Indigo Financial Money Pty Ltd & Anor v Bolivar Road Pty Ltd & Ors

[2009] SASC 373

SUPREME COURT OF SOUTH AUSTRALIA

(Civil)

INDIGO FINANCIAL MONEY PTY LTD & ANOR v BOLIVAR ROAD PTY LTD & ORS

[2009] SASC 373

Judgment of The Honourable Justice Vanstone

4 December 2009

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS

GUARANTEE AND INDEMNITY - THE CONTRACT OF GUARANTEE - CONSIDERATION

The first plaintiff (Indigo) entered into an oral agreement with the second defendant (Domain) whereby it was to assume Domain's "loan book" - upon taking over loan book Indigo assumed liability for certain borrowings from "investors" and also the benefit of certain interest bearing receivables - Indigo pleads that part of the agreement was that the third defendant, N, would personally guarantee repayment of certain of the receivables, and that the first defendant (Bolivar) would grant security over land in Indigo's favour as security for repayment - Indigo relies upon certain representations made by N at the time of agreement, and subsequently, to prove its case.

The second plaintiff, T, seeks relief against N and Bolivar in relation to a loan made by him to Domain - T claims repayment personally guaranteed orally by N, and that security for repayment was granted over land controlled by Bolivar - T relies on certain representations made by N to prove his case.

Whether representations in fact made by N - whether there was consideration for personal oral guarantees.

Held:  Indigo has not proved that N made representations upon which it relied at the time agreement made - later offer of a personal guarantee by N to Indigo unenforceable for want of consideration - T has failed to prove that N ever offered him a personal guarantee - claims of Indigo and T dismissed.

TRADE AND COMMERCE - TRADE PRACTICES ACT 1974 (CTH) AND RELATED LEGISLATION - CONSUMER PROTECTION - MISLEADING OR DECEPTIVE CONDUCT OR FALSE REPRESENTATIONS - CHARACTER OR ATTRIBUTES OF CONDUCT OR REPRESENTATION - RELIANCE, INDUCEMENT AND CAUSATION

Indigo claims relief against N and Domain on an alternative basis namely on representations and conduct N admitted to at time agreement made - whether conduct misleading or deceptive - whether reliance placed on conduct.

Held:  with one exception Indigo has not proved that conduct was misleading or deceptive - on Indigo's case relevant representations never made and not relied on - alternative claim fails.

Trade Practices Act 1974 (Cth), s 51A, s 52, s 75B; Fair Trading Act 1987 (SA), s 56, referred to.
Jones v Dunkel (1959) 101 CLR 298, considered.

INDIGO FINANCIAL MONEY PTY LTD & ANOR v BOLIVAR ROAD PTY LTD & ORS
[2009] SASC 373

TABLE OF CONTENTS

The parties

The Tsoulos advance

Purchase of the EFG businesses

The 16 August 2007 meeting

Who initiated the 16 August meeting

What was said about the Rateki loans

Legal documents

Pre-sales agreements

NAB’s advance to Bolivar Road

A commencement date for execution

Detail of the plaintiffs’ case

The La Trattoria meeting

The Lumley documents

The Patsouris documents

The Café Paesano Meeting

Subsequent meetings

Analysis

General remarks re credit of witnesses

The Tsoulos advance

The 16 August meeting

Alternative Trade Practices Act claim

Representation (a): Representation as to safety of loans

Representation (b):  Failure to warn that loans were in default

Representation (c):  Sale of 74 Commercial Road

Reliance

Conclusion

Civil

1. VANSTONE J:    Two claims are made by the plaintiffs.

2. The principal and most contentious issue is the claim of the first plaintiff, Indigo Financial Money Pty Ltd (Indigo), against the first and third defendants, seeking orders in law and in equity to give effect to what it says are the terms of an oral agreement made in August 2007, by which it was to assume liability for certain borrowings from “investors” and, at the same time, obtain the benefit of certain interest bearing receivables;  this being called “the loan book agreement”.  On each side of the ledger the figures were in excess of $1m.

3. In particular Indigo seeks orders that will enable it to call on a personal guarantee which it says was given by the third defendant, Mr Walid Najjar, and security over a development at Burton, owned by the first defendant, Bolivar Road Pty Ltd (Bolivar Road), which is said to have been provided to it, in relation to the receivables.

4. In addition, the second plaintiff, Mr John Tsoulos, seeks orders of a like nature arising out of a separate and earlier transaction, in December 2006, in which he advanced $200,000 by way of short term loan to the second defendant, Domain Funding Pty Ltd (Domain PL).  Mr Tsoulos claims that at the time of that advance a director of Domain PL, Mr Dimitrios Papastamatis, speaking for himself and his co-director Mr Najjar, told him that the money was personally guaranteed by them.  He further claims he was promised security over the Burton land as part of the loan book agreement.

5. The claims are framed in terms of breach of contract, and misleading or deceptive conduct.  However, an essential ingredient in each case is proof of certain representations said to have been made by Mr Najjar.  Most of those are denied by Mr Najjar, but, even so, the plaintiffs claim that, even on his own evidence, his conduct was misleading or deceptive.  Although there are some questions of a legal nature going to proper characterisation of what occurred, the central issues are matters of credibility.

6. From this point I propose to refer to the individual parties and witnesses by surname only.

   The parties

7. The first plaintiff, Indigo Financial Money Pty Ltd, was incorporated on 19 June 2007.  At all material times the directors of Indigo were Tsoulos, a Mr Koutsouvelis and a Mr Kentish.  The relevant shareholdings are Tsoulos, 60 per cent (through a family trust), Koutsouvelis, 20 per cent (through a family trust) and Kentish, 20 per cent.  It will sometimes be convenient to refer to the company and these men as “the plaintiffs”.

8. The first defendant, Bolivar Road Pty Ltd, was incorporated on 17 August 2006:  P233.  Until 1 April 2007 Mr Agostino De Angelis was the sole director and shareholder.  On that date Najjar replaced De Angelis as sole director.  At the same time 199 fully paid ordinary shares were issued to Najjar Investments Pty Ltd:  P261.  Najjar is a director of Najjar Investments Pty Ltd and owns 50 per cent of the share capital.  No changes have occurred to the directorship or shareholding of Bolivar Road since 1 April 2007.

9. The second defendant, Domain PL, was not represented at trial.  It was incorporated on 13 July 2005.  Papastamatis and Najjar were original directors of Domain PL:  P232.  Najjar resigned as a director on 17 October 2008.Domain PL has two shareholders.  Papawal Investments Pty Ltd (Papawal) holds 80 per cent of the share capital as a trustee and Selam Investments Pty Ltd (Selam) holds the remaining 20 per cent.  Initially Najjar and Papastamatis had an equal shareholding in Papawal.  At some time prior to the meeting of 16 August 2007, Najjar’s shares in Papawal were transferred to Papastamatis:  D7.  Neither Najjar nor Papastamatis have held an interest in Selam.  The plaintiffs maintain that at all times Najjar retained an interest in Domain PL through his beneficial interest in the W & D Investment Trust, on whose behalf Papawal held its Domain PL shares.  It is unnecessary to descend to that detail.  Plainly the loan book agreement was desired by Najjar.

   The Tsoulos advance

10. Papastamatis said that the loan from Tsoulos in his own right came about because Domain PL wished to enter into a transaction with a Sydney investor, Daloob, using an intermediate finance company.  Papastamatis was responsible for finding “investors” to raise $500,000.  The three groups found were a Mr and Mrs Georgiou, Tsoulos and a Mr Kasdalis.  Both the Georgious and Tsoulos loaned $200,000.  Kasdalis advanced $70,000.

11. Papastamatis first spoke to Tsoulos about the advance in December 2006.  Tsoulos said that Papastamatis told him that Domain PL was combining a few lenders together to make a loan.  Papastamatis asked Tsoulos for $200,000, to be paid back in two months at an interest rate of 2.5 per cent per month.

12. On 19 December 2006 Tsoulos attended the offices of Domain PL and provided a bank cheque for $200,000.  At the time of handing over the cheque Tsoulos said to Papastamatis “Dimitri, here is my money, I want it back in two months”.  Tsoulos said Papastamatis immediately told him “Yes, we know. It’s safe. We personally guarantee it”.  (68)  Najjar was not present during this conversation.  Papastamatis gave evidence that he told Tsoulos that there would be no problems with the money and that it was personally guaranteed by himself and Najjar.  (479)

13. The Tsoulos cheque was deposited into the Domain PL bank account on the same day.On that day Tsoulos received a letter on Domain PL letterhead confirming the transaction.  The letter was signed by Papastamatis and read (P47):

    Dear John,

    Please accept this letter as acknowledgement from Domain Funding of receipt of the principal amount of $200,000.00 from you being for investment purposes.

    The period of your investment is two months.  We reserve the right to repay your investment in full with 14 days notice.

    Your return on this principal amount will be 2.5% per month.  Interest will be accrued until repayment of monies.

    If you have any queries relating to your investment, please do not hesitate to contact me on [telephone number].

    Regards,

    (signed)

    Dimitri Papastamatis

    DOMAIN FUNDING

14. It is common ground that Tsoulos has not received any return on this advance.  Tsoulos said that he believed the principal, but not the interest, was personally guaranteed by each of Najjar and Papastamatis.  That evidence may be contrasted with [23] Statement of Claim, which claims that all monies due to Tsoulos were personally guaranteed.  (202)  There is no dispute that an action lies against Domain PL for payment of principal and interest.  The principal issue here is whether Najjar personally guaranteed either the principal or the principal and interest.

15. Papastamatis said that prior to approaching potential investors in relation to this loan, he discussed with Najjar the terms on which Domain PL would borrow.  It was agreed that they would both personally guarantee each investor’s funds.  (478)  In his evidence Najjar denied that he had discussed with Papastamatis the terms that would be offered to investors.  (850)  He denied at any stage giving Tsoulos any personal guarantee.  (819/849)

16. The time for repayment of the Tsoulos advance was February 2007.  At this time Tsoulos approached Najjar about it.  (69)  He said Najjar told him “Don’t worry, it’s guaranteed”.  (202)  Tsoulos said that he approached Papastamatis in March, April and May and asked about repayment.  He said Papastamatis “constantly assured” him that his money was safe.  (67/206)

17. At some point after the time for repayment had passed, a meeting was held in Tsoulos’s office with the other lenders (the investors’ meeting).  The timing of this meeting is not clear.  In his evidence in chief Tsoulos said that it occurred in June/July 2007.  (69)  In cross-examination he said that the meeting may have been held later, after the loan book agreement meeting.  (213)  Papastamatis said that it may have been held in March of either 2007 or 2008, then later changed this to “close to the end of 2007” (485) and finally said that it was before October 2007.  (486)  Najjar said he could not remember the timing, but agreed that it may have been held around the time of the loan book meeting.  (846)

18. Present at the investors’ meeting were Najjar and Papastamatis, the Georgious, Tsoulos and his wife and Kasdalis.  (480)  By this time, each of the investors had made requests for repayment.  Najjar acknowledged that the investors were “concerned” about what was happening with their money.  Najjar said that he explained that the people to whom the money had been loaned were having difficulties making repayment and that he and Papastamatis were in the early processes of getting the money back.  While he agreed that he and Papastamatis had said to the investors at this meeting that they would do what they could to get the money back, he denied guaranteeing their money.  This assertion was in contrast with the evidence of Papastamatis and Tsoulos, who gave very similar evidence on this point.  Papastamatis said Najjar told the investors “that we had personally guaranteed the loan and would start proceedings to sell the gentlemen up and if worst came to worst, we’d sell our houses to pay for it”.  (481)  Tsoulos said that Najjar told the investors “they had had problems and he was endeavouring to get the money back and not to worry, that they had given personal guarantees [and] they would sell their houses if they had to find the money to pay it back”.  (202)  However, Papastamatis at a later point seemed to suggest that the guarantee was first given at the meeting, (485-6) saying “When we sat down in John Tsoulos’s office, we guaranteed the principal payment only, if the loan went bad”.

