Mitsopoulos v Tzouramanis
[2018] VSC 42
•1 FEBRUARY 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
| AT MELBOURNE COMMERCIAL COURT |
S CI 2017 03720
| DIMITRIOS MITSOPOULOS & ORS | Plaintiffs |
| AND | |
| GEORGE TZOURAMANIS | Defendant |
---
JUDGE: | ELLIOTT J |
WHERE HELD: | MELBOURNE |
DATE OF HEARING: | 24 JANUARY 2018, 1 FEBRUARY 2018 |
DATE OF JUDGMENT: | 1 FEBRUARY 2018 |
CASE MAY BE CITED AS: | MITSOPOULOS v TZOURAMANIS |
MEDIUM NEUTRAL CITATION: | [2018] VSC 42 |
---
PRACTICE AND PROCEDURE – Summary judgment – Contract – Guarantees – Defences – Duress – Unconscionable conduct – Breach of principal agreement – Civil Procedure Act 2010 (Vic), s 63 – Supreme Court (General Civil Procedure) Rules 2015 (Vic) – Australian Competition and Consumer Act 2010 (Cth), Schedule 2 – Leave to defend granted
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr J Simpson | Sutherland Lawyers |
| For the Defendant | Mr R Seifman | MGA Lawyers |
HIS HONOUR:
A. Introduction
This proceeding concerns a residential property development which was intended to be carried out on land at 259-261 Neerim Road, Carnegie (“the Property”). Put broadly, the plaintiffs, Dimitrios Mitsopoulos, Konstantina Mitsopoulos and their son, Konstantinos Mitsopoulos (“Konstantinos”) (collectively “the Mitsopoulos Parties”), allege that the defendant, George Tzouramanis (“Tzouramanis”), guaranteed the performance of both a property development agreement (“the Agreement”) and a supplementary property development agreement (“the Supplementary Agreement”) . Upon the failure of the respective developers to perform those agreements, the Mitsopoulos Parties have sought to enforce the guarantees.
By summons filed 20 December 2017, the Mitsopoulos Parties now apply for summary judgment.
For the reasons which follow, the application for summary judgment is dismissed and the defendant is granted leave to defend.
B. Background
B.1The Development Agreement and Deeds of Guarantee
The Mitsopoulos Parties claim, and Tzouramanis admits,[1] that, at all material times prior to 8 January 2015, they were the registered proprietors of the Property. On 19 September 2013, they entered into the Agreement with NRG Property Pty Ltd (“NRG Property”) for the design and construction of residential apartments on the Property. Tzouramanis signed the Agreement as the sole director and secretary of NRG Property.
[1]The admission was subject to production of the 2 certificates of title, together with transfer of land forms. The certificates and transfers were tendered.
The recitals to the Agreement provided:
B. The Developer has certain skills in designing and preparing Plans for proposed medium-high density residential development of property, procuring planning permits and consents, development/construction of medium-high density residential apartments, townhouses and units using highly specialised building and construction techniques (“the Development Services”).
…
D. The Owners and the Developer wish to jointly develop the Property into a multi residential development and for this purpose to procure planning, development and building permits and consents to maximise the number of residential apartments, townhouses and units to be constructed on the Property (“the Development”).
By clause 2.1 of the Agreement, the parties agreed that NRG Property would provide the Development Services to develop the Property “in accordance with the Plans and on the terms and conditions of the Agreement.”
The definitions and interpretations section of the Agreement provided:
1.1 In this Agreement including the recitals, unless the context otherwise requires the following terms have the following meanings:
“Development Services” means:
(a) preparing and procuring designs and plans for the development of the Property;
(b) procuring planning permits and consents for the development of the Property;
(c) procuring building permits and consents for construction of the Development;
(d) building and construction of the Development in accordance with the plans, building permits and all necessary infrastructure, landscaping and other works required to complete the Development in accordance with the terms and conditions of any Planning Permit or other planning approval;
(e) Subdivision of the [Property] in accordance with the Planning Permits and Development Plans;
(f) marketing and sale of the [Property] in accordance with the development plans at the discretion of [NRG Property].
…
“Plans” means all plans and designs, working drawings and specifications in respect of the development of the [Property].
