Challenger Managed Investments Limited v Milan Samardic & Stoyan Kiceec [2010] NSWSC 908 (16 August 2010)

Last Updated: 17 August 2010

NEW SOUTH WALES SUPREME COURT

CITATION:
Challenger Managed Investments Limited v Milan Samardic & Stoyan Kiceec [2010] NSWSC 908


JURISDICTION:


FILE NUMBER(S):
2008/288376

HEARING DATE(S):
16 August 2010

JUDGMENT DATE:
16 August 2010

EX TEMPORE DATE:
16 August 2010

PARTIES:
Challenger Managed Investments Limited (P)
Milan Samardic (D1)
Stoyan Kiceec (D2)

JUDGMENT OF:
Garling J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
V. Bedrossian (P)

SOLICITORS:
NortonRose (P)
No appearance (D1)
No appearance (D2)



CATCHWORDS:
GUARANTEES & INDEMNITIES – Personal guarantees on commercial loan – Company debts and mortgages – Default on payment of interest and repayment of loan – Defendant guarantors called upon to remedy company’s default - Possession taken of company properties – No appearance by defendant guarantors – Judgment for the plaintiff creditor against the defendant guarantors.
PRACTICE & PROCEDURE – Civil Procedure Act 2005, s.56 – Defences did not identify any real issue for determination – Delay in the timely hearing of proceedings.
COSTS – Indemnity costs order – Where existing contractual entitlement to indemnity for legal costs.

LEGISLATION CITED:
Civil Procedure Act 2005

CATEGORY:
Principal judgment

CASES CITED:
Aon Risk Services Australia Limited v Australian National University [2009] HCA 27; (2009) 239 CLR 175

TEXTS CITED:


DECISION:
Judgment for the plaintiff creditor against defendant guarantors. Defendants to pay the plaintiff's costs on an indemnity basis.



JUDGMENT:

IN THE SUPREME COURT

OF NEW SOUTH WALES

COMMON LAW DIVISION

GARLING J

MONDAY, 16 AUGUST 2010

2008/288376 CHALLENGER MANAGED INVESTMENTS LIMITED v MILAN SAMARDIC & STOYAN KICEEC

JUDGMENT

1 HIS HONOUR: By an amended statement of claim filed on 24 March 2009, Challenger Managed Investments Limited (“Challenger”) claims a monetary judgment from the defendants Milan Samardic (“the first defendant”) and Stoyan Kiceec (“the second defendant”).

2 Challenger claims that the two defendants were guarantors under a Deed of Guarantee executed on 13 April 2006 of a loan made by Challenger to Forster Development Group Pty Limited, both in its own right, and as trustee for the Forster Development Trust (“Forster”).

3 For the reasons given below, I am satisfied that Challenger is entitled to the monetary judgment which it seeks against both defendants.

Deed of Loan

4 On 13 April 2006, the first and second defendants, as director and secretary of Forster executed a Deed of Loan which evidenced an agreement between Forster and Challenger for Challenger to lend and Forster to borrow the sum of $8,058,000 for a period of five years.

5 The purpose of the loan was for Forster to refinance an existing construction loan. In item 2 of the First Schedule of the Deed, the purpose was described in this way:

“Refinance existing FMS construction loan (approx $7,000,000) for security property at Forster with balance to assist with equity into next project and cover loan costs.”

6 The Deed of Loan provided for interest to accrue from day to day on the principal outstanding and to be paid monthly in arrears at the rate of 7.25%pa.

7 The Deed of Loan provided for an additional interest rate of 4% to be payable upon default of payment of any monies due under the Deed.

Deed of Guarantee & Indemnity

8 On 13 April 2006 each of the defendants executed a Deed of Guarantee by which they guaranteed the performance by Forster of its obligations to Challenger under the Deed of Loan of the same date.