19. The amount and terms of the Georgious’ loan mirrored that of Tsoulos.  On 8 May 2007 Papastamatis sent a letter to the Georgious on Domain PL letterhead.  It relevantly stated:  P60

    You invested $200,000.00 into Domain Funding Pty Ltd on 11 December 2006.  We accordingly lent out these funds to a borrower on a short-term basis.  The borrower has failed to meet their repayment commitment of both the principle (sic) and interest amounts…

    Whilst Domain Funding Pty Ltd guarantees the principle (sic) amount you invested, all interest payments have ceased at this point in time…

20. A further letter was written to the Georgious on 15 October 2007.  It was on blank paper and signed by Najjar.  In the letter Najjar referred to the failure to make repayment of the $200,000 advance and reiterated the difficulties Domain PL were having in making repayment.  Part of the letter read:

    I understand that it is imperative that these funds come back to you as a matter of absolute urgency and I have made alternative arrangements to have some monies paid to you by Thursday 18^th October 2007.  This will obviously not be for the whole amount, however wish (sic) to confirm with you, as mentioned to you earlier that even in the unlikely matter that we are unable to retrieve the funds back from the client, we personally being Walid Najjar and Dimitrios Papastamatis will be liable for the principle (sic) amount that you deposited back in December of 2006.

    Papastamatis said that this letter, P94, was sent after the meeting of investors just discussed.

21. During a lengthy cross-examination on this issue, Najjar confirmed that a personal guarantee had been given to the Georgious sometime after the transaction had occurred.  He said that the guarantee had been given because “we felt sorry for them” and also, Domain PL had received a demand from the Georgious’ solicitors.  (821/831)  He said that this represented one of only two occasions on which he had offered a personal guarantee in relation to the activities of Domain PL.  (The other occasion was in October 2006 and concerned a loan to Domain PL by a company called JJM Holdings Pty Ltd.  The loan and guarantee were recorded in writing:  D18.  He was called upon to repay that loan and did so in August 2008.)

22. There was some discussion about the Tsoulos advance at the loan book agreement meeting held at Papastamatis’s house on 16 August 2007.  This is the critical meeting on which the plaintiffs’ main claim is based.  I will discuss the balance of the evidence about it later in these reasons.  Tsoulos gave evidence that at the meeting both Najjar and Papastamatis reiterated that they had personally guaranteed his advance.  He further said that Najjar had told him that his money was “secured against Bolivar as well”.  (66)  In his evidence, Koutsouvelis said that Tsoulos asked both Najjar and Papastamatis “where am I going to get paid from and how am I going to get paid?”  Koutsouvelis said that Najjar told Tsoulos that “his money was personally guaranteed by Walid and Dimitri and he would be paid out of Bolivar”.  (325)  However during cross-examination Koutsouvelis said that it was Papastamatis whom Tsoulos asked about repayment and that Papastamatis replied “you’ll get your money back;  we personally guarantee your money”.  (425)  In his evidence about this occasion, Papastamatis at first said that Tsoulos was told his advance was guaranteed by Najjar, Domain PL and himself.  He later added that Najjar told Tsoulos that if the money was not recovered from the borrower, Najjar would pay Tsoulos out of Bolivar Road.  (516)  Najjar said he could not remember what was said about the Tsoulos advance at this meeting except that it was to remain a liability of Domain PL, as opposed to being part of the loan book agreement.  He denied that he ever offered any form of personal guarantee.

23. During the meeting Tsoulos’s name and the figure 250 was written on a piece of paper, P78, headed “Investors for W & D to pay”.  The document was written on by Najjar.  Najjar explained that the heading meant that Domain PL would be responsible for the investors listed in the document.  Tsoulos gave evidence that Najjar told him that he would receive ten months interest at 2.5 per cent per month, which would give a total indebtedness of $250,000.  This amount would be paid in September 2007.  Papastamatis explained the figure 250 as representing the principal plus interest accrued on the loan, up to that time.

24. In evidence-in-chief Papastamatis said that he and Najjar would always offer personal guarantees to investors.  He seemed to resile from this in cross-examination, acknowledging that not all investments had been personally guaranteed.He sought to deny that he was bound when it was Najjar that had offered the guarantee to the investor, but then immediately said:  “We both guaranteed everything”.  (599)  He did, however, admit that he still thought himself liable to those investors who had not been repaid and to whom he had given a personal guarantee.  (603)

25. In evidence-in-chief Papastamatis also said that most of the time such a guarantee would be in writing.  He said that the letter sent to investors after they had made an advance to Domain PL was a standard letter.  However, the December letters to the Georgious and to Tsoulos (P46 and P47), acknowledging receipt of their advances, make no mention of a guarantee.  His answer to that was:  “We knew there was a guarantee, we told them, but I didn’t write it in the letter”.  (483)

26. Najjar denied routinely giving personal guarantees, although he noted that a “company guarantee” was always given.  This was a guarantee given by Domain PL to investors.  (819-820)  He said that the only document normally given to investors was a standard letter of acknowledgement.

27. There is no writing referring to a guarantee in relation to the Tsoulos advance.  When asked in evidence-in-chief why there was no mention of a guarantee in the letter of 19 December 2006, Tsoulos responded:  “In none of the documents it’s mentioned, but they offer personal guarantees to people and there are other people out there who have got personal guarantees.  I think we have got documentation.  The minute it gets legal they will actually come back and say ‘Hey, you know you’ve got a personal guarantee, don’t worry’”.  (68)

    Purchase of the EFG businesses

28. As at December 2006 Najjar and Papastamatis were operating the following businesses:  Essential Finance Group (EFG), Domain Funding (D Funding) and CMO Finance (CMO) (EFG businesses).  Both EFG and CMO were mortgage broking businesses.  EFG focussed on residential and commercial lending and some personal lending.  CMO operated in the same way as EFG but focused on major institutional lenders.  D Funding conducted short-term lending activities.

1. Najjar’s evidence was that in late 2006 he approached Papastamatis about the possibility of leaving the EFG businesses.  He said he felt he was doing the majority of the work and would leave unless Papastamatis took on more responsibility.  Papastamatis denied that Najjar ever told him this, but agreed that Najjar had approached him and said that he had lost interest in finance and “wanted to get into developments” (486).  Sometime in early 2007 Najjar said he again raised this topic with Papastamatis and said that he no longer wanted to be involved in the EFG businesses.  It was agreed that the businesses would be sold.

2. By October 2006 Papastamatis had met Tsoulos.  He met Koutsouvelis shortly after.  In November 2006 Najjar and Papastamatis went to Perth with Tsoulos and Koutsouvelis to investigate potential investment opportunities.  Papastamatis described the relationship between the four men in late 2006 as “very good”.  (473)  At about this time Najjar and Papastamatis began to refer work to the accounting practice operated by Tsoulos and Koutsouvelis.

3. In April or May 2007 Najjar and Papastamatis approached Tsoulos and Koutsouvelis about the possibility of their purchasing the EFG businesses.  Tsoulos and Koutsouvelis were told that there were other interested purchasers and they would have to move “reasonably quickly”.  Tsoulos and Koutsouvelis saw the purchase of the EFG businesses as an opportunity “to grow” their accounting practice.  (297)

4. Tsoulos said that he and Koutsouvelis conducted “due diligence” prior to purchasing the EFG businesses.  He said that they looked at the profit and loss statements of EFG.  He said that no due diligence was done on D Funding, as they were only purchasing the goodwill of the business, and not the loan book, which was the property of Domain PL.

5. At a meeting with Najjar and Papastamatis, held in May 2007, it was agreed that Tsoulos and Koutsouvelis would purchase the EFG businesses for $800,000.  The breakdown of this figure was as follows (299):

   Essential Finance Group:     $485,000

   CMO Finance:                $215,000

   Domain Funding:             $100,000

6. The transaction was formally completed on 13 June 2007.  Tsoulos and Koutsouvelis borrowed $840,000 to pay the purchase price.  (56)  Indigo became the company conducting the businesses.  Tsoulos and Koutsouvelis moved into the offices formerly occupied by the EFG businesses and Papastamatis became an employee of Indigo.  Najjar and Papastamatis continued to operate the Domain PL loan book.

7. In July 2007 a meeting was held in which Najjar and Papastamatis explained to Tsoulos and Koutsouvelis how D Funding operated.  Koutsouvelis described this meeting as “a general discussion into the operations of Domain Funding”, how it worked and the processes used to lend money.  (300)  It seems Tsoulos and Koutsouvelis were unclear as to how the business they had bought worked.

   The 16 August 2007 meeting

8. It is at the 16 August 2007 meeting that the plaintiffs say the loan book agreement was struck.

9. There is some common ground in respect of this occasion, parts of which I now set out.  I find as follows.  On the evening of 16 August a meeting took place at the home of Papastamatis.  Present were Tsoulos, Koutsouvelis, Papastamatis and Najjar.  It was anticipated by all that the question of Indigo taking over Domain PL’s loan book would be discussed.  Papastamatis brought with him to the meeting a “spreadsheet” (P76) listing the names of persons who had borrowed money from Domain PL.  It now bears handwritten notes made during the meeting.  Further notes were made during the meeting on a page headed “indigo FINANCIAL” (P77) and on this document were recorded the names of lenders or “investors” of Domain PL.  Further notes appear on another similar page (P78).  It is acknowledged that most of the writing on each document is that of Najjar and that at least general agreement was reached as to which of the investors and which of the debtors might be assumed by Indigo.  During the discussions leading to that point, some of the debts to Domain PL were described by Najjar as being “bad debts”, which would not be handed to Indigo.  Several notations in Najjar’s hand appear against the names of debtors.  Two of the borrowers on P76 are recorded as Ratiki, a misspelling of “Rateki”.  Against “Ratiki”, Najjar wrote “Gus De Angelis”.  The amounts recorded against Rateki are $350,000 and $150,000.  In respect of the second amount, a due date of “20/10/06” is written, but against that was further written “20/1/07”.  There was much discussion about this twin debt at the meeting and some further notations on P76 refer to it.  Najjar informed the group that as at the date of the meeting, the interest due on the two Rateki loans was $420,000 and $90,000 respectively.  Added to the original loan sums, that amounted to $1.01m.  Najjar suggested that such an amount should be “discounted” to $950,000.  Such calculations are recorded on P76 in Najjar’s hand.  The reason for such discounting is a matter of dispute.

10. I find that an agreement was reached.  Indigo was to assume Domain PL’s obligations to a number of persons who had made loans to Domain PL and Indigo was to take the benefit of a number of receivables.  As well as the amount outstanding in respect of Rateki was “discounted” to $950,000, the interest rate on this loan was to be reduced to 6.75 per cent.  The four men shook hands on the agreement.

11. That an agreement between Indigo and Domain PL as to assignment of certain receivables and assumption of certain liabilities was reached, was admitted on the pleadings.  However, the plaintiffs go much further, claiming that the parties to the agreement also included Bolivar Road, Najjar in his own right and Tsoulos in his own right.  The Statement of Claim asserts that Bolivar Road and Najjar guaranteed the Rateki debt and that Najjar, on behalf of Bolivar Road, agreed to grant a mortgage over its land to secure both the Rateki debt and the Tsoulos advance.

12. I propose to examine the detail of the evidence going to this meeting via a number of issues which arise from it.  The first of these is the question of who initiated the meeting.

