O'Reilly v Green
[2018] WASC 70
•13 MARCH 2018
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: O'REILLY -v- GREEN [2018] WASC 70
CORAM: ALLANSON J
HEARD: 20 FEBRUARY 2018
DELIVERED : 13 MARCH 2018
FILE NO/S: CIV 2534 of 2015
BETWEEN: SEAN DAMIAN O'REILLY
Plaintiff
AND
RICHARD MARK GREEN
First DefendantKENNETH GORDON HENDRICK
Second DefendantBURRUP PLUMBING PTY LTD
Third DefendantNGURRA PTY LTD
Fourth DefendantKARRATHA CITY APARTMENTS PTY LTD
Fifth DefendantNRAS AUSTRALIA PTY LTD
Sixth DefendantGMR SECURITIES PTY LTD
Seventh Defendant
Catchwords:
Contract - Written loan agreements - Where defendant is personal guarantor of loans - Where default by failure to repay amounts advanced - Whether defendant liable under guarantees - Turns on own facts
Legislation:
Nil
Result:
Judgment for the plaintiff against the second defendant
Category: B
Representation:
Counsel:
Plaintiff: In person
First Defendant : No appearance
Second Defendant : In person
Third Defendant : No appearance
Fourth Defendant : No appearance
Fifth Defendant : No appearance
Sixth Defendant : No appearance
Seventh Defendant : No appearance
Solicitors:
Plaintiff: In person
First Defendant : No appearance
Second Defendant : In person
Third Defendant : No appearance
Fourth Defendant : No appearance
Fifth Defendant : No appearance
Sixth Defendant : No appearance
Seventh Defendant : No appearance
Case(s) referred to in judgment(s):
Nil
ALLANSON J: Sean Damian O'Reilly brings this action for the repayment of amounts owed to him under two loan agreements. Seven defendants were named in the writ. Default judgment was entered against four defendants on 22 March 2016. The court was told that another was in liquidation.
Until late in the last week before trial, the action was continuing against the second and third defendants only: Kenneth Gordon Hendrick and Burrup Plumbing Pty Ltd. On 16 February 2018, Burrup Plumbing went into liquidation. The trial proceeded between Mr O'Reilly and Mr Hendrick. Each was unrepresented at trial, although pleadings and witness statements had been prepared by legal practitioners.
The case against Mr Hendrick is that he was a guarantor of both debts, pursuant to guarantees executed on 12 October 2013 and 13 March 2015.
Background
Mr Green, Mr Hendrick, and companies related to them, invested in property developments in Karratha and South Hedland. The investments did not succeed and the investors were left with substantial debts, including outstanding borrowings. Mr O'Reilly was one of the lenders. He was introduced to the borrowers through Bruno Romeo. Mr Romeo is a director of Winrome Capital, a commercial finance broker.
In July 2013, the fourth defendant (Ngurra Pty Ltd) had an existing loan, relating to a property in Karratha, that was due to be repaid. The loan was managed by Winrome Capital. Mr Romeo presented a proposal to Mr O'Reilly to provide finance, paying out the existing loan. Mr O'Reilly offered a loan, secured by guarantees and a mortgage over land in Karratha. Mr Hendrick was not a party to the loan or the guarantee.
In October 2013, Mr Romeo presented another proposal for a loan to Mr Green, with securities to be provided by GMR Securities Pty Ltd (the seventh defendant), Ngurra and Burrup Plumbing. Again Mr Hendrick was not a party to the loan, but he was the director and sole shareholder of Burrup Plumbing. Mr Hendrick also gave a personal guarantee.
In November 2013, Mr O'Reilly made a third loan relating to a property in South Hedland. Repayment of that loan is not claimed in these proceedings.
By March 2015, the borrowers were in default on each loan. The various borrowers, mortgagors, and guarantors entered into a written agreement with Mr O'Reilly to cross collateralise the securities on the three loan facilities. Mr Hendrick executed that agreement in his personal capacity.
The borrowers remain in default.
The pleaded cases
With the claim proceeding against Mr Hendrick only, and limited to two loan agreements, much of the pleaded case fell away.
Relevantly, Mr O'Reilly pleaded that:
(1)On or about 2 September 2013, he and Ngurra entered into a written loan agreement whereby Mr O'Reilly agreed to advance the sum of $774,750 (the First Loan Agreement): par 10.
(2)On or about 2 September 2013, he made the amount of the First Loan Agreement available to Ngurra.
