Edmond El Khoury v Denis Harsany & Anor; Joseph Taouk v Assure (NSW) Pty Ltd

The primary proceedings (2016/264640) were brought by Mr Joseph Taouk (Mr Taouk or Plaintiff) against Assure (NSW) Pty Ltd (Assure or Defendant) concerning a payment dispute surrounding a joint venture agreement for the development and construction of a townhouse complex in Berowra Heights (2016 Proceedings). I gave judgment in this matter on 4 May 2017 in Taouk v Assure (NSW) Pty Ltd [2017] NSWSC 534 (principal judgment).

Mr Taouk was almost entirely unsuccessful in this principal judgment, and I found he was further liable to Assure for breach of agreement and pursuant to a guarantee and indemnity. At the conclusion of the trial I entered judgment for $3,266,518.14 pursuant to Assure’s Cross-Claim against Mr Taouk. However on appeal that was set aside on the basis that Mr Taouk had not been given an opportunity to dispute the amount claimed under the Cross-Claim.

This judgment concerns the outstanding issue of the quantum of Mr Taouk’s liability to Assure for breaching the said agreement and guarantee and indemnity.

This judgment also concerns a further dispute (2018/198183) which I ordered be heard together with the proceedings (pursuant to a Notice of Motion filed 25 September 2018) on 19 October 2018 in relation to the alleged payment of $200,000 from Mr El Khoury (Mr El Khoury) to Assure and guaranteed by Mr Taouk and Mr Denis Harsany (Mr Harsany) who is the sole director and secretary of Assure (2018 Proceedings). The payment of the $200,000 featured in the principal judgment and was therefore heard together with the 2016 Proceedings (principal judgment [21]-[23], [219]-[220], [265]-[274]). Mr Harsany opposed being joined to the expedited proceedings. However, I proposed to hear the two matters together, reserving Mr Harsany’s position in terms of costs, by reason of the fact that the events surrounding the 2016 Proceedings were so intertwined to the 2018 Proceedings that there was a compelling case for hearing the two matters together.

The genesis of all these disputes began when Assure engaged Berowra Developments Pty Ltd (the Developer) to develop 17 townhouses at 6-12 Kita Avenue, Berowra Heights NSW (Berowra Development) (principal judgment [2]).

The Developer entered into a building agreement on 20 May 2012 with HGH Construction Pty Ltd (the Builder) to carry out the building work under the Development Agreement (Building Agreement). Mr Taouk is the sole director, secretary and shareholder of the Builder (principal judgment [3]).

The parties entered into an agreement on 12 June 2012 together with Mr Taouk who provided Assure with a guarantee and indemnity in relation to the Developer’s performance (Development Agreement) (principal judgment [2]).

Key terms of the Development Agreement signed on 12 June 2012 by Assure, the Developer and Mr Taouk as guarantor are as follows, adopting the defined terms of the document (principal judgment [20]):

Clause 24.1 of the Development Agreement provides (CB2 674):

On 27 June 2012, Mr Harsany asked Mr Taouk to contribute $200,000 in funding to purchase the fourth and final lot of the Berowra property. As it is important, I will reproduce exactly what I stated in my principal judgment with respect to this $200,000 contribution (at [21]-[24]):

On 27 June 2012 Mr El Khoury borrowed from AB Traders Pty Ltd (a company of which Mr Bahmed is director) an amount of $200,000 due on or before 1 December 2016, with interest of 6% per year compounded monthly from the date of advance (Exhibit D1).

On 27 June 2012 at 2:47pm, Ms Sephton of Lane & Lane solicitors emailed Mr Harsany (Ex DH1 1):

On 2 July 2012, Mr El Khoury emailed Ms Sephton of Lane & Lane, with Mr Taouk and Mr Harsany copied in, stating (Ex DH1 2):

This email attached an unexecuted version of the loan agreement between Mr El Khoury (described as “the Lender”) and Assure (described as “the Borrower”) (the Loan Agreement) (Ex DH1 3-12). Clause 4 provided (Ex DH1 5):

4. Interest

Items 5-8 of the Appendix to the Loan Agreement provided (Ex DH1 9-10):

On 3 August 2012 at 10:32am Ms Sephton emailed Mr Harsany stating (Ex DH1 29):

On 3 August 2012 at 12:37pm Mr Harsany emailed Mr El Khoury, Ms Sephton and Mr Taouk a copy of the Loan Agreement executed by Assure and Mr Harsany (Ex DH1 18-28) with the addition and deletion made by hand to Item 5 of the Appendix (in italics):

