Indigo Financial Money P/L v Bolivar Road P/L - [2010] SASCFC 29

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
INDIGO FINANCIAL MONEY P/L & ANOR v BOLIVAR ROAD P/L & ORS
[2010] SASCFC 29
Judgment of The Full Court
(The Honourable Justice Bleby, The Honourable Justice Gray and The Honourable Justice Kelly)
27 August 2010
APPEAL AND NEW TRIAL - APPEAL - GENERAL PRINCIPLES - INTERFERENCE WITH JUDGE'S FINDINGS OF FACT - FUNCTIONS OF APPELLATE COURT - IN GENERAL
APPEAL AND NEW TRIAL - APPEAL - GENERAL PRINCIPLES - INTERFERENCE WITH JUDGE'S FINDINGS OF FACT - FUNCTIONS OF APPELLATE COURT - WHERE FINDINGS BASED ON CREDIBILITY OF WITNESSES - GENERALLY
GUARANTEE AND INDEMNITY - THE CONTRACT OF GUARANTEE - CONSIDERATION - GENERALLY
Appeal from dismissal of civil claims following a trial in the Supreme Court - claims involved alleged undocumented agreements relating to property development projects, including advancement of certain moneys as loans and alleged representations with respect to the guarantee of debts - whether trial Judge erred in relation to credibility and reliability findings - whether Judge erred in concluding that a personal guarantee had been given without consideration and consequently was unenforceable.
Held: appeal dismissed - no error demonstrated with respect to Judge's analysis and conclusions in relation to credibility - alleged personal guarantee not enforceable because of a want of consideration - further, personal guarantee unenforceable as a consequence of insolvency of company to which guarantee was said to relate.
Fair Trading Act 1987 (SA); Trade Practices Act 1974 (Cth), referred to.
Fox v Percy (2003) 214 CLR 118; Warren v Coombes (1979) 142 CLR 531; Jones v Hyde (1989) 63 ALJR 349; Abalos v Australian Postal Commission (1990) 171 CLR 167; Devries v Australian National Railways Commission (1993) 177 CLR 472; Wade v Australian Railway Historical Society (SA Division) t/as Steamranger (2000) 77 SASR 221; Norbis v Norbis (1986) 161 CLR 513; Coal & Allied Operations Pty Ltd v Australian Industrial Relations Commission (2000) 203 CLR 194; Coulton v Holcombe (1986) 162 CLR 1; University of Wollongong v Metwally (No 2) (1985) 59 ALJR 481, considered.

INDIGO FINANCIAL MONEY P/L & ANOR v BOLIVAR ROAD P/L & ORS
[2010] SASCFC 29
Full Court Bleby, Gray and Kelly JJ
THE COURT:

This is an appeal from the dismissal of civil claims following a trial before a Judge of this Court.[1]
[1] Indigo Financial Money Pty Ltd & Anor v Bolivar Road Pty Ltd & Ors [2009] SASC 373 (Vanstone J).
Introduction
The claims involved alleged undocumented agreements. The discussions between the participants were complex. Substantial sums of money were involved. The discussions extended over many months and took place during the course of lengthy meetings. The lack of documentation was unexplained. However, it is clear that none of the parties attempted to document their arrangements until later, when there was a perceived need to do so.
The trial Judge was critical of the credibility and the reliability of the principal participants, and concluded that little reliance could be placed on much of their evidence. The lack of contemporaneous documentation coupled with the unreliability of oral evidence, placed the Judge in a difficult position with respect to the making of findings of facts.
On the hearing of the appeal it was contended that this Court should review the credibility and reliability findings of the Judge, in particular having regard to what was said to be the “flow on” effects of the Judge’s acceptance of one witness, and the misinterpretation of documentary material. It was further contended that the Judge erred in concluding that a personal guarantee had been given without consideration and as a consequence was unenforceable.
The background to the events the subject of the litigation may be described as murky. It appears that Walid Najjar, the third defendant and respondent, and Dimitrios Papastamatis, with others, were involved in property development projects. They were involvement in mortgage investment businesses, an involvement which appears to have been undertaken with a view to sourcing moneys for the purposes of the property development projects. It may be inferred that by late 2006, the property development projects were encountering major liquidity problems. At or about this time, Najjar and Papastamatis appeared to develop a business relationship with two accountants, John Tsoulos, the second plaintiff and appellant, and Stephen Koutsouvelis. By late 2006, Najjar and Papastamatis were referring work to the accountancy practice of Tsoulos and Koutsouvelis. An advance from Tsoulos of $200,000.00 was made. In the course of this ongoing association it appears that the suggestion was made that Tsoulos and Koutsouvelis purchase financing and mortgage broking businesses being operated by Najjar and Papastamatis. The negotiations in regard to the purchase of these businesses led to an agreement being reached in May 2007. Again, the position is not entirely clear, but it appears that an aspect of the business was left unresolved by the May 2007 agreement. That aspect related to the loan book of the second defendant and respondent, Domain Funding Pty Ltd.[2] An agreement reached in August 2007 concerned this outstanding aspect of the business of Domain Funding.