(3) On or about 14 October 2013, Mr O'Reilly and Mr Green entered into a written loan agreement whereby Mr O'Reilly agreed to advance the sum of $550,000: par 19 (the Second Loan Agreement).
(4) On or about 12 October 2013, by deed of guarantee, Mr Hendrick guaranteed the payment of Mr Green's debt to Mr O'Reilly under the Second Loan Agreement (the Second Guarantee): par 21.
(5)On or about 14 October 2013, Mr O'Reilly made available the amount of the Second Loan Agreement to Mr Green: par 27.
(6)On 13 March 2015, Mr Hendrick and others executed an agreement whereby they agreed to cross collateralise the securities for existing loans, including the First and Second Loan Agreements: par 37.
(7)As at 23 July 2015, Ngurra had failed to repay the debt to Mr O'Reilly under the First Loan Agreement and was in default. By notice of demand dated 23 July 2015, Mr O'Reilly demanded payment of the sum of $1,222,261.64 plus interest as due: par 39, 41.
(8)As at 29 July 2015, Mr Green had failed to pay the debt to Mr O'Reilly under the Second Loan Agreement and was in default. By notice of demand dated 29 July 2015, Mr O'Reilly demanded payment of the sum of $954,901.04 as due: par 42, 44.
In his defence, Mr Hendrick admitted the execution although not the terms of the First Loan Agreement, the Second Loan Agreement, the Second Guarantee, and the Variation Agreement. He did not admit that the amounts of the First and Second Loan Agreement were advanced in accordance with those agreements.
Mr Hendrick did not admit that the borrowers were in default under either the First or Second Loan Agreement, or that demands were made.
Mr Hendrick also denied that there was sufficient consideration for the Variation Agreement, as the consideration was only a temporary forbearance at a time when no amount was due and no default had occurred. Further or alternatively, he pleaded that the Variation Agreement would be or was likely to be set aside or declared unenforceable because other parties to the agreement were insolvent or would become insolvent by entering the agreement: Defence, par 37.
The Evidence
The plaintiff's case relied on two witnesses, Mr O'Reilly and Mr Romeo, together with the documents evidencing the various transactions.
The evidence of Mr O'Reilly
Mr O'Reilly did not deal directly with the borrowers under either of the loans. The proposals were presented to him by Mr Romeo, and Mr Romeo and the firm Gadens Lawyers dealt with the documentation of the loans and associated securities. His witness statement largely relied on the documents produced to him by Mr Romeo and Gadens.
Mr O'Reilly gave unchallenged evidence of the advances made and payments received pursuant to the loan agreements.
The evidence of Mr Romeo
Mr Romeo acted as the finance broker introducing Mr O'Reilly to Mr Green and his associated companies. Mr Romeo had little personal dealings with Mr Hendrick, but forwarded and received relevant documents.
The evidence of Mr Hendrick
The witness statement filed on behalf of Mr Hendrick offered no positive evidence. He stated that he agreed to provide a general guarantee for Mr Green's obligations under the Second Loan Agreement, and that it is likely that he signed the guarantee after seeing only the signing pages and not the terms of the agreement. Mr Hendrick did not recall the circumstances in which the Variation Agreement was executed. He was unaware that the First and Second Loan Agreements were in default until he received default notices in early 2015.
In cross‑examination, Mr Hendrick was challenged on whether he saw the whole of the agreements before signing them. On the pleaded cases, it is unnecessary to resolve whether he did. Mr Hendrick did not allege any unconscionable conduct by Mr O'Reilly. His complaint lay elsewhere.
The documents
The documentary evidence included each of the loan agreements, the guarantee given by Mr Hendrick, and the Variation Agreement. Mr O'Reilly also tendered documents showing the advance of funds for each of the loans, and the source of the funds in his own bank accounts. It appears that Mr O'Reilly borrowed heavily to make the loans.
Findings
The First Loan Agreement
The agreement was titled Facility Agreement. Relevantly, Mr O'Reilly was to advance to a limit of $774,750 (including an establishment fee of $24,750 which included a payment of $4,125 to Mr O'Reilly as lender) for a period of 6 months from the date of the first advance under the facility. Interest was payable on the last day of each calendar month at the rate of 18% per annum: cl 5. Interest was payable at the higher rate of 36% per annum if an Event of Default, including default in the performance of any term, subsists.
Mr Romeo said the full amount was disbursed. Mr O'Reilly said that on 4 September 2013, he advanced the sum of $774,375 (the lesser amount advised by Mr Romeo). I accept the evidence of Mr O'Reilly. The result is that from 4 September 2013, Ngurra owed Mr O'Reilly $774,375 with interest payable at 18% per annum, payable monthly. On default by Ngurra, interest was payable at 36% per annum for each month in which the default continued.