On 3 August 2012 at 12:44pm Mr Harsany emailed Ms Sephton stating (Ex DH1 30):

On 3 August 2012 at 3:31pm Mr El Khoury emailed Ms Sephton, with Mr Harsany and Mr Taouk copied in, stating (Ex DH1 31):

On 3 August 2012 at 10:38pm Mr Taouk emailed Mr El Khoury, Mr Harsany and Ms Sephton (Ex DH1 32):

On 27 October 2014, at 125 Cosgrove Road, Mr El Khoury asserts he asked Mr Harsany to repay the amount. The following conversation allegedly took place (2018 Proceedings CB 33):

The Development Agreement was varied by deed on 28 May 2015 (collectively the Development Agreements) (principal judgment [2]). The variation, in short, primarily affirmed the Development Agreement, simplified the Consideration Amount formula, and stipulated development costs are to be paid before the payment of the Consideration Amount (principal judgment [55]).

On 17 May 2016 Mr El Khoury provided Mr Harsany a letter of demand (2018 Proceedings CB 174):

The Berowra building work was not completed, and the Developer was ultimately deregistered, so that Assure retained a third party to supervise completion of the work (principal judgment [3]). Mr Taouk sought monetary judgment against Assure, claiming he was personally owed money for his contributions to the costs of construction and development of the site, and sought a declaration Assure had breached the Development Agreement (principal judgment [4]-[5]).

Assure cross-claimed alleging Mr Taouk was liable for breach of the Development Agreements and breach of guarantee and indemnity (principal judgment [6]).

As I have said I delivered the principal judgment on 4 May 2017.

I dismissed Mr Taouk’s various allegations of breach of the agreement, estoppel, breach of s 21 of the Australian Consumer Law (as in the Competition and Consumer Act 2010 (Cth) Sch 2) and unjust enrichment (principal judgment [381]).

Pursuant to the Cross-Claim I found Mr Taouk is liable to Assure for breaching the Development Agreement and liable pursuant to the guarantee and indemnity (principal judgment [342], [356], [381]). However the quantum of this liability has not yet been assessed.

As Mr Taouk was entirely unsuccessful in the proceedings in Taouk v Assure (NSW) Pty Ltd [2017] NSWSC 778 (costs judgment) I ordered Mr Taouk pay Assure’s costs of the proceedings on an indemnity basis (costs judgment [25]).

The matter went on appeal with Meagher JA determining an application for security for costs in Taouk v Assure (NSW) Pty Ltd [2017] NSWCA 160 (security for costs judgment).

In Taouk v Assure (NSW) Pty Ltd [2017] NSWCA 227 (appeal judgment) handed down on 8 September 2017 the New South Wales Court of Appeal set aside order 2(c) made by me on 23 May 2017 giving judgment in favour of Assure against Mr Taouk, and remitted the matter to the Equity Division to deal with the question of quantum. The purpose of this was to give Mr Taouk the opportunity to put forward his case that Assure has not suffered loss or damage, or if it has, that the amount recoverable is less than the judgment initially awarded of $3,266,518.14 (appeal judgment [148]-[152]).

On appeal my findings as to the conversations that occurred were not challenged (appeal judgment [71]) as was my analysis of the relationship between the Development Agreements (appeal judgment [104]). In addition Mr Taouk disclaimed any intention to challenge the quantum of Assure’s expenditure to complete the development (appeal judgment [5]). It did also not appear controversial that Mr Taouk had engaged in a default event (appeal judgment [89]-[90]). Nor did it appear controversial Mr Taouk was liable for breach of the Development Agreement (appeal judgment [87]-[88]).

However as is clear from above that the appeal was allowed in part to enable Mr Taouk to challenge the quantum of his liability for breach of the two limbs of (a) breach of the Development Agreement; and (b) breach of his guarantee and indemnity (appeal judgment [140]-[152]).

The 2018 Proceedings involve the question of Mr El Khoury’s entitlement (pursuant to his Statement of Claim filed 27 June 2018) to judgment against Mr Harsany and Mr Taouk in the sum of $805,740.91 by way of their guarantee to the Loan Agreement for the $200,000 provided by Mr El Khoury.

On 1 November 2018, I gave Mr El Khoury leave to file an Amended Statement of Claim, which amended the pleadings to account for the release of the $200,000 from Lane & Lane solicitors in consideration for the parties entering into the Loan Agreement. On 9 November 2018 Mr Harsany filed a Defence to the Amended Statement of Claim (T29/50-T30/8).

