Varga v Karam[2018] QDC 242

DISTRICT COURT OF QUEENSLAND

1. [1]
   In late October 2012, the plaintiff as the lender entered into a Secured Loan Agreement (‘the Loan Agreement’) with Waves Medical Pty Ltd as trustee for Karam Family Trust Ltd (‘Waves Medical’) as the borrower. An unregistered mortgage in favour of the plaintiff was given over property owned by Waves Medical. The defendant and her then husband, Dr Thamir Karam, were directors and shareholders of Waves Medical. The defendant was also a guarantor under the Loan Agreement.

2. [2]
   The Loan Agreement was varied in December 2012 by extending the repayment date and the interest payable. There were further changes in early 2013 by way of an oral agreement between the plaintiff and the defendant on behalf of Waves Medical. On this occasion, the amount of the loan was more than doubled, the interest was varied, the repayment date was again extended and Dr Karam provided a mortgage over his property at Stretton (‘the separate agreement’).

3. [3]
   It is common ground that the written alterations to the Loan Agreement in December 2012 operated as a variation to it. The principal issue for determination is whether the separate agreement entered into in early 2013 replaced the Loan Agreement, with the consequence that the defendant is not liable as guarantor for any of the moneys the plaintiff claims are owing.

4. [4]
   The total of the plaintiff’s claim is approximately $850,000. It comprises the principal sums owed, interest and default interest. The plaintiff abandons the excess above the monetary jurisdiction of the District Court.

5. [5]
   Dr Karam was declared bankrupt in February 2015. Waves Medical was wound up in March 2017.

6. [6]
   The trial was heard over one day. Three witnesses gave evidence. These were the plaintiff, her mother in law Valerica Varga (Mrs Varga) and Dr Karam. Mrs Varga gave her evidence through a Romanian interpreter. Three exhibits were tendered being the Loan Agreement, the mortgage over Dr Karam’s property and a letter of demand to the defendant dated 29 January 2016.

Loan Agreement

7. [7]
   Prior to the meeting at which the Loan Agreement was executed, there were some discussions between Mrs Varga and the defendant. They had met in October 2012 through the defendant’s sister in law, Roxanna Mariuta. The defendant, Mrs Varga and Ms Mariuta met on three occasions at Dr Karam’s property at Stretton where he and the defendant resided (‘the Stretton property’). At these meetings there were discussions regarding the plaintiff lending Waves Medical $250,000 to assist with the construction of Adam and Noah (‘the child care centre’). This was being built at Heritage Park, south of Brisbane.

8. [8]
   Mrs Varga spoke to the plaintiff regarding this proposal and the plaintiff was prepared to loan Waves Medical the money. The first occasion the plaintiff met the defendant was at the Stretton property on 25 October 2012. Also present were Mrs Varga and the defendant’s lawyer, Winnie Cheung. The defendant explained to the plaintiff that Waves Medical required the loan to build the child care centre. Ms Cheung had with her the Loan Agreement and she ‘went through’ it with the plaintiff.  It was then signed in the presence of Ms Cheung by the plaintiff and the defendant.  Ms Cheung signed the document as the witness.  The defendant signed it on behalf of Waves Medical and as a guarantor.  It was never signed by Dr Karam, even though it had been drafted with an expectation that he would sign it as a co-guarantor.

9. [9]
   I shall set out the relevant provisions of the Loan Agreement including the guarantee in order to give context to the consideration of the issues in dispute.

“BACKGROUND

1. The borrower wishes to borrow from the lender, and the lender wishes to lend to the borrower the sum of two hundred and fifty thousand dollars, $250,000.00.
2. The Parties wish to record their mutual understanding as to the terms of the loan and as to how the loan will be repaid.

THE PARTIES AGREE AS FOLLOWS:

1. DEFINITIONS AND INTERPRETATION

1.1.1Definitions

…

‘Repayment date’ means within the next 2 months from the date of signing this Agreement. This refers to the repayment of the principal sum.

‘Interest rate’ means a rate of 10% for a fixed term of 2 months. This interest is to be paid in full in December, before or on 25 December 2012 from signing this Agreement.

‘Loan’ means, at any particular moment in time, the principal amount of the advance outstanding at that moment in time;

…

‘Security’ means

• any guarantee executed by an guarantor including but not limited to the guarantee incorporated in this agreement; and
• the items listed in item 3 of the schedule.

…

4. CHARGE

4.1To better secure its performance to the lender of its obligations under this agreement the borrower as beneficial owner charges the property referred to in item 2 of the schedule (collectively “the Secured Property”) by way of an unregistered mortgage in favour of the lender with the punctual satisfaction of each and every of the borrower’s obligations (which charge shall hereafter be referred to as “the charge”).

