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- Unreported Judgment
DISTRICT COURT OF QUEENSLAND
US Healthcare Foods Pty Ltd v Zouky  QDC 31
US Healthcare Foods Pty Ltd ACN 617 533 203 as trustee for the US Healthcare Food Group Trust
Zouki for Lebanon s.a.r.l. (being an entity established in Lebanon)
District Court at Brisbane
12 March 2020
9-10 March 2020
Porter QC DCJ
CONTRACTS – CLAIM FOR RECOVERY OF DEBT – where the parties entered into a Unit Purchase Agreement – where the parties entered into a Loan Agreement – where the loan under the Loan Agreement was to be treated as a deposit under the unit purchase agreement if the unit purchase agreement was to become binding – where part of the loan amount was not advanced in accordance with the mechanism contemplated by the Loan Agreement – where the plaintiff contended that the part of the loan was paid for the purpose contemplated by the Loan Agreement – whether on the proper construction of the Loan Agreement that part of the loan had been advanced.
ESTOPPEL – ESTOPPEL BY CONDUCT – where the Loan Agreement required plaintiff to advance funds by a specified mechanism – where the plaintiff did not advance any money in accordance with that mechanism – where first defendant knew fees were being incurred but never required the plaintiff to advance the balance of the loan funds in accordance with the mechanism in the Loan Contract – whether the plaintiff assumed that the defendants would not insist on the advancing of the loan in accordance with the terms of the Loan Agreement – whether any such assumption if made would be reasonable – whether the plaintiff was induced to make any such assumption by conduct of the defendants – whether the plaintiff would in any event suffer detriment if the defendants acted inconsistently with any such assumption where the plaintiff had alternative remedies to recover the sum claimed under the Loan Agreement but did not pursue them.
D de Jersey QC for the plaintiff
Clayton Utz for the plaintiff
- The plaintiff was the corporate vehicle for a venture capital group known as Wraith and controlled by Mr Chris Giufre to invest in a hospital retail business in the US being promoted by a Mr Faddy Zouky (the first defendant) and companies associated with him (including the second defendant) (the US venture).
- The plaintiff’s investment was to occur on the terms of a conditional Unit Purchase Agreement dated 21 July 2017 (the UPA). The UPA required a deposit of $500,000 to be paid into the plaintiff’s solicitor’s trust account. On 4 August 2017, the parties entered into a Loan Agreement (the Loan Agreement) whereby the plaintiff agreed to loan an amount of $500,000 to the second defendant, with Mr Zouky as guarantor. The loan was to be treated as the deposit under the UPA if the UPA became binding. Otherwise (subject to irrelevant exceptions) it was to be repaid.
- The Loan Agreement provided for $250,000 to be paid to the second defendant absolutely, and for the balance to be lent by the second defendant to the US venture companies which in turn would pay the legal and accounting costs of the plaintiff incurred in relation to the US venture.
- From about January 2017 until November 2018, Wraith spent $352,235 in obtaining legal and accounting advice in relation to the US venture. The defendants benefitted from that advice and had some involvement in obtaining it, but they were the clients of the advisors. The plaintiff and/or Wraith were liable for those fees and with one minor exception, paid them.
- It is not in dispute that the plaintiff paid (or at least Wraith paid on the plaintiff’s behalf) $250,000 to the second defendant for its own use under the Loan Agreement and judgment for that sum has been entered. It is also not in dispute that the plaintiff never paid the balance of $250,000 to the second defendant and, inevitably, that the first defendant never paid those funds to the US venture companies as contemplated by the Loan Agreement.
- Nonetheless, the plaintiff contends that it has performed its obligations under the Loan Agreement, and further, that the amount lent was $352,235 rather than the $250,000 promised, despite there being no evidence of any variation to the Loan Agreement to increase the sum. The plaintiff’s contentions depend on the construction of the relevant terms of the Loan Agreement. In general terms, it contends that the failure to comply with the machinery provisions contemplated by the Loan Agreement are irrelevant because they were procedural rather than promissory in character.
- Alternatively, the plaintiff contends that the defendants are estopped from contending that the $352,235 was not advanced pursuant to the terms of the Loan Agreement because in the period between the execution of the Loan Agreement (4 August 2017) and the triggering of the repayment obligation (on 6 December 2018), the defendants knew that fees were continuing to be incurred but never required the plaintiff to advance the balance of the loan funds in accordance with the Loan Agreement. This is said to have induced the assumption that the defendants would not rely on the strict terms of the Loan Agreement and would repay the costs of the services in any event.
- For the reasons which follow, I am not persuaded by either of the plaintiff’s contentions and dismiss the claim.
- Mr Zouky is a solicitor practicing in Victoria. He also carries on various businesses. One such business involves setting up and tenanting retail areas in hospitals. That business has apparently had success. In about 2016, Mr Zouky began investigating taking the business model to the United States. He made contact with a large health group based in Tennessee and made contacts with some local business people who might assist, a Mr Wamp and a Mr Main.
- He took some advice from US accountants and lawyers on corporate and tax issues. It was contentious just how developed that advice was at the time that Mr Giufre and Wraith became involved. While I accept Mr Zouky’s evidence that he had been to the US and had various conferences with attorneys and accountants, I do not accept that any detailed and specific advice on how to structure and operate the business or on taxations issues had been given prior to Mr Giufre becoming involved. I form that view because there was no evidence of any written advice on the subject from any adviser, nor was any written plan or strategy for setting up and carrying out the business apparently in place. Certainly none was tendered or referred to. This is in stark contrast to the detailed plan of action developed by Wraith in consultation with its advisers, and the complexities which undoubtedly arose in setting up the US venture.
- In about late 2016, Mr Zouky approached Mr Giufre with a view to having Wraith invest in the US venture. Mr Giufre insisted on obtaining his own advice as to structuring and tax matters. Mr Zouky gave evidence that he considered that to be unnecessary. I can accept that Mr Zouky might have thought that he could continue with his existing advisers, but it is difficult to accept that a business person of his experience would not have realised that a lot more needed to be done on tax, structuring and operational issues before the US venture could be documented, much less begin operations.
- It is convenient here to say something about Wraith. Wraith Group is a corporate advisory and venture capital undertaking. The primary entity appears to be Wraith Capital Group Pty Ltd, though there are other entities in the Group and Wraith used a separate entity (being the plaintiff) for the US venture. Mr Anthony Ford was and is in house counsel for Wraith. He was directly involved in the events the subject of these proceedings, including as drafter of some of the key documents. He is the only witness who gave evidence for Wraith. Generally I found his evidence to be reliable and accurate.
- Negotiations between Mr Zouky and Mr Giufre (on behalf of their various entities) appeared to progress quickly. A key step in those negotiations was the retaining of tax and legal advisers by Wraith. Wraith initially retained PWC Australia for tax advice and then retained PWC USA for further advice. The timing and extent of work done is of some relevance.
- PWC Australia did work generally over the period November 2016 to March 2017. Over that time they invoiced total fees of $43,163 in providing advice in relation to the US venture. The incurring of these fees is not in dispute. As to the nature of the work done, to the extent that it is in dispute, I accept Mr Ford’s evidence that this work was done as part of establishing and documenting the US venture including establishing taxation arrangements.
- It is unclear exactly when PWC USA started work, but it is evident that they invoiced fees as at 16 May 2017. Again the incurring of these fees is not in dispute. As to the nature of the work done, to the extent that it is in dispute, I accept Mr Ford’s evidence that this work was done as part the US venture. The invoices suggest this work was primarily concerned with taxation issues. Again that is hardly surprising.
