence, that his evidence would not assist him. It invites the inference that John Abou-Antoun was, indeed, involved in business dealings with Mr Hraiki. I will return to these issues below.

30 The loan was approved. A Letter of Offer of 7 September 2006 was prepared. It was addressed to “Messrs J M and H Abou-Antoun and Mr J M Abou-Antoun, 31 Woodside Avenue, Burwood” (Ex A: p 170). However, the letter was not sent to that address. Rather, it was sent to Mr Hraiki. Having set out the terms of the offer, it required those to whom the offer was made to sign the letter, accepting the company’s terms. The letter concluded with these words: (Ex A: p 177)

“We, Joseph Michael Abou-Antoun, Hanne Abou-Antoun and John Michael Abou-Antoun as Borrower and Samer Mark Hraiki and Sarah Louise Hill as Guarantor do hereby accept the loan offer from Charter Finance Pty Ltd on the terms and conditions as detailed above.”

31 The document then set out, one under the other, the names of Michael, Hanne and John Abou-Antoun and the names of the Guarantors, Samer Mark Hraiki and Sarah Louise Hill. The document was to be signed in the presence of a witness. Alongside (Joseph) Michael Abou-Antoun’s name, for instance, the following appeared:

“SIGNED SEALED AND DELIVERED by
Joseph Michael Abou-Antoun, in the
presence of:

..................................................

Witness
Name (printed): ............. ”

32 Similar words appeared alongside each of the other participants in the proposed transaction.

33 Charter Finance is a Queensland company. The settlement, however, was to take place in Sydney. Charter Finance therefore retained Peter Murphy & Co, solicitors, to act on its behalf. It directed that the documents, once executed, should be sent to their solicitors.

34 On 8 September 2006, Charter Finance sent a further letter which, like the Letter of Offer, was addressed to the Abou-Antouns at 31 Woodside Avenue, Burwood, but in fact sent to Mr Hraiki (T 117). The letter attached the documents which had to be executed. It was in these terms: (Ex D)

“Please find attached the further following documents, for signing by you where required:-
1. Consumer Credit Declaration
2. Mortgage and Schedule & Standard Terms Q860000
3. Authority to Complete
4. Mortgage Statutory Declaration
5. Authority to Mortgagee
6. Deed of Guarantee & Indemnity in duplicate
7. Guarantors Certificate ...”

35 On 10 September 2006, these documents were delivered to Peter Murphy & Co, solicitors. Each had been executed. The signatures purported to be those of the persons involved in the transaction. Some documents had to be executed by Michael, Hanne and John and others, such as the Guarantee, by Mr Hraiki and Ms Hill. Still others (such as the Offer of 7 September 2006) required signatures from all those involved, including the Guarantors.

36 It is clear and accepted by Charter Finance that neither John nor his parents signed any of these documents. In written submissions, counsel for Charter Finance said this: (Pl’s subs: 23.3.09)

“52. Looking at the documents now, it is accepted that Hanne did not sign these documents. It is also accepted that the signatures of Michael, John and Ms Bogdanovski do not resemble their signatures on other documents which are not disputed, and that Michael and Ms Bogdanovski have given evidence that the signatures are not theirs. Charter Finance accepts that, on the balance of convenience (sic), the court will be satisfied that Michael, John and Ms Bodganovski did not actually sign these documents.”

37 It will be remembered that Hanne Abou-Antoun had, in fact, died some months before (17 June 2006).

38 I infer that Mr Hraiki was responsible for these forgeries. There are many samples of his signature on documents that are not disputed. Whoever executed the documents attempted to imitate the actual signatures of Michael and Hanne Abou-Antoun and, less successfully, John Abou-Antoun (his signature being rather more complex). But, whoever it was who forged their signatures, Mr Hraiki’s signature appears alongside as a witness (cf Letter of Offer of 7 September 2006; Ex A: pp 176/1787) and his signature appears to be authentic. Mr Hraiki also signed the Letter of Offer as one of the guarantors. Again his signature appears authentic. The document recorded that the witness to his signature was “Rosemary Bogdanovski”. A signature purporting to be that of Ms Bogdanovski is on the document. Ms Bogdanovski gave evidence that it is not her signature. It is a forgery, as Charter Finance accepted. On the basis that these documents were sent by Charter Finance to Mr Hraiki and his signature appears as witness to signatures which are clearly forgeries, it is reasonable to infer that Mr Hraiki was behind these forgeries.