There was also an issue as to a possible Cross-Claim to be filed by Mr Harsany seeking contribution with respect to the amount owed (T44/48-T45/13). However, no such Cross-Claim was formally filed.

Each of the 2016 Proceedings and 2018 Proceedings in turn raise quite distinct issues. The 2016 Proceedings concern the appropriate principles to be called in aid in assessing Mr Taouk’s liability to Assure pursuant to a guarantee and indemnity. The 2018 Proceedings concern whether Mr Harsany and Mr Taouk are liable as guarantors pursuant to the Loan Agreement and the provision of $200,000 from Mr El Khoury to Assure.

It is I consider uncontroversial that the object of damages for breach of contract is neither to make the defendant disgorge what it has saved due to its breach, nor to make it disgorge profits it has reaped. In contract, common law damages are compensatory. Their fundamental purpose is to put the person whose rights have been violated, in the same position, so far as money can do so, as if those rights had been observed: Robinson v Harman [1848] EngR 135; 154 ER 363.

In Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64; [1991] HCA 54 Deane J said (at 119-20) (citations omitted):

In Clark v Macourt (2013) 253 CLR 1; [2013] HCA 56 Keane J said (at [106]) (citations omitted):

However, amounts payable under guarantees and/or indemnities are of a different nature to common law damages. This is because the amount payable or the action required under a guarantee and/or indemnity is to be determined primarily by the terms and hence scope of the guarantee and/or indemnity. The precise terms of the contractual guarantee and/or indemnity may or may not require payment of a set amount, or require payment according to the compensatory touchstone of common law damages.

In Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245; [1988] HCA 11 Mason CJ said (at 254-6) (citations omitted):

In Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424; [2004] HCA 28 Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ said (at [17]-[18]) (citations omitted):

As was evident in the reasoning of the High Court in the above case (at [24]-[29]) the scope of liability must be determined according to the precise language of the contract in question. This is also clear in the judgment of the Court of Appeal in Perry v Anthony [2016] NSWCA 56 (at [40]-[43]):

In Coghlan v SH Lock (Australia) Ltd (1987) 8 NSWLR 88 the Privy Council observed (at 94):

In Breusch v Watts Development Division Pty Ltd (1987) 10 NSWLR 311 McHugh JA, with Hope and Glass JJA agreeing, said (at 314):

In Agricultural and Rural Finance Pty Ltd v Atkinson [2010] NSWSC 1396 Einstein J said (at [129]-[134]):

In Stein v Torella Holdings Pty Ltd [2009] NSWSC 971 McLaughlin AsJ said (at [32]-[33] and [42]-[44]):

It is settled law that persons who are under co-ordinate liabilities to make good the one loss must share the burden pro rata: Albion Insurance Co Ltd v Government Insurance Office (NSW) (1969) 121 CLR 342 at 350; [1969] HCA 55 (Kitto J). That is, guarantors for the same principal debtor and for the same debt or obligation have a common interest and a common burden, as long as if the liabilities are “of the same nature and to the same extent”: Burke v LFOT Pty Ltd (2002) 209 CLR 282; [2002] HCA 17 at [15] (Gaudron ACJ and Hayne J).

With reference to the principal judgment (particularly at [330] and [335]) Mr Taouk submits that the starting point of this assessment of quantum is that Assure has had the benefit of the expenditure of the amount claimed as damages totalling $3,266,518.44 (submissions [1]-[5]). He contends that there is no evidence to suggest that this amount represents the loss incurred by Assure (submissions [5]).

Further, Mr Taouk asserts that Schedule 8 clause 12 of the Development Agreement makes it clear that it was part of the agreement that the finance which would be obtained by the Developer was going to be deducted from the consideration amount of $9,550,000 (inclusive of GST) (submissions [6]). His case is that the correct interpretation of Schedule 8 of the Development Agreement is that Assure was liable to pay for the first $3,700,000 of the development and finance costs, and Mr Taouk is liable under his guarantee and indemnity only for funding costs linked to a “Default Event”. He denies there was any obligation to indemnify Assure because the Developer’s breach caused no loss, cost, expense or liability to Assure (supplementary submissions [1]-[9]).

Therefore, Mr Taouk contends the damages arising from his non-performance of the development contract is to be ascertained by comparing the position of Assure had the Developer performed the contract, with Assure’s current position given the found non-performance of the contract (submissions [6]-[8]).

Mr Taouk submits that Assure therefore has not factored in that the breach of the Development Agreement has nevertheless provided Assure a benefit, being the release from having to pay the Consideration Amount, whilst still enjoying the benefit of a large portion of the construction work (submissions [8]).

