Supreme Court New South Wales Medium Neutral Citation: Hatziplis v Photios [2017] NSWSC 397 Hearing dates: 10 April 2017 Decision date: 10 April 2017 Jurisdiction: Equity - Commercial List Before: Stevenson J Decision: Judgment to be entered in favour of the second plaintiff against the defendant Catchwords: GUARANTEE AND INDEMNITY – whether director of creditor represented to guarantor that guarantee would not be called on – whether guarantor relied on any such representation – DUTIES – whether underlying loan agreement a mortgage for stamp duty purposes – whether such document liable for duty – whether such document unenforceable pending payment of duty Legislation Cited: Duties Act 1997 (NSW) Category: Principal judgment Parties: George Hatziplis (First Plaintiff) Hatziplis Holdings Pty Limited (Second Plaintiff) James Photios (Defendant) Representation: Counsel: M Davis (Plaintiff) J T Johnson (Defendant) Solicitors: Bartier Perry (Plaintiffs) O'Neill Partners Commercial Lawyers (Defendant) File Number(s): SC 2016/122957 EX TEMPORE Judgment 1. Pursuant to a Convertible Note Deed dated 12 October 2012, the first plaintiff, George Hatziplis, and the second plaintiff, Hatziplis Holdings Pty Limited ("the Lender"), agreed to lend First Debenture Project No 4 Pty Limited ("the Borrower") $8.4 million. 2. The Borrower required that advance in relation to the development of land in the lower Hunter Valley. 3. The $8.4 million was advanced and, in the events that have happened, was repayable a year later, on 12 October 2013. 4. However, the money has not been repaid. The Borrower has been deregistered. 5. Pursuant to cl 7 of the Deed, the defendant, Mr James Photios, agreed to guarantee repayment of the borrowing. Mr Photios was the sole director and shareholder of the Borrower. He was, and evidently still is, the son-in-law of one of the directors of the Lender, Mr George Hatziplis, and the brother-in-law of another of those directors, Ms Dimitra Hatziplis. 6. The Lender brings these proceedings to recover the debt and accrued interest from Mr Photios. With interest, the amount now sought is in excess of $16 million. 7. The parties referred to each other in their evidence by their given names. For convenience, and without intending any disrespect, I will do the same. 8. Although his Commercial List Response ranged wider, James now offers only two defences to the claim. 9. The first is that prior to his execution of the guarantee, George represented to him that if he, James, signed the guarantee, the Lender "would never call on the guarantee". 10. James contends in his Commercial List Response that it follows that the guarantee is "not enforceable" or has been discharged. 11. James claims that prior to executing the guarantee he had a conversation with the Lender's solicitor as follows: "Mr Donato: [T]he directors of Hatziplis Holdings have requested that you and Maria provide a personal guarantee of the loan. [James]: [T]here is no way that Maria would personally guarantee the loan as she is not a party to the deal. I am not happy about personally guaranteeing it myself and I will speak with my father-in-law and get back to you." 1. "Maria" is James's wife, the daughter of George and the sister of Dimitra. 2. James claims that later, in August or September 2012, he had the following conversation with George: "[James]: Dad your lawyers, on instruction from Dimitra, are requesting that Maria and I personally guarantee this loan. I will not allow Maria to personally guarantee the loan since she is not involved in the company. George: Would you be able to guarantee it? [James]: I would prefer not to because, as you know, I cannot cover $8 million. Why do you need it? George: I need the guarantee in order to satisfy the others. [I understood 'others' to mean his other daughters, being Dimitra and Miranda] [James]: If you think that it will help then OK but as you know it means nothing because I cannot cover this amount. George: I know that. But you also know that I would never call on the guarantee. [James]: Yes, I know that. Thanks." 1. George denied any such conversation took place. 2. George said that what was said between James, Maria and him was as follows: "Maria: Dad, James and I have an opportunity for the company [Hatziplis Holdings] and us to make money. This is our good luck. It's an opportunity to buy a property at the Hunter Valley and develop it and share the profits. We need $8.4 million from you. This is life or death for us. [George]: Is it fair dinkum? Maria: Yes it is dad. [George]: If that's the case, I'll consider it. It will be subject to the terms being approved by my lawyers. Maria: Ok. [George]: Also, I will hold you both personally responsible for its repayment. Maria: Yes, that's fine. James: I stand by this opportunity, which is great for the family, and I am happy to be responsible for its repayment. I am looking out for the interests of the whole family." 1. I do not need to resolve the dispute between James and George as to what was said. 2. That is because, assuming that James's account of the conversation is correct, it provides no answer to the Lender's claim under the guarantee. 