9 The Deed of Guarantee in particular provided the following:

“1. The Guarantor hereby:

(1) guarantees to the Principal the due performance by the Debtor of all its covenants and obligations (including covenants and obligations to pay money) under the Schedule Document and in the event of the Debtor failing to pay to the Principal any moneys • payable by it under the Schedule Document or upon the Debtor otherwise failing to comply with any condition stipulation or covenant contained in the Schedule Document then the Guarantor will pay to the Principal all moneys payable by the Debtor either under the Schedule Document or as damages for breach of the Schedule Document or under any judgment or order against the Debtor in respect of any such moneys;

(2) indemnifies 'and will keep indemnified the Principal against all losses damages costs (including legal) expenses and all other liabilities which may be incurred by the Principal in connection with the transaction referred to in the Schedule Document or by reason of any breach failure or default on the part of the Debtor in performing or observing or in attempting to perform or observe all or any agreements, covenants, terms or conditions on the part of the Debtor to be performed or observed under the Schedule Document or which the Principal may incur sustain or be put to in connection with the exercise or attempted exercise of any right or remedy conferred on the Principal under or by virtue of or in consequence of or incidental to the Schedule Document.

2. The Guarantor will be obliged to pay the moneys referred to in paragraph 1(1) hereof whether or not he has received any notice written or otherwise of the default of the Debtor and regardless of whether any demand written or otherwise has been made upon the Debtor or the Guarantor to pay the said moneys. The Guarantor will not be entitled to call upon the Principal to establish that the Debtor is in default under the Schedule Document and the moneys payable under paragraph 1(1) hereof will be payable unless the Guarantor establishes that no default has occurred.

...

6. This Guarantee shall be a continuing • Guarantee and shall not be considered as wholly or partially satisfied or discharged by .a payment or liquidation at any time or times hereafter of any sum or sums of money for the time being due to the Principal as aforesaid or by any settlement of account or any other matter or thing whatsoever but shall extend to cover and be security for all sums of money due to the Principal as aforesaid notwithstanding 'any such payment, liquidation, settlement of account or other matter or thing whatsoever.

7. This guarantee shall not be determined by the death or bankruptcy or liquidation or winding up of the Guarantor (or any of them if more than one) or-by notice of any such event or by reason of the Guarantor (or any of them) entering into a compromise or arrangement with creditors and shall be enforceable notwithstanding that any negotiable or other instrument security or contract shall still be in circulation or outstanding.

...

14. A certificate under the hand of the Principal (or a Director Manger of Secretary thereof if a corporation) shall be prima facie evidence of the amounts owing by the Debtor or the Guarantor to the Principal.

...

16. The Guarantor will pay on demand ail costs and disbursements of the Principal's Solicitors of and incidental to the preparation and execution of this Guarantee and of any security given in relation thereof and of any writing under Clause 14 hereof or resulting from the default of the Debtor or the Guarantor.”

Mortgages

10 On 13 April 2006, the defendants, on behalf of Forster, executed two mortgages, which were subsequently registered in favour of Perpetual Trustee Company Limited as the mortgagee, to satisfy Forster’s obligation under the Deed of Loan.

11 Perpetual Trustee Company Limited was acting as custodian for Challenger as the lender.

Acknowledgement of legal advice

12 Each of the defendants executed a statutory declaration on 4 April 2006, which was in identical terms, acknowledging that in their his capacity as a guarantor for Forster’s borrowings, that he had received independent legal advice regarding the loan and security documents and that after receiving that advice they he had freely and voluntarily signed the Deed of Guarantee.