Mr Taouk also criticises the invoice issued by Devlan referred to by Assure, stating that the invoice proves nothing and does not prove the work invoiced was work done to fix defects (submissions [9]). With respect to outstanding payment for equity, Mr Taouk submits that the Developer has not received any equity in the subject land, and in order “to make good this claim Assure must be willing to perform its obligations to give the equity” (submissions [10]).

With respect to the “funding costs” claimed by Assure as damages, Mr Taouk repeats that this issue is likewise to be determined by comparing the position of Assure had the Developer performed the contract with the current position given non-performance (submissions [11]). He further says it is insufficient to say that Assure has had to pay interest on money borrowed by it, and that this interest acts as a measure of damages. Rather, he says pursuant to Schedule 8 clause 4 the Developer was not obliged to pay interest costs and fees (submissions [12]).

Mr Taouk concludes that the way to ascertain Assure’s loss is to apply the formula set out in Schedule 6 of deed of variation to the Development Agreements, and compare that to the hypothetical scenario that the Developer had performed the Development Agreement (submissions [13]). He further criticises Assure’s approach as wrong, as the remedy for breach of an indemnity is unliquidated damages, and Assure has not framed its cases on the basis of liquidated damages (supplementary submissions [10]).

The starting point of Assure’s argument is that Mr Taouk’s liability for breach of the Development Agreement and liability pursuant to his guarantee and indemnity were not successfully challenged on appeal (submissions [1]-[3]). In addition, on appeal, counsel for Mr Taouk expressly disclaimed any intention to challenge Assure’s expenditure to the builder, subcontractors and to Devlan, and is thereby bound by the finding that Assure made payments of $3,266,518.14 (submissions [4]-[8]).

In addition, Assure claims payment of an additional $73,411 to Devlan pursuant to an invoice dated 21 February 2016 for defect rectification work, contending this amount has since been identified (submissions [9]-[12], supplementary submissions [25]-[28]).

Assure claims $220,000 from Mr Taouk as payment for equity in the land, as the Developer was liable for this amount, and to the extent that the Developer did not pay this amount Mr Taouk is liable as guarantor (submissions [13]-[16], supplementary submissions [29]-[30]). Assure also claims $1,748,284.14 for funding costs incurred in financing the project (submissions [17]-[23]). Assure also notes the $200,000 provided to Assure by Mr El Khoury is also a claim open on the pleadings (supplementary submissions [31]). It also claims the “Baccus loans” set out in its schedule of damages, rejecting any argument these loans are not within the scope of Mr Taouk’s liability (supplementary submissions [32]-[34])

Assure rejects Mr Taouk’s argument that if Assure borrowed money to pay for construction costs, then Assure has not suffered any loss because irrespective of who borrowed the funds, the funds would have been paid from the proceeds of sale of the townhouses (submissions in reply [7]). Assure rejects this argument on the basis that Mr Taouk was responsible for paying the construction costs, and had no right of reimbursement in respect of any contributions he and the Developer made to the project (submissions [24]-[27]). Assure denies Mr Taouk can suggest damages should be calculated by this broad compensatory principle (supplementary submissions [9]-[14]).

Assure rejects Mr Taouk’s argument as based on the false assumption that his liability should be determined by general common law principles of loss and damage. Assure submits this is wrong because the scope of Mr Taouk’s liability should correctly be determined by his guarantee and indemnity in clause 24.1 of the Development Agreement, which indemnifies for “all losses, liabilities, costs and expenses (including without limitation, legal expenses on a full indemnity basis)”. Assure submits this clause invites quite a different calculation that ordinary common law damages, as the question of quantum is simply what sum ought to have been paid pursuant to the indemnity (supplementary submissions [1]-[8], submissions in reply [1]-[6]).

Assure submits Mr Taouk’s promise was his guarantee and indemnity, and damages should be assessed according to what would have happened had he complied with this guarantee and indemnity. Assure says damages are not concerned with what would have happened had the Builder and the Developer complied with their obligations, as this is not the basis upon which its cross-claim is framed (supplementary submissions [15]-[20]). Upon this basis, Assure rejects Mr Taouk’s argument that as Assure has received the benefit of its own expenditure it did not suffer a loss, because had Mr Taouk honoured his funding obligations or his obligations under the guarantee and indemnity, Assure would have received the benefit of the development without paying over $5,000,000 (supplementary submissions [21]-[22]).