3. That in turn is because it is clear to me that James did not rely upon anything George said about the Lender "never calling on the guarantee" when he executed it. 4. As he said in cross-examination, he was prepared to do and sign whatever was needed to secure the loan from the Lender. 5. Indeed, on James's account of the conversation (and as he also agreed in cross-examination) he had already agreed to give the guarantee by the time George said (on James's account of it) that the Lender "would never call on the guarantee". 6. James's subsequent conduct provides further confirmation of the absence of any reliance by him on what was said by George before he executed the guarantee. 7. On 6 September 2012, James wrote an email to Dimitra in which he said: "Dimitra, my commitment and sincerity to move forward with this is evidenced by the fact that I signed all documents two weeks ago; I had the public company Guarantee signed, as well as my personal Guarantee; and these were delivered and remain held by Bartier Perry. … Now, that said, I want to re-state that I have agreed to the conditions that Dad and you have proposed, including profit participation. I personally and irrevocably undertake to sign all documents presented to me that will facilitate this to your full satisfaction. Like you, I have worked hard to ensure that all requirements have been met." 1. By then James had signed the guarantee. His commitment to it in the email was unequivocal. He made no mention of anything said to him by George. 2. On 12 December 2012, several months after the Deed had been executed, there was a meeting between James, George and Dimitra. At that meeting, there was a discussion about the "personal guarantee" that James had signed. James agreed that he made no mention of anything said to him by George which induced him to enter the guarantee. 3. The $8.4 million was due to be repaid on 12 October 2013. 4. On 1 November 2013 the Lender, by its solicitor, served a demand on James under the guarantee. 5. James wrote a lengthy response to that demand in which he set out the various difficulties that he said the Borrower was having in relation to the development of the Hunter Valley land. 6. However, he made no assertion, in response to the demand made on the guarantee, of the existence of any representation said to have induced his entry into it. 7. On the contrary, for the reasons he set forth in the letter, he stated that the Borrower required "a written undertaking that all action against the [Borrower] and the guarantors of the facility will be withdrawn and that the [Borrower] be given 12 months to progress the stages [of the development set out earlier in the letter]". 8. If ever there was a time for James to assert that he had entered the guarantee in reliance on statements of the kind he gave evidence about, this was it. 9. Further, several years later, in unrelated proceedings, James was cross-examined in relation to the transaction now before me and in the course of giving evidence about that later said: "I was a personal guarantor to that loan, plus others within the group. I had – I had to make sure that everything – because at the end of the day I was liable, not any of the directors, no one else except for me because I was a personal guarantor to over nine million dollars' worth of loans at FDL." 1. Again, no suggestion was made by James in that evidence of any matters upon which he could assert that he was not liable under the guarantee. 2. These matters cause me to have great doubts as to whether George made any statement at all to the effect that James alleges. 3. Assuming however that he did, the evidence satisfies me that James did not rely on whatever was said when he entered the guarantee. 4. For those reasons, I see no basis to conclude that the guarantee is not enforceable by reason of anything George said to James prior to execution of the guarantee. 5. The second matter relied upon is the contention that the Deed constitutes a "mortgage" for the purpose of s 205 of the Duties Act 1997 (NSW) and, as a consequence of non-payment of duty, is unenforceable by reason of s 211 of that Act. 6. It is common ground that the Borrower executed a mortgage over the Hunter Valley land to secure the borrowing. That mortgage is stamped and registered. 7. Mr Johnson, who appeared for James, submitted that the Deed was itself a mortgage because it "called for the provision" of that registered mortgage. 8. I do not read the Deed this way. It is, in effect, the loan agreement underlying the borrowing. It contemplates that security will be provided, but it does not "call for" it. It is not itself a "mortgage" for the purpose of s 205 of the Duties Act. 9. I propose to enter judgment in favour of the Lender against James for the amount of the debt and interest. 10. I invite counsel to bring in short minutes to give effect to these reasons. Those short minutes should make provision for costs. If there is any argument about costs, I will hear it. ********** Amendments 15 June 2017 - Correction to [1] - first plaintiff added DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 15 June 2017