8. GUARANTEE

The Guarantors in consideration of the lender advancing or agreeing to advance the amount of the advance stated in paragraphs 2.1 and 2.2 to the borrower at their request hereby covenant with the lender that if at any time default shall be made in the payment of any monies payable in accordance with the provisions of this agreement by the borrower to the lender, or in the observance of any term or condition to be observed by the borrower, the guarantors will forthwith on demand by the lender pay the whole of such money which shall then be payable to the lender and will keep the lender indemnified against all loss of the advance interests and other monies payable and all losses costs and expenses whatsoever which the lender may incur by reason of any default by the borrower. This guarantee shall be a continuing guarantee and will not be released by any neglect or forbearance on the part of the lender in enforcing this Agreement.”

10. [10]
    The secured property was the land at Heritage Park on which the child care centre was being constructed.

Varied loan agreement

11. [11]
    In December 2012, there was a further meeting with the defendant and Mrs Varga. It was Mrs Varga’s evidence that the defendant was upset and said that more time was required to repay the moneys the subject of the Loan Agreement, and that if this could be accommodated that the plaintiff would be paid an additional $25,000 in interest. This request was communicated by Mrs Varga to the plaintiff and resulted in a further meeting at the Stretton property. In attendance were the plaintiff, Mrs Varga and the defendant. At this meeting, the defendant reiterated her request and offer on behalf of Waves Medical in relation to the loan of the further moneys. This was accepted by the plaintiff.

12. [12]
    Following this discussion, the defendant made handwritten changes to the Loan Agreement in the presence of the plaintiff and Mrs Varga. The changes reflected what had been agreed.

13. [13]
    Two of the handwritten changes related to the definitions of repayment date and interest rate which were varied to read:

“‘Repayment date’ means within the next 12 months up to 30 March 2013 from the date of signing this Agreement. This refers to the repayment of the principal sum.

‘Interest rate’ means a rate of 10% for a fixed term of 2 months up to 30 March 2013. This interest is to be paid in full in December, before or on 25 December 2012 up to 30 March 2013 from signing this Agreement.”

14. [14]
    Further, directly under the signatures of the parties on page 9 of the Loan Agreement the following was written in by the defendant:

“To pay extra $25,000 interest up to 30 March 2013 on or before that date.  Interest of $25,000 for the lending period up to 25 Dec 2012 to be paid as cleared funds by no later than 30 March 2013.  Cheque already given.  TOTAL $300,000 to be paid before 30.03.2012”

15. [15]
    It is common ground between the parties that these alterations operated as a variation to the Loan Agreement.

Separate agreement

16. [16]
    There was a further meeting with the plaintiff, the defendant and Mrs Varga at the Stretton property in early 2013. The plaintiff said in evidence that this meeting arose following a discussion with Mrs Varga.

17. [17]
    The evidence was that the defendant said during the course of the meeting that Waves Medical required an additional $350,000 in order to complete the construction of the child care centre. An offer was also made to pay the plaintiff 10% on the total of the principal sum loaned, being $600,000. The plaintiff recalled the defendant saying to her that if the plaintiff was unable to loan the further moneys that the construction of the child care centre would not be able to be completed and the moneys which the plaintiff had already loaned would not be able to be repaid to her.

18. [18]
    It was the evidence of both the plaintiff and Mrs Varga that the defendant said that she could give the plaintiff a mortgage over her property. Mrs Varga recalled that the defendant had the mortgage document with her. The plaintiff’s evidence was that she did not see the mortgage document at this meeting. The plaintiff orally agreed to advance the further moneys to Waves Medical on the terms proposed by the defendant.

19. [19]
    Mrs Varga gave evidence that subsequent to this meeting the defendant picked her up from her residence and drove them to the office of the defendant’s solicitor, Rod Lawson. It was on this occasion that the mortgage document was signed by the defendant on behalf of Dr Karam. The mortgage was over the Stretton property. As this was solely in the name of Dr Karam, he appears as the mortgagor. The document describes the debt or liability secured to be $650,000 and provides as follows:

“Covenant/Execution.  The Mortgagor covenants with the Mortgagee in terms of: to pay 10% of $600,000 each month on the 29^th into the nominated account, which is the sum of $6,000 and to repay all sums of money by no later than 5 June 2013 and charges the estate or interest described in item 1 with repayment/payment to the Mortgagee of all sums of money referred to in item 5.”

20. [20]
    Dr Karam was not able to be present at the meeting and it was his evidence that he had authorised the defendant to sign the mortgage on his behalf. The defendant’s signing of her then husband’s signature was witnessed by Mr Lawson. Mrs Varga took the mortgage with her and gave it to the plaintiff. She signed it on 8 February 2013 which was the same day the $350,000 was advanced to Waves Medical. Dr Karam subsequently signed the mortgage on 24 February 2013. He gave evidence that he received the mortgage in the post, signed it and returned it by post. Mrs Varga said that he signed it in the presence of herself and a Justice of the Peace at Logan. Nothing turns on this discrepancy in the evidence.

21. [21]
    Waves Medical has paid to the plaintiff interest in the sum of $199,000. None of the moneys loaned have been repaid. A letter of demand dated 29 January 2016 was forwarded to the defendant.