39 No check was made concerning the signatures on these documents. Charter Finance has since tightened its procedures on settlement (Ex J(2)). Nonetheless, it was said on the company’s behalf, in the context of its claim for restitution, that it believed the defendants, including John, had signed the documents. It would not have disbursed the monies in the absence of that belief (Ex C: Affidavit Morris 12.3.09). It contended, and I accept, that the monies were disbursed (discharging a joint and several liability of the Abou-Antouns to Silkwater) as a result of that mistaken belief.

40 Settlement took place on 13 September 2006 and the money was drawn down. The sum of $688,000 was applied to the discharge of the Silkwater loan in exchange for the withdrawal of the caveat. The balance ($32,000) was applied to pay the fees of Mr Hraiki and the expenses of Charter Finance in respect of the transaction (Ex B: para [22]; Ex A: p 200). On the same day, 13 September 2006, Charter Finance sent a letter addressed to “Messrs J M and H Abou-Antoun and Mr J M Abou-Antoun” at 31 Woodside Avenue, Burwood. The letter included an epitome of the mortgage (Ex A: pp 198/199). Mr Morris gave evidence that the letter was sent to the Burwood address by post. He personally was involved in its despatch (T 64, 115). The letter was also emailed to Mr Hraiki (T 64).

41 The next day, 14 September 2006, the Charter Finance mortgage and caveat were stamped for duty. The Silkwater caveat was withdrawn and the Charter Finance caveat lodged in its place (Ex A: pp 193-197).

Loan extension.

42 The loan was repayable after two months, that is by 13 November 2006 (Ex A: p 171). In early November 2006, Mr Hraiki telephoned Mr Morris. According to Mr Morris, their conversation was in these terms: (Ex B: Aff Morris 29.1.08, para [26])

“Hraiki: Steve, the refinance of the loan to Abou-Antoun has been delayed, but no problems I am going to cover the repayment out of my settlement of a project at Lithgow.
I said: Sam, what happened to the Bleier Mortgages loan?
Hraiki: They knocked it back in the end. I am trying another funder but have run out of time, so because they are old family friends I will look after it and get paid back later..
I said: What’s the situation with the Lithgow project?
Hraiki: It’s a land subdivision. There will be heaps of money available to pay back the loan. It’s an in-house deal with business partners of my father.
I said: When is it going to happen?
Hraiki: Soon. There will be enough money to pay everything out.
I said: We need some evidence that this deal is going to happen and timing. ...”

43 A letter was sent which was addressed to the Abou-Antouns at Burwood, extending the loan to 4 December 2006. Mr Morris said that it was sent by post to the Burwood address, but also emailed to Mr Hraiki. The letter ended with the following instructions: (Ex A: p 205)

“Please confirm the extension by printing out this letter, signing one copy and faxing it back to us as soon as possible but in any event before the 13th November 2006. Please ensure the original is posted to us.”

44 A copy of that letter was returned to Charter Finance a few days later by Mr Hraiki (Ex A: p 205). The letter was not signed, as instructed, but initialled. There were only two initials. They do not appear to be those of the Abou-Antouns, so far as one can tell.

45 On 20 November 2006, Charter Finance sent a further letter addressed to the Abou-Antouns at Burwood. It enclosed an epitome of the mortgage, incorporating the additional interest payable for the three weeks extension at 84 percent ($43,277.22), plus fees. The letter was sent by post and not returned (Ex B: para [42]).

46 Still more time was required and requested by Mr Hraiki. The loan was extended again on two occasions, the same procedure being followed. Again, copies of the letter were sent to Burwood and not returned to sender.

Default and recovery.

