Apted v Davies - [2013] SADC 23

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
APTED v DAVIES
[2013] SADC 23
Judgment of His Honour Judge Tilmouth
6 March 2013
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - FORMATION OF CONTRACTUAL RELATIONS - CONTRACT IMPLIED FROM CONDUCT OF PARTIES
The plaintiff claims to have lent the defendant $100,000, whereas the defendant contends the loan was to a corporate entity, not to him personally.
Held: Evidence of defendant rejected. Judgment for the plaintiff. Turns on own facts.
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 597; Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540; AW Ellis Engineering Pty Ltd v Malago Pty Ltd [2012] NSWSC 55; Re George, Francis v Bruce (1890) 44 ChD 627; Lipkin Gorman (a firm) v Karpanale Ltd [1991] 2 AC 548; Finlay v Silicon Industrial Pty Ltd (2003) 229 LSJS 14; David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353; Western Export Services Inc v Jireh International Pty Ltd (2011) 86 ALRJ 1, referred to.
Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502; Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, applied.

APTED v DAVIES
[2013] SADC 23
Introduction

This action relates to an undocumented loan made in hastened circumstances on any view of the facts. By these proceedings the plaintiff Mr Apted claims to have personally lent the defendant Mr Davies, the sum of $100,000. The defendant admits a loan was advanced by the plaintiff, but he contends it was made to a company of which he was the controlling Director, SABC Project Management Pty Ltd (SABC).
Facts not in dispute or otherwise proven
The following account of the underlying facts derive from documents tendered and testimony taken during the course of the trial, which for the most part are undisputed. Both men had known each other through various business dealings since around 2000. Mr Apted was aware of the existence of SABC and that it held an interest in a wine bar, the Bar on Gouger.[1]
[1] Statement of Claim paras 11.3 & 29.4, T5.30-.34, T30.16-31.5, T181.8-.12
On 29 or 30 June 2004 a company in which neither held any interest, Southern Plasterboard Contracting Pty Ltd (Southern Plasterboard), raised a loan with the ANZ Bank for $100,000. Its Directors Messrs Hazzard and Dosser were well known to Mr Apted. This loan was apparently raised for the purposes of investing in its superannuation fund the SPC Superannuation Fund (SPC) before the imminent close of the financial year.[2]
[2] Exhibit P6, T7.5-.7
On 30 June 2004 they drew a cheque for $100,000 on the account of SPC and handed it to Mr Apted. The payee was left blank.[3] According to the evidence of Mr Apted who was unrepresented, he told Hazzard and Dosser it should be made out to ‘Denis Davies’,[4] however according to him that name was written only on the cheque butt in brackets. Mr Davies did not operate a personal cheque account.[5]
[3]    T70.17-.23
[4]    T7.11-.12
[5]    T18.37-19.3, T42.21-.28, T43.7, T74.14-.15
Mr Apted then hand delivered the cheque to Mr Davies at the latter’s office in the Adelaide CBD. The name SABC as payee, was inserted later by someone (that factual dispute is dealt with later) and promptly deposited by his secretary into the SABC account with a request for special clearance.[6] Once obtained it was immediately transferred into the defendant’s wife’s account.[7] Mr Davies explained this was arranged in that way in order to facilitate the immediate issue of a bank cheque, which otherwise could not be accommodated on the SABC account.[8]
[6]    T115.16-.17
[7]    Exhibit P7
[8]    T176.4-.15
In the meantime, an employee of the ANZ Bank rang the office of SPC about the request for special clearance, to which Mr Apted coincidently happened to return. He gave evidence of an exchange which took place during the call:[9]
… that's when the phone call came when the bank manager from the ANZ bank said just wanting to get clearance that it's okay for this cheque to go into this account. Are you happy with it and I got asked the question and I said yes, that is one of his companies.
and again later under cross examination:[10]
At this point in time it was a cheque and it had a blank and that's why the bank raised the issue when it went into SABC and said 'Is this a legitimate account into which this cheque is going to be paid because they've asked for a special clearance and we want to make sure before we grant a special clearance that, in fact, it's going into a legitimate account?' And I said 'Yes, that is one of his companies'.
Clearly Mr Apted understood by this time that someone had made a decision to deposit the cheque into the SABC account and he acknowledged that it was to be so applied.