The Second Loan Agreement
The agreement was titled Loan Agreement. Mr O'Reilly was to advance $550,000, as a facility on which Mr Green could draw. Mr Green agreed to repay the loan and interest in the sum of $44,000, four months from the date of the advance (the Maturity Date). On failure to pay any money payable under the agreement on time, interest was payable at 4% per month, compounded monthly, until the amount due was paid: cl 5. The only repayment obligation was on the Maturity Date when the borrower must repay the advance and interest amount. On its proper construction, the obligation to pay interest for failure to pay money due on time was intended to extend after the Maturity Date.
On 14 October 2013, Mr O'Reilly advanced $544,500 as instructed by Mr Romeo, including a payment of $12,100 to Winrome Capital. Only that amount was drawn.
The Guarantee
On 12 October 2013, Mr Hendrick executed a guarantee by which he guaranteed to Mr O'Reilly the punctual payment by Mr Green of all money on any account which 'now or in the future is owing (actually or contingently) … under or in relation to the Loan Agreement'.
The Variation Agreement
On 20 August 2014, Mr Romeo gave notice to Mr Green regarding the defaults in the First and Second Loan Agreements. On 26 August 2014, he sent notices of demand, and on 7 November 2014 sent Mr Green details of amounts outstanding.
Mr Romeo and Mr Green took some steps to better secure Mr O'Reilly's position, including a further agreement, dated 13 March 2015, under which parties, including guarantors and mortgagors on the loan agreements, agreed to provide additional securities. The Obligors (a defined term including existing borrowers, guarantors and mortgagors) agreed that specified securities were cross collateralised; and the Obligors agreed that execution of the document 'has the same effect as the Obligors guaranteeing the obligations of the Customers [including Mr Green and Ngurra] to the Mortgagee [Mr O'Reilly]': cl 3, cl 4.
For the purposes of this action, Mr Hendrick agreed by executing the Variation Agreement to guarantee the obligations of Ngurra under the First Loan Agreement.
The defence filed on behalf of Mr Hendrick denies that the consideration for the Variation Agreement was sufficient in law to bind Mr Hendrick. With Mr Hendrick appearing in person, no argument was advanced in support of that contention. I cannot see the force of it. Apart from anything else, the Variation Agreement was executed as a deed, and further consideration was unnecessary.
The defence also contended that Mr Green and Ngurra were insolvent or would become insolvent by entering the Variation Agreement. Again, no argument was advanced for why that would affect the liabilities assumed by Mr Hendrick in executing the agreement.
Payments received
Mr O'Reilly testified that he received the following payments as interest on the Ngurra Loan:
(1)on 22 October 2013, two payments of $9,551.71 and $11,844.12 from NRAS Australia Pty Ltd;
(2) on 6 December 2013, a further $11,462.05 (interest for November);
(3)on 30 January 2014, a payment of $11,844.12;
(4) on 4 February 2014, a payment of $11,844.12;
(5)on 6 March 2014, a payment of $12,226.19.
On 4 May 2015, Mr O'Reilly received two payments of $75,000 from Burrup Plumbing against outstanding interest for the Second Loan Agreement.
Mr O'Reilly testified that he received no further payments under the loans. His evidence was not challenged.
The defence does not admit that the borrowers were in default on any agreement. I am satisfied that none of the amounts advanced were repaid and the payment of interest was confined to the amounts set out immediately above.
Mr O'Reilly demanded repayment on each agreement before commencing these proceedings.
Mr O'Reilly has made out his claim. He is entitled to judgment against Mr Hendrick, as the guarantor on each loan, as follows:
(1)On the First Loan Agreement, payment of the advance of $774,375, and interest at the rate of 18% from the time of the advance and 36% per annum while the borrower was in default. Credit must be given for the interest received. It is difficult, on the evidence, to determine when the default commenced, but the higher rate of interest is payable from, at the latest, April 2014. It should be calculated from then.
(2)On the Second Loan Agreement, repayment of the advance of $544,500, together with the agreed interest, and interest at 4% per month from the Maturity Date, four months after the advance on 14 October 2013 (that is, 14 March 2014), on the amount outstanding at that date. Credit must be given for the two payments received on 5 May 2015.
Because of the time that has passed since the calculation of the amount stated in the statement of claim, the plaintiff should provide a minute of orders reflecting the proper calculation of amounts due in accordance with these reasons.
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