47 In mid January 2007, Mr Morris spoke to Mr Hraiki in these terms: (Ex B: Aff Morris 29.1.05, para [35])

“Hraiki: Steven we have had further delays with Lithgow settling and it now looks like it will settle in mid February. You can ring the broker to confirm if you want. It is out of my control.
I said: Sam that is just not good enough. We have all been waiting on Lithgow settling for two months now and you gave me your absolute assurance and guarantee that it was to settle on 31st January 2007. We cannot wait any longer and will have to take action to protect our interests.
Hraiki: I guarantee that Lithgow will settle and you will get all of your money back, I am a man of my word and you will get all of your money back. Matters are out of my hands at the moment and I understand that you have to protect your interests but please be commercial about this deal. It is still a great deal and everyone will get their money which is all we want.” ...

48 On 23 January 2007, Charter Finance wrote to the Abou-Antouns stating that the planned security over the Lithgow project could not be provided and that they were now in default. The letter included a Default Notice, the default rate being 108 percent. The original loan, on 13 September 2006, had been for $720,000. The interest payable to the time of the Default Notice was approximately $350,000, together with fees. The total outstanding, as at 23 January 2007, was $1,070,241.22 (Ex B: p 144). The letter was sent to Burwood and not returned.

49 Proceedings were commenced against the Abou-Antouns by Statement of Claim dated 23 April 2007. It was served on or about 27 June 2007 upon John Abou-Antoun. There followed a series of telephone calls between Mr Morris and John Abou-Antoun. To conform with the rules, Mr Morris has reproduced these conversations in the first person in his affidavit (Ex B: Aff Morris 29.1.08, paras [42]-[44]). The diary note of the first conversation between Mr Morris and John Abou-Antoun was as follows: (Ex B: p 157)

“27.6.07 ...
I was telephoned by John Abou-Antoun about this loan. He had been served with the Summons and material to move the proceedings to the Supreme Court. He stated that we and Sam Hraiki were in collusion with each other. I rejected this outright.
He advised that his mother had died in June and couldn’t have signed the security documents in August 2006. I advised that this was a surprise to me and asked then who had signed the Application and other material. He said that Hraiki had or we had conned them. He was very agitated.
I then explained the process of us receiving an Application from a Broker – who is the clients broker NOT ours and taking the deal through to settlement. I explained that the security documents were witnessed by a Justice of the Peace and delivered to our lawyers before we advanced the money.
He ranted and raved about that his father is 80 years old and was going to Current Affair etc. I told him he could do that but that our hands were clean. He alleged a collusion with Hraiki a couple of times which I rejected absolutely. He threatened me personally that if we attempted to take his parents house that I would regret it. I simply kept saying that it was a business and I had no personal issues with he or his father etc about the loan. I suggested that he speak to Hraiki about what was happening.
I then pointed out that we had written to him, his father and mother on a regular basis over the last 6 months after the loan was taken out, when it was due for repayment and when it went into default and issuing legal proceedings etc and pointed out that NONE of those letters had been returned and enquired why no-one had ever contacted us to say that hadn’t take out a loan or signed documents until now. He couldn’t answer that.”

50 One gathers that Mr Morris then rang Mr Hraiki. His diary note of that conversation (which was the same day) was as follows: (Ex B: p 157)

“27.6.07
Spoke to Hraiki about the allegation of fraud. He said that John was involved in a deal to get funds from his Lithgow deal if he put up his parent(s) property. He is now saying that it is all Hraiki’s fault. It is John’s word against his and the fact that the parents are old and one is dead makes it look very bad. I enquired who signed the documents and (he) replied that it didn’t matter it was water under the bridge and we had to deal with the facts as they stood. He was to speak to John Abou-Antoun again to get him to do the refinance awaiting the Lithgow deal settling. I said that we were very upset that a fraud had been committed by someone and that it looks like someone could well go to jail if he didn’t get it sorted out and our capital repaid.”
(emphasis added)

51 The next day, Mr Morris spoke again to Mr Hraiki. The note of that conversation was as follows: (Ex B: p 158)

“28.6.07
Spoke to Hraiki who said that John Abou-Antoun is going to see his lawyer tomorrow to try and sort the issues out. I said that it is up to him to sort something out. He is going to get some alternate security to put up in lieu of the Abou-Antouns house. I said that we would look at it but would need any third party to get independent legal advice etc before we would take it on. I said it is up to John to take action not us to stop what we are doing.
Hraiki will email me details later today of the new security.”

