Bank of Queensland Limited v Di Giantomasso

[2013] QDC 275

DISTRICT COURT OF QUEENSLAND

CITATION:

Bank of Queensland Limited v Di Giantomasso & Anor [2013] QDC 275

PARTIES:

BANK OF QUEENSLAND LIMITED ACN 009 656 740
(plaintiff)

V

DONATO FRANCO DI GIANTOMASSO
(first defendant)

And

KNIGHTSBRIDGE SERVICES PTY LTD (ACN 111 299 908) IN ITS OWN RIGHT AND AS TRUSTEE FOR KNIGHTSBRIDGE SERVICES TRUST
(second defendant)

FILE NO/S:

1165/13

DIVISION:

Civil

PROCEEDING:

Application on the papers

ORIGINATING COURT:

District Court at Brisbane

DELIVERED ON:

31 October 2013

DELIVERED AT:

Brisbane

HEARING DATE:

24 October 2013

JUDGE:

Reid DCJ

ORDER:

JUDGMENT FOR THE PLAINTIFF’S AS FOLLOWS:

PURSUANT TO RULE 292 OF THE UNIFORM CIVIL PROCEDURE RULES (QLD) JUDGMENT BE ENTERED AGAINST THE FIRST DEFENDANT AND THE SECOND DEFENDANT FOR:

·     THE PLAINTIFF’S CLAIM IN THE AMOUNT OF $258,423.54;

·     $10,223.66 INTEREST ON $258,423.54 AT THE RATE OF 10% PER ANNUM FROM 4 APRIL 2013 TO 18 APRIL 2013, 7% PER ANNUM FROM 19 APRIL 2013 TO 30 JUNE 2013 AND 6.75% PER ANNUM FROM 1 JULY 2013 TO 24 OCTOBER 2013 PURSUANT TO THE CIVIL PROCEEDINGS ACT 2011 (QLD); AND

·     COSTS OF AND INCIDENTAL TO THE PROCEEDINGS INCLUDING THIS APPLICATION AND ANY RESERVE COSTS TO BE AGREED OR FAILING AGREEMENT TO BE ASSESSED.

CASES REFERRED TO:

Zenith Engineering Pty Ltd v Queensland Crane and Machines Pty Ltd [2001] 2 Qd.R 114

O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359

COUNSEL

R Nicholls for the Applicant

E Gaffney for the Respondent

SOLICITORS

Gadens Lawyers for the Applicant
Knightsbridge Lawyers for the Respondent

1. The plaintiff applies for summary judgment against the first and second respondents, who are the defendants in the action, pursuant to r 292 of the Uniform Civil Procedure Rules 1999.

1. The applicant is a bank and claims money from the first respondent pursuant to a business term loan agreement and from the second respondent pursuant to a guarantee.

1. The respondents contend that the loan agreement, and in particular Part 12(b) thereof, does not effectively provide for the immediate repayment of the whole of the remaining principal sum, interest and other charges in the event of the first respondent not paying his requisite monthly payments.

1. The respondents contend that the term “money owing” as defined and used in the loan agreement means, effectively, the sum which is then outstanding, that is the monthly payments which had not been paid together with default interest and associated charges.  They rely especially on the phrase “that you owe … at that time” as used in the definition of “money owing” in the agreement as supporting this construction.  The respondents contend that Part 12(b) of the agreement, which I shall set out shortly, allows the bank only to require that in the event of default in a monthly payment, that payment, together with default fees and interest, must be paid immediately.  Effectively the respondents submit that the applicant would be entitled to recover only what is described in the agreement as “outstanding amounts”.

1. The respondents further contend that as the agreement does not provide for the creation of a debt for the whole amount of principal and interest on the drawdown, the obligation of the first respondent to make monthly repayments to the applicant over 10 years is the primary obligation of the first respondent and not an indulgence of the applicant.  They rely on the decision of Zenith Engineering Pty Ltd v Queensland Crane and Machines Pty Ltd [2001] 2 Qd.R 114 especially pp 117/8 in support of that proposition and submit that a provision which seeks to recover the balance of principal and interest ultimately owing is a penalty. They submit that the primary detriment of the first respondent in the event of default in making payments is the imposition of default interest and charges and the additional detriment of being required to pay the remaining facility loan would constitute a penalty.

1. The respondents also submit that before determining the meaning of the contract, evidence should be given at a trial of the commercial purpose of the loan and the background to the formation of the contract.  In my view, it is entirely unnecessary for there to be evidence of such matters and the matter can be determined by a consideration of the terms of the agreement itself.  In any case I note that the background circumstances and the purpose of the loan are to some extent revealed by the loan application material before me but I do not think it necessary to go into those details as I consider the matter can be resolved as a question of construction of the written agreement itself.