13 In addition, each defendant signed a document on that day headed “Acknowledgement of Legal Advice by Proposed Guarantor”. The document recorded advice given by Mr Peter Bouzanis, a solicitor, to each of the defendants, which was and was to the following effect:

“3. The advice given to me by my solicitor included that:

(a) if the borrower fails to make any payment on time, I as the guarantor will be liable to remedy that failure, and that could involve me in payment to the lender of all amounts owed by the borrower to the lender including principal, interest, default interest and the lender's costs of rectifying the default;

(b) if as the guarantor I fail to remedy any failure by the borrower to comply with the terms and conditions of the loan in any way, including the obligation to pay principal, interest, default interest, or other charges,

• the lender can sue me personally; and

• can take possession of my property secured to the lender and sell it to recover the amount owing together with interest and other costs, including solicitor's costs, the costs of selling the property and the costs of maintaining the property; and

• if the proceeds of sale from my property are insufficient to satisfy the debt to the lender, the lender can sue me for the deficit;

(c) my liability under the loan documents can be increased (set out the facts regarding the extent of the possible increase, and of any restriction or limitation of the guarantor's rights or obligations in relation to the security and any other party to the documents);

(d) the lender can exercise its rights against me as the guarantor even if it has not pursued the borrower;

(e) my liability under the loan documents is (eg limited to a specified sum, or is unlimited (whichever is the case) and may be affected by cross guarantees; and

(f) the additional obligations, rights and remedies set out in the loan documents if the Consumer Credit Code applies; and

(g) by making a Statutory Declaration verifying the giving of the advice I am making a statement having the force of an Oath which can be relied upon by the lender.”

n

14 This document demonstrated that each of the defendants had received advice, which was in the clearest possible terms, about their obligations under the Deed of Guarantee and their possible liabilities to Challenger in the event that there was any default by Forster in the obligations under the Deed of Loan.

15 The form of acknowledgement satisfies me that each of the defendants well understood these obligations.

History of loan

16 The principal advance was drawn down by Forster on 13 April 2006. Payments of interest were, initially at least, timely. By October 2006, the payments of interest, although continuing, were often paid some weeks late. During 2007, the interest payments were generally made late, sometimes were dishonoured by the bank, but it appears that they were all ultimately made.

17 In February 2008, there was default in the payments and the balance of the account was in arrears. In March 2008, the monthly payment of interest was dishonoured. In April 2008, the monthly payment of interest was again dishonoured. After those two months, the payments of monthly interest ceased altogether.

18 As noted above, inby February 2008 February 2008 Forster had fallen into arrears with respect to the monthly payments of the loan. But it had also fallen into arrears with respect to payments of capital. By letter dated 11 February 2008 addressed to the defendants at Forster’s offices, Challenger wrote, amongst other things:

“I refer to the special conditions of the loan which required the commencement on 13 April 2007 of eight 8 quarterly principal reductions of $72,000.00 and the provision of a Profit & and Loss statement within 30 days of 13 April 2007 ...

In May 2007, following your request to Mr Graham Hughes, it was agreed that commencement of the principal reductions be deferred for six 6 months, ie, . to commence on 13 October 2007 due to changes in your cash flow projections ...

The commencement of the principal reductions is now overdue and it is therefore requested that within 14 days, you forward your cheque for $144,000.00 being the reductions of $72,000.00 due on 13 October 2007 and 13 January 2008, together with your cheque for $25,199.24 being the current interest in arrears.”

19 The position with respect to the capital and monthly interest payments did not improve.

20 On 11 March 2008, Deacons, solicitors, acting on the instructions of Challenger served a notice of default on Forster noting the existence of default. The notice included the following:

“2. Challenger Managed Investments Limited hereby declares all moneys actually or contingently owing by you to it to be immediately due and payable and terminates the Deed of Loan.

3. YOU are hereby required to pay to Challenger Managed Investments Limited the amount outstanding, which as at 4 March 2008, totals eight million one hundred and nine thousand eight hundred and nineteen dollars and ninety cents ($8,109,819.90) (excluding enforcement and other costs) within 7 days of the date of this Notice.

3. YOU are hereby required to pay to Challenger Managed Investments Limited its costs and expenses in preparing and serving this Notice.