52 There were further conversations with John Abou-Antoun the same day. The diary note of one of them was as follows: (Ex B: p 158)

“28.6.07
John Abou-Antoun rang and said that he was going to see his lawyer in ½ hour and that we had better remove our caveat by then. I refused outright and said that he should talk to his lawyer. He started shouting that we had an illegal security and that we had to remove it, I told him that when he had a law degree I would listen to his views on the legal situation and then hung up as he was screaming at me.”

53 There was a later conversation, described by Mr Morris in his affidavit in these terms: (Ex B: Aff Morris 29.1.08, para [44])

“John: Will you remove your caveat?
Me: Not until the loan has been paid out. I understand that Sam Hraiki is going to speak to you about re-financing. If Sam Hraiki gets alternative security for the loan then as he is a personal guarantor on the loan we would look at moving that security across. Until then we have nothing further to talk about.
John: I have a letter you sent in May. It says that the caveat will be released when you take security over Lithgow.
Me: We have not got security over the proposed property at Lithgow. It hasn’t settled. A lot has changed since May. I think you should see your lawyer.”

54 Mr Hraiki had arranged finance with Charter Finance for a number of individuals, apart from the Abou-Antouns. Each loan was in default. In February 2007, there were discussions between Mr Hraiki and Mr Morris. A repayment plan was worked out, whereby Mr Hraiki assumed responsibility for the loans. On 24 February 2007, Charter Finance wrote to Mr Hraiki in these terms: (Ex J(4))

“Further to our recent discussions we confirm that we have reached agreement regarding the payment of a number of loans that you have agreed to guarantee and or underwrite.
The payout figures for these loans as at Tuesday 27th February 2007 are as follows:

Abou-Antoun	$1,216,021.40
Hraiki & Hill	$1,133,802.92
Warren Hill	$514,436.49 *takes into account the $63K paid Friday
Jo O’Beid	$420,135.91
Paul O’Beid	$355,664.01
Carr & Caroisi	$495,041.26
Robert & Kerry Gibb	$455,264.39
Total	$4,590,366.38 (‘Hraiki Total Debt’)

Less Payment for Warren Hill and Hraiki & Hill	$1,400,000.00
Sub-Total	$3,190,366.38
Less additional payment	$2,612,000.00
Balance Remaining	$578,366.38 (‘Hraiki Balance Debt)

(emphasis in original)

55 The letter continued:

“The release of the securities over Bulls Road and Prince Street, will only be handed over in exchange for funds totalling $4,012,000.00M. They may be in separate Bank Cheques but MUST be paid contemporaneously.
We confirm that we have agreed to allow you to repay the Hraiki Balance Debt within 3 weeks from Tuesday 27th 2007 being on or before 20th March 2007. In consideration for Charter Finance Pty Ltd granting this extension and forbearance you and or companies with which you have control must provide the following additional security by Monday 26th February 2007:
1. Acknowledgement of Debt from Samer Mark Hraiki;
2. Unregistered mortgage and registered caveat over property situated at 1 Oakey Forest Road, Marrangaroo, NSW from Lithgow Project Developments Pty Ltd;
3. Unregistered mortgage and registered Caveat over property situated at 18-22 Diamond Bay Road, Vaucluse, NSW from Skyder Financial Pty Ltd;
4. Guarantee and Registered Company Charge over Lendwide Limited;
5. Guarantee and Registered Company Charge over Skyder Financial Pty Ltd.
The interest rate will continue to accrue on the Hraiki Balance Debt at 9% per calendar month compounding until the full amount of the SH Debt and all interest thereon is repaid in full.”

56 Mr Hraiki was obliged to sign the letter and return it to Charter Finance. He did so on 28 February 2007 (Ex J(4)). On the same day, he executed a Deed which formalised these arrangements (Ex J(5)).

57 On 16 March 2007, the sum of $1,300,000 was received by Charter Finance on behalf of Mr Hraiki, his wife and Mr Hill (T 101). The other payments, however, were not made. The monies remained unpaid. Charter Finance commenced an action against Mr Hraiki in the Supreme Court. Judgment was ultimately obtained and he was made bankrupt in late 2007 (T 109).

58 Mr Morris, meanwhile, had placed the matter in the hands of the police. He gave evidence that he was assisting the police in respect of their enquiries (T 20). It was his belief that Mr Hraiki had acted fraudulently in relation to, amongst others, the Abou-Antoun loan (T 21).