1. The respondents also submit that evidentiary uncertainty about the calculation of the amount of the claimed debt is a factor militating against the determination of this matter in a summary way.  In my view however all of the essential evidence to enable a person to accurately calculate the alleged debt is before me.  As conceded by defence counsel during submissions, her argument in this regard was really that there was a technical possibility of mathematical error and she was unable to point to any error in calculations made on behalf of the applicant by the deponent to the affidavits on which the applicant relies.  I see no reason to refuse the application for summary judgment on that ground and do not think it of assistance in the question I have to determine. 

1. Part 12(a) of the loan agreement described as “Business Term Loan – General Conditions” provides inter alia that if any money that the first respondent owes is not paid to the applicant when it is due to be paid, then the first respondent is in default under the agreement.  Part 12(b) is titled “What happens if you default?”.  It provides as follows:

“If you default under this agreement, we may:

§require that you repay all the money owing to us immediately

§enforce this agreement or any security”

1. The applicant seeks to require repayment of all of the “money owing” by recovering the remaining part of the money advanced (the “facility amount”) and not accounted for by means of the first respondent’s prior monthly repayments. 

1. The basis of the respondents’ argument that the applicant is only entitled to recover the sum on arrears depends on the definition of “money owing” set out in Part 21(a) of the agreement. So far as relevant, the definitions in the agreement provide as follows:

“‘Money’ means “the facility amount”.

‘Money owing’ means at any time the amount that you owe us under this agreement at that time.

‘Outstanding amount’ means any amount due and payable by you, but unpaid.”

1. The respondents particularly rely on what they say is the temporal nature of the definition of “money owing”, by use of the phrase “at any time” in the definition.

1. There are in my view a number of difficulties with the construction that the respondents seek to put on the agreement when one does so.

1. “Money” is itself defined, as I have said, to mean the facility amount. There is no dispute that in this case this is the sum of $357,000.  If one superimposes that definition of “money” into the definition of “money owing”, then the definition would read – “facility amount owing” means at any time the amount that you owe us under the agreement at that time.

1. This can be contrasted with the definition of “outstanding amount” which, as I have said, means “any amount due and payable by you but unpaid”.

1. The term “outstanding amount” clearly encompasses the sum of unpaid monthly instalments.  If the respondents’ construction were adopted, this would mean that “money owing” and “outstanding amount” were effectively describing the same sum. 

1. Consideration of the terms elsewhere in the contract also presents difficulties if the respondents’ construction were correct. 

1. Part 5 of the agreement is headed “Your Obligations”.  It provides:

“You must pay us:

§the money owing

§interest on the money owing

§fees and charges

§costs and expenses

§any money that you owe us under clause 5(b).”

1. Part 5(b) then provides;

“You must keep to the term of this agreement and any security that you have given us in connection with the agreement.

If you do not:

·     Pay any money payable under this agreement or any security or

·     Perform your obligations under this agreement or any security

We may do so. If we do then you must pay us the moneys and the cost of our doing so. If you do not pay us, we may add that amount to the money owing. We may also recover it from you.” (my underlining)

1. If the respondent’s construction was correct, then in my view the words underlined would instead have read “we may add that amount to the outstanding amount”. In my view, the letter construction is that any sum so paid by the applicant bank under part 5(b) is added to the amount of its facility amount not then already repaid.

1. If “money owing” meant what the respondents assert, namely the unpaid monthly instalments rather than the remaining sum of the facility amount, then the applicant would not have any entitlement to interest, except on overdue sums.  This is not what was contemplated by the agreement.  This consideration strongly supports the view that the term “money owing” in Part 5(a) of the agreement very clearly means the total of the facility amount which had not been repaid.

1. Consideration of Part 6 causes me to come to the same conclusion.

1. Section (a) therefore deals with repayments.  It provides:

“You must pay us the money owing by making a repayment at least once a month on or before the repayment date.”

If “money owing” were to have the meaning attributed to it by the respondents, that clause would, one would think, say no more than:

“You must pay us the monthly payment by monthly payments on or before the repayment date.”

The use of the term “money owing” in that clause suggests to me that the term refers to the total amount of the facility amount as is unpaid, being repaid by payments of monthly amounts on the repayment date. 

1. Part 7 of the agreement deals with interest and is of great significance in support of the applicant’s contention. Subsection (a), dealing with interests, provides:

“You must pay us interest on the money owing until it is repaid.

Interest is payable by you daily but debited to your account on the first repayment date and then monthly on each repayment date.  You will also be debited on the last day of the facility. … We calculate interest by applying the daily percentage rate to the unpaid daily balance of your account at the end of each day from (and including) the day the money is first paid to you until (and excluding) the day the money owing is repaid.”