- PWC US billed some AUD 42,300 for the work they did. Mr Ford gave evidence that that bill was disputed and that only $18,961.96 was paid. That amount was paid on 26 October 2017. Mr Ford said he had heard nothing about the balance since then. I find that the amount paid so far discharges the liability to PWC USA. It is very unlikely that they would leave the matter unaddressed for over 2 years while harbouring some intent later to pursue the balance and for the purposes of this proceeding I find that the balance is not a liability of the plaintiff.
- Wraith also retained US lawyers, Seyfarth Shaw. They appear to have been retained almost from the start of Wraith’s involvement and it is evident they had significant input from that point onwards in advising on the structure and establishing the US venture companies and the operational requirements for the business. The gravamen of key aspects of their early advice appears in an email prepared before 19 January 2017 and sent on that date from Mr Giufre to Mr Zouky (ex 27). It is evident that they provided consistent advice from some time before then, possibly November 2016, until the US venture was terminated by the plaintiff on 6 December 2018.
- A great deal of time was taken up in Mr Zouky’s evidence on the issue of how much involvement he had with the work done by PWC and Seyfarth and how much benefit he and his entities received from it. Mr Zouky’s evidence was that he thought it was unnecessary to go to new advisers, as Mr Giufre wished to do, but was willing to go along with it because Mr Giufre insisted, and he very much wanted Mr Giufre to be involved. I accept that evidence as generally correct.
- However, thereafter, Mr Zouky gave evidence (including adopting the correctness of his witness statement) which in broad terms painted a picture in which he had nothing to do with the giving of instructions to the advisers, had little knowledge of what they were doing and received little benefit from their work. He sought to characterise the advisers as working for, and for the benefit of, Mr Giufre and his companies.
- That picture was inaccurate. The evidence rather disclosed the following:
- (a)First, once Mr Zouky agreed to Mr Giufre’s advisers handling the US venture rather than those he had retained earlier, the venture only went ahead based on, and using the advice and work of, Mr Giufre’s advisers, to the benefit of Mr Zouky and his entities as well as Mr Giufre and his entities;
- (b)Second, the work done by Mr Giufre’s advisers to the benefit of the venture did not duplicate work already done by Mr Zouky’s advisers, at least to the extent that it involved setting up companies and taking other steps to put the US venture in place. Mr Zouky freely conceded in evidence that he had not got to the stage of having work done to give effect to the general advice on structures and taxation issues he said he had received up to that point. That work was always still to be done;
- (c)Third, Mr Zouky had (or should have had) a very good idea of the main aspects of the advice given by the Mr Giufre’s advisers. That was communicated, at the least, by the detailed particulars of how the US venture was to be structured and carried out contained in the 19 January 2017 email, the detailed advice from PWC provided to Mr Zouky by Mr Ford on 22 January 2017, in the Non-Binding Indicative Offer of 8 February 2017 and its attachments (the NBIO Ex. 4) and in the detailed reports sent to Mr Zouky by Mr Ford and Mr Giufre in February 2017 (Ex. 20);
- (d)Fourth, Mr Zouky had a good idea of the work done to set up the US venture because much of it involved him personally and companies under his control. For example, Seyfarth Shaw set up the holding company and operations company for the US venture which were under Mr Zouky’s direction and control, hey had direct telephone discussions with him about US employment documentation and the setting up of Bank accounts.
- Mr Zouky was and is an experienced business person and an experienced lawyer. All of the matters in the previous paragraph would have been obvious to him during the course of the dealings with Mr Giufre from late 2016. His determination in his evidence, and particularly his cross examination, to try to maintain the picture in paragraph  above was not credible. In my view, his evidence was a reconstruction of events favourable to his perception of what would help his case. His inability to concede the erroneous nature of that evidence, even when confronted with key events where he went to meetings and received detailed explanations of what was being done, reflected an inability to be able (at least in this case) to give impartial evidence. Ironically, it is doubtful that his evidence on this point specifically and his reliability as a witness generally, has a material impact on this case. It can be resolved largely by reference to the documents and uncontentious facts.
- Taking up the narrative, by late January 2017, the structure for the US venture had been largely settled (I refer to the legal and tax advice mentioned in paragraph (c) above). On 8 February 2017, the NBIO was signed. The NBIO was superseded by the UPA and the Loan Agreement. Its relevance is limited. It is convenient to note some matters.
- (a)First, it contemplated a transaction whereby two Delaware based companies were to be set up in the US to carry out the venture, a holding company described unimaginatively as HoldCo and an operating subsidiary, described with equal lack of literary flair, as OpCo, each under Mr Zouky’s control.
- (b)Second, it contemplated Wraith’s interest in the US venture being acquired by buying an interest HoldCo through a company set up for that purpose (as it turned out, the plaintiff) which would pay $2m for 30% of the equity in HoldCo;
- (c)Third, it required Mr Zouky’s entity which received the $2m to lend $250,000 of that sum to HoldCo as working capital, such loan to be repaid in priority; and
- (d)Fourth, it required a deposit of $500,000 to be paid into a trust account of Wraith’s solicitors pending execution of documentation.
- As will be seen, these elements of the transaction remained substantially in place in the UPA.
- Also relevant is the manner in which the $250,000 loan by Mr Zouky’s entity was to be dealt with. The NBIO provided:
On completion of the Transaction the A$250,000 working capital loan from you to HoldCo will be paid by HoldCo to Wraith to reimburse it for accounting and legal expenses required for completion.
- The expenses were not further described or defined, though some insight into what they might have properly comprised appears under the heading “Indicative Next Steps and Timetable”, where those steps included Wraith instructing PWC USA to provide a tax sign off for the structure and instructing Seyfarth Shaw to establish HoldCo and OpCo and draft the necessary documents (including the LLC Agreements which were analogous to Australian Company constitutions). Mr Zouky had challenged the reimbursement provision in the NBIO but had given way in the face of Mr Giufre’s insistence (Ex 5).
- The work required to establish the US venture was apparently completed by July 2017. In particular, HoldCo had been established as Unique Food Group Holdings LLC (which for convenience I will continue to refer as HoldCo), the venture entity for Mr Zouky had been established (the second defendant) and the venture entity for Mr Giufre (the plaintiff) had been established.
- I observe at this point that it would have been clear to both Mr Zouky and Mr Giufre that the venture entities were corporate vehicles created for this purpose. It would also have been obvious that the funds required by those entities to carry out their role in the US venture would have initially been sourced from other entities in their respective business groups. Neither would or should have been surprised if payments were made on behalf of those companies by established corporate entities in their respective businesses to give effect to the US venture.
- The UPA was executed on 21 July 2017 by HoldCo (then under Mr Zouky’s control and named the Company in the UPA), Zouki for Lebanon (as Seller) and the plaintiff (as Buyer). It relevantly provides:
- (a)By section 2.01:
Section 2.01 Purchase and Sale of Purchased Units. Subject to the terms and conditions of this Agreement, at the Closing, Seller agrees to sell, assign, transfer, convey and deliver to Purchaser, and Purchaser agrees to purchase 3,530,000 Common Units of the Company (the “Purchased Units”), free and clear of all Encumbrances (other than restrictions on transfer applicable to transfer made by Purchaser after the Closing Date arising under the Restate LLC Agreement or foreign, federal or state securities Laws).
- (b)By section 2.03:
Section 2.03 Amount and Payment of Purchase Price. Purchaser agrees to pay as the total purchase price for the Purchased Units purchased by Purchaser pursuant to this Agreement the sum of $2,000,000.00 (the “Purchase Price”). The Purchase Price shall be payable by wire transfer of immediately available funds at the Closing.