59 Against this background, let me go to the submissions made on behalf of Charter Finances, suggesting that the Court should find that John Abou-Antoun authorised Mr Hraiki to sign the loan documents on his behalf.

The onus on the plaintiff.

60 The plaintiff emphasised that this was a civil case. The onus was on the balance of probabilities. Attention was drawn to the following passage in Fox v Percy [2003] HCA 22; 214 CLR 118, where Gleeson CJ, McHugh, Gummow and Kirby JJ said this:

“[31] Further, in recent years, judges have become more aware of scientific research that has cast doubt on the ability of judges (or anyone else) to tell truth from falsehood accurately on the basis of such appearances ... Considerations such as these have encouraged judges, both at trial and on appeal, to limit their reliance on the appearances of witnesses and to reason to their conclusions, as far as possible, on the basis of contemporary materials, objectively established facts and the apparent logic of events. This does not eliminate the established principles about witness credibility; but it tends to reduce the occasions where those principles are seen as critical.”

61 That passage is dealing with demeanour and its importance in determining facts. Nonetheless, contemporaneous material, objectively established facts and the apparent logic of events do provide a solid foundation for the finding of facts.

62 Here, there was no direct evidence. Mr Hraiki did not give evidence and nor did John Abou-Antoun. Charter Finance attached some importance to the latter. I will later deal with the inference, if any, that can be drawn from his absence.

63 Charter Finance relies upon a circumstantial case to prove that John Abou-Antoun authorised Mr Hraiki to sign the loan documents on his behalf. The case depends upon inference. The authorities dealing with such a case have been helpfully collected by Ipp JA in Palmer v Dolman [2005] NSWCA 361, paras [33]-[40]. The guiding principle was expressed by the High Court in Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1, in these words: (at 5)

“Of course as far as logical consistency goes many hypotheses may be put which the evidence does not exclude positively. But this is a civil and not a criminal case. We are concerned with probabilities, not with possibilities. The difference between the criminal standard of proof in its application to circumstantial evidence and the civil is that in the former the facts must be such as to exclude reasonable hypotheses consistent with innocence, while the latter you need only circumstances raising a more probable inference in favour of what is alleged. In questions of this sort, where direct proof is not available, it is enough in the circumstances appearing in the evidence give rise to conflicting inferences of equal degrees of probability so that the choice between them is mere matter of conjecture: (see per Lord Robson, Richard Evans & Co Ltd v Astley [1911] AC 674, at 687). But if circumstances are proved in which it is reasonable to find a balance of probabilities in favour of the conclusion sought then, though the conclusion may fall short of certainty, it is not to be regarded as mere conjecture or surmise ... ”

64 Section 140(1) of the Evidence Act 1995 reproduces the law as established by Bradshaw (Palmer v Dolman (supra) Ipp JA at [40]). That section is in these terms:

“ s 140 Civil proceedings: standard of proof
(1) In a civil proceeding, the court must find the case of a party proved if it is satisfied that the case has been proved on the balance of probabilities.
(2) Without limiting the matters that the court may take into account in deciding whether it is so satisfied, it is to take into account:
(a) the nature of the cause of action or defence; and
(b) the nature of the subject-matter of the proceeding; and
(c) the gravity of the matters alleged.”

The circumstances relied upon.

65 Counsel for Charter Finance set out in written submissions the suggested objective and incontrovertible facts. He said this:

“66(1) Michael and John had a very close, loving and trusting relationship, in which they spoke frequently and openly to each other;
(2) There was a history of mortgaging the Burwood property after it was purchased by the Abou-Antouns;
(3) John was the sole director and a shareholder in Spessels, a company incorporated in late 2004;
(4) After its incorporation Spessels borrowed substantial sums of money from Challenger (April 2005) and Silkwater (March 2006), and the Burwood property was mortgaged to secure the repayment of those borrowings;
(5) By March 2006 Spessels had borrowed in excess of $1 million, of which some $750,000 had been handed over to Mr Hraiki or a company controlled by him (Skyder) to invest on behalf of at least John;