[9] T44.6-.11
[10] T71.1-.14 and T179.33-.38
Then on 5 July 2004, $99,000 was transferred from Mrs Davies’ account to the trust account of the solicitor acting for the owners of the Bar on Gouger.[11] The purpose of this transaction was to pay the price of purchasing the balance of the shares in the wine bar business so that Mr Davies or SABC would then obtain full ownership and control over it. Previously SABC held a 40 per cent interest in the Bar on Gouger.
[11] Exhibit P2
At the request of the Directors of SPC, Mr Apted signed an acknowledgement on 1 July 2004 of having personally received the $100,000 ‘to be repaid on 30 June 2005 plus interest to be calculated at the rate of 9.25 per cent p.a.’.[12] At the same time in a separate document he acknowledged: [13]
This letter recognises that I (Edward Eric Apted) have borrowed the sum of $100,000.00 (One hundred thousand dollars) repayable on the 30^th June 2005 plus interest calculated at the rate of 9.25% p.a. This money is to be invested in a Joint Venture of business in the Adelaide CBD.
[12] Exhibit D9
[13] Exhibit D10
The purchase of the Bar on Gouger was effected by a Share Sale Agreement of 6 August 2004, the purchaser therein being SABC.[14]The loan has not been repaid by either Mr Davies or the company. Although the legal shareholding in the business has since changed, Mr Davies retains sole control of the Bar on Gouger.[15] The plaintiff has not sued or joined SABC because it has gone into liquidation and been deregistered, so there is consequently no prospect of recovery from it.[16]
[14] Exhibit P8
[15] T124.36-125.7
[16] T125.8-126.6, T180.1-.18
Mr Davies did however make out a cheque dated 29 June 2005 on the account of SABC in favour of SPC for $109,250. Obviously this figure represents precisely the principal sum together with interest over one year. Mr Davies claims a debt remained owing to SABC by Plastic Recyclers Australia Pty Ltd (Plastic Recyclers), a company in which Mr Apted was a Director.[17] The cheque was in fact never presented because on the evidence of both men, SABC held insufficient funds to honour it.[18]
[17] T31.16-.17
[18] T81.12-.13, T82.35-.37, T120.9-.18, T179.5-.11
On 1 May 2006 the trustees of SPC issued proceedings in this court against Mr Apted claiming repayment of the $100,000 together with interest. The Statement of Claim alleged he was the borrower.[19] Mr Apted did not contest those proceedings. Default judgment was entered against him together with costs on 25 May 2006.[20] On 14 June 2006 he was served with a Bankruptcy Notice, which induced him to repay $134,097 in full satisfaction of the debt to the SPC fund on 27 September 2006.[21] On the same day a Director of SPC provided him with a written acknowledgment of ‘settlement in full’, and purporting to:[22]
therefore assign to (Mr Apted) all rights previously held by SPC Superannuation Fund to recover the loan, interest and costs from Denis Davies and/or his companies.
[19] Exhibit D13
[20] Exhibit D13 - DCCIV-06-653
[21] Exhibit P5
[22] Exhibit P4
It should be noted at once that this putative assignment was ineffective. In the first place having fully satisfied the debt there was nothing capable or left to assign. In the second place, the cause of action had merged in the default judgment, so that no further proceedings were capable of being maintained: Chamberlain v Deputy Commissioner of Taxation.[23]
[23] (1988) 164 CLR 502 at 508, 510-511
Mr Apted ultimately issued proceedings out of this court personally against Mr Davies on 29 June 2011 (one day before they fell out of time) claiming reimbursement for the loan and accruing interest.
The respective cases
The evidence of the plaintiff was to the effect that Mr Davies approached him asking where he could ‘get a quick $100,000’ as he wished to take a majority interest in the Bar on Gouger.[24]He maintained that Mr Davies said to him there would be ‘some benefit flowing to me if he was able to successfully acquire controlling position in the Bar on Gouger’.[25] He crystallised this by suggesting Davies spoke ‘in broad terms about some shareholding for myself … [and] … some of that cash flow available to both of us’.[26] Mr Davies admitted during the course of his evidence that Mr Apted ‘could become a shareholder in the company’ to the extent of 20 per cent.[27]
[24] T5.27-.29, T6.12-.13
[25] T6.15-.17
[26] T6.32-.36
[27] T113.35-.38, T114.1-.4
Mr Apted gave evidence that he ‘knew nothing more about what did happen until I had access more recently to documents that came to light through Mr Davies’.[28] The court file discloses Mr Davies was ordered to make disclosure verified on oath by 13 January 2012 and that he filed a list of documents on 31 May 2012. Mr Apted conceded at the trial on the basis of this later acquired knowledge that the loan ‘did go to the correct purpose’.[29] It is clear that he expected the funds were to be used for the purchase of the Bar on Gouger. It is his case that he was lending personally to Mr Davies.