[2] Domain Funding was incorporated on 13 July 2005. Papastamatis and Najjar were the original directors. Najjar resigned as a director on 17 October 2008. At some time prior to 16 August 2007, Najjar’s shares in the company that was the principal shareholder of Domain Funding, were transferred to Papastamatis. Domain Funding appears to have been a financing and mortgage broking business. Domain Funding was not represented at the trial.
The Facts
On 19 December 2006, Tsoulos entered into an agreement with Domain Funding whereby Tsoulos agreed to advance $200,000.00 to Domain Funding for a period of two months with interest accruing until repayment at the rate of 2.5 per cent per month. The moneys were advanced the same day. The moneys have not been repaid. It was alleged by Tsoulos that at a meeting on or about 16 August 2007, Najjar personally guaranteed the repayment of the debt. It was further alleged that on the same occasion, the first defendant and respondent, Bolivar Road Pty Ltd,[3] agreed to provide a guarantee and indemnity in regard to the debt owing by Domain Funding to Tsoulos in respect of the advance of $200,000.00. It was said that Bolivar Road would provide security over certain real property known as the Burton land.
[3] Bolivar Road was incorporated on 17 August 2006. On 1 April 2007 Najjar became the sole director and Najjar Investments Pty Ltd became a principal shareholder of Bolivar Road. It appears that Bolivar Road was engaged in property development on land known as the Burton land. It was a development that was in need of funds.
Bolivar Road had acquired an equitable interest as assignee of a contract for the purchase of the Burton land with a view to its subdivision and sale. Domain Funding had also lent to Rateki Pty Ltd, a company controlled by a Mr DeAngelis, two loans of $350,000.00 and $150,000.00. Rateki was also involved in some way in the development of the Burton land. These loans were also at high interest rates. There was evidence that they were repayable (but had not been repaid) on 20 October 2006 and 20 January 2007 respectively.
At the meeting on or about 16 August 2007 the first plaintiff and appellant, Indigo Financial Money Pty Ltd,[4] entered into an agreement with Domain Funding pursuant to which Domain Funding agreed to assign to Indigo Financial five receivables, including the Rateki loans which by then, with interest, amounted to approximately $1,010,000.00. That loan was to be “discounted” to $950,000.00 with the interest reduced to 6.75 per cent per month. In consideration Indigo Financial agreed to assume Domain Funding’s liabilities pursuant to its deposit book, being obligations of Domain Funding to nine creditors. Indigo Financial alleged that Bolivar Road agreed to give a guarantee and indemnity and provide security, also over the Burton land, in respect of the Rateki debt. It was further claimed that Najjar agreed to personally guarantee the Rateki debt.
[4] Indigo Financial was incorporated on 19 June 2007. At all material times its directors were Tsoulos, Koutsouvelis and a Mr Nathan Kentish.
At the meeting on or about 16 August 2007 it was asserted that there were a number of other related agreements. It was claimed that Domain Funding by its directors, including Najjar, and Bolivar Road, by its director Najjar, and Najjar in his personal capacity, made misrepresentations with respect to the Rateki loan and the security being offered by Bolivar Road. It was also alleged that some time after 16 August 2007, the same representors made further misrepresentations concerning the quality of the Domain Funding loan book, including a loan to another company controlled by DeAngelis, namely 74 Commercial Road Pty Ltd, and to the giving of security and with respect to the receivables.
It was alleged that on 7 February 2008, Najjar made a number of representations to Tsoulos and other directors of Indigo Financial concerning the repayment of debts. It was claimed that at this time Najjar represented that he had earlier personally guaranteed the debt due to Indigo Financial.
The remedies sought by Indigo Financial and Tsoulos included declarations as to the holding of security, orders for specific performance of the loan book agreement, an order that Bolivar Road and Najjar pay Indigo Financial the sum of $950,000.00 together with interest accruing at 6.75 per cent per month and an order that Bolivar Road and Najjar pay Tsolous the sum of $200,000.00 together with interest at 6.75 per cent per month. Indigo Financial and Tsolous also sought relief under the Trade Practices Act 1974 (Cth), damages for breach of contract, damages for misrepresentation, damages for breach of the Fair Trading Act 1987 (SA), equitable compensation, compensation pursuant to the Fair Trading Act and the Trade Practices Act, together with orders for interest and costs.