The Mitsopoulos Parties allege that Tzouramanis executed a deed of guarantee (“the First Guarantee”), on or about 19 September 2013, whereby he:
(1) Guaranteed the due and punctual performance and observance by NRG Property of the Agreement.
(2) Agreed to indemnify the Mitsopoulos Parties in the event of any breach by NRG Property of its obligations under the Agreement.
By his defence filed 9 November 2017 (“the Defence”), Tzouramanis admits that he signed the First Guarantee, although he disputes its effect.
With respect to the performance of the Agreement by NRG Property, whilst substantive steps were taken, and certain matters were completed, many of the Development Services were not performed.
The Mitsopoulos Parties allege that, from 1 November 2013 onwards, NRG Property breached the Agreement, and that the Mitsopoulos Parties have suffered and will continue to suffer loss or damage as a result. The Mitsopoulos Parties claim that they are entitled to be indemnified by Tzouramanis in respect of the breach of the Agreement by NRG Property for an amount not less than $3,500,000.
The Mitsopoulos Parties further allege that, on or about 16 October 2014, they entered into the Supplementary Agreement with NRG Property and Tailored Solutions Numero Pty Ltd (“Tailored Solutions”), whereby NRG Property transferred its duties and obligations under the Agreement to Tailored Solutions.[2] The Mitsopoulos Parties allege that Tzouramanis executed a second deed of guarantee on or about 16 October 2014 (“the Second Guarantee”), indemnifying the Mitsopoulos Parties in respect of any breach of the Agreement or Supplementary Agreement.
[2]Although the signature blocks in both documents included the words “signed, sealed and delivered”, the Supplementary Agreement was expressed to be executed as a deed, whereas the Agreement was executed “as an [a]greement”. No point was taken with respect to the effect, if any, of this difference.
The Defence admits Tzouramanis executed the Second Guarantee, albeit it alleges this was done by mistake and under duress. There is no evidence to suggest that at any time before the Second Guarantee was executed by Tzouramanis that the Mitsopoulos Parties had made a demand under the First Guarantee, or had indicated to Tzouramanis that they intended to hold him accountable under the First Guarantee for any alleged non-performance by NGR Property to that point in time.
The Supplementary Agreement included the following:
Background:
(B) The [Mitsopoulos Parties] and [NRG Property] have agreed to proceed with the purposes of the [Agreement] on the basis that the rights, duties and obligations of [NRG Property] contained therein are to be substituted and assumed by [Tailored Solutions] and otherwise on the amended terms and conditions as are set out in this [Supplementary Agreement].
Operative Part:
1) From the date of this [Supplementary Agreement] all rights, duties and obligations set out in the [Agreement] on the part of [NRG Property] are to be assumed by [Tailored Solutions] which acknowledges by execution of this [Supplementary Agreement] that it will be bound by the terms and conditions of the [Agreement] as if it was an original party to that Agreement save as otherwise amended by the terms of this [Supplementary Agreement].
…
9) Save as provided in this [Supplementary Agreement] the parties meaning the [Mitsopoulos Parties], [NRG Property] and [Tailored Solutions] each affirm the terms and conditions of the [Agreement] and confirm and acknowledge that the terms and conditions of the [Agreement] (save as otherwise amended by this [Supplementary Agreement]) remain in full force and effect.
The Second Guarantee provided:
1.1 [Tzouramanis] in consideration of the [Mitsopoulos Parties] entering into the attached [Supplementary Agreement] and contributing their land at 259-261 Neerim Road, Carnegie … to [Tailored Solutions] upon the terms and conditions therein set forth HEREBY GUARANTEE and warrant the due and punctual performance and observance of the Agreement. In the event that [Tailored Solutions] or (sic) commits any breach of this obligation [Tzouramanis] shall indemnify the [Mitsopoulos Parties] against all losses, damages, costs, expenses or otherwise which may be incurred by them by reason of any default on the part of [Tailored Solutions] or [NRG Property] in performing and observing the terms of the [Agreement] and the [Supplementary Agreement].
1.2 [Tzouramanis] guarantee[s] to the [Mitsopoulos Parties] due and punctual payment of all money and the due and punctual performance and observance of all conditions and provisions expressed in or implied by the [Supplementary Agreement] and the [Agreement] to be respectively paid performed and/or observed by [Tailored Solutions] and/or [NRG Property].