    Who initiated the 16 August meeting

13. After the sale of the three businesses to Indigo on 13 June 2007, Najjar and Papastamatis had continued to manage the loan book which had formed the backbone of the business of D Funding.  Papastamatis said that in early August 2007 Najjar asked him what they were going to do with the loan book and that he responded that he did not know.  Papastamatis said that both he and Najjar thought that the loan book had been part of the sale of the EFG businesses but, in some unspecified way, they had been disabused of that notion.  He then said that Najjar suggested that they could have a meeting with Tsoulos and Koutsouvelis and asked Papastamatis to organise it.  Papastamatis organised it at his home.  The four men were present.  He could not recall how the meeting began, but eventually Najjar said “Guys, what are we going to do with this loan book.  How are we going to do this.”  Tsoulos said that the purpose of the 16 August meeting was to discuss the loan book and that Papastamatis had offered his house for that purpose.  He said that Najjar opened the meeting by saying he wanted to talk about the loan book because he had been under the impression that Indigo had bought it as part of the business.  Najjar said that had he realised that the loan book was not part of that sale, he would not have proceeded with the sale.  Tsoulos said Papastamatis agreed with him that the loan book had not been sold.  Koutsouvelis said that ahead of the August meeting there had been discussion in the Indigo offices in July about whether the loan book had formed part of the sale of the businesses.  He said that “we informed [Najjar] that we had only taken over the goodwill and the trading name, or the rights to use that trading name…”.  He did not specifically say who instigated the 16 August meeting.  He said that Najjar opened the meeting, raising again the understanding he claimed to have had that the loan book had been sold with the business.  Koutsouvelis said that Tsoulos told Najjar that Indigo had not purchased the loan book, or the company, or any of its assets or liabilities.  He said at that, Najjar seemed slightly annoyed, and said that he would not have entered the transaction had he known as much.  He said Tsoulos had brought to the meeting a pad, pen and calculator and later Papastamatis had produced his spreadsheet.

14. Najjar’s evidence was quite different.  He said that a day or two before 16 August he had a phone call from Papastamatis advising him that Koutsouvelis and Tsoulos “wanted to have a meeting with us in regard to taking over some of the loans and the loan book and taking over some of the investors to get – to kick start their short term lending they wanted to do”.  I note that it was not directly put to Papastamatis that his evidence about the genesis of the meeting was incorrect.  Nonetheless, in his affidavit of 28 November 2008, P269, at [10] and [11], Najjar had given much the same account.  Najjar denied that he had ever been under any misapprehension as to the loan book not forming part of the sale of the Domain PL business.

15. Determining who initiated the 16 August meeting involves a contest between the credibility of Papastamatis as against that of Najjar.  That is because I accept Tsoulos and Koutsouvelis only knew about the meeting through Papastamatis.  I have not completely discounted the possibility that Papastamatis told both Tsoulos and Koutsouvelis on the one hand, and Najjar on the other, that the other party was interested in the meeting.  It is not without significance that he provided the venue for the meeting and brought some relevant documents to it.  Both sides certainly had something to gain from the transfer of the loan book.  The plaintiffs were attempting to establish themselves in the short term lending business and Najjar was trying to extract himself from it.  I accept Najjar’s evidence that he knew at all relevant times that the “loan book” was the property of Domain PL and that it had not been sold to Indigo along with the business.  Whether he pretended otherwise, I cannot say.

16. Although, ultimately, the deal was extremely disadvantageous to Indigo, that was only because of the Rateki debts.  At the time of this discussion, the economy was buoyant and there was a good deal of optimism in relation to land development.  The evidence about the very early stages of the meeting is scant.  It does not help in assessing who took the running of the meeting.  No doubt Najjar was a forceful personality among these four men and even if he opened proceedings, that is not particularly helpful.  By the time of the meeting, all four men knew what the purpose was.  Ultimately, I have been unable to make any finding on this issue.

    What was said about the Rateki loans

17. Tsoulos gave evidence that, noticing the two amounts written against the name “Ratiki” (sic), he asked Najjar who Rateki was.  (63)  Najjar told him Rateki “was Gus De Angelis”.  He advised that the amount owing was much higher than $500,000, as interest of $420,000 had accrued on the larger loan and $90,000 on the smaller one.  He said the interest was now being capitalised.  He said “I will do that one for 950”.  Tsoulos said that they would probably not be interested in that loan, as it was a large amount and he had no understanding of how it would be repaid.  Tsoulos’s evidence (64) was that Najjar then said that the loan monies had gone to buy the Burton land;  that he, Najjar, was the sole director of Bolivar Road and had control of it;  that there was plenty of money in the project and plenty of pre-sales of blocks and that therefore Indigo should take on that debt because he, Najjar, was going to pay it back and it was a good deal.  The interest rate on the spreadsheet was 8.572 per cent, but Tsoulos said that Najjar told them he wanted to “renegotiate the interest rate” and that he wrote down 7.5 per cent, paused and then said that the interest rate should be 6.75 per cent.  These were rates per month.  He wrote that figure on the back of the spreadsheet.  Najjar went on to say that in February, $500,000 would be paid back from either a mortgage or sale of the first part of the development and then the balance would come later at the time the development was finished.  Tsoulos said (73) they were told that Bolivar Road owned the land at Burton.  Tsoulos said he was hesitant about taking on such a large loan.  In response, Najjar said that if they did not take that one, there was no point in taking any of them.  He said they could not lose on that loan because he was involved in Bolivar and was personally guaranteeing that the money would be repaid.  Najjar also said that they, Indigo, had the security of the land.  Nothing was said about the ability of Mr De Angelis to repay the loans, or to guarantee them, or in any respect as to his involvement.  Tsoulos said (75) “we did a transaction with Mr Najjar with Bolivar Road that night.  There was never a mention of how Mr De Angelis would be involved”. 

18. It was put to Tsoulos in cross-examination that Najjar had told them that the two Rateki entries related to loans to two separate property developments undertaken by De Angelis.  The first, a loan of $350,000, was for a development at Morphett Vale.  While Tsoulos said Najjar may have mentioned this, he denied that Najjar told him that there had been problems with that development, with the result that there were insufficient funds to make repayment to Domain PL.

19. It was further put to Tsoulos that Najjar had said that the $150,000 entry in the spreadsheet related to a loan to a company called 74 Commercial Road, a company associated with De Angelis.  Tsoulos said that he did not recall this company being mentioned, and that the first time Najjar ever spoke of this company was the following February.  Tsoulos further denied that Najjar told him that Domain PL held a fourth mortgage over 74 Commercial Road, and that the enforcement of this security would realise about $500,000.  (220)  He denied being told that this property was soon to be put on the market, with settlement to occur in about February 2008.  This section of the cross-examination ended by Tsoulos saying:  “Mr Najjar gave a personal guarantee and secured Bolivar Road for the funds.  We never spoke about anything to do with Mr De Angelis.”  (221)

20. Koutsouvelis said (310) that upon being asked who Rateki was, Najjar wrote down “Gus De Angelis” against the two loans and said that “he was the person who had introduced him into property development and that he was involved in the acquisition of this Bolivar land”.  Najjar had already explained that this was the project at Burton, involving a subdivision, which he was going to work on.  Najjar said (311) the money loaned to Rateki had gone towards acquiring Bolivar Road:  “that he had control of the project;  that Bolivar was him and that the land was the security for those loans”.  Koutsouvelis said that Tsoulos queried the high rate of interest and Najjar responded that it was common in developments;  that “there was plenty of meat in the project”;  and that “there was plenty of room in the development”.  He said after discussing other borrowers on the spreadsheet, the conversation moved back to Rateki.  Najjar then suggested that the Rateki loan should be written down.  He said (314) “if we took over that deal … we should do it for him for $950,000”.  Koutsouvelis said that he and Tsoulos told Najjar that they were doubtful that they could sustain interest payments to the investors of $20,000 a month, without receiving income from the Rateki loans.  In response, Najjar said that in February 2008 stage one of the Bolivar Road development would be completed and that they would receive $500,000.  He said that would come off the principal owed.  He said the whole project would be finished by June or July 2008, at which time the balance, as well as interest accrued, would be repaid.

21. Papastamatis gave evidence that in respect of the Rateki loans, Najjar said that Rateki “was” Gus De Angelis.  Najjar said that he, Najjar, had taken over Bolivar.  He “kept on going on about what he was doing with Bolivar and there was one hundred and something blocks out there and the debt would be – it’s a million and ten thousand and he was going to negotiate – he started negotiating with [Tsoulos and Koutsouvelis] regarding that deal and he said:  ‘Don’t worry, it’s me;  I am Bolivar’”.  He said he was going to settle the first half of the development by January/February ′08.  He said (503) to Tsoulos and Koutsouvelis:  “You’d be stupid not to take the debt on because it’s me.  I’m securing the debt and it’s over Bolivar Road.  Why wouldn’t you take it?”  He personally guaranteed it.  He said that while Tsoulos and Najjar negotiated the new rate of the Rateki loans, he and Koutsouvelis spoke among themselves.

22. Najjar’s evidence (782) was that when asked by Tsoulos about the Rateki loans he explained that Rateki was De Angelis and that the loans were for a development at Morphett Vale.  He told the three men that De Angelis had “huge problems” as the builder had reneged on an agreement to build on the allotments.  He told them that De Angelis was the director of another company, 74 Commercial Road, which owned more property.  There were three mortgages on the property, but “[Domain PL] would fit in … after the first, second and third were paid out”.  He said he mentioned a valuation on the property of $3m.  He said De Angelis was in the process of selling that property and on a worst case scenario there should be enough money to cover the Rateki debt.  He calculated that the settlement for the property should take place by February 2008 or thereabouts.  That should account for $500,000 to be repaid.  When he was asked where the rest of it might come from, he said that De Angelis was project managing his own two developments, being Bolivar Road and a development at Coolum, Queensland.  He would be paid substantial fees for that work.  He told them that, if De Angelis were agreeable, he would pay the project management fees direct to the plaintiffs.  He went through the figures related to the Coolum and Bolivar Road developments.  As to the reason for reducing the principal of the Rateki loans to $950,000, he said (789) that he and Tsoulos discussed what they would offer De Angelis in order to take over his loan and to give De Angelis an incentive to capitalise the interest.  Najjar said that if the loan were re-negotiated on that day, it would be his practice to accept a slightly lesser principal amount.  He said, for the plaintiffs, it would also be advantageous because they would, from then on, receive interest on a higher principal amount.  He explained that although the loan was in arrears and a penalty rate was provided for that situation, it was not common to enforce that penalty rate.  Accordingly, even with a reduced principal amount (but with interest to date capitalised), Indigo would be receiving a higher interest payment.  Najjar said (795) that he gave no personal guarantee for the repayment of the loan.  Neither did he offer security over the Burton land.

23. On Najjar’s version of events, he undertook to speak to De Angelis regarding the proposal that his project management fees would be paid to Indigo in reduction of the Rateki debts.  (795)  Najjar said that he spoke to De Angelis the following day and obtained his acquiescence.  (978)  Najjar then reported to Papastamatis:  “Gus [De Angelis] has no problem”.  (796)  Najjar said he recalled that either Tsoulos or Koutsouvelis were present when he said this to Papastamatis, but he could not remember which of them.  De Angelis’s consent to this new agreement was never reduced to writing.  Papastamatis was never asked whether Najjar had reported De Angelis’s response to him.

1. De Angelis did not give evidence.  In his closing address, Mr Livesey QC, for the plaintiffs, suggested that because of the failure to call De Angelis to attest to the dealings between Najjar and De Angelis over Bolivar Road and, critically, to having given permission for the redirection of his project management fees, an inference in terms of Jones v Dunkel (1959) 101 CLR 298 should be drawn against the defendants, to the effect that De Angelis’s evidence would not have helped them. In my view De Angelis’s evidence would have been admissible on the basis of rebutting recent invention, at least. I can deal now with that suggestion. For several reasons I am not prepared to draw such an inference. First, there is no evidence that De Angelis was available to be called. Then, there is no sound basis for placing him in Najjar’s “camp”. It is true that De Angelis was managing two of Najjar’s projects, but I have no evidence about his relationship with Najjar. The fact that Papastamatis was closely involved in business with Najjar did not stop him from giving evidence helpful to the plaintiffs. There is no reason to find that De Angelis would have been available to the defendants, but not to the plaintiffs. Furthermore, the evidence he might have given could certainly have confirmed or contradicted Najjar’s evidence; but it could have done no more than that. There is no basis for believing that he could have closed any “gap” or deficiency in the narrative. In addition, the burden of proof is on the plaintiffs, and, as will be seen, that has ultimately been of some importance in a case where I have been left unconvinced by much of the plaintiffs’ evidence, as well as by Najjar’s.