The claims proceeded to trial. On 4 December 2009, the Judge dismissed all claims of both Tsoulos and Indigo Financial.[5]
[5] Indigo Financial Money Pty Ltd & Anor v Bolivar Road Pty Ltd & Ors [2009] SASC 373 (Vanstone J).
The Trial
As noted above, on 19 December 2006, Tsoulos loaned $200,000.00 to Domain Funding. It was not in dispute that the original terms of this advance were that repayment was to occur in February 2007 and that simple interest at 2.5 per cent per month was to be paid. The Judge considered that there was no satisfactory evidence led at trial that the terms of the advance were ever varied. As a consequence, the Judge found that Domain Funding was indebted to Tsoulos in the amount of $200,000.00, together with interest accruing at the rate of 2.5 per cent per month. The Judge rejected the claim of Tsoulos that he was given a personal guarantee for the repayment of the principal debt by Papastamatis on behalf of Papastamatis and Najjar either on 16 August 2007 or 7 February 2008. The Judge was not satisfied that any guarantee had been given. The Judge went on to conclude that if Papastamatis had purported to give a personal guarantee, it was not given with Najjar’s authority. The Judge further reasoned that if there had been a personal guarantee given by Najjar, it would not be enforceable as no consideration had been given. The Judge rejected the evidence of Tsoulos that on 16 August 2007 he had been given a personal guarantee by Najjar.
The Judge found that on 7 February 2008, Najjar offered a guarantee for repayment of the principal sum of the Rateki debt, being the amount of $950,000.00. The Judge concluded that the guarantee was not enforceable as it was given without consideration.
The Judge dismissed the alternative causes of action advanced by Indigo Financial and Tsoulos stemming from allegations of misrepresentation, concluding that with the following exception, the alleged representations had not been made out. The Judge found that Najjar had made statements about the valuation of property known as 74 Commercial Road that were misleading by omission, but concluded that there had been no reliance on this particular statement. As a consequence, this claim was dismissed.
The Credibility Findings
The Judge subjected the evidence led in the trial to close analysis. In the course of that analysis, the Judge explained her dissatisfaction with many of the witnesses. Relevantly, she summarised her conclusions under the heading “General remarks re credit of witnesses”:[6]
I regret to say that, with the exception of Kentish (whose evidence I will separately discuss) I was unimpressed by the witnesses called in this trial. I do not base such conclusions as I have drawn about their evidence primarily upon their demeanour; although I have done more so in the case of Najjar. All witnesses are educated men, experienced in business matters.
Of the four principal witnesses, Najjar gave his evidence with most proficiency. He plainly had an impressive grasp of all issues in the case and of the documentary evidence. Although he had the advantage of having been present throughout the plaintiffs’ case, I consider his understanding of the case reflected more than such an advantage. It reflected an intelligence and sophistication about his position and the process. However, I was not inspired to place any confidence in the accuracy of his evidence. His evidence about presales agreements was particularly defensive. There was a discrepancy between his affidavit of November 2008 and his evidence regarding the reason for the Rateki debt being discounted. His claim of reporting back to Papastamatis De Angelis’s agreement to redirecting his project management fees was raised late and was weak. Overall, I found him to be plausible only; shrewd rather than candid. His cross-examination ranged over two days and about 260 pages of transcript. In my opinion he fared relatively well in cross-examination. He was attacked on a number of fronts, but, for the most part, he gave adequate and not unreasonable answers; though at times suggestive of disingenuity.
Least impressive in terms of demeanour was the evidence of Tsoulos. He affected what was at once both a gullible and hard-done-by attitude. His evidence seemed to me to reflect excessive rehearsal and a disinclination to be drawn outside the answers he had determined to give. He was unable to explain some matters (particularly the Lumley emails) in a coherent manner. He was inclined to deny propositions without any basis. For example, he emphatically denied a suggestion made in cross-examination, and based on Lumley’s handwritten note, that he told Lumley in a telephone conversation that they had taken on a loan to De Angelis. But in his own emails to Lumley, he used that very expression. He was inclined to change his evidence after breaks; for example, the date of the investors’ meeting. Another example is, first he said that a pre-sale agreement, P51, was one of those brought to the Indigo offices by Najjar. The next day he said that it could not be, because of its date. Then he could not explain why its date (1 February 2007) precluded it and said he did not recognise the name on it. He did not choose words carefully. I have no confidence that he would appropriately distinguish between a personal guarantee or an assurance, or between Najjar’s statements on behalf of Domain PL or Bolivar or in his own right.