4. Challenger Managed Investments Limited relies on the terms of clause 6.1 of the Deed of Loan.”

21 At the same time, a notice in identical form was served on each of the defendants in their his capacity as guarantor.

22 On 20 March 2008, receivers and managers were appointed to Forster and possession was taken of the properties pursuant to the powers contained in the mortgages. The mortgaged properties were ultimately sold, and the proceeds of sale, after appropriate deductions, credited against the arrears in the account of Forster.

23 As at 10 August 2010, the amount certified by Mr Paul Rogan, a director of Challenger, by way of lender’s certificate under cl 14 of the Deed of Guarantee, was $3,743,270.99.

24 In accordance with the Deed of Guarantee this certificate is prima facie evidence of the sum outstanding. There is no evidence before me which, in any way, is capable of contradicting this certificate. I accept it.

Attitude of the defendants

25 It is appropriate to note the attitude of the defendants to these proceedings, both at the time the proceedings were commenced and at the present time.

26 In so doing, it is relevant to record that all proceedings in the Court must be conducted in accordance with the overriding purpose provided in the Civil Procedure Act 2005 in these terms:

“56. Overriding purpose

(1) The overriding purpose of this Act and of rules of court, in their application to civil proceedings, is to facilitate the just, quick and cheap resolution of the real issues in the proceedings.

...

(3) A party to civil proceedings is under a duty to assist the court to further the overriding purpose and, to that effect, to participate in the processes of the court and to comply with directions and orders of the court.

(4) A solicitor or barrister must not, by his or her conduct, cause his or her client to be put in breach of the duty identified in subsection (3).

...”

27 As is plain from the legislation, the obligation to assist the Court falls onto the parties themselves as well as their lawyers.

28 The first defendant, without the benefit of a solicitor acting on his behalf filed a notice of defence on 24 November 2009. In that defence, he disputed his liability under the Deed of Guarantee to Challenger. The real nature of his defence is not apparent. What matters were really in issue does not appear from the document.

29 Although he has appeared from time to time in the proceedings, on his own behalf, when the matter was called on Friday 13 August 2010, when it was listed for directions, he did not appear. When the matter was called outside the court on Monday, 16 August 2010, the date fixed for hearing, he did not appear.

30 I am satisfied that he does not maintain any defence to the claim of Challenger.

31 The second defendant retained Raj Lawyers who, on his instructions, filed a comprehensive notice of defence and a fully pleaded cross-claim on his behalf, on 6 May 2009.

32 On Friday 13 August 2010, Mr Deutsch, solicitor, appeared for the second defendant and informed the court that the second defendant did not intend to appear on Monday, 16 August 2010 when the matter was listed for hearing and that he did not intend to contest the proceedings. He informed the court that the second defendant raised no opposition to the orders sought by the plaintiff.

33 Consistently with this expressed attitude, when the matter was called on for hearing on Monday 16 August 2010, there was no appearance by, or on behalf of, the second defendant.

The leisurely course of these proceedings

34 The proceedings were initially commenced by statement of claim filed on 18 November 2008. Thereafter, progress could only be described as glacial. The matter was mentioned in Court on nine separate occasions for directions during 2009 and 2010. It was also the subject of a telephone conference held by the Registrar on one occasion recently.

35 On each of the occasions when the matter was mentioned, including within the last two months, the Court has been informed, either expressly by the second defendant’s solicitors, or else by the silence of the defendants in the presence of their pleaded defences, that the matter was to be the subject of a contested hearing. On the basis of the information provided by the parties, the matter was fixed for a two day defended hearing. It has now occupied less than 15 minutes of final hearing time.