1. In my view this is again a reference to the payment of interest on the money owing, being the unpaid facility amount.  If it was not so construed, there appears to be no clause in the agreement entitling the applicant to interest on the facility amount.  Interest on unpaid and overdue money is specifically dealt with in section (b) of Part 7.  It provides:

“If you do not pay us any part of the money owing when it due to be paid, you must also pay us a default fee.”

1. It is in this section that considerations of “outstanding amount” as previously referred to in the definitions section arise.  The sections provide, inter alia:

“In addition to any default fee which may be payable, if you do not pay us any part of the money owing when it is due to be paid (an outstanding amount) you must pay us interest on that outstanding amount from the date it becomes due for payment until it is paid.  …  The interest rate to be applied to any outstanding amount is the annual percentage rate plus 3% a year.”

1. In my view consideration of these matters leaves me in no doubt that the term “money owing” in this case is a reference to the remaining facility amount, including any outstanding amount.

Penalty

1. In Zenith Engineering Pty Ltd v Queensland Crane and Machines Pty Ltd (supra), by a deed of settlement the first respondent agreed to pay to appellant in that case a sum of money by instalments.  The deed provided that if any instalment was not paid as required the appellant was entitled to enter judgment for the larger sum claimed in the original action.

1. The court held that where a stipulated sum was due and owing as a debt and the creditor granted the debtor an indulgence to pay the debt by instalments, it was not a penalty for the creditor to provide that the indulgence would be withdrawn if the debtor defaulted.  In my view, that principle is apposite in this case.  The court in Zenith however held that in the case before it that principle had no application, as the sum stipulated was not a present debt but merely an amount claimed.  Consequently, it was seen as a penalty.

1. The difference between that case and this was that in this case the agreement, properly construed provides that on default in payment of instalments the balance of the facility amount becomes payable.  There is thus a real and rational relationship between the default and the sum then found to be due.  Indeed, in Zenith this approach was expressly recognised.  Pincus JA said that in the case before him the important factor was that “the amount properly due was never established”.  In this case, I have found that on its proper construction the amount due on default was the balance of the facility amount and was not merely outstanding monthly payments.

1. In my view the matter is dealt with by the decision of the High Court in O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359. In that case Gibbs J said at p 366:

“The cases to which counsel for the first respondent referred in support of his argument that there can be no question of penalty in the present case seem to me to fall into two classes.  In the first class of case, if a sum of money is payable by instalments, and it is provided that in the event of one instalment not being punctually paid the whole sum shall immediately become payable, the acceleration of payment is not a penalty.”

His Honour continued at the following page:

“In all the cases of this kind there is a present debt, which, by reason of an indulgence given by the creditor, is payable either in the future, or in a lesser amount, provided that certain conditions are met.  The failure of the conditions does not mean that the creditor becomes entitled to damages; the consequence is that the sum which was always owed, but which the debtor was allowed to pay by instalments or in a smaller amount, becomes recoverable at once or in full.”

1. In my view the following submission made by counsel for the applicant is appropriate.  She said:

“The terms of the facility agreement clearly provide that all times the first defendant was liable to pay the “money owing” to the plaintiff.  Part 6 of the facility agreement, concerning repayments, merely provides the time for making instalment payments of ‘part’ of the money owing.  Part 6 also provides the ‘money owing’ must be paid in full at the end of the term or if the agreement ends earlier.  Further the ‘money owing’ may be repaid in part or in full before the end of the term.  It is apparent then the “money owing” does not become due only upon a default nor does any liability of the first defendant increase upon his default insofar as it concerns the ‘money owing’.  These are 2 essential aspects of a penalty which do not arise here.”

1. The capacity to recover the sum that was always owed, calculated from time to time to reflect repayments of the facility sum by way of instalments the respondent had made, upon failure of the first respondent to make the requisite payments, is what was provided in this case.  In my view that is the clearly appropriate construction of the agreement.  The acceleration of payment is in the circumstances not a penalty. 

1. I will therefore give judgment for the plaintiff. The parties agreed that in that circumstance the appropriate form of judgment was as follows:

1. Pursuant to rule 292 of the Uniform Civil Procedure Rules (Qld) judgment be entered against the first defendant and the second defendant for:

(a)        The plaintiff’s claim in the amount of $258,423.54;

(b)        $10,223.66 interest on $258,423.54 at the rate of 10% per annum from 4 April 2013 to 18 April 2013, 7% per annum from 19 April 2013 to 30 June 2013 and 6.75% per annum from 1 July 2013 to 24 October 2013 pursuant to the Civil Proceedings Act 2011 (Qld); and

(c)        Costs of and incidental to the proceedings, including this application and any reserve costs, to be agreed or failing agreement to be assessed;

1. In my view this is not an appropriate case for the award of costs on an indemnity basis.