- (c)By section 2.04:
Section 2.04 Deposit. Purchaser has deposited in the trust account of Seyfarth Shaw Australia, Sidney, Australia the amount of $500,000.00 as a good faith deposit (the “Deposit”). The Deposit shall be applied against the Purchase Price at the Closing. Unless the Parties otherwise agree in writing, upon the termination of this Agreement in accordance with Section 10.01(a), Section 10.01(b) or Section 10.01(d) the Deposit shall be paid to Purchaser and upon a termination of this Agreement in accordance with Section 10.01(c) the Deposit shall be paid to Seller.
- Article III provides for closing of the transaction. It provides for closing to occur within five days of fulfillment or waiver of the conditions in Article VIII.
- Article VI contains covenants. Relevant to this case are sections 6.12 and 6.13 which provide:
6.12 Seller Loan: At the Closing, Seller shall loan the Company the sum of $250,000 evidenced by the Seller Note, the proceeds of which shall be payable to the Company in cash by wire transfer of immediately available funds.
6.13 Sponsor Expenses: At the Closing, the Company shall pay to Purchaser an amount equal to the actual costs incurred by Purchaser and its Affiliates for attorney’s fees and accountants’ fees in connection with investigating, structuring, negotiating, documenting and consummating the transactions contemplated hereby (other than the expenses of organizing Purchaser), up to the sum of $250,000 by wire transfer of immediately available funds.
- Article VIII sets out the conditions for completion called Closing Conditions. They are numerous and generally contemplate all steps necessary for the US venture to proceed. The plaintiff referred in particular to Sections 8.02(g) and (h). The first required execution of the so-called Hospital Contract, being a contract between OpCo and a major US hospital for the supply of retail and food. The second required execution of all Transaction Documents, which included Ancillary Agreements as defined. The range of these documents demonstrates just how much documentation was required to complete the UPA and get the venture under way. Mr Zouky said he read the UPA sufficiently to understand it. Even if he was in doubt as to what was required and how much work was to be done by the US advisers to document the venture, the UPA would have made that clear.
- Article 10 dealt with termination. It provided, relevantly:
Section 10.01 Termination. This Agreement may be terminated at any time prior to the Closing:
- (a)by mutual written consent of Seller and Purchaser;
- (b)by Purchaser by written notice to Seller if:
- (i)Purchaser is not then in material breach of this Agreement and there has been a breach …by the Seller or the Company pursuant to this Agreement that would give rise to the failure of any of the [Closing Conditions];
- (ii)any of the conditions set forth in Section 8.01 or 8.02 shall not have been …fulfilled by December 31 2017 unless such failure be due to [the Purchaser’s fault];
- (c)by Seller by written notice to Purchaser if:
- (i)Seller is not then in material breach of this Agreement and there has been a breach …by the Purchaser pursuant to this Agreement that would give rise to the failure of any of the [Closing Conditions];
- (ii)any of the conditions set forth in Section 8.01 or 8.02 shall not have been …fulfilled by December 31 2017 unless such failure be due to [the Seller’s fault];
Section 10.02 Seller Termination Fee. If Purchaser Terminates this Agreement pursuant to Section 10.01(b)(i) or Section 10.01(b)(ii), Seller shall pay to the Purchaser as a termination fee the actual amount of out-of-pocket expenses incurred by Purchaser (including but not limited to, the actual amount of attorney’s fees and accountants’ fees incurred by Purchaser) in with investigating, structuring, negotiating, documenting and consummating the transactions contemplated hereby, estimated to be $250,000 (the Seller Termination Fee)…no later than five (5) Business Days after such termination.
- Article XI contained miscellaneous provisions, including an arbitration clause, a proper law clause and a jurisdiction clause, all of which directed the parties to the arbitration in, the laws of, and the Courts of Delaware.
- For the purposes of this proceeding it is convenient to note the following matters.
- First, the deposit was to be dealt with generally as in the NBIO. However, the UPA clause assumed that the deposit had already been paid into the trust account of the plaintiff’s solicitors. That never occurred.
- Second, like the NBIO, the UPA contemplated that $250,000 of the purchase money would be used to pay the professional costs of the plaintiff “or its Affiliates” (which would include the Wraith companies). Further, there was a very specific method chosen for that to occur: the $250,000 would be paid immediately on Closing by the second defendant to HoldCo as a loan and then HoldCo would pay that to the plaintiff. That mechanism for causing repayment appears to have been chosen because it met capital requirements of US law for HoldCo – namely, evidence of working capital for 6 months of trading is required. This was detailed to Mr Zouky by email from Mr Giufre. It is a matter known to both parties prior to entry into the UPA and the Loan Agreement which I consider relevant to construction of both.
- Third, if the UPA was terminated by the Purchaser, the deposit would return to the Purchaser and the plaintiff (or Wraith) would get its actual professional costs as the Seller Termination Fee.
- The upshot of the second and third points is that under the UPA, the professional costs of the plaintiff/Wraith would be paid either to the amount of $250,000 through reimbursement by HoldCo or to the full amount as a Seller Termination Fee. Mr Giufre would only be out of pocket if Mr Zouky through the second defendant, validly terminated under the UPA.
- Fourth, the Closing Conditions had to be met by 31 December 2017, failing which any party in a position to do so under Section 10.01 would have the right to terminate the UPA.
- At about the time of the signing of the UPA, Mr Zouky asked Mr Giufre if $250,000 of the deposit could be paid to the second defendant in advance of closing of the UPA. Mr Giufre agreed. Mr Ford was instructed to draft a Loan Agreement to deal with the advance. Mr Ford had been closely involved in the transaction from the start. He was familiar with the UPA and the negotiations which had preceded it. As will be seen, the Loan Agreement refers to the UPA in numerous clauses and is drawn with reference to the deposit and termination provisions in the UPA.
- The Loan Agreement was executed on 4 August 2017. The Lender was the plaintiff, the Borrower was the second defendant, Mr Zouky was the Guarantor and HoldCo was also a party.
- The Loan Agreement relevantly provided:
- (a)By clause 1.1:
Approved Purpose means the purpose described in item 9 of Schedule 1.
Guarantee means a Deed of Guarantee and Indemnity between the Lender, Borrower and the Guarantor in a form acceptable to the Lender.
Loan means the provision of the Loan Amount to the Borrower by the Lender on the terms set out in this Agreement.
Loan Amount means the amount described in item 5 of Schedule 1.
Loan Date means any damage, loss, liability, cost, charge, expense, outgoing or payment including under or in respect of any action of claim.
NBIO means the letter agreement signed by Wraith Capital Group Pty Ltd and countersigned by Faddy Zouky styled “Proposed Zouki USA co-investment opportunity” dated 8 February 2017.
Obliger means the Borrower and the Guarantor or any one or more of them.
Repayment Date means the date specified in Item 6 of Schedule 1.
Sunset Date means the date specified in Item 8 of Schedule 1.
Transaction Documents means:
- (a)this Agreement; and
- (b)the Guarantee.
Trigger Event means both of the following having occurred:
- (a)the parties to the UPA all sign the UPA and it becomes binding; and
- (b)all of the conditions precedent to the “Closing” obligations of the Lender in the UPA have been satisfied or waived in accordance with the UPA.
Unique Holdco means Unique Food Group Holdings LLC, being a Delaware limited liability company.
Unique Opco means Unique Food Group Operations LLC, being a Delaware limited liability company.
UPA means an agreement to be entitled United Purchase Agreement between Unique Holdco, the Borrower and the Lender, which once signed by those parties will include an agreement for the Lender to acquire units in Unique Holdco from the Borrower.
- (b)By clause 2.1:
The Lender agrees to advance the Loan Amount to the Borrower on the Loan Date by way of direct deposit into a bank account to be nominated by the Borrower.