Effect of separate agreement

22. [22]
    The defendant contends that the effect of the separate agreement was to terminate the Loan Agreement and replace it with a new agreement, and that the defendant did not guarantee the obligations of Waves Medical under the new agreement.

23. [23]
    Whether there was a ‘replacement agreement’ is to be determined as a matter of substance rather than form.^[1]   It depends on the express or inferred intention of the parties disclosed by the later agreement.^[2] 

24. [24]
    There is no suggestion that there was an express agreement between the parties that the separate agreement would replace the Loan Agreement.

25. [25]
    The question becomes whether it can be inferred that as much was intended by the parties. This is a question of fact.

26. [26]
    It involves a consideration of the language used in the Loan Agreement and the separate agreement and an assessment of the significance, if any, of the differences between them in the light of the circumstances surrounding the agreements.^[3]   It may be inferred if the new terms are ‘entirely inconsistent’ with the Loan Agreement so that it is impossible for both agreements to be performed, or if the new terms are so inconsistent so as to destroy the substance of the Loan Agreement.^[4]

27. [27]
    In my view, the argument for a new contract having come into existence to replace the Loan Agreement on account of the separate agreement, is unsustainable on the facts of this case. There is no evidence of the plaintiff and the defendant having discussed this. A much clearer intention to this effect would need to be shown. The terms of the separate agreement were for the plaintiff to loan Waves Medical an additional $350,000 to complete the construction of the child care centre. The total amount of $650,000 was to be repaid by 5 June 2013 and interest was to be paid at the rate of 10% per month on the principal sum loaned of $600,000. Security for the entire amount was provided by way of a mortgage over Dr Karam’s property.

28. [28]
    These alterations are not so substantial to be inconsistent with the Loan Agreement with the consequence that the parties must necessarily have intended for the Loan Agreement to be discharged. There is otherwise nothing on the face of the separate agreement to make it impossible for both agreements to be performed. It seems highly improbable that by entering into the separate agreement, the plaintiff intended to relinquish her rights under the Loan Agreement as against Waves Medical as the principal debtor and the defendant as a guarantor and/or her rights as to the charge Waves Medical had given over its property.

29. [29]
    In all the circumstances, I am satisfied that the manifest intention of the parties was that the separate agreement would be just that, and that it did not constitute a replacement of the Loan Agreement. It is another agreement to advance further monies on similar terms with additional security.

Scope of guarantee

30. [30]
    There is no evidence of any oral or written agreement between the defendant and the plaintiff for the defendant to guarantee the obligations of Waves Medical under the separate agreement. There is no suggestion that it was ever discussed that security for the separate agreement was to be the existing guarantee under the Loan Agreement. This leaves the question of whether or not the guarantee under the Loan Agreement embraces the separate agreement. This depends on the scope of the guarantee.

31. [31]
    I consider the guarantee to be clear and unambiguous. It is limited to the specific and identified Loan Agreement. It relates to the moneys advanced as stated in Clauses 2.1 and 2.2 of the Loan Agreement. This amount is $250,000. It also guarantees to keep the plaintiff ‘indemnified against all loss of the advance interest and other monies payable and all losses costs and expenses whatsoever’ which the plaintiff may incur by reason of the default of Waves Medical.  It does not for example include an ‘all monies’ clause or an ‘all sums which are now or may hereafter become owing’ clause.  It does not contain any other clause which preserves the liability of the defendant as guarantor in the event of the entry into a further agreement as occurred here.  

32. [32]
    The result in the events that transpired, is that the defendant’s liability as guarantor has not been increased to encompass the additional obligations of Waves Medical under the separate agreement. The plaintiff could have protected her position in relation to this. The most obvious and effective way would have been to have taken a new guarantee when she agreed to loan these further moneys. Alternatively, she could have obtained a written undertaking from the defendant that the existing guarantee in the Loan Agreement extended to and encompassed the new obligations.

33. [33]
    I am satisfied that the effect of the guarantee is to make the defendant liable for the principal sum of $250,000 provided for in Clauses 2.1 and 2.2 of the Loan Agreement. It also makes the defendant liable for interest, costs and expenses which the plaintiff may have incurred by reason of any default by Waves Medical under the Loan Agreement.

Conclusion

34. [34]
    The above outcome was not addressed at trial or in the submissions of either party. In these circumstances, it is expressed as a preliminary view and I invite further submissions on this point. This is not intended to be an opportunity to re-open matters addressed in these reasons.

35. [35]
    Further, it is not possible to calculate the quantum of the plaintiff’s claim if this view is right. This is because the plaintiff has been paid interest in the sum of $199,000. These moneys were paid between March 2013 and January 2016. There is no evidence as to the quantum of these payments, if any, which relate to Waves Medical’s obligations to pay interest and/or default interest under the Loan Agreement. For this reason, I also invite further submissions as to the appropriate order as to the quantum of the plaintiff’s claim.

36. [36]
    It is premature at this time to consider costs.