Assure rejects any suggestion that the amount it seeks is not connected to those matters set out in clause 24.1 of the Development Agreement (supplementary submissions [23]-[24], submissions in reply [9]). It likewise rejects any suggestion raised by Mr Taouk in his supplementary submissions that Assure bore funding obligations beyond payment of the Consideration Amount, asserting it is not open to him to cavil with a matter already dealt with in my principal judgment (submissions in reply [8] and [10]).

Assure seeks judgment in the amount of $5,289,893.48 as scheduled together with costs on an indemnity basis (submissions [28]-[30]).

Mr El Khoury submits that the chronology of emails and the findings of fact in my principal judgment demonstrate that Mr El Khoury advanced $200,000 to Assure after execution and delivery of the Loan Agreement by Mr Harsany to Mr El Khoury (submissions [1]-[2]). His case is that the delivery of the signed Loan Agreement to Mr El Khoury by Mr Harsany was Mr Harsany’s request that money be advanced to Assure, and the consideration was Mr El Khoury acting on the request (supplementary submissions [1]-[7]).

Mr El Khoury notes that Mr El Khoury in fact required execution and return of the Loan Agreement (containing Mr Harsany’s guarantee) before allowing Lane & Lane to release the $200,000 to Assure. He also contends this was a precondition, and without Mr Harsany’s guarantee in the Loan Agreement, the $200,000 would not have been advanced (submissions [2]).

Although Mr El Khoury originally submitted that the document was a deed, this was no longer pressed (submissions [5]-[6], T37/13-41). Mr El Khoury, however, denies that the obligations of guarantee under the Loan Agreement have been discharged, as Assure’s failure to repay the loan is ongoing (supplementary submissions [8]-[9]).

As the debt has not been repaid, and interest is referred to in Item 6 of the Loan Agreement as 2% per month, Mr El Khoury asserts he is entitled to separate judgments for the same amount of $200,000 plus interest compounded monthly from the date of advance of 7 August 2012 against both Mr Harsany and Mr Taouk as joint and severable guarantors (submissions [7]-[13]). With reference to clause 4.2, which reads “interest so in arrears shall without prejudice to the right of the Lender to sue for and recover such interest and to the other rights and powers of the Lender be added to the Loan and shall thenceforth bear interest payable”, Mr El Khoury states interest should be charged every month on a compounded basis (supplementary submissions [10]-[11]).

The primary argument put forward by Mr Harsany with respect to the $200,000 provided by Mr El Khoury is that the guarantee he entered into jointly with Mr Taouk (guaranteeing Assure’s obligations under the Loan Agreement) was not supported by consideration (submissions [1]-[4]).

Mr Harsany contends that because the $200,000 was advanced on 27 June 2012, and the Loan Agreement was only executed on 3 August 2012 after the provision of the money, the actual guarantee in the Loan Agreement was entered into with no consideration (submissions [5]-[18]). Therefore, the provision of the $200,000 into the solicitors’ account effected the creation of a trust, which is not capable of supporting a contract (supplementary submissions [1]-[16]).

Mr Harsany contends the “release” of the $200,000 was no consideration, because the termination of a trust cannot amount to consideration (submissions [19]-[23], supplementary submissions [17]-[22]).

As an alternative, Mr Harsany contends the loan was also provided purely for the purposes of a short-term bridging loan awaiting time for receipt of a development loan for Assure, which was an implicit term of the Loan Agreement (supplementary submissions [23]-[29]). As that did not eventuate, he argues the purpose of the guarantee has now been discharged (submissions [34]-[38]).

With respect to the interest rate, Mr Harsany notes that whilst clause 4 of the Loan Agreement refers to a “Higher Rate” and a “Lower Rate”, Item 6 of the Appendix only refers to “2% per month if the fund not paid on the due date” with no rest periods, due date for instalment or arrears. Accordingly, he contends the interest rate should be 2% simple interest per month, reinforced by the background to the arrangement by way of informal bridging loan (submissions [41]-[45], supplementary submissions [30]-[38]).

Mr Harsany asserts Item 6 of the Loan Agreement provided interest was to be payable when the amount was “not paid on the due date” and the due date was “upon receipt of development loan” being 27 July 2013, when the development loan was obtained (principal judgment [33], supplementary submissions [39]-[44]).

If he is found liable, Mr Harsany would seek contribution by Mr Taouk as co-surety, as reflected in the Defence to Amended Statement of Claim at [19] (submissions [46]-[56]).

Mr Harsany further submits that the Loan Agreement was in any event not a deed as it uses the language of consensual agreement, regardless of the words “signed, sealed and delivered” on its execution page (submissions [24]-[33]). As I have said this issue does now not strictly arise, because in argument counsel for Mr El Khoury did not press this point (T37/13-41).