- (c)By clauses 3.1 to 3.4(b):
3.1 No Trigger Event
If the Trigger Event has not occurred by the Sunset Date, then the Borrower must repay and finally discharge the Loan Amount in full to the Lender (or a nominee of the Lender notified to the Borrower by the prior written notice):
- (a)by way of direct deposit into a bank account to be nominated by the Lender; and
- (b)in Australian dollars in immediately available funds,
by no later than 12 noon Australian Eastern Standard Time on the Repayment Date.
3.2 Trigger Event and Release
- (a)If the Trigger Event occurs on or before the Sunset Date, then:
- (i)the funds loaned to the Borrower under this Agreement become the “Deposit” under the UPA immediately upon the Trigger Event occurring;
- (ii)the Borrower accepts the funds loaned under this Agreement as part payment by the Lender of the “Purchase Price” under the UPA for an amount equal to the Loan Amount; and
- (iii)upon “Closing” occurring in accordance with the UPA, the Borrower is immediately released and discharged from any obligation to repay the Loan Amount under this Agreement.
- (b)For clarity, the Parties agree that if the Trigger Event occurs on or before the Sunset Date, then following the application of clause 3.2(a) of this Agreement, the balance “Purchase Price” owing by the Lender to the Borrower under the UPA will be $1,500,000.
- (a)The Lender, the Borrower and Unique Holdco each agree that:
- (i)once the Loan Amount has been provided to the Borrower under this Agreement, any requirement of the Lender to provide the “Deposit” under the UPA is waived until clause 3.2(a)(i) becomes relevant;
- (ii)if the Trigger Event does not occur by the Sunset Date then the UPA is terminable by the Lender;
- (iii)where the UPA specifies a right for the “Purchaser” or “Seller” to terminate the UPA if the conditions precedent to “Closing” are not all fulfilled by a certain date, that date is to be the same date as the Sunset Date; and
- (iv)if there is any inconsistency between this Agreement and the UPA, then this Agreement takes precedence and is to be read as a variation to the UPA (regardless of when each document became legally binding).
3.4 Borrower’s Undertaking
For as long as the Loan Amount remains outstanding under this Agreement to the Lender, the Obligers each undertake with the Lender as follows:
- (a)the Obligers will use all reasonable endeavours to ensure that the Trigger Event occurs by the Sunset Date;
- (b)to apply the Loan Amount for the Approved Purpose only;
- (d)By clause 7:
7.7 Prohibition on oral amendments
Neither this Agreement nor any provision of this Agreement may be amended, modified, waived, discharged or terminated orally.
- (a)A failure or delay in exercise, or partial exercise, of a right, power, authority, discretion or remedy arising from a breach of or default under this document, does not result in a waiver of that right, power, authority, discretion or remedy.
- (b)A party is not entitled to rely on a delay in the exercise or non-exercise of a right, power, authority, discretion or remedy arising from a breach of this document or default under this document as constituting a waiver of that right, power, authority, discretion or remedy.
7.16 Entire Understanding
Subject to the NBIO and UPA, this document contains the entire agreement between the parties and all representations or agreements, whether oral or in writing made prior to the date of this document and relating to any matter dealt with in this document are merged in this document and do not have any effect from the date of this document.
- (e)By Schedule 1:
Name: US Healthcare Food Group Pty Ltd ACN 617 533 203 as trustee for the US Healthcare Food Group Trust
Address: PO Box 977 Paradise Point QLD 4216
Attention: Chris Giufre
Email: [email protected]
Name: Zouki For Lebanon s.a.r.l. (being an entity established in Lebanon)
Address: Serba Kasleek Business Centre Kasrawan Kasleek, Lebanon
Attention: Faddy Zouky
Email: [email protected]
Name: Faddy Zouky
Address: Serba Kasleek Business Centre Kasrawan Kasleek, Lebanon
Attention: Faddy Zouky
Email: [email protected]
Name: Unique Food Group Holdings LLC, being a Delaware limited liability company
Address: Serba Kasleek Business Centre Kasrawan Kasleek, Lebanon
Attention: Faddy Zouky
Email: [email protected]
The date that is 5 Business Days after the Sunset Date.
The date that is 5 Business Days after the date of this Agreement.
8 July 2018
- The Loan Agreement included a Guarantee and Indemnity. It relevantly provided:
In this deed:
Borrower means Zouki for Lebanon s.a.r.l (being an entity established in Lebanon).
Debt means all money (and where the context admits, any part of that money) which the Borrower whether directly or indirectly or contingently or otherwise at any time and from time to time is or becomes liable either alone or jointly or severally to pay to the Lender on any account including without limitation:
- (a)On or upon any guarantee, bond, account, document, negotiable or other instrument including this Guarantee and/or the Loan Agreement and/or any collateral security;
- (b)By reason of any matter or thing by which the Lender is or may become in any manner a creditor of the Borrower;
- (c)On the account of any other person or upon the order or request or under the authority of the Borrower;
- (d)Arising from anything done or omitted to be done by the Borrower which gives rise to a payment expense or loss by the Lender;
- (e)By reason of the Lender drawing accepting endorsing paying or discounting any order draft cheque promissory note bill of exchange or other negotiable instrument on behalf of the Borrower; and
- (d)Interest upon all money described in this clause at the highest rate prescribed for that money or if none as determined by the Lender.
Loan agreement means a Loan Agreement between the Lender, Borrower, the Guarantor and Unique Food Group Operations LLC (being a Delaware limited liability company) on or around the date of this Agreement.
2.1 Guarantee and Indemnity
- (a)The Guarantor irrevocably and unconditionally guarantees to the Lender the due and punctual payment of the Debt to the Lender and the due and punctual performance of all the obligations undertakings and provisions contained in or implied by the Loan Agreement other than those imposed on the Lender and indemnifies the Lender against all loss damage costs and expenses suffered or incurred by the Lender as a result of any failure by any person to pay in a due and punctual manner the Debt on due date or as a result of any breach of any of the covenants and conditions contained in or implied by the Loan Agreement.
- (b)The Guarantor must pay the Debt immediately on demand to the Lender.
- The key clause in these proceedings is Item 9 of Schedule 1. It is common ground that the $250,000 contemplated by Item 9(b) was paid. The question is whether, on the facts, a liability arises to repay either the total of the professional fees contemplated by Item 9(b) of $352,000 or alternatively just $250,000 of those fees. If it does not, the plaintiff says that the defendants are estopped from contending that it does not. To resolve those issues requires further consideration of the facts.
- I refer to paragraphs  to  above. It is evident that the professional advisers referred to in Item 9(b) are the same as those referred to there. It is useful to observe that at the time that the Loan Agreement was executed (4 August 2017), while most of the fees for accounting, taxation and legal services had been incurred, very little had been paid. The evidence in this respect is contained in Exhibit 9 and summarised in the Schedule at the start of that Exhibit. It shows, relevantly, that:
- (a)PWC Australia had done all its work by 31 March 2017, incurring fees of $43,163, but only $11,500 had been paid, with some $23,282 remaining. The balance was paid on 1 December 2018 (after the Loan Agreement);
- (b)PWC USA had done all its work by mid-May 2017, and was paid $18,961.96 on 26 October 2017 (after the Loan Agreement);
- (c)Seyfarth had seemingly done all its work except that contained in its last three invoices totalling about $15,500 by 31 July 2017. That balance of work was seemingly done between August and November 2017. All of Seyfarth’s invoices were paid after the Loan Agreement, totalling $260,476.51.