   Legal documents

2. Tsoulos said that after the loan book agreement was reached, Najjar said that he would have drawn the legal documents to confirm the transaction.  Koutsouvelis said that the meeting was concluded by Tsoulos telling Najjar that “we would have to have some documentation drawn up to reflect the agreement that we had made that night, that was all agreed.  Najjar said that he would prepare those documents and that was the end of the meeting.”  According to Papastamatis, Najjar said he would organise solicitors to draw up documents to reflect the agreement.

3. On Najjar’s version nothing was said on the topic of documentation.  He did nothing to record the discussions.

4. In respect of this issue, events which occurred later are instructive.  Ultimately Tsoulos did give instructions to a solicitor to draw documents.  This happened after a meeting at La Trattoria.  I shall return to describe those events.

   Pre-sales agreements

5. Tsoulos said (77) that in the context of Najjar’s statement that $500,000 would be available from Bolivar Road in February 2008 to pay back part of the Rateki loan, Najjar said he would bring in pre-sale contracts to demonstrate that many blocks had already sold.  He said that subsequent to 16 August, but before Indigo commenced to make interest payments, Najjar came in to the Indigo offices, bringing with him forty to fifty pre-sale contracts.  In a later passage of his evidence-in-chief, after an overnight break, he said that the date when the contracts were brought in was “probably about 21^st August”.  (133)  He looked at the contracts.  He saw that they contained many names, some of which he knew.  He said Najjar came back about three weeks later and took them away.

6. Koutsouvelis said that Najjar told them, on the night, that the pre-sales of the Bolivar blocks were doing very well.  He mentioned a particular agent who was selling them.  He said that he would bring in contracts for them to see.  He said that on 21 or 22 August Najjar brought about forty to fifty pre-sale contracts into the Indigo offices.  He said he had a quick look, as did Tsoulos, and the wife of Tsoulos.  He said they did not “go into any depth of them”.  He said the purpose of reviewing them was “just to reaffirm what [Najjar] had said on the night about how Bolivar was progressing and all the pre-sales that happened from there”.  Koutsouvelis said that Najjar picked them up about a week later.  Papastamatis said nothing of pre-sale agreements.

7. A further witness gave evidence relevant to this topic.  This was Kentish, employee, director and shareholder of Indigo.  He said (614) that in late August 2007, Tsoulos’s wife called him from his office to look at a “pile of contracts in relation to the Bolivar development”.  He did not count the number, but believed it to have been in excess of thirty.  He looked at them to gain an understanding of the Bolivar development as it related to the Rateki loan.  Having looked at them, he was satisfied there was a significant development.  Mr Kentish said he flicked through the contracts, as opposed to reading them in detail.

8. Najjar denied that he undertook to or ever delivered to the Indigo offices any of the pre-sale agreements relating to the Bolivar development.  He acknowledged that there were such agreements in existence at that time and that, though not in his possession, they were accessible to him.

9. There are two other issues which could bear on the question of pre-sale contracts.  It is common ground that later in 2007 Najjar referred a client to Indigo for the purpose of obtaining funding for his contract to buy one of the Bolivar Road blocks.  Obviously the relevant contract was brought to the Indigo offices for that purpose. 

10. In addition, in December 2007, Koutsouvelis arranged a meeting between Najjar and National Australia Bank (NAB) with respect to financing the Bolivar Road project. 

    NAB’s advance to Bolivar Road

11. Koutsouvelis gave evidence that in mid November 2007 he became aware that Najjar was seeking to obtain a bank loan to finance the Bolivar development.  Najjar sought his help and Koutsouvelis arranged for a meeting between representatives of the NAB, Najjar, Papastamatis, and Koutsouvelis.  That took place in the Indigo offices.  There was a further meeting in early January 2008.  In the context of arranging that meeting, Koutsouvelis said he was told by Najjar that Najjar planned to keep the Bolivar titles free of encumbrance, so that he could offer a first mortgage to a lender.  Najjar told him that for this reason he had not, to this time, organised documents to reflect the loan book agreement.

12. Koutsouvelis recounted that NAB would provide $7.1m towards the development and Najjar would provide approximately $400,000 “to complete settlement”.  Najjar asked Koutsouvelis if he were able to help in sourcing the amount of $400,000.  Koutsouvelis said his reply was in the following terms:  “I said no, our position wasn’t, wasn’t documented or wasn’t in place and I couldn’t go back to my clients to ask for any more money.”  (338)

13. The plaintiffs did not suggest that news that Najjar was planning to borrow a large sum against Bolivar Road and would grant a mortgage to the lender, which would rank ahead of their own claimed interest, had any impact on them.

14. The bank ultimately advanced in the order of $7.1m to Bolivar Road, securing its loan with a first mortgage.  Plainly, it would have been relevant to NAB’s consideration of the proposal that the existence of pre-sale contracts could be demonstrated.

    A commencement date for execution

15. Tsoulos did not claim that any particular date was fixed to execute the loan book agreement.  However, each of Tsoulos, Koutsouvelis and Kentish said that Indigo took over the loan book payments from September.

16. Koutsouvelis gave evidence that on about 26 or 27 August 2007, the files relating to the lending activities of D Funding were given to him by Papastamatis, who had held custody of them.  He said that prior to this, while the files were in Papastamatis’s office in the Indigo building, Koutsouvelis did not see himself as entitled to look at them as they belonged to Domain PL.  He said that, to his knowledge, no-one else from Indigo had looked at the files prior to attending the loan book meeting.  He said he wrote to the investors explaining that Indigo had taken over the management of their loans.  A number of the letters are in evidence:  P87-P91.  Koutsouvelis said he did not write to the borrowers, but either he or Tsoulos’s wife advised them informally.  (342)  Papastamatis said that he moved a filing cabinet containing the Domain loan files into Koutsouvelis’s office.  He said he paid the September interest payments to investors and that Indigo took over from 1 October.  He said this was to allow the paperwork to be completed.  (589)  It never was.

    Detail of the plaintiffs’ case

17. It is timely to attempt to identify more closely the essence of the plaintiffs’ case.

18. As already observed, in respect of the agreement between Indigo and Domain PL for transfer of certain receivables and liabilities, there is some common ground.  But the plaintiffs’ claim goes further, asserting in the Statement of Claim [22.3] that “pursuant to [the] agreement … in connection with assignment of the Rateki debt”:  Bolivar Road would “give a guarantee and indemnity to Indigo”, or alternatively, “assume the liability of Rateki”;  that Bolivar Road would grant Indigo security in the form of a mortgage over the Burton land, or in the alternative, a charge and that Najjar would give a personal guarantee with respect to the Rateki debt.  Further, the plaintiffs claim in [22.4] that “pursuant to [the] agreement … in connection with the Tsoulos advance, Bolivar Road would give a guarantee and indemnity to Tsoulos and, in the alternative, assume the liability of Domain …”.  Further, it is alleged in [22.4] and [22.5] that pursuant to the agreement, Bolivar Road and Najjar would grant to Tsoulos the same security and guarantee respectively as was given for the Rateki loan.

19. The agreement as cast by the plaintiffs was said to be induced by a number of representations, or promises, undertakings or terms.  I shall refer to these simply as “representations”, as does the Statement of Claim.  It is convenient to set out the relevant pleading:

    23.On 16 August 2007, Domain (by its directors Najjar and Papastamatis), Bolivar Road (by its sole director Najjar) and Najjar made the following oral representations to Indigo (by its directors Tsoulos and Koutsouvelis) and to Tsoulos, during the course of the 16 August meeting (‘16 August representations’):

    23.1the amount then payable pursuant to the Rateki loan, including accrued interest, totalled $1,010,000;

    23.2the Rateki debt had been used, or was being used, to acquire land which is being developed at Bolivar Road in Burton, South Australia (being the Burton land) (‘Burton development’)

    23.3the land (being the Burton land) was owned by Bolivar Road;

    23.4Najjar was the only director of Bolivar Road and had full control of Bolivar Road;

    23.5Najjar had a 99.5% interest in the Burton development and De Angelis had a 0.5% interest;

    23.6the Burton development would be highly profitable upon completion;

    23.7a large number of allotments in the Burton development had already been sold;

    23.8$500,000 of the Rateki debt would be repaid to Indigo by Bolivar Road by no later than the end of the calendar month of February 2008;

    23.9the balance, which would comprise $450,000 plus accrued interest, would carry interest at 6.75% per month from that time until the Rateki debt was fully repaid;

    23.10the Rateki debt, together with all accrued interest, would be fully repaid by no later than July 2008, by which time the Burton development would be complete;

    23.11if Indigo agreed to accept an assignment of the Rateki debt:

    23.11.1Bolivar Road would make the payments due to Indigo referred to in paragraphs 23.8 to 23.10 above;

    23.11.2Najjar would personally guarantee these payments;

    23.11.3Indigo would be paid these payments out of the sales of the Burton land;

    23.11.4Bolivar Road would grant to Indigo security over the Burton land to secure these payments;

    23.12in relation to the Tsoulos advance;

    23.12.1Najjar would personally guarantee the repayment of the amounts owing by Domain to Tsoulos;

    23.12.2Bolivar Road would grant security over the Burton land to secure the repayment of the amounts owing by Domain to Tsoulos;

    23.13Najjar would cause agreements to be prepared and executed to formalise the agreement reached during the course of the 16 August meeting (as particularised in paragraph 22 above);  and

    23.14Najjar would provide Indigo with a copy of the sales contracts in respect of the sales of the Burton land.

    Additional representations were alleged in the Statement of Claim in [27]. They are mostly later reiterations only and it is unnecessary to set them out.

20. Breach of the loan book agreement by all defendants is alleged by way of failure to execute documents to reflect it and failure to repay the Rateki loan in accordance with the timetable outlined during the meeting.

21. The plaintiffs also assert in the Statement of Claim [38] that the 16 August representations (as set out in [23] together with the additional representations) were misleading or deceptive in contravention of s 52 Trade Practices Act 1974 (Cth) (TPA) and s 56 Fair Trading Act 1987 (SA) and they call in aid the reversal of onus in s 51A TPA, insofar as the representations went to future matters.

22. Those of the 16 August representations attributed to Najjar which are contentious and which were supported by the evidence of Tsoulos or Koutsouvelis, or both, upon which the plaintiffs’ case rests (the “contentious representations”), can be distilled to the following.  I shall number them for convenience.  I shall note against each Najjar’s position in summary form.

    1.     That the Rateki money had gone to the Bolivar Road project [23.2].

    Najjar did not say that he said this, or that it was true.  It was not put to him that he made this representation.

    2.     That Bolivar Road owned the land at Burton [23.3].

    Najjar said that he referred to Bolivar Road having purchased the land at Burton, but this was said incidentally, in the context of the project management fees De Angelis could expect to receive.  (785)  At the time Bolivar Road did not actually own the land, but had conditionally agreed to purchase the land.

    3.That Najjar had full control of the Bolivar Road project (Bolivar was him) [23.4].

    That this was so was admitted in the pleadings, but Najjar denied saying words to this effect, asking rhetorically “What has Bolivar got to do with Rateki?”  (1052)

    4.That Bolivar Road would be highly profitable (plenty of room/meat in it) [23.6].