Mr El Khoury swore two affidavits on 18 October 2018 and 30 October 2018.

In his first affidavit (18 October 2018) he largely annexed relevant contemporaneous documents and other documentation.

However he did state on or about 27 October 2014 that he met with Mr Harsany at 125 Cosgrove Rd and asked for the money he loaned to him. He said Mr Harsany replied by stating when the refinance was completed he would pay him the loan.

In his second affidavit (30 October 2018) he further attached the Loan Agreement dated 3 August 2018 and stated as at 30 October 2018 he had not received any payment or debt of the $200,000 he advanced to Mr Harsany and Mr Taouk.

In cross-examination Mr El Khoury said he had borrowed the $200,000 from someone else, which was AB Traders Pty Ltd managed by Ali Bahmed (T10/46-49). He said he still owed them the $200,000 plus interest and produced the loan document he had with AB Traders Pty Ltd (T11/13-39). He said during the 2016 Proceedings he was aware of this document (T12/9-10). He said he thought Mr Taouk was aware of this document when he borrowed the money, and had spoken to Mr Taouk very often about it because he wanted his money back (T12/21-25).

Mr Harsany swore two affidavits on 19 December 2016 and 29 October 2018

In his first affidavit (19 December 2016), which was before me in the original proceedings, Mr Harsany described the background to the dispute including asking Mr Taouk on 27 June 2012 to provide $200,000 in funding to the purchase of one site in the development. He said the conversation was in words to the effect:

He said Mr El Khoury deposited the funds into the trust account of Lane & Lane solicitors.

In his second affidavit (29 October 2018) Mr Harsany set out the background to the $200,000 provided by Mr El Khoury, namely that Assure had needed to obtain bridging finance in order to complete its acquisition of the fourth lot of property at 8 Kita Avenue. He said he had a conversation on 27 June 2012 with Mr Taouk where he asked for $200,000 to be advanced to Assure, where Mr Taouk said “[y]es, just until I get the development finance”.

He said on 2 July 2012 he received an email from Mr El Khoury which attached an unexecuted copy of the Loan Agreement and security documentation. He said prior to receiving the email he had not been informed that he was supposed to execute any guarantee. He said he signed the Loan Agreement on 3 August 2012, and received an email on that date from Mr Taouk who said he had also signed. He said he sent an email to Mr El Khoury on 3 August 2012 attaching a copy of the Loan Agreement signed by him, and later that day received an email from Mr El Khoury in which he told Mr Sephton of Lane & Lane solicitors to release $200,000 which had been paid into the firm’s trust.

Mr Harsany stated in the 2016 Proceedings Mr Taouk alleged that he had repaid the amounts owing under the Loan Agreement. He asserted he thought it was likely someone had repaid the Loan Agreement. He said he was concerned that someone else had repaid the advance under the Loan Agreement, such that Assure’s obligations may already have been satisfied without his knowledge.

In cross-examination, Mr Harsany accepted he had received and signed the Loan Agreement in question, and added some words “upon receipt of development loan” to it, after he had been told Mr Taouk had signed a version of the document (T16/43-T17/5). He accepted he did not tell Mr El Khoury via email that he had made a handwritten alteration (T19/11-13).

Mr Harsany denied that it was his understanding that Lane & Lane solicitors had held the $200,000 on trust for Mr El Khoury (T18/9-19). He accepted however, that at least by 3 August 2012, his understanding was that if he and Assure did not sign the Loan Agreement, Mr El Khoury was not going to give any money to Assure (T18/46-49). He agreed the $200,000 was released after he had signed the Loan Agreement and sent it to Mr El Khoury (T19/42-45).

Mr Harsany denied Mr El Khoury had made an oral demand for repayment of the money in October 2014 (T20/4-6). He accepted however that in around May 2016 he had received a written demand (T20/37-T21/2). He accepted when Assure had sold the proceeds of the development, no money had gone to Mr El Khoury (T21/41-43).

Mr Harsany accepted he had transferred some property to his ex-wife, and she had not made any significant payment for this transfer, but that he would need to check if there was any payment whatsoever (T22/44-T45/6). He said an administrator was appointed to Assure on 17 January 2018 (T24/24-25) and that he had entered into a deed of company arrangement, but had not turned his mind at that time to the amount Assure owed to Mr El Khoury (T24/27-36).

The key controversy in the 2016 Proceedings is the quantum of Mr Taouk’s liability to Assure, which was entered into for judgment at $3,266,518.14 before being overturned on appeal to give Mr Taouk the opportunity to advance any arguments he wished on quantum. Assure now has provided an updated schedule of damages seeking $5,289,893.48 (Amended Schedule).