- Some observations:
- (a)Total fees paid before and after the Loan Agreement was $345,939.85;
- (b)Some $334,500 was paid after the Loan Agreement, over the period April 2017 to December 2018, often very substantially past 30 days;
- (c)Almost all the work was done before the Loan Agreement; and
- (d)With the exception of the first PWC Australia payment, all payments were made by or on behalf of Wraith Capital Group Pty Ltd.
- The extent to which Mr Zouky was aware that these payments were being made is a relevant issue in these proceedings. It is necessary to make some findings on that matter.
- I find that none of the specific payments identified in the schedule in Exhibit 9 were raised with Mr Zouky at the time they were made or at any point before or after that time. Mr Ford gave no such evidence, nor was it suggested to Mr Zouky. The payments were made by Wraith when and how Wraith chose to make them, without regard to or consultation with Mr Zouky. The only caveat on that broad finding is that in late November 2018, Mr Giufre sent Mr Zouky an email informing him of the costs to reach completion of the UPA and for a lease review and making a further cryptic remark about the lease review. Mr Zouky replied, “this shouldn’t be a problem” (Ex. 24). I can draw nothing from this exchange. I do not know what Mr Zouky was saying was not a problem. Around the same time a more detailed email from Seyfarth Shaw dealing with the same matters was sent. In response, Mr Zouky did not comment on the fee estimate (Ex. 23).
- Further I find that Wraith did not provide copies of invoices at any stage until they were provided as part of the negotiation of the Deed of Acknowledgment prepared in early December 2018 dealt with further below. Indeed, they were provided to Mr Zouky at his solicitor’s request on the morning of 6 December 2018. By 5pm that day, the UPA had been terminated and this dispute had arisen.
- It is also necessary, given the plaintiff’s contentions, to deal with Mr Zouky’s knowledge that Wraith was in fact paying invoices. Mr Zouky was cross examined about this issue. He gave evidence to the effect that he was aware that the advisers would have to be paid but was uncertain if they had been. When challenged on this, he said he was unaware of what arrangements Mr Giufre had with the advisers about payment. Mr de Jersey suggested this was just speculation, inferring I assume that I ought to conclude Mr Zouky was evading the obvious concession - that he understood the advisers were being paid on an on-going basis.
- The problem with this is that when one analyses Ex. 9, it shows that nearly all the adviser’s invoices were not paid until well after 30 days from invoice. Over half of the fees due to PWC Australia were not paid until December 2018 nearly two years after invoices. PWC USA was paid in part five months after its invoice. Over half of Seyfarth Shaw’s fees were paid in July and December 2018, seemingly a year or more after invoices were issued (compare invoices at tabs 8 to 17 Ex. 9 with payment particulars at tabs 18(a) to 18(e)).
- Although I hesitate to infer that Wraith did have some kind of agreement to defer fees with at least PWC Australia and Seyfarth Shaw, it seems there must have been at least de facto acceptance of such a position by those advisers. It is hard to think of another explanation for this very long delay in payment of invoices. Although I have expressed reservations about the reliability of Mr Zouky’s evidence about involvement with, and benefit from, the work done by Mr Giufre’s advisers, I do accept his evidence that he did not assume that they were being paid or, if so, when or on what terms. I accept his evidence that he simply did not concern himself with the issue. Further, his evidence that in that period his main concern was with fulfilling the Closing Conditions so that the UPA could complete was credible. He struck me as someone more concerned with the deal than with the documentation aspect of the transaction.
- There is however another objective indicator supporting the credibility of his evidence on this point. The effect of the UPA was that:
- (a)If the transaction did not complete, Wraith would get back its adviser’s fees through the Seller Termination Fee;
- (b)If the transaction did complete, Wraith would get reimbursed $250,000 of his adviser’s fees; and
- (c)If the second $250,000 contemplated by the Loan Agreement was not advanced in the manner specified therein, then the second defendant would have to put the $250,000 into HoldCo to make that possible under the UPA.
- The overall commercial context therefore made it entirely reasonably for Mr Zouky to be unconcerned with how and when Mr Giufre’s advisers were paid. This fundamental aspect of the parties’ commercial arrangements was never adequately addressed by the plaintiff.
- The UPA contemplated rights of termination arising if the Closing Conditions were not met by 31 December 2017, though there was no automatic termination by any particular date as I read that agreement. The Loan Agreement on the other hand, provided for automatic repayment under clause 3.1 if a Trigger Event had not occurred by 8 July 2018. The trigger event was, in effect, the fulfillment of the conditions for completion of the UPA. Thus under the Loan Agreement, if the UPA did not reach Closing by 8 July 2018, the loan under the Loan Agreement had to be repaid five days later.
- This discontinuity between the Loan Agreement and the UPA was resolved by clause 3.3 of the Loan Agreement. That clause provided in effect that the rights to termination in the UPA did not arise on 31 December 2017, but rather were delayed until 8 July 2018. It arguably also varied the circumstances in which the right in the plaintiff to terminate arose. Clause 3.3(a)(ii) provides a right in the plaintiff to terminate if the UPA did not close by 8 July 2018 without any of the conditions on that right in Section 10.01(b) UPA. Oddly, the Loan Agreement also confirms expressly Section 10.01 in clause 3.3(a)(iii), varied so that the new date for rights to arise to terminate was 8 July 2018.
- The end result of these changes seem to have been to preserve the termination regime in the UPA, with rights arising instead from 8 July 2018, but also to create a new absolute right to terminate the UPA in the plaintiff if the Closing Conditions were not met by 8 July 2018, and to require repayment of the loan in any event if the Closing Conditions were not met by 8 July 2018, even if the UPA was not terminated.
- Despite the last point, no demand was made for repayment under the Loan Agreement until 6 December 2018. That demand arose in the context of a busy few days in the life of this venture.
- One of the key conditions for the UPA to close (and for success of the US venture) was entry into a hospital lease as contemplated by Section 8.01(g) UPA. In late November 2018, it appears that a lease with Parkridge Hospital Chattanooga, Tennessee was close to finalisation. It was the subject of the correspondence about lease terms and legal fees in November 2017 referred to above.
- Mr Zouky considered that execution of the lease would be sufficient to permit the UPA to close. Mr Ford was reluctant to go so far in evidence, but the tenor of his evidence was that he considered the lease was close to finalisation and the closing of the UPA was on the cards in the near future. That is consistent with the correspondence in evidence, including from Mr Giufre, around that time (Exs 11, 23, 24).
- It was in that context that the draft Deed of Acknowledgment was proposed. The Deed was prepared by Mr Ford. It was between the parties to the UPA and the Loan Agreement.
- It relevantly provided:
1. LOAN AGREEMENT
1.1 Payment of the Loan Amount
The parties acknowledge and agree that for the purposes of the Loan Agreement:
- (a)$250,000 of the Loan Amount was loaned to ZFL by USHFG to be used at the discretion of ZFL; and
- (b)$250,000 was used by USHFG to pay, on behalf of Unique Holdco (and its subsidiaries) the professional fees and outlays of Seyfarth Shaw, PWC USA and PWC Australia incurred by USHFG in establishing and documenting the corporate structure of Unique Holdco (and its subsidiaries) up to that amount (Direct Payment),
and the Direct Payment is deemed to be:
- (c)a loan from USHFG to ZFL of $250,000; and then
- (d)a loan from ZFL to Unique Holdco for the same amount; and then
- (e)a loan from Unique Holdco to Unique Opco for the same amount to be used to pay the professional fees and outlays of Seyfarth Shaw, PWC USA and PWC Australia incurred by USHFG in establishing and documenting the corporate structure of Unique Holdco (and its subsidiaries) (noting that this loan to Unique Holdco will satisfy ZFL’s obligation to make such loan under the UPA).