(6) Mr Hraiki told Mr Morris on more than one occasion that John and he were working together on a property development at Lithgow, and no evidence was called from John to deny this;
(7) John signed the Silkwater documents. It was obvious from those documents that the sum of $550,000 was being borrowed on a short term basis and would need to be repaid within months;
(8) A valuer undertook a detailed internal inspection of the Burwood property prior to and for the purpose of the Silkwater transaction. This could not have been done without the co-operation of at least John, as the Abou-Antouns were the only key holders [T150.39];
(9) By September 2006 the Silkwater loan was overdue for repayment and Silkwater had written to Spessels at the Burwood address threatening to take enforcement action if the loan was not repaid;
(10) A valuer undertook a detailed internal inspection of the Burwood property in late August 2006, immediately prior to the refinancing application being submitted to Charter Finance transaction;
(11) Charter Finance wrote to John and Michael at the Burwood property in relation to the Charter Finance facility on many occasions, including immediately upon the facility being created. The letters were never returned, and nobody from the Burwood household rang Charter Finance to say they did not know anything about the subject matter of the correspondence. There is evidence from Michael that he received one of these letters [Ex M1/1 para 26 last sentence, annex F];
(12) John has abandoned his defence of the claims against him;
(13) John has not given evidence about any issue.”

66 On the basis of that material, it was submitted that the Court could draw the inference, as a matter of probability, that John knew what Mr Hraiki was doing, and authorised him to sign on his behalf. The alternative hypotheses, according to counsel, would involve the following, which was unbelievable:

“67 John would have this Court believe that:
(1) John arranged to mortgage the Burwood property (in which (his) own parents lived) to the hilt, by granting mortgages to Challenger and Silkwater for a total amount in excess of $1 million;
(2) Although signing up to a mortgage which operated as security for the repayment of $550,000 by Spessels within 2 months, and receiving a threat of legal proceedings from Silkwater, when the term of the Silkwater facility expired John was not alive to the need to obtain financing to pay it out, and instead, Mr Hraiki engaged on a frolic of his own in obtaining that refinancing from Charter Finance. John would have this court believe that he was so cavalier about his and his father’s exposed property that he would just sit around and let the Silkwater facility drift into default without making any real attempt to find out what was being done about it;
(3) Mr Hraiki and John did not talk about what Mr Hraiki was doing with Charter Finance even though the two of them were directly involved in earlier transactions together, including the very transaction which the Charter Finance transaction was replacing (i.e. the Silkwater transaction);
(4) A valuer was somehow able to steal into the Burwood property to undertake a detailed internal inspection of the Abou-Antoun home;
(5) John was ignorant of the Charter Finance facility, even though many letters were sent to the Burwood property. John asks this court to believe that, for reasons which cannot be explained, he only received and read one of these letters, even though all the letters were sent to the same address, none were returned, and some were sent by registered mail.”

Commentary upon submissions.

67 Most of the matters identified by counsel (supra para [65]) can be accepted. Paragraph [1], however, is based upon the evidence of Michael Abou-Antoun. It is an accurate summary of that evidence. However, it will be remembered that, at the end of Michael’s evidence, there were issues concerning his capacity and recollection (supra para [8]). Further, Michael’s evidence, in the context of the sequence of transactions, may give rise to a suggestion that John influenced his father and mother before various documents were executed. These issues have not been explored, nor even articulated. Nonetheless paragraph [1], in my view, is a matter that can be given little weight at this point.

68 Paragraph [6] is also controversial. There were, according to counsel for Charter Finance, two matters that established that John and Mr Hraiki were working together on a property development at Lithgow. First, there were representations made by Mr Hraiki to Mr Morris. Secondly, Charter Finance relied upon John’s failure to give evidence. Let me deal with the first. On 6 September 2006, Mr Morris wrote a memorandum in which he stated his recollection of a telephone conversation with Mr Hraiki. Mr Hraiki said that John Abou-Antoun was in business with him on the Lithgow development in which a $2.6 million rebate fee would be payable to Mr Hraiki (Ex A: p 86: supra para [28]).