I found Koutsouvelis to be much more open and, often, candid. I was particularly unimpressed by the evidence of Papastamatis. I formed the impression that he, like Tsoulos, had carefully prepared the evidence he proposed to give and was not prepared to go outside his “brief”. His evidence was extraordinarily detailed at times but general at others. He was argumentative and unresponsive in cross-examination. In my view, for whatever reason, he tailored his answers to what he anticipated the plaintiffs’ case required. Plainly he was, at one time, close to Najjar. The reasons for their fallout are unclear.
In many ways the evidence of Tsoulos and Koutsouvelis ran in parallel lines. Of course they were together during a number of the important events. But their accounts, and their emphasis, were surprisingly similar. For reasons I shall develop, I am not persuaded by critical aspects of Tsoulos’s evidence. That has the impact of infecting the evidence of Koutsouvelis to the same effect.
In the end, I do not consider that any of the witnesses (again leaving aside Kentish) gave an entirely truthful account of the relevant matters. I can accept that to some extent the evidence of Tsoulos and Koutsouvelis was flavoured by wishful thinking, hindsight and unwitting reconstruction; but not all of it.
The Appeal
[6] Indigo Financial Money Pty Ltd & Anor v Bolivar Road Pty Ltd & Ors [2009] SASC 373 at [125]-[130].
The Role of the Appeal Court
An appeal by rehearing does not involve a completely fresh hearing by the appellate court of all the evidence. Rather, the court proceeds on the basis of the record and any fresh evidence that it chooses to admit.[7] The function of the appellate court in circumstances such as these, has been outlined in some detail in several High Court authorities.[8]
[7] Fox v Percy (2003) 214 CLR 118 at [22].
[8] See eg Warren v Coombes (1979) 142 CLR 531; Jones v Hyde (1989) 63 ALJR 349 at 351-352; Abalos v Australian Postal Commission (1990) 171 CLR 167; Devries v Australian National Railways Commission (1993) 177 CLR 472.
As discussed by the Full Court in Wade v Australian Railway Historical Society,[9] it is not appropriate to invite an appellate court simply to revisit the relevant evidence and then contend that the court should reach a different conclusion. As this is an appeal by way of rehearing, error must be demonstrated for the court to be entitled to disturb the decision of the primary decision-maker.[10] It is not for the court to merely substitute its own view, as if it were again performing the function of the trial Judge. Rather, it is the court’s duty to consider whether the findings were incorrect.[11] Furthermore, the manner in which the case on appeal is conducted by the parties ought not depart from the manner in which the case was conducted at trial, and generally, the appeal arena is not the appropriate forum to raise new arguments.[12]
[9] Wade v Australian Railway Historical Society (SA Division) t/as Steamranger (2000) 77 SASR 221 at [38] (Doyle CJ, Duggan & Lander JJ agreeing).
[10] Norbis v Norbis (1986) 161 CLR 513 at 518-519 (Mason & Deane JJ); see also Coal & Allied Operations Pty Ltd v Australian Industrial Relations Commission (2000) 203 CLR 194 at 203-204 (Gleeson CJ, Gaudron & Hayne JJ).
[11] See eg the observations in Coulton v Holcombe (1986) 162 CLR 1 at 7 where Gibbs CJ, Wilson, Brennan and Dawson JJ observed:
…To say that an appeal is by way of rehearing does not mean that the issues and the evidence to be considered are at large. It is fundamental to the due administration of justice that the substantial issues between the parties are ordinarily settled at the trial. If it were not so the main arena for the settlement of disputes would move from the court of first instance to the appellate court, tending to reduce the proceedings in the former court to little more than a preliminary skirmish…
see also Norbis v Norbis (1986) 161 CLR 513 at 518-519 where Mason and Deane JJ observed:
According to our conception of the appellate process, the existence of an error, whether of law or fact, on the part of the court at first instance is an indispensable condition of a successful appeal.
[12] See the observations in University of Wollongong v Metwally (No 2) (1985) 59 ALJR 481 at 483, where Gibbs CJ, Mason, Wilson, Brennan, Deane and Dawson JJ observed:
It is elementary that a party is bound by the conduct of his case. Except in the most exceptional circumstances, it would be contrary to all principle to allow a party, after a case had been decided against him, to raise a new argument which, whether deliberately or by inadvertence, he failed to put during the hearing when he had an opportunity to do so.