1.2 Payment of the Loan Amount
The parties agree that the method of payment of the Loan Amount under clause 2.1 of this Deed satisfies the obligation of USHFG under clause 2.1 and items 6 and 9 of Schedule 1 of the Loan Agreement.
2.1 Additional Costs
The parties each acknowledge and agree that:
- (a)the $250,000 amount referenced in 1.1(b) of this Deed was determined on the basis of fee estimates obtained by professional advisers and since that time the structure of the proposed acquisition of units by USHFG from ZFL in Unique Holdco has changed, and accordingly the total costs and expenses of professional advisers involved to date has exceeded that amount by $95,075 (Unique Costs Overruns), giving a total professional costs to date of $345,075;
- (b)USHFG and ZFL will each contribute towards:
(i) the Unique Costs overruns;
(ii) the Unique Costs to Complete; and
(iii) the Parkridge Lease Review Costs,
in the following proportions:
(iv) USHFG: 35%
(v) ZFL: 65%
- (c)all amounts which ZFL are required to contribute under clause 2.1(b) of this Deed are to be set-off against the balance “Purchase Price” to be paid by USHFG to ZFL under the UPA.
2.2 Purchase Price
The parties each agree that if the “Closing Date” under the UPA fails prior to 31 December 2018, then the obligation of USHFG to pay the “Purchase Price” will be deferred until 31 December 2018.
- (a)The parties each agree that:
- (i)FZ will procure that Chris Giufre (on behalf of USHFG) is copied in on all correspondence with third party landlords and their advisers in respect to the negotiation and documentation of any hospital or medical centre leases for Unique Opco (or its subsidiaries);
- (ii)FZ and ZFL will use their best endeavors to have Unique Opco appoint a CFO or financial controller as soon as is commercially practicable after “Closing” occurs under the UPA;
- (iii)FZ and ZFL agree to negotiate all Unique Holdco or Unique Opco banking term facilities for any capex spend jointly in conjunction with USHFG; and
- (iv)FZ and ZFL warrant that no further equity capital will be required by Unique Opco in order to operate its proposed business.
- The language of clauses 1.1(c) to (e) mirrors the language in Item 9(b) of Schedule 1.
- When asked why he prepared this Deed, Mr Ford answered:
…to serve as a series of acknowledgments of certain things that had happened by that stage, including that there were some overruns on some of the professional fees owing to some delays – significant delay that had happened. There was also a few other things in here. Two point two for example, there was some conduct that we had hoped had happened. This was to serve as confirmation of it. The gist was that the things in section 2 were acknowledged as being agreed between the parties, such that later on, someone couldn’t claim the contrary.
- This was an unsatisfying answer. It was not explored in cross examination, at least in any detail. It does not say why it was thought by Mr Ford to be necessary to prepare it at the time that it was prepared. It does not say how Mr Ford came to be preparing it. Did Mr Giufre ask him to do so, or did he decide to do it of his own volition? Was it prepared in contemplation of the UPA completing or was it prepared to secure Mr Giufre’s position if the UPA was terminated and the loan called up?
- The limited correspondence provides some guidance. Reading Exhibits 11, 23 and 24, it emerges that:
- (a)The Deed of Acknowledgement arose out of an email exchange between Mr Giufre and Mr Zouky which are not in evidence (so far as I could see);
- (b)It was described as dealing with sharing of costs of the USA deal and was sent to Mr Zouky on 4 December 2018;
- (c)It appears to have been provided as part of the process of finalising the parties’ dealings prior to completing the UPA (see Exhibit 11 4th page: “can you let us know what the ETA will be on comments on the [deed]? We really need those by the end of the day in order to keep this from drifting”);
- (d)Mr Zouky communicated acceptance of the Deed subject to provision of invoices for the $345,075 in fees referred to on 6 December at 11:17am;
- (e)The requested invoices were provided on 6 December at 2:12pm;
- (f)At 4:04 pm, Mr Awad (a solicitor employed by Mr Zouky) communicated that Mr Zouky accepted the annexures and the deed in an acceptable form and that he would sign it and send it shortly.
- (g)Mr Zouky did sign the Deed but never delivered it. That was probably because at 4:44pm, Mr Ford sent an email which informed Mr Zouky that Mr Giufre had decided not to proceed with the UPA.
- Clearly then, Mr Giufre requested the Deed and Mr Zouky ultimately accepted its terms. Mr Zouky gave evidence that he did so because:
I had a email and the phone conversations gave me – from Mr Anthony Ford and also conversing with Chris gave me all the comfort in the world that the deal is done, so if you sign this, we’re going to close on – by the 31st of December. So that gave me all the comfort to sign this and – especially when I know that settlement is happening. Finally, it’s happening after all the troubles I’ve been through.
- Although I have reservations about some of Mr Zouky’s evidence, I accept this evidence, at least as a reflection of Mr Zouky’s reasons for signing. It is consistent with the tenor of the correspondence leading up to the signing of the Deed and with the express provision for settlement of the UPA to occur by 31 December 2018 regardless of when Closing Conditions were reached. There seems little reason for such a term unless it was expected that the Closing Conditions would be met before then. I reject the suggestion that Mr Zouky’s acceptance of the terms of clause 1 of the Deed in particular is evidence that he knew and accepted that Mr Ford had been acting on the assumption that payment of the adviser’s fees in the manner it had been done was accepted by him as advancing of the second $250,000 of the loan amount.
- As I have said, Mr Ford communicated Mr Giufre’s (and formally the plaintiff’s) termination of the UPA and demand under the Loan Agreement by a notice sent at 4:44pm on 6 December 2018 (the Notice). Attached to that document was a two page letter formally notifying the termination and demanding payment of the professional fees. That notice (ex. 13) claims the fees as a Seller Termination Fee, not under the Loan Agreement. It appears that no claim is maintained under the UPA for the Seller Termination Fee because of the dispute resolution provisions in the UPA. Whether that has been strictly proved in this case or not, it is evident that no such claim is advanced here.
- The Notice, like the Deed, is irrelevant to the proper construction of the Loan Agreement. It does however have evidentiary significance for the estoppel case. The document was signed by Mr Giufre. If not prepared by Mr Ford, it must have been read by him. It mentions nothing about any assumption that the whole of the Loan had been advanced and the rights it asserts are not consistent with any such state of mind. It does not entirely exclude that state of mind as a possibility, but it is inconsistent with it.
- Although the submissions are extensive and the pleadings packed with detail, the issues were able to be distilled by the oral argument at the end of the trial. In that regard, I wish to compliment counsel on their readiness to engage in rigorous argument in addresses on the second day of the hearing.
- There were three central issues:
- (a)Was the payment of the adviser’s fees in the way it occurred, on the proper construction of the Loan Agreement, the advancing of part of a loan under that agreement;
- (b)If so, was the amount advanced $250,000 or $352,000; and
- (c)If not, were the defendants estopped from contending there had been no advance under the Loan Agreement in respect of either of those amounts, even if on the proper construction of the Loan Agreement there had not been.
Payments to advisers were not advances under the Loan Agreement
- The Loan Agreement provides for the Lender to advance the Loan Amount of $500,000 to the Borrower on the Loan Date. The Loan Date was 9 August 2017. The Loan Agreement contains no acknowledgement that some or all of the funds have already been advanced. The plaintiff must therefore prove that the amount has been advanced.
- Strictly speaking, the Loan Agreement does not say how the $500,000 is to be advanced, in the sense that it says in terms how the money is to be paid. However, it does contain Item 9. While the description of Item 9 is Approved Purpose, it nonetheless identifies how the money is to be advanced, at least by implication.
- Item 9(b) is easiest to apply: it provides that $250,000 is to be used at the Borrower’s discretion. Thus the advance must be made to the Borrower or at its direction, as would be the case in any agreement to advance money.