    Najjar said reference to Bolivar Road’s profitability was only in the context of the expectation that De Angelis would receive $500,000 to $800,000 in project management fees.  Najjar was not asked specifically about the expressions “plenty of meat” or “plenty of room” in the project.

    5.     That a large number of allotments were already sold [23.7].

    This was not a matter of dispute but Najjar was not asked if this was said by him at the meeting.

    6.That the plaintiffs would be repaid $500,000 out of Bolivar Stage 1, or a mortgage, in February 2008 [23.8].

    This was denied.  Najjar said he outlined that settlement on 74 Commercial Road might be expected to occur in February 2008.  (783)

    7.That the plaintiffs would be repaid the rest in June or July on completion of the project [23.10].

    This was not put to Najjar and he did not say that any expected date for final repayment was given.

    8.That Najjar would have documents prepared to reflect the agreement [23.13].

    Najjar said he assumed the plaintiffs would go off and “do what they needed to do”.  (1039)  He denied taking on any responsibility for documents.

    9.That Bolivar Road would grant security over the Burton land to secure the Rateki debt [23.11].

    Najjar denied saying this.  (795)

    10.That Najjar would personally guarantee repayment of the Rateki debt plus interest [23.11].

    Najjar denied saying this.  (795/1052)

    11.That Bolivar Road would grant security over the Burton land to secure repayment of the Tsoulos advance [23.12].

    Najjar denied saying this.  (795/1058)

    12.That Najjar would personally guarantee repayment of the Tsoulos advance [23.12].

    In examination in chief Najjar denied saying this.  (795)  It was not specifically put to him in cross-examination that he said it at this meeting.

    The La Trattoria meeting

23. On 7 February 2008 Tsoulos, Koutsouvelis, Kentish and Papastamatis arranged to meet Najjar at the La Trattoria restaurant.

24. According to Tsoulos, the meeting was to start at 12.30 pm, but Najjar was about fifteen to twenty minutes late.  When he did arrive, he was constantly interrupted by telephone calls.  Eventually, Koutsouvelis said “Enough is enough, where is our money and where are our documents”.  Najjar responded:  “There is no money now”.  Kentish then said that Indigo was paying about $20,000 a month.  Najjar said he would find $60,000 to pay the interest to the investors over the next few months.  Tsoulos said that he then asked Najjar:  “Where are the legal documents”.  Najjar said he did not have them, that he had been busy and interstate.  Tsoulos then said that he would get the documents done.  Najjar said he was happy with that and would sign them.  Najjar said that Indigo was going to get its money and he did not understand why the directors were so concerned, as he had given a personal guarantee, as well as security over Bolivar Road.

25. According to Koutsouvelis, it was he who organised the meeting.  He said that he turned the discussion to the outstanding loans by saying “How are you going with our payments as per your promise”.  (384)  He said Tsoulos raised Indigo’s monthly interest commitments.  Koutsouvelis told Najjar that the payments were hurting them.  Najjar apologised for the delay, said he was extremely busy and that such delays were natural.  Najjar said he would help raise three months worth of interest payments, namely $60,000, to help Indigo, pending the $500,000 repayment coming through.  He said there was no discussion about De Angelis at this meeting.  Koutsouvelis said that Tsoulos asked Najjar where the legal documents were and was told that Najjar did not have them.  Tsoulos said he would prepare them.  Najjar reassured them, saying that he did not know why they were worried when he had guaranteed the project;  that the debt was to be paid out of Bolivar.

26. Papastamatis gave only brief evidence about the meeting.  He said he had organised it.  Papastamatis said that the settlement date for Bolivar was discussed and Najjar said it would be no later than June or July.  When Tsoulos said that he could not keep paying the interest, Najjar responded that he would give him $60,000 to get them through until June or July.  He said Tsoulos asked about the “paperwork” and Najjar said something like “You organise it and I’ll sign it”.  (520-21)

27. Kentish said Najjar told them they were going to get their money, but they needed to wait until things started to sell, which would be about June or July 2008.  (622-3)  He said he told Najjar that they could no longer afford to keep paying the interest of $20,000 per month, to which Najjar said he would source $60,000 to help with the next interest payments.  Najjar was asked about the documents and said he had been too busy, but Indigo could prepare them if it wanted.  Najjar constantly reassured them that there was no need to worry;  there was plenty of money in Bolivar and the loan was secure and personally guaranteed.  (625)

28. Najjar said the La Trattoria meeting came about at the instigation of Papastamatis.  He said that it was at this time when they found out that De Angelis was either bankrupt or about to be so.  He said (800) that Papastamatis told him that Tsoulos and Koutsouvelis wanted to discuss that with him.  Once at the meeting they all expressed worry that De Angelis had just gone bankrupt and discussed how it was going to affect them.  He said that was what the whole meeting was about.  Everyone was talking except Kentish.  He denied that Koutsouvelis had said anything like:  “Enough is enough, where is our money, where are our documents”.  He agreed that the topic of the $20,000 per month payments to investors had been raised by Tsoulos and he was asked whether he could speak to De Angelis with a view to organising three months worth of payments to give to Indigo.  He said there was talk of 74 Commercial Road and its expected sale.  The Savills’ valuation for $3m on 74 Commercial Road was raised and Najjar confirmed that De Angelis was still expecting that figure upon the sale, but that no contract had been struck.  He said there was no conversation about legal documents and he did not say he would be happy to sign whatever Tsoulos wanted.

    The Lumley documents

1. After leaving the lunch at La Trattoria, Tsoulos, Koutsouvelis, Kentish and Papastamatis walked back to the Indigo office.  On the way, Tsoulos made a telephone call to a solicitor, Mark Lumley.  He said the reason for calling Lumley was to “give him instructions to prepare documents reflecting the agreement we had back on 16 August”.  (155)  He said he “wanted to get the ball rolling on the agreements that Mr Najjar said he would prepare back in August”.  He said that he “tried to relay the conversation we had in August, basically that we had taken over the $950,000, there was a personal guarantee involved, there was payment at Bolivar” (139).

2. Later that same day Tsoulos sent Lumley an email, D4, reading:

   Hi Mark

   As per our discussion the facts are as follows:

   When we purchased Domain Funding (the business and not the company) we took on a loan to an individual (Agostino D’Angelis (sic)) amounting to $950,000 paying interest at 6.75% per month.  The interest has been capitalized and by the end of June 2008 the full debt will be $1,591,250.  We have another individual being Walid Najjar (ex Director of Domain Funding Pty Ltd) that has personally guaranteed the amount (verbally).  He has all these blocks that he is sub dividing with Agostino D’Angelis (sic) in a structure called Bolivar Road Pty Ltd (shares are held at 199 Walid Najjar and 1 share Agostino D’Angelis (sic).

   Walid has personally guaranteed the money to us and has stated that we will get paid out via the sales of all of the blocks.

   So what do we need to draw up that does not look like it has come from a legal firm that will cover us?

   Thanks

   John

   P.S. I am sending a courier around with the original loan documents.  Please return them once you have finished.

3. It was put to Tsoulos that his assertion to Lumley that the loan was to De Angelis directly contradicted the evidence he had given in chief, being “We did a transaction with Mr Najjar with Bolivar Road that night.  There was never a mention of how Mr De Angelis would be involved.”  (75)  Tsoulos denied any contradiction saying:  “My sentence and grammar is probably incorrect.  I sent this out at 4 o’clock in the afternoon, after we had a meeting with Mr Najjar, so that’s what I put on the email.  But that’s not actually what I meant.”  (246)  The cross-examination continued.  Tsoulos was asked which debt he was referring to.  He answered:  “What I’m trying to say, and I haven’t done a great job in the email, that’s why I wanted to catch up with Mr Lumley, is that the debt is $1,591,250 it should be Bolivar Road, because I go on further and try and explain it.”  (247)  Tsoulos explained that the request that the documents were not to appear as if prepared by a legal office was on the advice of Papastamatis, who said to Tsoulos that Najjar would sign, “but don’t make it too technical for him.”  (252)

4. The original loan documents referred to in the postscript were the loan documents between Domain PL and Rateki and Domain PL and 74 Commercial Road, earlier given to Koutsouvelis.

5. Lumley responded on 14 February 2008 and asked for documentary evidence of the Domain PL loan contracts being assigned to Indigo.  Lumley sent Tsoulos another email on 25 February 2008 asking him to make contact.

6. On 27 February 2008 Tsoulos sent the following email to Lumley:

   Hi Mark,

   The loans we took on were as follows:

   The Rateki loan which was $950,000 when we took it on as they had capitalised the interest from the $500,000 ($150 and $350K).  M and K Angelopoulos for $30,000, Nick Jones for $20,000 (since been paid), Nick Dean $100,000 and Papadimitriou for $101,000.

   Mark, we do not really want to get a document signed saying that they have assigned the debt to us because that would then make us liable.  Could we not get the personal guarantee and the guarantee from the company without actually having a document highlighting us as being liable? (original emphasis)

   Mark, the guarantee as discussed should be by Walid Najjar and Bolivar Road Pty Ltd (ACN 121288882) and it should cover the $950,000 plus $64,125 per month (interest) from 1 September 2007 until the loan is paid.  Should some moneys be paid off the capital amount then the interest amount monthly will be reduced.  The agreed monthly interest rate is 6.75%.

7. Tsoulos was unable to explain what he meant when he said he did not want “a document highlighting us as being liable”.  (259-260)  (It might be thought that if Najjar had arranged to document the loan book agreement, as the plaintiffs claim he undertook, such a document would necessarily have been an integral part of the documentation.)  He also had difficulty explaining which company he was referring to in the bold passage set out above.  He said he thought he was referring to Domain PL.  (261).

8. Later during cross-examination he agreed that he may well have instructed Lumley that Rateki and 74 Commercial Road were likely to be declared bankrupt shortly.  He denied that he learned this at the La Trattoria lunch.  He said he provided this information to give Lumley “a full picture of what was going on”.  (265)

9. On 7 March 2008 Tsoulos received an email from Lumley attaching a number of documents.  He said he did not look at the documents, as he was about to fly to a business conference in Queensland.  Tsoulos returned on 21 March.  About a week later he printed the documents attached to the email and looked at them, to see if they reflected his instructions.

10. In all, eight draft documents were attached to the email sent by Lumley on 7 March 2008, including a covering letter and a tax invoice.  (D4/D5)  The other six documents were described in the email as follows:

    •Deed of Assignment – 74 Commercial Road Pty Ltd;

    •Deed of Assignment – Rateki Pty Ltd;

    •Guarantee – Bolivar Rd and 74 Commercial Road Pty Ltd;

    •Guarantee – Bolivar Rd and Rateki Pty Ltd;

    •Guarantee – Najjar and 74 Commercial Road Pty Ltd; and

    •Guarantee – Najjar and Rateki Pty Ltd.

11. The two deeds of assignment had the effect of assigning the debts owed to Domain PL by 74 Commercial Road and Rateki to Indigo.  (In fact the company named in the documents was not Indigo but was a very similarly named company.  There is no information as to whether that was merely an error.)  The guarantee documents made Bolivar Road and Najjar guarantors and indemnifiers of the debts owed by Rateki and 74 Commercial Road to Indigo.  In the covering letter Lumley pointed out that no security underpinned the guarantees.

12. Tsoulos’s evidence was that upon telephoning Lumley’s office he was informed that Lumley would be on leave for three weeks.  Tsoulos spoke to another solicitor, but was “not comfortable” that this solicitor knew what was on the file.  He was also concerned about the delay.  Tsoulos decided to instruct someone else.  Tsoulos never met with Lumley and did not make an opportunity to discuss the draft documents.

13. Koutsouvelis said he was not involved in the process of instructing Lumley.  He never saw the documents sent by Lumley to Tsoulos on 7 March 2008.  Najjar did not become aware of the documents prepared by Lumley.