When rehearing a case, the appellate court must be aware of the advantages that a trial judge has in seeing the witnesses and in forming impressions as to credibility on this basis. The appellate court does not have such an advantage. The limitations of an appellate court were highlighted by the High Court in Fox v Percy.[13] Gleeson CJ, Gummow and Kirby JJ in their joint judgment observed:[14]
…[the appellate court] must, of necessity, observe the “natural limitations” that exist in the case of any appellate court proceeding wholly or substantially on the record. These limitations include the disadvantage that the appellate court has when compared with the trial judge in respect of the evaluation of witnesses’ credibility and of the “feeling” of a case which an appellate court, reading the transcript, cannot always fully share. Furthermore, the appellate court does not typically get taken to, or read, all of the evidence taken at the trial. Commonly, the trial judge therefore has advantages that derive from the obligation at trial to receive and consider the entirety of the evidence and the opportunity, normally over a longer interval, to reflect upon that evidence and to draw conclusions from it, viewed as a whole.
[Footnotes omitted]
However, it is to be noted that despite these limitations, the appellate court may still draw its own inferences and conclusions. As the members of the Court in Fox v Percy also said:[15]
Within the constraints marked out by the nature of the appellate process, the appellate court is obliged to conduct a real review of the trial and, in cases where the trial was conducted before a judge sitting alone, of that judge's reasons. Appellate courts are not excused from the task of "weighing conflicting evidence and drawing [their] own inferences and conclusions, though [they] should always bear in mind that [they have] neither seen nor heard the witnesses, and should make due allowance in this respect".
[Footnotes omitted]
[13] Fox v Percy (2003) 214 CLR 118.
[14] Fox v Percy (2003) 214 CLR 118 at [23].
[15] Fox v Percy (2003) 214 CLR 118 at [25].
These statements of principle govern the approach to be followed by this Court.
The Attack on Credibility Findings
Counsel for Indigo Financial and Tsoulos on the hearing of the appeal undertook a detailed review of the evidence including documentary evidence. It was said that this review demonstrated that the Judge’s conclusions on credibility and reliability could not stand.
We should say immediately that we consider this submission to be without substance. The detailed reasons which support the Judge’s findings are comprehensive. There was nothing inherently improbable in any of the Judge’s conclusions. To the contrary, the Judge’s analysis and conclusions had the hallmark of a common sense approach to a consideration of the evidence and were supported by the evidence.
Counsel advanced submissions to this Court, relying on passages in the evidence, and invited this Court to take a different view than that taken by the Judge with respect to the significance of the evidence. This was a case where the exposure to the witnesses at the trial gave the Judge a particular advantage when assessing credibility. The Judge saw and heard the respective accounts unfold and was able to appreciate, in the way that a trial Judge can, the context in which the respective versions were presented. In a case where much turned on alleged oral discussion, it is difficult for the appellate court to be able to consider the evidence in the same manner as and with the advantages of a trial Judge. The Judge’s analysis is both detailed and compelling.
It was contended by Indigo Financial and Tsoulos that the Judge’s acceptance of the evidence of Kentish should have led to the conclusion that their claim had been made out. The Judge said of Kentish’s evidence:[16]
Of greater weight is the evidence of Kentish who, although a director, employee and shareholder of Indigo, was somewhat removed from these events. I do not lightly discount his evidence on this topic [the 16 August 2007 meeting]. On the other hand, it seems that on two occasions there was good reason for copies of the pre-sale agreements to be in the Indigo offices. The second occasion to which I refer was the introduction of NAB as a prospective lender to Bolivar Road. I do not overlook that Najjar denied taking the contracts to the offices for any reason. But I do not entirely discount the possibility that the contracts were produced in that latter context, but did provide some reassurance to the plaintiffs. It is possible that Mr Kentish is wrong about the date when he viewed such contracts. A further possibility is that Mr Najjar did in fact bring the contracts in to the Indigo offices and has forgotten that he did so, or, has falsely denied that he did so. A false denial to that effect might have been made in an effort to distance the Bolivar Road project from the discussions of 16 August. But even so, that would not necessarily point to the accuracy of the plaintiffs’ claims about the point of the references to Bolivar Road on 16 August. In this regard, I mention again the fact that the first Lumley email does not refer to Bolivar Road being security for the Rateki debts; only that it represents a source of money for repayment.
…
In finding that Najjar did offer a personal guarantee at the La Trattoria meeting, I place reliance on the evidence of Kentish, who attended the meeting. Whilst a director, shareholder and employee of Indigo, Kentish was a step removed from Najjar, Papastamatis, Tsoulos and Koutsouvelis. Unlike the other Indigo directors, he did not appear to have had a prior social or professional relationship with Najjar, such as to affect his business judgement. I note that, consistent with Najjar’s evidence, Kentish did not say that Najjar told those present that there was, or was to be, any security over the Burton land. Rather, the essence of the statement of Najjar, as Kentish reported it, was that he was personally guaranteeing repayment of the Rateki loans, and that repayment would be made in about June or July of that year, when the blocks of land started to sell (or settle).