- Item 9(a) is a little less obvious. It provides (stated here again for convenience):
$250,000 to be loaned by the Borrower to Unique Holdco which is then to be on-loaned to Unique Opco and used to pay the professional fees and outlays of Seyfarth Shaw, PWC USA and PWC Australia incurred by the Lender in establishing and documentation the corporate structure of Unique Holdco (and its subsidiaries) (noting that this loan to Unique Holdco will satisfy the Borrowers obligation to make such loan under the UPA)
- This clause does not say that the $250,000 has to be paid to the Borrower and then lent by the Borrower to HoldCo then to OpCo to pay the fees. However, in my view it is difficult to see how Item 9(a) could be read another way. The central promise is to advance money to the Borrower and there has to be some act which comprises the making of such an advance. True it is that the plaintiff could have required an undertaking from the Borrower to pay the money to HoldCo, or could perhaps could have paid the money direct to HoldCo, but some form of advance was required.
- The evidence is clear that, in stark contrast to the amount in Item 9(b), the amount ear-marked with a purpose in Item 9(a) was not paid to the second defendant, nor directly to HoldCo. How then can it be said that the plaintiff has advanced the second $250,000?
- Mr de Jersey QC answered that question by the following contentions.
Proper construction of Item 9(a)
- He first submitted that the emphasis in the construction of Item 9 should be on the description “Approved Purpose”. He submitted that the clause mandated payment for the purpose of paying the fees of Wraith’s advisers, and that the mechanism specified in the clause was non-promissory. It merely provided one way that the money could be applied to the contractual purpose.
- I disagree.
- First, his construction involves a selective reading of the purpose. If the clause is concerned with purpose (which can be accepted), then why is the promissory aspect of the purpose in the clause to be confined just to who gets paid and to exclude as promissory the detailed description of how the money is to paid to that person? I can see no reason in language of the Item 9(a) to confine the purpose in that way.
- Second, when regard is had to the whole contractual context, including the terms of the UPA and the Loan Agreement relevant to payment of the Wraith advisers, there are compelling reasons to construe Item 9(a) in a way which makes the manner of payment binding on the parties. It will be recalled that the UPA required the second defendant to make a loan to HoldCo for working capital, and required the second defendant to do so from the purchase price paid for the units in the amount of $250,000. Item 9(a) provides in parenthesis that the payment by loan from the second defendant to HoldCo will satisfy the obligation of the second defendant to make such a loan under the UPA. If the loan was not made in the manner identified in Item 9(a) then it would not comprise the making of the loan contemplated by the UPA. It seems to me that the mechanism in Item 9(a) was carefully drafted to mirror the language of Sections 6.12 and 6.13 of the UPA to ensure that the advance of the second $250,000 meshed precisely with the obligations on the parties to the UPA, including HoldCo. That is a powerful reason to construe Item 9(a) in the manner contended for by the defendants.
- Third, HoldCo is a party to both the UPA and the Loan Agreement. It benefits from the advance of the second $250,000 under the Loan Agreement. The construction contended for by Mr de Jersey would mean that the plaintiff Lender could unilaterally advance the funds in a way which removed that benefit from HoldCo. It would be a strange construction which allowed the Lender to make the advance in that way, ignoring the benefit expressly conferred on HoldCo. It is correct that as a matter of substance, HoldCo was controlled by Mr Zouky. However, it was a separate legal entity with rights and liabilities which would be affected by the manner in which these funds were paid. That cannot be simply ignored, as the plaintiff’s construction would have it.
- Fourth, there is an odd lack of mutuality in the approach construction contended for. It permits the plaintiff unilaterally to pay the advance under the Loan Agreement in the manner it chooses. Yet it is the Borrower who is entitled to the advance and the Borrower who stands to benefit, through the UPA obligations, from the payment being made in the manner mandated. The construction advanced robs the Borrower of rights in respect of payment of the advance to which it is seemingly entitled under the plain words of the Loan Agreement.
- Fifth, in the face of those matters, and in any event, I do not find any of the extrinsic facts contended for by the plaintiff lead to a different construction. Even if they were made out, they do not establish that the literal terms of Item 9(a) could not be carried out.
- Finally, I note clause 3.4(b) contains an undertaking by the Borrower to apply the funds for the Approved Purpose only. That suggests an intention that the whole of the content of the agreement describing the Approved Purpose is binding on all parties.
The advance was made at the Borrower’s implied direction
- I also queried with Mr de Jersey how it could be said that an advance of the money to the Borrower had, on any view, ever been made. The money was never paid to the Borrower, nor with the Borrower’s consent or direction. How could the advance of the second $250,000 ever be said to have occurred?
- Mr de Jersey submitted that the advance had been made because it was made with the Borrower’s implied consent. This part of the argument developed in oral addresses. Mr de Jersey’s contention had much in common with the estoppel case. However, from a contractual perspective, the argument as I perceived it, was that looked at objectively, Mr Zouky, on behalf of the second defendant borrower, had agreed to the advance of the second $250,000 being made directly to the advisers rather than through HoldCo.
- I disagree that any such agreement can be discerned from the facts. There is no evidence of any express agreement to the advance being made in that manner. And in my view no implied agreement can be shown. I refer to my findings at paragraphs  to  above. In my view, those facts exclude any objective inference that Mr Zouky agreed to the advances being made direct to the advisers under the Loan Agreement. To the extent those findings relate to the persuasiveness of Mr Zouky’s evidence that he did not know whether they were being paid or not and when, they apply also to a reasonable business person in Mr Zouky’s position.
- A further answer to this argument arises from the context provided by the UPA. As the defendants’ counsel Mr Travis argued, even if the second $250,000 was not advanced under the Loan Agreement, under the UPA Mr Giufre’s interests would be repaid the advisers’ fees regardless of whether the UPA was completed (in which case the $250,000 from the purchase price would be paid through HoldCo to the plaintiff) or was not completed (in which case the Seller Termination Fee would be payable). There is no reason to infer or imply agreement to the making of the advance by direct payment by Wraith when Wraith was entitled to be reimbursed in any event even if the amount was not advanced under the Loan Agreement.
- In my view, the payments made by Wraith to its advisers after entry into the Loan Agreement did not comprise advances under the Loan Agreement.
- That conclusion makes it unnecessary to deal with Mr de Jersey’s argument that the amount advanced under the Loan Agreement was the full $352,000 odd which was paid to the advisers. That amount was claimed and claimable under the Seller Termination Fee if the entitlement to claim that fee under the UPA could be established on the facts. However, the plaintiff also claimed it under the Loan Agreement which fixed the advance at $500,000. I will deal with that point, even though it is strictly unnecessary to do so.
- The argument advanced in favour of this contention was based on the definition of Debt in the Guarantee. Mr de Jersey pointed out that the definition included all moneys payable by the Borrower to the Lender on any basis. He then pointed to the terms of the Guarantee in clause 2.1, which included a guarantee not just of the performance of obligations under the Loan Agreement but also a guarantee of due and punctual payment of the Debt, i.e. all monies due from the Borrower to the Lender.
- The argument then seemed to be that the Guarantee and the Loan Agreement had to be read consistently and that therefore, Borrower’s liability under the Loan Agreement included any Debt due by the Borrower to the Lender. The problem with this is that the Guarantee is a secondary liability. It is a guarantee of a liability of the principal debtor. It is therefore necessary to identify a liability of the principal debtor (the second defendant) to which the guarantee can attach. The guarantee cannot by the scope of its promise expand the liability of the principal debtor. Thus the argument leads back to the Loan Agreement and whether the $352,000 paid to the advisers can be construed as being advanced under the Loan Agreement. No variation to the amount of the loan was pleaded or proved. It is impossible to see how the liability for a principal sum above $500,000 could arise under the Loan Agreement. I might have misunderstood the submission on this point, but as I apprehended it, it had no merit.