1.3 This guarantee shall be a continuing guarantee (any rule of law or equity to the contract (sic) notwithstanding) and the liability of [Tzouramanis] shall continue until each and every obligation on the part of [Tailored Solutions] and/or [NRG Property] expressed in or implied in this [Supplementary Agreement] and/or [Agreement] is performed and observed.
1.4 The liability of [Tzouramanis] shall not be abrogated altered and prejudiced or affected by any neglect or forbearance by the [Mitsopoulos Parties] or by the granting by the [Mitsopoulos Parties], [Tailored Solutions] and/or [NRG Property] of any time or by any other forbearance act of (sic) thing done permitted or omitted to the intent that the guarantee and obligations of [Tailored Solutions] and/or [NRG Property] shall be absolute and unconditional in all circumstances.
1.5 [Tzouramanis] guarantees and agrees to hold the [Mitsopoulos Parties] indemnified against all loss damages (sic) expenses and costs which the [Mitsopoulos Parties] may incur by reason of any breach or default on the part of [Tailored Solutions] and/or [NRG Property] under this [Supplementary Agreement] and/or the [Agreement].
The Mitsopoulos Parties further allege that, from 1 July 2015 onwards, Tailored Solutions breached the Supplementary Agreement, and that the Mitsopoulos Parties have suffered and will continue to suffer loss or damage as a result. The Mitsopoulos Parties claim that they are entitled to be indemnified by Tzouramanis in respect of the breach of the Supplementary Agreement by Tailored Solutions for an amount not less than $3,500,000.
B.2Sale of the Property
The Mitsopoulos Parties allege that they contracted to sell the Property to Tailored Solutions on or about 25 November 2014, for a consideration of $3,000,000. The Mitsopoulos Parties allege that Tailored Solutions has failed to pay $2,840,000, being the balance of the purchase price. Further, they allege that on or about 19 December 2014 they transferred the Property to Tailored Solutions, and that Tailored Solutions became the sole proprietor of the Property on 8 January 2015.
The Mitsopoulos Parties allege that on or around 15 July 2016, Tailored Solutions secured a registered first mortgage over the Property in favour of Assetline (Australia) Pty Ltd (“Assetline”) in the amount of $2,100,000 (“the First Mortgage”). Those funds are alleged to have been advanced by Assetline to Tailored Solutions on or shortly after 25 August 2016.
The Mitsopoulos Parties allege that Tailored Solutions then advanced the principal sum received pursuant to the First Mortgage to a related company, Tailored Solutions Holdings Pty Ltd, by way of an unsecured loan.
Tailored Solutions has since defaulted under the First Mortgage, and, on 7 June 2017, was placed in liquidation by order of this court. Finally, the Mitsopoulos Parties allege that on or about 6 July 2017, Assetline sold the Property as first mortgagee to The Stellar Elitist Pty Ltd for a purchase price of $3,000,000.
B.3Defence (as filed)
Tzouramanis disputes the nature of the First Guarantee and the basis on which he signed it. Despite the lack of any construction on the Property, Tzouramanis alleges that NRG Properties has fulfilled its relevant obligations under the Agreement. In relation to the Second Guarantee, Tzouramanis alleges that he executed it by mistake and was subject to undue influence or duress, so that the Second Guarantee is unenforceable against him.
Tzouramanis raises other defences, including that the Mitsopoulos Parties are estopped from claiming loss and damage against him “by reason of such alleged loss and damage arising out of transactions entered into by the [Mitsopoulos Parties] with a third party”, that the loss and damage alleged was not caused by Tzouramanis, either directly or indirectly, and that, in the event Tzouramanis is liable to indemnify the Mitsopoulos Parties, the loss and damage recoverable from him should be reduced having regard to the failure of the Mitsopoulos Parties and their solicitors, KPA Lawyers, to take reasonable care.[3]
[3]See par 24 below.
Much of the Defence has been impermissibly pleaded. For the purposes of this application, focus has been given to the affidavit evidence on the basis that a properly drafted defence will be filed in due course if leave to defend is granted.[4]
[4]Supreme Court (General Civil Procedure) Rules 2015 (Vic), r 22.08(1)(c).