[28] T8.10-.15
[29] T181.3-.7
For his part Mr Davies maintains discussions first arose as to the acquisition of the Bar on Gouger in the specific context of the debt he considered remained outstanding to SABC by Plastic Recyclers of about $130,000.[30] He confirmed telling Mr Apted the funds were required as a matter of urgency.[31] Unlike Mr Apted, Mr Davies’ position was that he asked Mr Apted to write in the payee SABC, which Apted proceeded to do.[32]
[30] T106.37-107.17, T111.34-112.5
[31] T112.13-.18
[32] T114.17-35
Analysis of issues in contention
The primary issue emerging for resolution from the above summary of the facts is simply who was the contracting borrower? As the loan was not documented it becomes necessary to consider what was said by the parties and what their conduct and actions were in order to determine what the objective facts were.
It is well established that a court will generally examine the commercial context viewed objectively in which an alleged agreement was reached by the parties: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd,[33] Broadcasting Corporation v XIVth Commonwealth Games Ltd.[34]However in Western Export Services Inc v Jireh International Pty Ltd,[35] three judges of the High Court reaffirmed what was said in Codelfa Construction Pty Ltd v State Rail Authority of NSW,[36] to the effect that it is essential to identify ambiguity in the language of a contract before the court may have regard to the surrounding circumstances and objects of the transaction. By the same token facts known to only one party and not to the other are not relevant to establish the terms of a contract, fundamentally because the court is required to ascertain the mutual intention of both parties: AW Ellis Engineering Pty Ltd v Malago Pty Ltd.[37]
[33] (2004) 219 CLR 165 at 589
[34] (1988) 18 NSWLR 540 at 549
[35] (2011) 86 ALJR 1
[36] (1982) 149 CLR 337 at 352
[37] [2012] NSWSC 55
It should be obvious from the above summary that the precise mutual understanding is somewhat elusive, owing to the informality of the transaction, the lack of documentation and the speed at which events unfolded. Nevertheless the defendant accepts Mr Apted himself obtained a loan from SPC and then on-lent it.
Who was the lender?
The primary position of Mr Apted is that he made a personal loan to Mr Davies. He did not call either Messrs Hazzard or Doesser as they were overseas during the trial and defence counsel did not seek that any adverse inference should be drawn from that fact.[38] There is no direct documentary evidence supporting his position. At times Mr Apted took a stance that rather suggested the lender was SPC, with him acting as a mere conduit, for example ‘I was the go-between’,[39] ‘I am not the borrower. I received the $100,000 … which I then relayed to Denis Davies’,[40] however the documentary evidence referred to above negates any such arrangement.
[38] T46.15-.17
[39] T45.5-.91, T49.34
[40] T46.36-.38
The position of Mr Davies was consistently that he understood the loan was made by the plaintiff. The plaintiff’s contemporary conduct is much more consistent with him having assumed the status of on-lender. In particular his complete submission to the claim lodged against him by SPC and the two written acknowledgements to the effect that he had personally borrowed from the superannuation fund, lead inevitably to that conclusion.
On the basis of this evidence the overwhelming probabilities are that he was in fact - and as a matter of law - the lender of $100,000 repayable on 30 June 2005 at an annual interest rate of 9.25 per cent. Although Mr Apted’s evidence occasionally suggested the loan might have been for a six month period, that prospect is also inconsistent with the contemporaneous documentary evidence.[41] The conclusion that there was a loan on such terms is additionally supported by the admission inherent in the cheque Mr Davies drew (albeit from the company account) dated 29 June 2005 for $109,250.
[41] T10.26-.30, T38.34, T48.31, T77.36-78.4
Who was the borrower?