On appeal, there was no issue that Mr Taouk was liable to the cross-claim. However, what remains in issue is the quantum of liability under the cross-claim.

In addition, what is not in issue is the legitimacy of some of the payments. In the course of argument on appeal senior counsel for Mr Taouk accepted that during the trial there was no issue concerning the amounts actually paid out by Assure (appeal judgment [148]). That is, there is no suggestion the amounts paid out by Assure were not legitimately incurred or were incurred with insufficient causal connection to the Development Agreements and the Berowra Development. However, I do note that Mr Taouk has challenged the “Baccus loans” and construction costs invoiced to Devlan in the Amended Schedule provided by Assure.

Nevertheless, the question is only quantum. Mr Taouk submits that because Assure has reaped the benefit of the profits of the Berowra Development, quantum should be calculated by the compensatory mechanism of comparing Assure’s position had the Developer performed the contract, with its current position given its non-performance.

This argument is in my view misconceived. This is because it incorrectly frames the basis upon which Mr Taouk is liable to Assure. He is liable to Assure not only for breach of the Development Agreement but also liable for his breach under the terms of the guarantee and indemnity. Importantly, the guarantee and indemnity, including clause 24.1 sets out the basis for Mr Taouk’s liability as requiring the payment of “all losses, liabilities, costs and expenses” in connection with:

As I have made clear in my principal judgment and appeared uncontroversial on appeal the Developer engaged in a “Default Event” so as to engage the indemnity, and/or the Developer failed in the due and punctual performance of its obligations so as to engage the guarantee (principal judgment [349], appeal judgment [89]).

To this end, the Macquarie Dictionary defines:

There is no general principle that a person is not entitled to the benefit of an indemnity unless that person has suffered an actual ascertainable loss. It is not a question of purely compensatory common law damages. Rather, it is always a question of the proper construction of the indemnifying clause or guarantee, and the nature and extent of the rights and liabilities that arise under the clause. Here, Mr Taouk is liable for all losses, liabilities, costs and expenses in connection with the occurrence, cure and attempted cure of the Default Event.

The precise wording of this clause displaces in my view the orthodox principle of compensatory damages that may be payable at common law for breach of contract. The express provisions require Mr Taouk to be liable for all losses etc. Further, these terms do not all mean the same thing. As I have said each has their own distinct meaning, flavour and import attached to them.

In my view, the guarantee and indemnity requires payment for all amounts properly characterised accordingly in connection with the Default Event regardless of the resultant profit Assure received from the Berowra Development. These terms, in my view, are of wide import. As I have said, on appeal, counsel for Mr Taouk eschewed any contention as to the amounts actually paid out by Assure which was then calculated at $3,266,518.14 (appeal judgment [148]). Now Assure seeks $5,289,893.48.

Apart from challenging those construction costs paid to Devlan and briefly questioning the Baccus loan facilities in the schedule (T70/10-16) Mr Taouk has, as far as I have understood his argument, taken a point of principle rather than an approach of questioning the legitimacy of those amounts included in Assure’s Amended Schedule. That is, he has not criticised the calculation of the Amended Schedule or suggested seriously any of those amounts have not been legitimately incurred. Mr Taouk’s case is simply that the calculation of Assure’s damages should be off-set by a broad compensatory approach.

I do not agree with Mr Taouk’s point of principle, and further accept the legitimacy of those amounts in the Amended Schedule as falling within the wide words of the guarantee and indemnity. They amount to: (1) construction costs; (2) outstanding payments for equity; and (3) funding costs, including loan facilities with Westpac, CEG, Optima, Baccus, as well as associated interest, fees and charges associated with funding. There has been interest credit included in the Amended Schedule paid on settlement of the various townhouses. I am satisfied, therefore that those amounts expended at the very least qualify as costs and expenses, whether or not some may also be characterised as losses and/or liabilities. I am therefore satisfied they are properly claimable under the guarantee and indemnity. I am also satisfied they are properly connected to those limbs of 42.1 and particularly the occurrence, cure and attempted cure of a Default Event.

In addition, the claim could have expressly provided for the guarantee and / or indemnity to take account of property but it did not, and no implied terms were pleaded to this effect or otherwise. There is no case for off-setting these profits from those losses, liabilities, costs and expenses because this is not provided for in the Development Agreement.

In short, what the Development Agreement required was for Assure to provide the Consideration Amount (as calculated by the formulae in the Development Agreements) and Mr Taouk was to ensure the completion of the project by indemnifying for all losses, liabilities, costs and expenses.