69 There was a second conversation, much later. It took place on 27 June 2007 after the Abou-Antouns had defaulted and the Statement of Claim had been served. It followed an abusive call from John Abou-Antoun to Mr Morris, where he made allegations of fraud and collusion between Mr Hraiki and Charter Finance (supra para [49]). Mr Hraiki, in that context, said: “John was involved in a deal to get funds from his Lithgow deal if he put up his parents’ home.” (supra para [50]).

70 These statements provide a flimsy basis for any inference against John Abou-Antoun concerning his relationship with Mr Hraiki. They are hearsay and, in some cases, double hearsay. They depend upon the word of Mr Hraiki who, on any view, was deeply involved in fraud. Moreover, the suggestion that Mr Hraiki was in business with John Abou-Antoun in respect of Lithgow appears to be inconsistent with other statements made by Mr Hraiki at other times. In November 2006, he made the following comment concerning those involved in the Lithgow venture: (Ex B: para [26], supra para [42])

“I said: What’s the situation with the Lithgow project?
Hraiki: It’s a land subdivision. There will be heaps of money available to pay back the loan. It’s an in-house deal with business partners of my father .”
(emphasis added)

71 The conversation between John Abou-Antoun and Mr Morris on 27 June 2007, in which he suggested that Charter Finance use the Lithgow land as security (supra para [53]), as well as the words used by Mr Hraiki later the same day, when referring to “his Lithgow deal” (supra para [50]), were inconsistent with John and Mr Hraiki being involved in the Lithgow venture. Lithgow was, I believe, Mr Hraiki’s project. He (not John) stood to get a $2.6 million rebate fee, which he anticipated in September (supra para [28]).

72 The second matter relied upon by Charter Finance in support of paragraph [6] was the failure of John to give evidence. It was submitted that the Court could infer that his evidence would not assist him. However, the withdrawal of John from these proceedings, and his consequent failure to give evidence, are consistent with a number of possible inferences. When the case began John was separately represented. By his defence, he acknowledged signing the Silkwater Loan Agreement, including the Guarantee. He was jointly and severally liable for the whole amount. On any realistic view, Charter Finance was bound to succeed against him, at least on the basis of restitution for $688,000 plus interest, being the amount paid by Charter Finance to discharge the Silkwater liability. John owned a 1/6th share of the Burwood property as tenants in common with his parents. The property was worth at most about $1.7 million. His share was therefore about $283,333. At the time of his withdrawal, the case had exceeded the estimate of two days. It was in its third day and appeared to have some way to go. Costs may well have been a consideration. There was no evidence that John had any other assets. He was a man aged about 37 years. He was still living at home at Burwood with his parents. After his withdrawal, counsel for his father remained. He, like his father, had not signed the Charter Finance loan documents. His father had the same general interest as he did in defeating Charter Finance’s claim under the Loan Agreements.

73 Further, there were many issues about which John could have been questioned. It is difficult, in these circumstances, to draw any inference in respect of a particular matter and infer that, on that matter, his evidence would not have assisted him. His withdrawal provides a most uncertain basis for any inference.

74 The fragments of evidence in relation to Mr Hraiki and John Abou-Antoun suggest rather that Mr Hraiki had a number of money making projects including Lithgow. One would infer that he induced friends and associates, including the Abou-Antouns, to provide money as investors on the promise of large and timely returns. They were not partners involved in management. It seems to me likely that neither John (nor the others included in the Repayment Deed drawn by Charter Finance in February 2007 (supra paras [54]-[56]), had any actual stake in Lithgow or any other project. Rather, they trusted Mr Hraiki and accepted his assurances of speedy and large returns.

75 When the return was delayed and default threatened, it is likely that John turned to Mr Hraiki to solve the problem. It was Mr Hraiki who dealt with Silkwater and engaged valuers. The Abou-Antouns (and probably John) allowed the valuers to inspect the Burwood property. They did so, no doubt, at the request of Mr Hraiki. And fixing the problem, at least in the early stages, involved extending the Silkwater loan.

76 By September 2006, when Mr Hraiki began to deal with Charter Finance, all dealings by that company were with him, not the Abou-Antouns. It was not until after all documents had been “executed” by Mr Hraiki and settlement had taken place, that Charter Finance wrote to the Abou-Antouns. It may be assumed that the letter sent following the settlement probably did come to the notice of at least John soon thereafter. The optimistic promises made by Mr Hraiki to Mr Morris were no doubt repeated to John, concerning the imminent completion of Lithgow. Although John’s failure to protest at that point is a matter to weigh, it does not necessarily, or even probably, suggest that John Abou-Antoun knew of the “execution” of the loan documents before the settlement took place.