The evidence-in-chief of Mr Davies touching upon the capacity in which he was seeking to obtain a loan was this:[42]
… I needed to have SABC acquire … shareholding out of the Bar on Gouger and I needed to have Plastic Recyclers repay their funds to enable me to do that … SABC's got 40% … I need to buy out a troubled shareholder
This evidence so far as it goes is equivocal and therefore quite inconclusive as to whom the borrower was and if anything suggests negotiation in an individual or personal capacity.
[42] T111.35-112.4
The evidence of Mr Davies was unsatisfactory in a number of respects. Even on his own account at no time did he make clear that he was acting on behalf of the company rather than himself. It is not possible in the confused state of the evidence to make a finding one way or the other whether he, or Mr Apted,[43] (or the secretary or a bank clerk for that matter), endorsed the cheque for deposit into the SABC account.[44] Obviously something about the cheque aroused the interest of the ANZ bank, most likely different handwriting on the body of the cheque from that of the payee.
[43] T43.8-.10, T114.27-.33
[44] The original has been destroyed by the Bank accordingly to the inquiries of both parties
Although Mr Apted was aware some shares in the Bar on Gouger were held by SABC, Mr Davies should have made it clear what he intended on this occasion. He instead did nothing at all to disabuse Mr Apted of the understanding - objectively viewed - that this was a personal transaction. The fact that the funds went into his wife’s account for a short period of time – even if that had utility – is evidence in itself that Mr Davies felt entitled to appropriate the funds as he pleased.
There is no evidence, or at least no convincing evidence, the loan ever made its way into the books of the company. This suggests a loan was not made to SABC. Mr Davies’ indifference on that topic ‘I wouldn’t have a clue I was not doing the accounts’ and his inability to explain why the loan was not recorded in the accounts, reflects poorly on him as a responsible Director of a Corporation and rather suggests the loan was not made to SABC.[45] The subsequent purchase agreement for the Bar on Gouger is purely self-serving so far as the defendant’s case is concerned.
[45] T126.7-127.37
During his evidence-in-chief Mr Davies was adamant that Plastic Recyclers owed $130,000 to SABC and despite extensive discussions over a long period of time with Mr Apted, it had not been repaid.[46] He was especially insistent that the present loan sprang solely from this supposed debt:[47]
SABC really would like its funds repaid from Plastic Recyclers because we’re in need of those funds to protect the investment in the wine bar’.
[46] T106.18-108.7
[47] T112.7-.9
He went so far as to suggest that when he wrote the cheque for repayment, there remained ‘a likelihood that the funds from Plastic Recyclers would be returned’.[48] That answer was given in the context of explaining the purpose of handing Mr Apted the cheque for $109,250, which he claims to have post-dated, as his counsel put it ‘in order that Plastic Recyclers repay its loan to SABC’.[49] That it was so post-dated was denied by Mr Apted.[50]
[48] T120.13-1.4
[49] T84.24-.25
[50] T84.26-85.1
On his behalf – and doubtless on his instructions – Mr Davies’ counsel stated to the court that:[51]
there was an outstanding loan from Plastic Recyclers Australia Pty Ltd, of which the plaintiff was a director, which was outstanding in 2004 to SABC Project Management Pty Ltd and that provided the essence and the genesis of the discussions for the current loan
It was emphatically put to Mr Apted under cross-examination that the dispute with Plastic Recyclers ‘became more intensified as time passed’ and Mr Davies was asserting in 2004 and 2005 that Plastic Recyclers continued to owe that money.[52] Mr Apted’s response to this was that the Plastic Recyclers issue was ‘resolved and finished’,[53] and that he told Davies:[54]
'Forget it'. I said 'The two matters are totally independent'. One is a corporate matter which was resolved and finished. This is a current matter which has nothing to do with any previous arrangements and are totally disconnected
[51] T33.21-.27
[52] T35.1-37.1
[53] T36.36
[54] T36.34-.38
On the second day of the trial, Mr Apted produced a Deed of Release and Settlement executed on 10 June 2004, to which Plastic Recyclers, SABC and Mr Davies (amongst others) were parties and signatories.[55] One recital refers to negotiations which ‘led to an agreement in settlement of all matters’.[56] By this agreement Mr Davies personally and SABC itself released and discharged Plastic Recyclers ‘in relation to any claim, action or demand for any monies advanced’.[57]
[55] Exhibit P12