The estoppel case
- The estoppel case is articulated in paragraphs 50 to 53 of the plaintiff’s trial submissions. I do not find it persuasive.
- It is convenient to begin with the identification of the assumption which it is said that Mr Zouky induced by his conduct. Mr de Jersey identified the assumption as being that Mr Zouky would not object to the payment of the balance of the Loan Amount directly to the advisers rather than through the mechanism in Item 9(b). It was said that Mr Ford adopted this assumption behalf of the plaintiff. Mr Ford’s evidence about the adoption of this assumption was thin. He did not say that he consciously assumed that direct payment was accepted by Mr Zouky as payment in accordance with the Loan Agreement. His evidence was as follows:
Have you read the third amended defence that was filed on Mr Zouky’s behalf in this proceeding? ---I believe so, yes.
And you understand from having read that document that there’s an issue in the case about who paid the consultants. Was that an issue that ever was the subject of discussion between you and Mr Zouky or any solicitor employed by his firm that you dealt with during this period?---No. No.
Did the topic ever come up at all? ---No.
Now, if it had come up, that is, if Mr Zouky said to you, for instance, “Don’t pay by
Wraith”, what would you have done? ---We probably would have had a discussion about that, who was going to pay it. The understanding was that we were sorting it out on behalf of the group.
- As evidence to found the estoppel contended for, it is unpersuasive (which is not meant as a criticism of the witness):
- (a)First, in my respectful view, the question put to Mr Ford was ambiguous. He was asked whether anyone had queried who paid the advisers. That falls far short of asking whether Mr Ford assumed that the direct payment method was accepted as payment in substitution for, or consistently with, the method specified in Item 9(b);
- (b)Second, the only evidence of any positive assumption that what Mr Ford was doing was consistent with the Loan Agreement was the ambiguous statement that “the understanding was that we were sorting it out for the group”. He does not say whose understanding it was, and does not explain who he meant by the group;
- (c)Third, and perhaps most compelling, Mr Ford gives no evidence of any conduct by Mr Zouky which might have induced an assumption (if he made it) that the method of payment was accepted as payment in accordance with the Loan Agreement. Mr Ford simply says the topic never came up.
- Mr Ford is put forward as the person who adopted the assumption which must have been induced by Mr Zouky. There was no evidence of any act or combination of acts and omissions which can be said to have induced that alleged assumption. The highest the evidence reaches is that the topic of the manner of payment never came up. The plaintiff’s submissions at paragraph 52 of its final submissions lists a number of facts which are said to be relevant to engaging the principles of estoppel, though it fails to explain how. Paragraphs 52(a) to (g) were described in address as matters of background, supporting the contention in paragraph 52(h) that the defendants should have known or knew that Wraith would pay the adviser’s directly.
- I am not persuaded by that submission nor that the background matters support it: see my reasoning in paragraphs  to . One matter of background does seem to be of particular relevance, but it does not assist the plaintiff: the matter in paragraph 52(a), that Mr Ford was General Counsel of Wraith. In evidence, Mr Ford established his legal experience and expertise in transactions work of this kind. Someone of that level of expertise would be expected to be slow to simply assume that legal rights of another party will not be insisted upon because the other party does not remind him that those exist and might be relied upon.
- I am not persuaded that Mr Ford adopted the assumption that Mr Zouky would not rely on the terms of Item 9(a) of the Loan Agreement properly construed. Nor am I persuaded that if he did adopt that assumption, Mr Zouky paid such a part in inducing it as to make it unconscientious for Mr Zouky to resile from it where such assumption had led to material detriment.
- Further, any such assumption would in any event be unreasonable. As I have explained in paragraph  above, it was perfectly understandable that Mr Zouky would stand by and not complain about direct payment to the advisers without it suggesting or implying that he was accepting that the payments in that manner were consistent with the Loan Agreement. For the reasons I explain there, failure to comply with the mechanism in the Loan Agreement would simply have meant that the adviser’s fees were paid under the UPA, whether it went ahead or was terminated.
- Mr de Jersey did point to some positive conduct in late November/early December where Mr Zouky appeared to be accepting of the incurring of legal fees. However for the reasons in the previous paragraph, that does not give rise to any reasonable assumption about his reliance on his rights under the Loan Agreement. Further, any estoppel would only arise from that time, and by that time, most of the fees had been paid. Further, Mr Zouky’s responses are ambiguous in the extreme. Finally, Mr Ford gave no evidence he ever relied on any of that conduct.
- It remains to deal with the Deed of Acknowledgement. I consider that document of little relevance to this issue. From the plaintiff’s perspective, it is unclear who wanted clause 1 to be included and why. As I have found, Mr Giufre appears to have been the instigator of the Deed. Mr Ford made no comment in evidence about clause 1 specifically, he simply said he wanted to be clarify some matters. The Deed is equally consistent with an understanding by him that the plaintiff and Wraith had not been complying with the Loan Agreement as with an assumption by him that it had. Similarly, I have accepted Mr Zouky’s evidence that he was willing to agree to the Deed to get the UPA to closing.
- There is one further consideration which tells against any estoppel arising. That is explained by Mr Travis in his closing written submissions at paragraph 117, where he writes:
Finally, there is no detriment to the plaintiff in insisting upon the plain terms of the Loan Agreement. This is because the plaintiff has rights under the UPA to the recovery of up to $250,000 of its professional advisors’ fees (if there was a Closing) and an ability to recover virtually all of its professional advisors’ fees (if the plaintiff properly terminated the UPA) as a “Seller Termination Fee”. As noted, the plaintiff relied on the UPA to claim its professional advisors’ fees as a “Seller Termination Fee” in its notice purporting to terminate the UPA, and in this proceeding. The only reason that the plaintiff is not now seeking to recover its professional fees under the UPA is that it elected to give an undertaking to the Court not to pursue any action on the UPA, and to amend its pleadings accordingly, as a condition for being permitted to litigate in this jurisdiction. The plaintiff was perfectly entitled to have this entire dispute resolved in a single arbitration proceeding. That is an option that the plaintiff chose to forego. Having chosen to stay in this jurisdiction, the plaintiff should not be able to use claims of prejudice to recast its claim for a “seller termination fee” under the UPA as a debt claim under the Loan Agreement.
- While it is not clear to me that it was proved in evidence in this trial that the plaintiff gave the undertaking identified, that makes little difference to the merit of Mr Travis’ submission. The fact is, that if the payments were not made under the Loan Agreement, they would not affect the right to pursue them as a Seller Termination Fee. So far as I could discern, the plaintiff did not answer this proposition. However, I am conscious that this issue was not explored in detail at the trial and I can think of matters which might affect the conclusion contended for by Mr Travis. Accordingly while it is a factor which also seems to justify dismissal of the estoppel case, I rely on the other matters I have dealt with in conclude that that case should be rejected.
- The plaintiff’s claim is dismissed. I will hear the parties as to costs.
 See the mechanism provisions in Section 3.02(c) and (d) UPA.
 Email dated 30 Jan 2017 (Exhibit 5).
 It might be speculated that one reason why he thought Mr Giufre a good person to involve in the venture was his disciplined focus on such matters (which Mr Zouky had presumably observed in their previous dealings).
 Exhibit 11 last page
- Published Case Name:
US Healthcare Foods Pty Ltd v Zouky
- Shortened Case Name:
US Healthcare Foods Pty Ltd v Zouky
 QDC 31
Porter QC DCJ
12 Mar 2020