It is true that Kentish denied that the focus of the meeting was on the bankruptcy of De Angelis. I have not, so far, made a finding on this issue, though I think it likely that, even if De Angelis was not the sole focus of the meeting, certainly his position would have been discussed. It is an agreed fact that De Angelis had recently been declared bankrupt and that Rateki Pty Ltd was ordered to be wound up on 17 January 2008. The instruction of Tsoulos in the email to Lumley sent after the lunch that Indigo had taken on a loan to De Angelis supports the inference both that De Angelis and Rateki remained as the debtors in the loan book agreement and that De Angelis’s recent bankruptcy would have been discussed. My acceptance of this is not fatal to the credibility of Kentish. Regardless of who was responsible, in the first instance, for making repayment of the Rateki loans, in Kentish’s mind it was Najjar who had orchestrated the arrangement; and it was from Najjar that he sought answers.
[16] Indigo Financial Money Pty Ltd & Anor v Bolivar Road Pty Ltd & Ors [2009] SASC 373 at [152], [168]-[169].
The complaint on appeal was that the Judge failed to give full effect to the evidence of Kentish. It was said that his evidence provided powerful support for many of the allegations advanced by Tsoulos and Indigo Financial at trial. In our view, this reads too much into the Judge’s conclusions concerning the evidence of Kentish. A careful reading of the Judge’s reasons demonstrates that each of the findings with respect to the evidence of Kentish is restricted to the particular matter then under discussion. The Judge stopped short of a general acceptance of Kentish’s evidence. The reasons extracted above demonstrate the care with which the Judge made use of the evidence of Kentish. The Judge was not bound to accept all of his evidence and was entitled to use his evidence in the way that has been explained in her reasons for judgment.
It was suggested on appeal that the Judge failed to give adequate weight to the evidence of Koutsouvelis. Reliance was placed on the following finding:[17]
I found Koutsouvelis to be much more open and, often, candid. I was particularly unimpressed by the evidence of Papastamatis. I formed the impression that he, like Tsoulos, had carefully prepared the evidence he proposed to give and was not prepared to go outside his “brief”. His evidence was extraordinarily detailed at times but general at others. He was argumentative and unresponsive in cross-examination. In my view, for whatever reason, he tailored his answers to what he anticipated the plaintiffs’ case required. Plainly he was, at one time, close to Najjar. The reasons for their fallout are unclear.
[17] Indigo Financial Money Pty Ltd & Anor v Bolivar Road Pty Ltd & Ors [2009] SASC 373 at [128].
In the ensuing extracts, the Judge reasoned that her dissatisfaction with Tsoulos’ evidence infected the evidence of Koutsouvelis. The Judge explained:[18]
In many ways the evidence of Tsoulos and Koutsouvelis ran in parallel lines. Of course they were together during a number of the important events. But their accounts, and their emphasis, were surprisingly similar. For reasons I shall develop, I am not persuaded by critical aspects of Tsoulos’s evidence. That has the impact of infecting the evidence of Koutsouvelis to the same effect.
In the end, I do not consider that any of the witnesses (again leaving aside Kentish) gave an entirely truthful account of the relevant matters. I can accept that to some extent the evidence of Tsoulos and Koutsouvelis was flavoured by wishful thinking, hindsight and unwitting reconstruction; but not all of it.
We consider this to be an acceptable analysis and one that the Judge was entitled to make. In our view, there has been no misuse of Tsoulos’ evidence.
[18] Indigo Financial Money Pty Ltd & Anor v Bolivar Road Pty Ltd & Ors [2009] SASC 373 at [129]-[130].
Counsel for Indigo Financial and Tsoulos submitted that there was a body of correspondence tendered at the trial that had been incorrectly analysed by the Judge and that the incorrect analysis then formed a basis for undermining the credibility and reliability of Tsoulos, and inferentially, Koutsouvelis and Papastamatis.
It was contended that this Court was in an equal position as the trial Judge to analyse the documentation and reach its own conclusion as to the inferences to be drawn. The relevant observations of the Judge are to be found in the following paragraphs of her reasons:[19]
I turn to the specific matters within Tsoulos’s evidence which have weighed with me.