14. I make some observations about this topic.

15. The relevance of the Lumley documents, more particularly the emails, is as to the credibility of Tsoulos and the basis of the plaintiffs’ case.  It is noteworthy that, although the plaintiffs claim that De Angelis was not part of the agreement reached on 16 August 2007, his name is mentioned three times in the email Tsoulos sent to Lumley on 7 February 2008.  Tsoulos’s explanation, in terms of unsatisfactory “sentence and grammar” reflects poorly on him.  He denied that De Angelis was mentioned at the La Trattoria lunch.  (268)  On the other hand, it is the first and third defendants’ case that De Angelis was the major topic of discussion at the lunch and Tsoulos’s email to Lumley tends to support that.

16. The prominence of Rateki and 74 Commercial Road is noteworthy.  It is debts owed by these two companies that are the main focus of the Lumley documents.  Yet in cross-examination, Tsoulos said:  “We are not owed money by Rateki and 74 Commercial Road.  It goes back to our agreement that I’ve said before, we had an agreement with Bolivar Road and Mr Najjar”.  (290)  Against his denial of any form of “deal” with either 74 Commercial Road or Rateki, these two companies receive much attention in his communications with Lumley.

17. As well, it is noteworthy that there is no evidence that in his instructions to Lumley, Tsoulos requested documents to be drawn reflecting his claim that his own advance of $200,000 to Domain PL had been personally guaranteed, or was to be secured by mortgage over the Burton land.

    The Patsouris documents

18. Koutsouvelis said that he contacted the solicitor Harry Patsouris in late March or early April, 2008 and, with Tsoulos, he visited Patsouris in late April or early May.  Tsoulos said that this meeting took place with Patsouris around 10 April.  Tsoulos said he did most of the talking on behalf of Indigo.  Koutsouvelis said that the purpose of instructing Patsouris was to “arrange for documents to be drawn up, to put into writing the agreement that we had with Mr Najjar on 16 August 2007 as per Gus De Angelis from La Trattoria”.  (347)  It is unclear what Koutsouvelis was referring to when he referred to De Angelis in the passage above.  In evidence-in-chief he said there was no discussion of De Angelis at the La Trattoria lunch.  (344)  Tsoulos and Koutsouvelis received draft documents from Patsouris in early May.  Finalised documents were received later that month.  Tsoulos said these reflected the instructions given to Patsouris.

19. The first document prepared by Patsouris was entitled “Facility Agreement”:  D1.  It appears that it was part of a scheme to replace the documents supporting the Rateki loans.  A company called Papia Pty Ltd (Papia) was recorded as the lender, and Bolivar Road and 74 Commercial Road, collectively,  the borrower.  The document made available to the borrower a “cash advance facility for the specific purpose of enabling the borrower to draw on the same to enable it to repay a debt owed by it and/or its related entities to Domain Funding Pty Ltd”.  The limit of the facility was $1,655,375.  The interest rate on advances was 6.75 per cent per month.  This facility was secured by mortgages given by both Bolivar Road and 74 Commercial Road, charges over the assets of the same companies, and personal guarantees and indemnities given by De Angelis, De Angelis’s daughter and Najjar.

20. Papia was a company created at about the time Patsouris was originally engaged.  Tsoulos said that the company was established on the advice of Patsouris, who said that a separate structure should be set up to run D Funding’s short-term lending business.  Koutsouvelis said that it was Patsouris who recommended that Papia be established “for the purposes of the mortgages that he was drawing up”.  (370)  The shareholding structure of Papia mirrored that of Indigo.  Papastamatis was the sole director.  (272)

21. When it was put to each of Tsoulos and Koutsouvelis that Papia had no involvement in the agreement reached in August 2007, neither was able to explain how this new company could claim that it was owed a debt by Bolivar Road.

22. The next document was entitled “Guarantee Deed”.  The Deed again listed Papia as the lender, Bolivar Road and 74 Commercial Road as the borrower, and Agostino De Angelis, De Angelis’s daughter and Walid Najjar as the guarantors.  By this Deed each of the guarantors guaranteed to Papia the payment of the debt.  The debt was defined in the document as “all money which the Borrower whether directly or indirectly … is or becomes liable … to pay to the Lender on any account”.

23. Tsoulos was asked why Agostino De Angelis’s name was listed as a guarantor, given that on Tsoulos’s own evidence such a role for him was not discussed at the meeting of August 2007.  Tsoulos said:  “We didn’t talk about him, just his name was put on the sheet as Rateki related to him”.  (274)  Tsoulos was unable to explain who De Angelis’s daughter was.  He said it was Patsouris who listed her in the document.  When pressed, he said she would “probably be on 74 Commercial Road or Rateki”.  He said that after he and Koutsouvelis had given Patsouris “all the documents, the loan agreement, … he’s come back with these documents”.  Koutsouvelis gave evidence that he did not read the finalised documents.  He said he did not know why Patsouris made De Angelis’s daughter a guarantor of the Bolivar Road debt.

24. Aside from ASIC notification documents, the other relevant documentation created by Patsouris were two memoranda of mortgages in registrable form, having Bolivar Road and 74 Commercial Road as mortgagors.  In both cases the mortgagee was Papia.  Two further documents had the effect of creating fixed and floating charges with Papia as the chargee and Bolivar Road and 74 Commercial Road as the chargors.  These mortgages and charges comprised part of the security for the Facility Agreement.

25. It is instructive to compare the two sets of draft documents.  The effect of the Lumley documents was to assign the debts owed to Domain PL by Rateki and 74 Commercial Road to Indigo.  They further made Najjar and Bolivar Road the guarantors of those debts.  However there was no security by way of mortgages or charges in the Lumley documents.

26. The centrepiece of the Patsouris documents is the Facility Agreement by which Papia agrees to make available to Bolivar Road and 74 Commercial Road the cash advance facility.  The advance facility is secured by registered mortgages over land owned by 74 Commercial Road and Bolivar Road, registered charges over the assets and undertakings of the same companies, and personal guarantees from Najjar, De Angelis and his daughter.

27. A number of points arise from the comparison.  First, in the Lumley documents the borrowers are Rateki and 74 Commercial Road.  Rateki is not mentioned at all in the Patsouris documents.  Instead, the borrowers are Bolivar Road and 74 Commercial Road.  At the 16 August 2007 meeting Najjar said he told Tsoulos and Koutsouvelis “that De Angelis had huge problems” with the Rateki development, but that money would be made available from the sale of 74 Commercial Road.

28. Second, the Patsouris documents provide for security, but the Lumley documents, consistent with the emails, do not.  In the Lumley documents, Najjar and Bolivar Road were guarantors for the Rateki loans, but no further security was provided.  In the Patsouris documents mortgages were to be taken over land owned by Bolivar Road and 74 Commercial Road, as well as fixed and floating charges over those two companies.  Yet Najjar is only listed as one of three guarantors.  Against the plaintiffs’ claim that Najjar was at the centre of the agreement reached on 16 August 2007, he is given no greater prominence than De Angelis (or his daughter) who, on the plaintiffs’ case, were never a party to the loan book agreement.  The introduction of De Angelis and his daughter is not readily explicable by Tsoulos or Koutsouvelis’s evidence.  As mentioned, Tsoulos’s evidence was:  “We did a transaction with Mr Najjar and Bolivar Road that night.  There was no mention of how De Angelis would be involved”.

29. A further issue is the introduction of Papia.  Tsoulos and Koutsouvelis gave varying accounts as to why this entity was created.  In correspondence with Lumley, Tsoulos had said that he did not want documents drawn up “saying that they have assigned the debt to us because that would make us liable”.  In evidence he suggested that he gave similar instructions to Patsouris, and that this led to the creation of Papia.

30. The Patsouris documents do not reflect what the plaintiffs say was the agreement reached at the meeting of 16 August 2007.  On their case, the arrangement was very simple.  There had been two loans from Domain PL to Rateki, a company about which they knew nothing.  Najjar said that the loan money had gone towards a development he was running through the company Bolivar Road.  Najjar told them that it was a “guaranteed deal”.  He personally guaranteed the loans and gave security over the Burton land.  By introducing Papia, De Angelis and his daughter and 74 Commercial Road, the Patsouris documents depart from such an agreement.

31. Finally, it is noted that the Patsouris documents are complex.  The wish not to have the documents look like they had been prepared by a legal firm had been abandoned.  Once again, there is no document indicating that instructions were given to Patsouris to document the advance Tsoulos made to Domain PL.

    The Café Paesano Meeting

32. Tsoulos and Koutsouvelis arranged to meet with Najjar to present the Patsouris documents to him.  Tsoulos said that a meeting was scheduled for 4 June 2008 at the Indigo offices.  Koutsouvelis said that the meeting was scheduled for mid May.  Najjar did not attend.  That night Tsoulos and Koutsouvelis went to Café Paesano where Najjar was a regular patron.  Koutsouvelis said the purpose was to present Najjar with the documents and get him to sign them.  Tsoulos did not say whether they took the Patsouris documents with them. Koutsouvelis said they did take the documents, but left them in the car. Tsoulos said that at Café Paesano, Najjar said that “he was having problems with his Coolum development” and that this was “putting him back with Bolivar and therefore putting our money back”.  Koutsouvelis gave similar evidence.  Both men said that Najjar asked them to help him source between $2.5-3 million for the Coolum development.  Tsoulos said he told Najjar he and Koutsouvelis were “waiting for Bolivar” and not Coolum.  Tsoulos said that Najjar offered them “blocks at Coolum”, but that Koutsouvelis rejected this offer.  Oddly, neither Tsoulos nor Koutsouvelis claimed that the topic of documents was raised during this conversation.  Koutsouvelis said that at this stage the relationship between the three men was still friendly, though “obviously a bit strained”.  (349)

33. The meeting ended when two of Najjar’s friends arrived.

34. Najjar’s evidence was that he remembered speaking to Tsoulos and Koutsouvelis at Café Paesano.  He told them that he was having “some issues with the financing, the funding of Coolum”.  He said he remembered raising the issue of needing to source $2.5 to 3m to support the Coolum project.  He said that there was no mention of any documentation.

    Subsequent meetings

35. It is common ground that the first time the Patsouris documents were presented to Najjar was at a meeting arranged by the plaintiffs and held at the Indigo office in early August 2008.  (278/806)  Koutsouvelis said that after Café Paesano, Najjar “was becoming increasingly more difficult to locate”.

36. Tsoulos said he opened the meeting.  He said the purpose of the meeting was to hand over the Patsouris documents to Najjar.  Tsoulos gave Najjar an envelope containing the documents.  Tsoulos said that Najjar pulled out the documents from the envelope, looked at them, and said:  “What?  A fixed and floating charge as well?”  (145)  Koutsouvelis said that Najjar said:  “What?  A fixed and floating charge?  I am not signing that”.  (351)  On Tsoulos’s account, Najjar then said:  “This is a commercial arrangement, I guaranteed Gus De Angelis’s portion in Bolivar Road”.  (146)  Tsoulos said that this was the first time Najjar had ever said this.  Tsoulos said Koutsouvelis “got pretty upset” and left the room, saying “you never said that”.  (146)

37. Koutsouvelis gave similar evidence.  He said that after Najjar had told them he would not sign the documents, Najjar asserted the debt was not his, but that of De Angelis.  He had only ever guaranteed “De Angelis’s portion” of Bolivar Road.  Koutsouvelis said:  “No, that’s not what you said”.  He said he became “quite angry and left the room to cool down”.

38. When Koutsouvelis returned, Tsoulos said he reiterated to Najjar “that he had personally guaranteed it and that he had given us security of Bolivar Road”.  Koutsouvelis said that when he returned to the room he told Najjar “you had guaranteed that loan out of Bolivar Road, you personally guaranteed it that night”, that night being 16 August 2007.  Tsoulos said that Koutsouvelis asked Najjar to take the documents with him.  Najjar refused to do so, saying:  “Let me go and sort this out.  Give me a week”.  Koutsouvelis said that Najjar told them that he needed “some time to go and fix this and for us to wait, that he would be back in contact with us”.