Other matters.

77 Each of these matters is, to some extent, argumentative and even speculative. However there are other matters that ultimately lead me to the view that Charter Finance has not demonstrated, as a matter of probability, that Mr Hraiki signed or arranged the signing of the Charter Finance loan documents as the agent of John Abou-Antoun. First, there was, in terms of action, an imbalance between the respective roles of Mr Hraiki and John Abou-Antoun. At every stage, the transactions were driven by Mr Hraiki. He dealt with Silkwater. He also dealt with Charter Finance. He ultimately executed and returned the forged documents (and there were seven of them) to complete the transaction (supra para [34]).

78 Secondly, the security required for the Charter Finance loan (apart from an unregistered Second Mortgage and a Caveat) included a Guarantee by Mr Hraiki and his wife. Why would the finance broker provide a personal guarantee when arranging to refinance a client’s loan? One may certainly infer that promises Mr Hraiki had made of an early return to John Abou-Antoun had been broken. The Lithgow project, and perhaps other deals, had not yet settled. There was the complication that an extension of the Silkwater loan required an up-front payment of $90,750 interest. Yet, pending completion of Lithgow, finance had to be arranged in circumstances where the payout to Silkwater had grown from $550,000 borrowed in March 2006 to $688,000 paid out in September 2006, thereby reducing the equity in the only available security at Burwood. The offer of a personal guarantee by Mr Hraiki (and his wife) is consistent with his needing to “buy time” whilst his business ventures matured. This was his problem, not simply the Abou-Antouns’.

79 Thirdly, John Abou-Antoun, as mentioned, never dealt with Charter Finance directly, nor received any documents from them before the settlement. All dealings were between Mr Morris and Mr Hraiki. It was Mr Hraiki who forged, or arranged the forging (and then witnessed), the Charter Finance documents. Yet John had signed (as he acknowledged) and, indeed, his parents had apparently signed, each transaction that had preceded the Charter Finance loan, including Silkwater. Why then, if John was involved, would he not also sign the Charter Finance documents?

80 Again it is difficult, with so little information, to work out precisely what was going on. But the fact that he did not sign is consistent with Mr Hraiki dealing with the problem himself in a desperate bid to “buy time”, pending the settlement of Lithgow. I think that rather more likely than the alternative that John Abou-Antoun authorised Mr Hraiki to sign the documents on his behalf.

81 I am not persuaded, as a matter of probability, that when the documents were executed, Mr Hraiki was acting as John Abou-Antoun’s agent, with his knowledge and acquiescence. John knew there was a problem. But it is a large step to infer that he authorised Mr Hraiki to solve the problem by executing the loan documents on his behalf. The case of Charter Finance on the Loan Agreement in my view fails.

The case for restitution.

82 Charter Finance put its case for restitution upon a number of different bases, namely:

· Payment as a result of a mistake (David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353; Mason & Carter on Restitution Law in Australia at [846]; Perpetual Trustees Victoria Ltd v Ford [2008] NSWSC 29; (2008) 70 NSWLR 611).

· Total failure of consideration.

· Acceptance of an incontrovertible benefit (Lumbers v W Cook Builders Pty Ltd [2008] HCA 27; (2008) 232 CLR 635).

83 I have already accepted (supra para [39]) that the payment to Silkwater was made by Charter Finance in the mistaken belief that Michael, Hanne Abou-Antoun and John Abou-Antoun had executed the Agreement. I believe that Charter Finance is entitled to restitution upon the basis of mistake and upon the other bases identified.

84 The amount payable in restitution is calculated as follows: (cf Ex Q)

· amount paid in discharge of Silkwater debt $688,000.00

· interest at Supreme Court rate until today $175,882.89

Total $863,882.89

Orders.

85 I make the following orders:

1. That there should be judgment for Charter Finance against John Abou-Antoun in the sum of $863,882.89.

2. The third defendant should pay half the plaintiff’s costs.

In terms of the mathematics, the slip rule applies.

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