The Lumley documents are entirely destructive of the credibility of Tsoulos. In the first place, the email correspondence with Lumley twice has Tsoulos asserting that Indigo had taken on a loan to De Angelis. That is inconsistent with his evidence that the agreement reached on 16 August was between Indigo and Najjar. The draft deeds of assignment drawn by Lumley and provided to Tsoulos confirm that the debts to be assigned to Indigo are those of companies concerned with De Angelis, namely 74 Commercial Road Pty Ltd and Rateki Pty Ltd. Second, neither in the email letters written by Tsoulos, nor in the draft documents produced by Lumley, is there reference to security over the land at Bolivar Road. Third, the draft personal guarantees referring to Najjar were not supported by any security. That was consistent with Tsoulos’s email to Lumley, but inconsistent with the plaintiffs causing caveats to be registered over Najjar’s personal properties late in 2008.
In the fourth place, the request in the first email, that the documents to be drawn should not appear as if they had come from a legal firm, is directly contrary to Tsoulos’s assertion that, on the night of the loan book agreement, Najjar undertook to have documents prepared reflecting the agreement. It again contradicts the assertion attributed by the plaintiffs to Najjar at La Trattoria that the plaintiffs could arrange for the documents to be prepared and that Najjar would be happy to sign them. Tsoulos said it was Papastamatis who advised Tsoulos that the documents should not be made to appear “too legal”. But had Najjar really told Tsoulos, Koutsouvelis and Papastamatis that he would be happy to sign whatever documents the plaintiffs organised, there would have been no occasion for Papastamatis to make such a statement.
The fifth point is that it does not appear that any request was made of Lumley to prepare a document relating to any personal guarantee by Najjar of the Tsoulos advance, or any document to secure that debt against the Bolivar development. I note again that in [23.12] of the Statement of Claim it is specifically asserted that during the loan book meeting each of Domain PL, Bolivar Road PL and Najjar represented to Tsoulos that: “Bolivar Road would grant security over the Burton land to secure the repayment of the amounts owing by Domain to Tsoulos”. The evidence in support of this particular of claim is weak. Only Tsoulos claimed that Najjar said the Tsoulos advance would be “secured against Bolivar”. Koutsouvelis and Papastamatis said that there was reference to Bolivar in connection with the Tsoulos advance, but they did not go further than attributing to Najjar the statement that Bolivar would be a source of repayment of the Tsoulos advance. On any view, the justification for the caveats registered in respect of the Tsoulos advance is spurious.
As I have already observed, the first Patsouris documents are not, either, in conformity with what the plaintiffs say was the outcome of the 16 August meeting.
These matters are of critical importance. I consider the earlier communications and documents are a more reliable indicator of what was said on 16 August than the evidence of the plaintiffs’ witnesses. Because of the contrast between Tsoulos’s instructions to Lumley, as against his evidence of statements made by Najjar at the loan book and La Trattoria meetings, I am unable to place reliance on Tsoulos’s evidence as to those matters, or as to any other matter of importance. These contrasts I mention also have the effect of undermining the evidence of Koutsouvelis and Papastamatis on the same topics.
[19] Indigo Financial Money Pty Ltd & Anor v Bolivar Road Pty Ltd & Ors [2009] SASC 373 at [131]-[136]
A number of the criticisms that were advanced may be characterised as finicky and hypercritical. The inferences drawn from the documents by the Judge were not only open but were, in our view, reasonable and appropriate inferences. Even if some could be said not to be open, the collective force of the Judge’s comments remain; the material was destructive of Tsoulos’ credit.
For the reasons set out above, we do not consider that the Judge’s finding on credibility can be impugned. This ground of appeal is rejected.
No Consideration for Guarantee
On the appeal the Judge’s conclusion that the guarantee given by Najjar to Indigo Financial was unenforceable as it was given without consideration was challenged. In that respect, the Judge’s reasoning was first set out when addressing the claim of Tsoulos:[20]
Tsoulos says he was given a personal guarantee for repayment of the principal by Papastamatis on behalf of Papastamatis and Najjar. Papastamatis supports that. I am not satisfied that Tsoulos was ever given a personal guarantee by, or on behalf of, Najjar in respect of his advance. If he were given one at the time he handed the cheque to Papastamatis, I am not persuaded it was with Najjar’s authority. Although the evidence is not particularly clear on this point, it seems that even Tsoulos does not make any specific and detailed claim that Najjar personally guaranteed the advance, earlier than the investors’ meeting. (67-8) Even if he were given a guarantee at that time, I would not be satisfied that it was enforceable. That is because of a want of consideration. I accept that a promise not to sue for a period, at the request of the borrower, where the borrower is liable, could amount to valuable consideration, so as to make enforceable a guarantee offered by the borrower: Carter & Harland, Contract Law in Australia (4^th ed, Butterworths, 2002): [355]. See also O’Donovan & Phillips The Modern Contract of Guarantee (3^rd ed., LBC, 1996) pp 55-56. But in this case there is no evidence that Najjar made such a request, or that Tsoulos threatened, or, at that time, even contemplated, legal proceedings. This is reinforced by the fact that there is no evidence that he ever instructed Lumley or Patsouris to draw documents reflecting the arrangement he had with Domain PL and Najjar with respect to his personal advance. His inaction falls short of providing consideration for a guarantee, even if one were given at the investors’ meeting.