1. In the course of considering the credibility of Tsoulos I discussed the lack of any instruction to Lumley to draw any documents reflecting a personal guarantee or security over the Burton land in respect of the Tsoulos advance.  I also observed that the evidence that Najjar offered Bolivar Road as security is weak.  Indeed, I consider this claim to be weaker than the claim of a personal guarantee.

2. I find that the contentious representations set out at [73] and numbered 11 and 12 are not proved.

   The 16 August meeting

3. Earlier in these reasons I identified and made findings in terms of a good deal of common ground in respect of this meeting.  Importantly I found that an agreement was reached that the Rateki loans would be discounted to $950,000 and that, along with other receivables, it would be taken by Indigo in return for Indigo assuming Domain PL’s obligations to certain “investors” or creditors of Domain PL.  The interest rate on the Rateki loan would be 6.75 per cent.  I now turn to some of the detail of the evidence and the issues relating to the meeting previously identified.

4. The plaintiffs argue that the evidence regarding presales agreements was of significance in corroborating that Bolivar Road was a key part of the loan book discussions.

5. On any view, the fact that Bolivar Road was progressing had some relevance to discussions on 16 August relating to the Rateki debt.  The plaintiffs say that it was relevant because, on a worst case scenario, the Rateki loans were to be repaid from the proceeds of Bolivar Road.  Najjar says it was relevant to the expectation of De Angelis of a project management fee, which would be, with permission, applied to the Rateki debt.  Therefore, on either version there could be reason for Najjar to produce pre-sale contracts to the Indigo personnel.  The evidence from Tsoulos, Koutsouvelis and particularly Kentish as to this cannot be lightly set aside.  Having said that, I do not see the evidence of Tsoulos and Koutsouvelis on this point to be in the least independent.  There is an interesting coincidence in the fact that, although neither claimed to examine the pre-sale contracts carefully, they both claim that there were forty to fifty of them and that the contracts were received on 21 August (Tsoulos) or 21 to 22 August (Koutsouvelis).  As I mentioned, Tsoulos’s evidence about when the contracts were received changed as between the first and second days of his evidence, while he was still in evidence-in-chief.  On the evidence of both men, the deal had been done on the night of 16 August and the production of the contracts was not a matter of great moment to them.

6. 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.  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.

7. In the end, I find this a difficult issue.  My reservations as to the credibility of all three of Tsoulos, Koutsouvelis and Najjar prevent me making any firm finding about this issue.  I am not persuaded that, assuming the pre-sale agreements were in fact brought in, their production was referable to any promise of security over Bolivar Road.  In any event, this issue is only of importance for the light it throws on the contentious representations and the credibility of the five men.  Inasmuch as, on the plaintiffs’ case, Najjar undertook to bring in the agreements, and did so, nothing more flows from it.

8. I am unable to make any positive findings about most of the statements which the plaintiffs say were made by Najjar about the Rateki loans on the occasion of the 16 August meeting.  I find, contrary to Tsoulos’s evidence, there was a good deal of discussion about the Rateki loans and De Angelis, as well as about the other loans which were specified in the spreadsheet produced by Papastamatis.  Clearly there was discussion about the relative prospects of repayment of the various loans.  There was discussion about the desirability of the plaintiffs taking on a roughly even equation of creditors and debtors.  However, having rejected the thrust of the plaintiffs’ witnesses about this issue, I am left in a position where, beyond the common ground set out earlier, it is extremely difficult to draw conclusions about specific statements made, even on the balance of probabilities.  The plaintiffs’ version of the statements made by Najjar and Najjar’s own version are quite different.  There is not any useful intersection of accounts and, being unpersuaded by either side of the story, I am left with something in the nature of a void.

9. As I observed at an earlier point in these reasons, at the time of the loan book meeting, the economy was buoyant and confidence in the business community was high.  The plaintiffs had recently purchased the D Funding business and I find they were anxious to expand it.  Tsoulos and Koutsouvelis had come to know Papastamatis and Najjar and I find they admired them and had confidence in their business acumen.  I accept Tsoulos’s evidence that he trusted Najjar.  I am not persuaded that Najjar misrepresented the prospects of the Rateki loans to the plaintiffs.  I find that all the loans under discussion had been made to persons who were apparently unable or unwilling to obtain finance from lending institutions and were prepared to pay exorbitant rates of interest on them.  There was always a very significant level of risk attached to them and there can be no question but that the participants at the meeting knew as much;  although I might say that, in their evidence, Tsoulos and Koutsouvelis do not seem to have adequately acknowledged it.  Indeed, even at that time, Tsoulos was experiencing the risk first-hand in respect of his advance, by now some six months overdue.  In any event, while Najjar may well have expressed confidence in their eventual repayment, I am not persuaded that he tied the prospects of those loans to his own good fortune, or that he said that he stood behind them.

10. In particular, I am unable to make findings about contentious representations numbers 1 and 5 set out at [73] of these reasons.  That Najjar said these specific things about Bolivar Road was not put to him.  Neither of these matters is essential to the plaintiffs’ case.

11. The representations numbered 2, 3 and 4 are not, in the final analysis, of great moment to the plaintiffs’ case.  The underlying truth of number 2 and number 3 is not disputed by Najjar.  A statement about any of them could have been relevant to De Angelis’s expectation of a project management fee.  Najjar said that he told the plaintiffs that there was $2m to $2.5m profit in the Bolivar Road project.  The plaintiffs did not support this specific evidence.  There is no evidence before me of later progress in it, or profit from it.  I am not prepared to find that any of contentious representations 2, 3 or 4 were made, although I accept they well could have been.

12. I am prepared to find that Najjar provided an indicative or expected timetable for repayment of the Rateki debt.  It is hard otherwise to see why Indigo would have taken on that debt.  However, I do not find that Najjar tied the first repayment to progress of the Bolivar Road development (representation number 6).  Najjar says that he told the plaintiffs that the sale of 74 Commercial Road should settle by February 2008 and that De Angelis should receive $500,000 from that.  The plaintiffs say Najjar said that $500,000 would come from the Bolivar Road development at that time.  It is difficult to choose between the two versions.  There is no mention of a timetable in the emails to Lumley, but I recognise that Tsoulos would not have necessarily put it in.

13. I cannot be satisfied that Najjar tied the final repayment to the Bolivar Road development either (representation number 7).  Inasmuch as, on Najjar’s own case, De Angelis was to benefit from Bolivar Road, he might have.  However, I am not satisfied that he did any more than say that final repayment could be expected to be made by De Angelis from his project management fees at settlement.  While he might well have given an estimate of when that might be, I cannot make a finding as to it.

14. Therefore, representations 6 and 7 are not proved.

15. I am not persuaded that it was a term of the loan book agreement that documents reflecting it were to be drawn by solicitors.  I reject the evidence of Tsoulos, Koutsouvelis and Papastamatis to that effect.  I have already made some observations about this topic, which is representation number 8.

16. I am influenced by the fact that the agreement was put into effect before any such documents were presented, even though Papastamatis said that commencement of the agreement was not to be until October, to await drawing of documents.  In fact, Koutsouvelis lost little time in writing to the lenders to advise them of the change.  Further, as I have already related, the fact that Tsoulos instructed Lumley not to have the documents appear to be drawn by a solicitor – apparently upon the suggestion of Papastamatis – tells against any expectation on either side that the agreement would be professionally documented.  It is also of some relevance that Tsoulos did not, later, see fit to require any agreement to be drawn reflecting his own advance, even though he claims it, too, was guaranteed by Papastamatis and Najjar personally.  I suspect that many of the persons involved in either lending to Domain PL, or borrowing from it, would not have welcomed documentation reflecting the arrangements, and that this might also have played a role in the plaintiffs’ preparedness to act on a handshake.

17. Related to this issue, but centrally relevant to whether Bolivar Road granted security over the Burton land for the Rateki debt, is the following.  Not only did Tsoulos and Koutsouvelis not wait for documents to be drawn reflecting the agreement, they did not closely examine the pre-sale contracts which they said were brought in by Najjar.  Only Kentish seems to have had a closer look at them.  They did not arrange for any title searches of the Burton land to take place.  They did not go to the Burton land to see in what state it was.  Any inquiry which they had made would have demonstrated that the land in issue was entirely undeveloped and that the contractual arrangements between the registered proprietors and Bolivar Road, and Bolivar Road and the parties to the pre-sale contracts, were subject to heavy qualification.

18. I have already observed that the fact that the plaintiffs were involved in arranging for NAB to take a first mortgage over the land, later in the year, and, that they did so without dismay, tends to undermine the plaintiffs’ claim that Najjar had offered them security over Bolivar Road and had undertaken to document that security.  The content of the first Lumley email is also telling.

19. Representation number 8 is not proved.  Neither is representation number 9.

20. What remains is contentious representation number 10.  I am not persuaded that Najjar gave a personal guarantee in respect of repayment of the Rateki debt on the night of the loan book agreement.  I am not persuaded by the evidence of Tsoulos, Koutsouvelis or Papastamatis on this point.  However, I find that he did offer such a guarantee for repayment of the principal sum of $950,000 at the meeting at La Trattoria on 7 February 2008.  I confine this finding to principal only because in the evidence there was insufficient distinction drawn by the plaintiffs as between a guarantee of principal, or principal plus interest.  For the most part the sum guaranteed (whatever it was) was referred to only as “the Rateki debt”.  What distinguishes this allegation of the plaintiffs, so far as it relates to the La Trattoria meeting, is that Tsoulos’s email to Lumley, D4, does not undermine him, or Koutsouvelis, in their evidence about this occasion.  In a sense, Tsoulos’s contemporaneous assertion to Lumley that Najjar had personally guaranteed De Angelis’s repayment of the Rateki loan, corroborates the plaintiffs’ claim.  It is true that the later email of 27 February asserts that a guarantee was also to have come from Bolivar Road.  However, that is not how it was put by Tsoulos in his first email to Lumley.

21. In any event, as I have observed previously, Tsoulos might have taken a statement by Najjar that, if necessary, he would personally guarantee repayment and that the money could come out of the sale of the Bolivar land blocks as amounting to a guarantee on behalf of both Najjar and Bolivar Road, when really all Najjar was representing was that Bolivar Road was a sure source of money.

22. 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).

23. 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.

24. 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.

25. 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.

26. Both the plaintiff’s primary claim and their TPA claim as pleaded rely on proof of the representations set out in [23] of the Statement of Claim. With the exception of representation 10, which I have found was made in 2008, but was not, in the circumstances, enforceable, they have failed to prove these representations and both their claims for breach of contract and under the TPA must fail.

    Alternative Trade Practices Act claim

27. As seen, the plaintiffs advance an alternative cause of action based on s 52 of the TPA. They argue that even if their pleaded claim on this basis is rejected, Najjar’s own evidence establishes that he and Domain PL engaged in misleading or deceptive conduct on 16 August 2007 in the form of things said and not said leading to the loan book agreement.

28. The representations (or omissions) relied on in this way are not clearly identified.  They seem to be:

    (a)that Najjar represented that only the safer loans would be assigned to Indigo and that the Rateki loans were recoverable;

    (b)that in the context of the conversations, the failure to warn that the Rateki loans were in default and unlikely to be recovered was misleading, and

    (c)that Najjar represented that $500,000 of the Rateki debt would be repaid in February 2008 from proceeds of the sale of 74 Commercial Road.