B.4Related proceeding
By writ filed on 21 September 2017, the Mitsopoulos Parties commenced a related proceeding (“the Related Proceeding”) in which they allege professional negligence against the defendant in the Related Proceeding, KPA Lawyers, with respect to the preparation of, and advice relating to, the Agreement and the Supplementary Agreement. The Related Proceeding is set down for directions on 16 March 2018.
B.5Freezing order
On 19 September 2017, Judd J granted an application by the Mitsopoulos Parties to freeze the assets of Tzouramanis until 28 September 2017.[5] On 28 September 2017 and 10 October 2017, I made orders extending that freezing order by consent. On 19 October 2017, I made a further order extending the freezing order (as varied, based on further evidence then before the court) until the hearing and determination of this proceeding.
[5]Pursuant to Supreme Court Rules, r 37A.02.
B.6Summary judgment
The application for summary judgment by the Mitsopoulos Parties came on for hearing on 24 January 2018. Objection was taken, successfully, by the Mitsopoulos Parties to the poor state of the evidence in opposition to the application. I granted an adjournment, with costs, to today so that Tzouramanis would have a further opportunity to provide a further affidavit in opposition.
C. Principles
The principles to be applied on an application such as this are well known, and were not in contention.
Section 63(1) of the Civil Procedure Act 2010 (Vic) provides:
Subject to section 64,[6] a court may give summary judgment in any civil proceeding if satisfied that a claim, a defence or a counterclaim or part of the claim, defence or counterclaim, as the case requires, has no real prospect of success.
(Emphasis added.)
[6]Section 64 permits the court to order that a civil proceeding proceed to trial even in circumstances where there is no real prospect of success.
In Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd,[7] Warren CJ and Nettle JA examined the authorities concerning applications for summary judgment and the meaning of s 63(1), and explained:[8]
[T]he test under s 63 of the Civil Procedure Act should be construed as one of whether the respondent to the application for summary judgment has a “real” as opposed to a fanciful chance of success; … the “real chance of success” test is to some degree a more liberal test than the “hopeless” or “bound to fail” test; [and] as the law is at present understood, the real chance of success test permits of the possibility that there may be cases, yet to be identified, in which it appears that, although the respondent’s case is not “hopeless” or “bound to fail”, it does not have a real prospect of succeeding.
[7](2013) 42 VR 27.
[8]At 39 [29].
As their Honours noted, the “real chance of success” test is to be applied by reference to its own language and without paraphrase or comparison with tests applicable before the introduction of the Civil Procedure Act.[9]
[9]Ibid, 40 [35]; see also Mandie v Memart Nominees Pty Ltd [2016] VSCA 4, [42]-[46] (Kyrou, Ferguson and McLeish JJA).
Finally, the power to terminate proceedings pursuant to s 63 is to be exercised with caution, and only where it is clear there is no real question to be tried.[10] This is particularly the case where, as in the present case, the resolution of the dispute in question depends primarily upon contested questions of fact.[11]
[10]Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd (2013) 42 VR 27, 40 [35]. See also Mandie v Memart Nominees Pty Ltd [2016] VSCA 4, [43]-[45]; Feldman v Frontlink Pty Ltd [2014] VSCA 27, [24] (Warren CJ, Tate JA and Sifris AJA).
[11]Mutton v Baker [2014] VSCA 43, [19] (Santamaria JA, with whom Whelan JA agreed), [55] (Whelan JA).
D. Relevant evidence in opposition
Much of the evidence led in opposition went to the background leading up to the execution of the relevant documents. It is unnecessary to set that evidence out here. Further, there was evidence as to possible breaches by the Mitsopoulos Parties of the Agreement and the Supplementary Agreement, some of which strained credulity. Again, it is not necessary to set this evidence out. The evidence that is sufficient to dispose of this application relates to the circumstances surrounding the execution of the Second Guarantee.
In this regard, Tzouramanis gave evidence of a meeting attended by himself, the Mitsopoulos Parties, their solicitor and 2 directors of “Tailored Management Solutions”, a company said to be associated with Tailored Solutions. That evidence included the following:
All parties in the room [other than myself] were adamant that this needed to be dealt with and completed today and that nobody would leave the room until it was signed, and [the] transaction put to bed.
[The 2 directors of Tailored Solutions] were placing immense pressure on me to have the document signed and I specifically recall that they said that this needs to be done as “we are relying on this” and that the deal “cannot be done without you now signing this. It must be done.”