36 It is now plain that neither of the defendants had any arguable defence. The defences which were filed did not identify any real issue for determination. All that has been occasioned by the filing of defences is to delay the timely hearing of the matter which does not serve any good purpose. First, it acts to delay other parties with matters before the Court obtaining a timely hearing of those matters. Secondly, the legal costs of the creditor, Challenger, are increased significantly and these ultimately have to be met by the defendants. Thirdly, the defendants are incurring legal costs which would otherwise not be necessary and which ultimately are entirely wasted. Fourthly, if the defendants have other creditors, the position of those creditors is likely to be disadvantaged as interest continues to accrue on the obligations of the defendants to Challenger, at a default rate. Ultimately the sum owed will be significantly increased when compared with the sum which would otherwise have accrued if the debt was crystallized at a much earlier point in time.

37 This case ought to be a salutary reminder to all parties, and members of the legal profession, that the provisions of s 56 of the Civil Procedure Act 2005 require careful attention at all stages of proceedings. If this important provision is given the sort of scant attention, which appears to have happened in this matter, then the Court will be left in a position where it is very difficult for it to fulfil the legislated purpose which underlies the exercise of its civil jurisdiction.

38 Although the issue was not argued in this case, the Court has the ability to impose costs orders, including on legal practitioners, which reflect the failure of parties, or their lawyers, to attend to their obligations to the Court.

39 The High Court of Australia has stated in the clearest possible terms what the obligations are for parties to litigation: Aon Risk Services Australia Limited v Australian National University [2009] HCA 27; (2009) 239 CLR 175. This matter does not demonstrate attention to the principles discussed by the High Court of Australia.

Discernment

40 As a result of the attitude of the defendants, the evidence before me is uncontested.

41 Forster borrowed a little over $8M, fell into default, and is now no longer trading. Properties, which were secured by mortgage, have been sold and monies recovered.

42 Each defendant, knowingly and with the benefit of considered legal advice, entered into a Deed of Guarantee, to assure Challenger that Forster would comply with its obligations. On that basis, Challenger lent the funds to Forster.

43 The accumulated balance of the loan account is, as I have indicated earlier, a little over $3.7M. That account has been in default for many months and years. The defendants were called upon to remedy the default of Forster. Neither defendant has remedied the default.

44 I am satisfied on the evidence which has been adduced that the plaintiff is entitled to the orders which it seeks.

Costs

45 Challenger seeks to recover its costs on an indemnity basis from Forster (and hence from the guarantors, the defendants), on the basis of a contractual entitlement arising from cl 9 of the Deed of Loan. This clause provides:

“The Borrower shall on demand pay or reimburse the Lender for all costs, charges, expenses, outgoings and other liabilities payable or which are determined to be payable or which the Lender or the Mortgage Manager may pay or incur in relation to the Facility or any Transaction Document including without limitation ... legal fees and expenses (including on enforcement of fair proportion of overheads of the Lender or the Mortgage Manager (and in particular salaries of employees) attributable to time spent on enforcement) on a full indemnity basis ...”.

46 Forster’s obligations under cl 9 of the Deed of Loan in turn fall within the scope of the defendants’ obligations under cl 1(1) of the Deed of Guarantee and Indemnity, as set out in para 9 above.

47 In addition, under cl 1(2) of the Deed of Guarantee and Indemnity, Challenger is specifically entitled to an indemnity from the defendants against, among other things, all costs (including legal costs) and expenses incurred by Challenger by reason of any breach, failure or default on the part of Forster in performing or observing the Deed of Loan.

48 I am satisfied that, in exercising my discretion to order costs, I should do so on the same terms as those unambiguously expressed by the parties under the Deed of Guarantee and Indemnity, and award the plaintiff costs on an indemnity basis.

Orders

(1) Judgment for the plaintiff against the first defendant in the sum of $3,743,270.99.

(2) Judgment for the plaintiff against the second defendant in the sum of $3,743,270.99.

(3) Judgment for the plaintiff/cross-defendant on the amended cross-claim filed by the second defendant/cross-claimant on 6 May 2010.

(4) Defendants to pay the plaintiff’s costs on an indemnity basis.

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LAST UPDATED:
16 August 2010