29. That the evidence of Najjar is notably different from the plaintiffs on these issues presents the plaintiffs with an immediate hurdle.  Inasmuch as misleading or deceptive conduct necessarily involves a plaintiff suffering loss because of reliance placed upon a defendant’s conduct, it is difficult for the plaintiffs to base a claim on statements which are not, strictly, part of their case.  However, I shall examine the evidence before dealing with that issue.

30. Section 52 of the TPA provides:

    A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

    The plaintiffs also rely on s 51A(1) of the TPA which provides:

    For the purposes of this Division, where a corporation makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the corporation does not have reasonable grounds for making the representation, the representation shall be taken to be misleading.

31. Section 52 of the TPA imposes obligations on corporations. In relation to this alternative claim, the relevant corporation is Domain PL. All conduct engaged in by Najjar at the meeting relevant here can be attributed to Domain PL, he being a director acting within the scope of his authority in negotiating the transfer of part of the business activities of the company. Furthermore, present at the meeting was the other director of Domain PL, Papastamatis. If found to have engaged in misleading or deceptive conduct, a remedy would also lie against Najjar in his personal capacity: s 75B(1) TPA; s 56 Fair Trading Act 1987 (SA). It is unnecessary to go into greater detail as to the potential remedies available, as my finding is that this aspect of the claim must fail.

1. In determining whether any cause of action could potentially arise, it is necessary to examine again the conduct of Najjar at the loan book meeting.  I have already set out much of Najjar’s evidence.  I mention some important matters again.  While I have previously expressed doubts as to the evidence of Najjar, I proceed on somewhat stronger ground here, given that the evidence of Najjar that the plaintiffs rely on could be regarded as akin to statements against interest.  It would not be unfair to use these statements against him despite the fact that I am not, for the most part, satisfied that they were made.

2. Najjar said that the first major topic of discussion was which borrowers Indigo would “take on”.  (774-781)  Najjar recalled saying that Domain PL was not willing to pass on every loan as some “didn’t look too good”.  On Najjar’s evidence Tsoulos asked which loans were “good”.  Tsoulos went through the list of borrowers on P76 and Najjar “explain[ed] each borrower and what the situation was with each borrower”.  Najjar said “we were going through the list of borrowers … which were the safest, so to speak, borrowers, or loans that we had given out”.  Some loans generated greater discussion.  An example was the borrower Buttigieg.  Here, Najjar said “we just didn’t want to hand nothing over because that was at high risk”.  Against the names of certain borrowers Najjar wrote “bad debt”.  These debts were not assumed by Indigo.

3. Then Najjar came to the Rateki debts.  (782-785)  He said he told the plaintiffs that “the loan was initially for a development that De Angelis had at Morphett Vale”.  He said that De Angelis had “huge problems with that development …”.  Tsoulos asked how it would be repaid.  Najjar said he referred to 74 Commercial Road.  He said that De Angelis was the director of the company that owned a property at 74 Commercial Road.  He told them that Domain PL had an interest in that company, meaning that 74 Commercial Road was a debtor of Domain PL.  Najjar said he explained that Domain PL had security over the property and would rank behind three registered mortgagees.  Najjar said there was a valuation of the property of $3m and that there would be about “half a million left” once the first three mortgages were met.  He said the valuation was prepared about twelve months prior to the meeting and represented a “worst case scenario”, given that “the market had increased”.  He told them that De Angelis was in the process of selling 74 Commercial Road and he anticipated settlement would occur in about February 2008.  Tsoulos said to him “Okay, that’s fair enough.  It is backed by valuations.”  He asked where the rest of the repayment would come from.  Najjar said he responded by discussing the project management fees De Angelis could expect from Bolivar Road and Coolum.  Najjar said that, from Coolum, De Angelis would receive $700,000 at settlement and also $500,000 to $800,000 from Bolivar Road.  Najjar did not give evidence as to when such fees would be paid.  Therefore there is no evidence about that.

4. Najjar was cross-examined at length as to his account of the meeting.  He denied that he told Tsoulos and Koutsouvelis that if they did not take on the Rateki debts then the deal was not worth doing.  He said that Tsoulos and Koutsouvelis “were quite excited they were taking on De Angelis’s debt, because of the difference in money they were going to make compared to what they were going to pay out.  It was like $25,000, $30,000 a month in profit for them”.  (1036).

5. Najjar said he was unsure whether he told Tsoulos and Koutsouvelis that the two Rateki debts were “in default”.  He said he could not recall if the word “default” was used, but they were made aware that the loans were not “in the guidelines of the contract”.   Najjar further said that he did not stipulate that the Rateki loans were a safe proposition, but “just explained where De Angelis is looking at getting money from and that exceeded what he owed, and they were comfortable with that”.  (1044)  Najjar was directed to his affidavit sworn in these proceedings on 28 November 2008, in which he said that the reason the Rateki loan was discounted was because it was in default.  He said he could not recall whether he had said as much to the plaintiffs on 16 August 2007.  (1045/P269)

6. In cross-examination Najjar agreed that he was concerned to ensure that the plaintiffs would receive the safer borrowings.  He said “I didn’t want to sit there and give them something that I knew wasn’t going to work out”.  (878)He said that he recognised some trust between himself and Tsoulos and Koutsouvelis.

7. Emphasis was given by cross-examining counsel to the July 2006 valuation in relation to 74 Commercial Road:  P268.  Savills had then valued the property at $3m.  The valuation proceeded upon the basis that the 74 Commercial Road project was complete and the premises fully leased.  It was put to Najjar that it was misleading for him to refer to the $3m valuation of this property, qualified as it was, without providing a copy of the report underpinning that valuation.  Najjar said he referred to the valuation and mentioned to Tsoulos and Koutsouvelis that there was a copy of the valuation in the Indigo offices, formerly the EFG offices.  It is not clear from the evidence exactly what was the state of the 74 Commercial Road property at 16 August 2007.  In his evidence Tsoulos said he did not become aware of the valuation until about February 2008.  (218)  Koutsouvelis denied that Najjar mentioned it at the 16 August meeting.  (417)

8. It was put to Najjar that by January 2007 De Angelis was in default on both Rateki debts and that De Angelis had said that he was worried about bankruptcy.  Najjar responded that De Angelis was having “some issues” with his finances, but he said that “as far as I was aware there [was] no problem with Commercial Road”.  (1004)He said he did not become aware of bankruptcy proceedings against De Angelis until January or February 2008.

9. The plaintiffs adduced no evidence as to whether any project management fees in fact became payable to De Angelis.  It is agreed that De Angelis was declared bankrupt on 20 December 2007 and that on 17 January 2008 Rateki was wound up.

   Representation (a): Representation as to safety of loans

10. I find that Najjar told the plaintiffs that he was offering them the safer loans in the loan book.  He told them he would not consider transferring certain debts, because there were difficulties with recoverability, or they were “bad debts”.  I find that he explained that there were problems with the Morphett Vale loan.  The clear inference from what he said was that recovery of this loan was in doubt.  I accept he also effectively informed the plaintiffs that repayment of the Rateki loans had not been in accordance with the loan agreements.  These acknowledgements colour his earlier representation that only the safer loans would be transferred.  In any event, safer is a relative term and the word was used in a context of high risk and high return loans.

11. All considered, I am not satisfied that the representation that the Rateki debts were among the safer loans was misleading or deceptive.

    Representation (b):  Failure to warn that loans were in default

12. I accept that Najjar informed the plaintiffs of the difficulties with the Morphett Vale property.  If he had not, then there would have been no need to discuss an alternative means of repayment.  The writing on P76 provides a contemporaneous record of the discussions, although Najjar had difficulty remembering the reasons for much of the writing.  (788)  On the exhibit the figure 90 is written.  He said that may have reflected the interest component on the 74 Commercial Road loan:  $90,000.  That loan was entered into in October 2006 with interest of $15,000 payable each month.  Written next to this loan on the spreadsheet is the date 20.01.07.  This was the date at which the 74 Commercial Road loan was due to be paid back.  Najjar was not taken to this writing in his evidence.  It does raise an inference, however, that this date was mentioned as the repayment date, and that it was therefore obvious that this loan was well overdue.  That the loan was overdue would not have deterred the plaintiffs.  The expectation of repayment for this loan was based on a return to De Angelis from the sale of the property.  In that sense Najjar’s explanation “I just explained where De Angelis is looking at getting money from and that exceeded what he owed, and they were comfortable with that” (1044) is plausible.  I am prepared to accept that Najjar did inform the plaintiffs that the 74 Commercial Road loan was overdue.  This means that he effectively informed the plaintiffs that both Rateki debts were in default.  No case of misleading or deceptive conduct is made out based on this conduct.

    Representation (c):  Sale of 74 Commercial Road

13. I accept for this purpose that Najjar said that based on a valuation of 74 Commercial Road of $3m, the sale of that property should result in a return of $500,000 to De Angelis in February 2008.  As far as the expectation is concerned, this was a representation with respect to a future matter and hence it is taken to be misleading unless there were reasonable grounds for making it.   Insofar as Najjar referred to the valuation itself, it was a representation of existing fact.  It was prepared on 7 June 2006, fourteen months before the meeting, and valued the property at $3m.  As mentioned, the valuation was conditional.

14. Najjar did not explain the conditional nature of the valuation.  He said that the valuation represented a “worst case scenario”, given that property prices had since increased.  If the property was at 16 August unfinished and not fully let, then Najjar should have explained that the valuation was conditional.  Even if the plaintiffs had access to the valuation, it would not have told them of the current state of the property.  Najjar did not claim that the premises were complete and fully let at that time.  Najjar’s statements about the valuation were misleading by omission.

15. I have no evidence before me of the condition of 74 Commercial Road as at 16 August 2007, or at present.  The representation was that about $500,000 should be available by February 2008 through the sale of 74 Commercial Road, the first three mortgages having been repaid.  The burden of proof is on Najjar and Domain PL to show that at the time he made this representation, he had reasonable grounds.  The query arises whether they have discharged this burden.  If tested thoroughly on the issue, Najjar might well have fortified his evidence going to such grounds.  This deficit is a result of the way in which the plaintiffs are attempting to use Najjar’s evidence against him.  It was not specifically put to him that he had no reasonable grounds for making this statement.  In those circumstances I am not prepared to find against him.  I do not find the representation to have been misleading or deceptive.

16. For completeness, I add that I am not satisfied that Najjar’s representation (if made) that the balance of the Rateki debt would be paid out of De Angelis’s project management fees (also a representation as to the future) was misleading.  Najjar’s evidence on the returns he hoped to make (and by virtue of this, De Angelis would make) was plausible and not contradicted.  While Najjar had no role in 74 Commercial Road, he was centrally involved in both Coolum and Bolivar Road.  I can accept that as at August 2007 he entertained a reasonable belief that significant returns would be made from these projects.  In the case of Coolum, settlement was to occur in mid 2008.  I have been unable to make a finding of any timetable given by Najjar for receipt by De Angelis of Bolivar Road project management fees.

    Reliance

17. I have found that in one respect Najjar’s admitted statements were misleading.  However, that finding does not avail the plaintiffs.  On their case neither the representation about the valuation, nor even that regarding the expected settlement of 74 Commercial Road in February 2008, was made by Najjar.  And in the absence of evidence of reliance on that particular conduct, no damage can be shown:  Miller, Annotated Trade Practices Act (28^th ed, Thomson, 2007):  [1.82.15].

18. For this reason it is unnecessary to determine whether the failure to plead these representations and to plead and prove reliance on them would have, in any event, prevented the plaintiffs from utilising them.

    Conclusion

19. The plaintiffs’ pleaded case is in all respects based on proof of certain representations which they claim were made by the defendants.  With one exception which ultimately does not avail the plaintiffs, I have not found proved that those representations were made.  The plaintiffs are not entitled to the relief they seek.

20. An alternative case based on statements made by Najjar in his evidence, said to be misleading or deceptive, is partly made out, but fails at the hurdle of reliance.

21. All claims are dismissed.