I recall Kon[12] who had also attempted to intimidate me in the past over the dealings with this property and the [Agreement] stated that he wanted this over and done with as this had dragged on for far too long and that he didn’t want his parents to be “fucked around and (sic) longer” and that “they had already waited enough for this”. [I understood that] Kon was referring to the amount of time that had elapsed since the beginning of the negotiations till that time and date of Substitution so that construction [could] commence.
[12]A reference to Konstantinos.
Mr and Mrs Mitsopoulos during the meeting also complained that the development had taken a long time to get to this point (despite all that had been done) and insisted that the [Second Guarantee] be signed immediately so that they could keep moving.
Under the extreme pressure in the room I signed under duress.[13] I believed that I could not leave the room and ask advice from my lawyers in respect to the consequences and effect of the signing of the [Second Guarantee]. [The Mitsopoulos Parties’ solicitor] asked if I wanted to consult my lawyers and I said yes and he asked if I wanted to make a call. I was then confronted by Kon, his parents, [the 2 directors of Tailored Solutions] (sic) urged me to sign straight away.
As I was unwell leading up to [and] during the time of signing to be able (sic) to fully internalise all materials I felt that I had to sign and have this component put to bed.
[13]Obviously, this evidence was received as going to Tzouramanis’ state of mind, rather than stating the conclusion.
Tzouramanis also put forward medical evidence to corroborate his affidavit evidence that he was mentally unwell at the time. Further, he noted that the Supplementary Agreement had been prepared by the Mitsopoulos Parties’ solicitors.
E. Ruling
By procuring Tzouramanis’ signature, the Mitsopoulos Parties were, on the face of the Second Guarantee, securing his agreement to guarantee the performance of a new developer of which he was neither a director nor a shareholder. The nature of the overall agreement was that Tzouramanis was potentially exposing himself to very significant liabilities, in the millions of dollars, where he stood to gain very little, if anything substantial, from the ongoing development.
Whilst NRG Property may have been in breach of the Agreement, and Tzouramanis may have had some exposure under the First Guarantee, it was a fundamentally different arrangement he was acceding to, in particular where the new developer was an entity over which he had no control, and where Tzouramanis had no real ability to limit his liability by ensuring Tailored Solutions’ performance.
In such circumstances, it would hardly be surprising if the Mitsopoulos Parties’ solicitor enquired as to whether Tzouramanis wanted to obtain legal advice before signing. Further, on his version of events, Tzouramanis expressed a clear desire to do so and was effectively denied that opportunity by the conduct of the Mitsopoulos Parties and by others present at the meeting.
Without making any finding as to the accuracy of Tzouramanis’ evidence, and despite the deficiencies in the Defence as it currently stands,[14] I am not satisfied that Tzouramanis has no real prospect of successfully defending the claim, whether this be on the basis of undue influence or duress, or otherwise. I note that on the evidence as it presently stands, at the very least, there must be a real prospect of success with respect to a defence based on unconscionable conduct.
[14]See par 23 above.
Further, as a matter of construction of the Supplementary Agreement and the Second Guarantee (read together), or as a matter of conduct that might be relied on for the purposes of, for example, the Australian Consumer Law,[15] there are real prospects of Tzouramanis establishing that,, whether or not he agreed to sign the Second Guarantee, in the event a new developer was procured he would not be liable under the First Guarantee for the events up to 16 October 2014; or at least that he reasonably assumed as much.
[15]Competition and Consumer Act 2010 (Cth), Schedule 2.
Even if the observations made in the previous paragraph are incorrect in some way, the court may hold that it is only the Second Guarantee that may be relied upon by the Mitsopoulos Parties, and that will then necessarily bring into the heart of the dispute the circumstances in which it was signed.
For completeness, I note that the facts the subject of the dispute in the Related Proceeding may be relevant to, amongst other things, the claims for loss in this proceeding. It is appropriate that this proceeding be referred to the Professional Liability List, so that the matters can be managed and, if appropriate, heard together. Whether the transfer of proceedings ought to occur immediately or after further interlocutory steps have been attended to is a matter for discussion with counsel.
For these reasons, leave to defend will be granted to the defendant.
---
0
5
0