When dealing with the position of Indigo Financial the Judge adopted the above observations as appears in the following passage:[21]
The other matter which resonates with me in respect of this part of the case is Tsoulos’s evidence that “the minute it gets legal they will actually come back and say ‘Hey, you know you’ve got a personal guarantee, don’t worry’”. In my mind, that statement undermines Tsoulos’s evidence that he was given a personal guarantee at the time of the Tsoulos advance and indeed on the night of the loan book agreement. However, accepting, as I do, that it was a truthful generalisation, it also lends some support to the contention that a personal guarantee was spoken of at the time of the La Trattoria meeting. While the plaintiffs were far from considering taking proceedings, it is clear that their attitude to the D Funding loan book was now one of concern, far removed from the somewhat blasé, overconfident attitude they exhibited at the 16 August meeting. I think this statement by Tsoulos was probably a reference both to the fact that when put under pressure by the Georgious’ solicitor, Najjar was prepared to provide a personal guarantee, and to a similar concession extracted from him by Tsoulos, Koutsouvelis and Kentish at the La Trattoria meeting.
However, I do not find that such a personal guarantee of the Rateki debt made at the La Trattoria meeting was enforceable. The guarantee was not given in response to a threat to sue or take other action. I refer to my earlier observations about this topic when dealing with the Tsoulos advance. I find that the offer of a personal guarantee of the Rateki debt is unenforceable because of a want of consideration.
[20] Indigo Financial Money Pty Ltd & Anor v Bolivar Road Pty Ltd & Ors [2009] SASC 373 at [139].
[21] Indigo Financial Money Pty Ltd & Anor v Bolivar Road Pty Ltd & Ors [2009] SASC 373 at [170]-[171].
The findings in the above extracts were not only open on the evidence but they are findings that we agree with.
At trial, it was agreed that Rateki had been placed in liquidation on 17 January 2008. The Judge found that the personal guarantee given by Najjar in favour of Indigo Financial, was not given until 7 February 2008. The effect of the Rateki liquidation was to leave Indigo Financial, on the assumption that the assignment from Domain Funding had taken place, with an entitlement to lodge a proof of debt in the liquidation of Rateki. Indigo Financial was unable to sue Rateki on the debt without the leave of the Court. In these circumstances, in February 2008, there was no then enforceable debt for Najjar to personally guarantee. There could be no granting of time or other indulgence by Indigo Financial. Counsel for Indigo Financial and Tsoulos accepted the correctness of this analysis, and conceded that there could be no forbearance to sue or consideration for the guarantee insofar as it related to the Rateki debt.

The evidence established that the Rateki debt had two components, one of $350,000.00 and the other of $150,000.00. The Rateki debt had grown to more than one million dollars, and, as at 16 August 2007, the time of the loan book agreement, had been discounted to $950,000.00. This, as the Judge found, was the amount of the Rateki debt the subject of the personal guarantee offered by Najjar on 7 February 2008. On Rateki being placed in liquidation, the rights of creditors were subject to the provisions of the statutory regime controlling company liquidation. Creditors had acquired an entitlement to prove in the Rateki liquidation. These circumstances provide further grounds for concluding that the guarantee of Najjar was given without consideration and in the circumstances was unenforceable.
On the hearing of the appeal, counsel for Indigo Financial and Tsoulos sought to argue that a portion of the Rateki debt related to moneys advanced to a different entity. The evidence on this topic was vague and did not allow any clear finding to be made, either at trial or on the appeal. Further, there was no evidence of there being any assignment effected between Domain Funding and Indigo Financial or of any agreement to such an assignment by Rateki or any other debtor of Domain Funding.
The parties in this case chose to leave their arrangements essentially undocumented. The vagaries of the accounts given by the parties are self evident on a reading of the transcript. One is left to surmise as to why such an arrangement should have been so poorly documented, insofar as it was documented at all. In all the circumstances, we would not interfere with the Judge’s conclusion that the personal guarantee was given without consideration. We would go further and say that, also having regard to the Rateki insolvency, the personal guarantee is unenforceable.
Conclusion
We dismiss the appeal.