Each of the amounts itemised in the Amended Schedule provided by Assure has not been challenged in terms of mathematical calculation. As I have said, Mr Taouk’s case was one predominantly if not solely based on the appropriate principle to be used to calculate damages, and on this point he is in my view wrong.

In supplementary submissions Mr Taouk did allude cryptically to an argument that “there was no obligation to indemnify because the Developer’s breach caused no loss, cost, expense or liability to Assure” (supplementary submissions [4]). Further he did assert Assure bore funding obligations beyond the payment of the Consideration Amount, including payment of the first $3,700,000 of construction costs (supplementary submissions [6]-[9]). In relation to these arguments, I agree with Assure that they are contrary to my findings and seek to cavil with the findings already made by the Court (principal judgment [164]-[167]).

As the losses, liabilities, costs and expenses now are calculated at $5,289,893.48 Mr Taouk is liable for this amount.

Mr Harsany’s argument is that at the time the $200,000 was deposited into the account of Lane & Lane solicitors, it was subject to a trust but not subject to any agreement and not susceptible to any guarantee.

Mr Harsany’s evidence was that Mr Taouk told him he would organise finance of $200,000, and Mr El Khoury entered the scene as it were as a “white knight” to pay the $200,000 himself, entering into his own agreement with AB Traders Pty Ltd for the money.

From the contemporaneous emails it is clear that although the $200,000 was placed into the account of Lane & Lane solicitors prior to Mr Harsany signing the Loan Agreement, the parties intended that the release of the $200,000 from the solicitors’ account was subject to the requirements of the Loan Agreement including the guarantee.

Furthermore, it is reasonable to draw the inference in my view that as at the time the $200,000 was paid into the solicitors’ account, it was contemplated that there would be some arrangement and conditions attached to its release.

The $200,000 was not paid out pursuant to some oral arrangement. On the contrary, it was clearly paid out as per the terms and conditions of the Loan Agreement signed prior to its release. The argument that the guarantee was given absent consideration is, in my view, without merit. The release of the $200,000 was clearly the consideration and had clearly been contemplated by all the relevant parties prior to its release.

The Loan Agreement is therefore binding upon the parties, including the guarantee of Mr Taouk and Mr Harsany.

There is an issue as to the interest provided for in the Loan Agreement. Clause 4 provides for a “Higher Rate” and “Lower Rate”. However Item 6 of the Appendix to the Loan Agreement simply states the interest provision is “2% per month if the fund not paid on the due date”. The draftsperson has clearly not made provision for two interest rates and does not specify whether interest is to be simple or compound. Likewise, clause 4.2 confusingly provides:

Contrary to the submissions of Mr El Khoury, this is far from a provision effecting compound interest, given the confusion with “Higher Rate” and “Lower Rate” and the ambiguity of what means that interest and “other rights and powers” be “added to” the loan.

In my view, interest in the Loan Agreement is simple interest of 2% per month. There is no general presumption of fairness that in the absence of express provision interest is to be simple not compound (or vice versa). However, on the clear wording of the interest rate in Item 6 there is no word “compound” and no clear language to suggest the mechanism of compounding should be superimposed upon the agreement. Rather, the mechanism of interest is formulated in the Loan Agreement in a vague and internally incoherent manner. This means that unless there is a clear agreement to pay compound interest, interest is taken to be simple interest.

Interest as per the Loan Agreement is therefore 2% simple interest per month.

In my view interest should accrue from 27 July 2013, when a development loan was obtained in favour of Assure. This is the clear import of the words “[u]pon receipt of development loan” handwritten onto the Loan Agreement by Mr Harsany. To suggest to the contrary is to subvert the clear terms of the Loan Agreement, which Mr El Khoury assented to by authorising release of the $200,000.

There is a further issue as to the joint and several liability of Mr Harsany and Mr Taouk. No Cross-Claim was filed by Mr Harsany within the time allowed, as discussed in argument (T44/35-T45/13). However, his Defence to Amended Statement of Claim does seek in further alternative payment against him being conditional upon Mr El Khoury having paid his proportionate share of the amount to the Plaintiff of 50% by way of co-surety. This was not fully ventilated by the way of pleadings and not referred to in detail in submissions by any party.

In my view, it is therefore inappropriate to order that payment of the debt by Mr Harsany be contingent upon payment by Mr Taouk, except as to note that it is settled law that Mr Harsany may seek contribution from Mr Taouk as a co-surety.

I will hear the parties as to the precise form of orders to be made in each case, and on the question of costs if they cannot be agreed.