[56] Exhibit P12, Recital 2(o)
[57] Exhibit P12, clauses 3.2, 3.4
When confronted with this Deed under cross-examination, Mr Davies noticeably shifted his position, now claiming quite inconsistently with his evidence-in-chief (and the stance his counsel took on his behalf), ‘I believe there was a moral obligation that they had to pay me back’.[58] Once again this answer rather suggests Mr Davies had his own personal position in mind. Even though the settlement agreement came into existence just under three weeks before the subject loan was made, he unconvincingly professed an inability to ‘recall what the circumstances were of me executing that document’.[59]
[58] T123.15-.18, T124.2-.11, emphasis supplied
[59] T124.7-.18
This changed position is completely at odds with the stance that the Plastic Recyclers loan was the ‘essence and genesis of the discussions for the current loan’. For that and the above reasons, Mr Davies’ evidence must be rejected. It was inconsistent with the settlement agreement which destroys the premise lying behind the defence case that the loan arose from an outstanding debt owed by Plastic Recyclers to SABC. It is convincingly demonstrated that this transaction could not have its origin in any Plastic Recyclers debt because there wasn’t one.

For another thing it is impossible to accept the notion of a ‘moral obligation’ to repay when Mr Davies and SABC had so recently bound themselves to an agreement putting all outstanding disputes at an end. Not only was his credibility undermined by the existence of the Deed, it may also be inferred that his explanations about it were inconsistent with his instructions to counsel.[60] The Deed correspondingly serves to support the evidence of Mr Apted on the Plastic Recyclers subject.
[60] Cross on Evidence 8^th Australian edition pg 610
In the result the evidence of Mr Apted is to be preferred to that of Mr Davies. On his account of matters there was no discussion about any corporate borrowers being involved and certainly not in the context of an outstanding debt owed to SABC by Plastic Recyclers. The supposition that the loan arose from the need for SABC to borrow funds as a consequence of the supposed Plastic Recyclers debt has been negated. If the cheque had been intended for SABC it would have been endorsed that way when it was drawn. In the circumstances Mr Apted was entitled to assume that he was dealing with Mr Davies in a personal capacity as nothing was said by Mr Davies to abuse him of what was to all outward appearances a personal dealing. It was a matter of indifference to Mr Apted how the share purchase was to be structured. He trusted Davies as a known business associate and for whom he went out of his way to source a large amount of money at short notice. His authorisation for the ANZ to deposit the loan into the SABC account was born out of the trust he invested in Mr Davies, built up over the course of previous business dealings.
Had Mr Apted known, or even realised the funds were going to a corporate account, he surely would have taken steps to better secure his position. The cheque was left blank as an accommodation to Mr Davies only because he operated no personal account of his own. The fact that Mr Davies passed the money through his wife’s account is consistent with the conclusion that he had personal control over it. On the basis of all this material I therefore conclude on the balance of probabilities that the borrower was Mr Davies personally.
Monies had and received
The court raised with the parties whether Mr Apted might be in a position to recover by way of an action for monies had and received: Lipkin Gorman (a firm) v Karpanale Ltd,[61] Finlay v Silicon Industrial Pty Ltd.[62] However after hearing further argument on the question, it became clear that the defendant would be prejudiced by allowing that course, because he would be precluded from adducing evidence as to whether he was personally unjustly enriched in this transaction and on the question of demonstrating a change of position: Lipkin Gorman v Karpanale,[63] David Securities Ltd v Commonwealth Bank of Australia.[64]
[61] [1991] 2 AC 548
[62] (2003) 229 LSJS 14 at [123]
[63] Above at 580
[64] (1992) 175 CLR 353 at 358
Conclusion and orders
The evidence of Mr Davies must be rejected for the reasons articulated earlier. The loan was one made to him personally, and I accept Mr Apted’s evidence as to that. The plaintiff is therefore entitled to judgment in the principal sum of $100,000 plus interest at 9.25 per cent p.a. since 30 June 2005. On the face of things interest would calculate over 8 2/3 years in the vicinity of $80,000, however the parties should be heard as to the precise calculation involved. The parties should also be heard as to costs.