Bizcap Au Pty Ltd v Barbar

[2024] VCC 1076

IN THE COUNTY COURT OF VICTORIA

AT MELBOURNE

COMMERCIAL DIVISION

Revised
Not Restricted
Suitable for Publication

BANKING AND FINANCE LIST

Case No. CI-22-03981

Bizcap Au Pty Ltd (ACN 633 927 090)	Plaintiff
v
Rimon Barbar (and others according to the attached schedule)	Defendants

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JUDGE:	HER HONOUR JUDGE A RYAN
WHERE HELD:	Melbourne
DATE OF HEARING:	16 July 2024
DATE OF JUDGMENT:	24 July 2024
CASE MAY BE CITED AS:	Bizcap Au Pty Ltd v Barbar & Ors
MEDIUM NEUTRAL CITATION:	[2024] VCC 1076

REASONS FOR JUDGMENT
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Subject:CONTRACT – GUARANTEE

Catchwords:              Whether guarantors liable pursuant to guarantees given to secure the indebtedness of a related borrower –  whether guarantees liable to be set aside due to undue influence or unconscionability – calculation of principal and interest owing – whether default fee claimed is a penalty – costs sought on an indemnity basis pursuant to contract

Cases Cited:Australian and New Zealand Banking Group Limited v Richard Kay Liebmann [2010] NSWSC 545; Permanent Mortgages Pty Ltd v Vandenbergh (2010) 41 WAR 353

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr J Kohn	SLF Lawyers
For the Defendants	No appearance

SCHEDULE OF PARTIES

BETWEEN

Bizcap Au Pty Ltd (ACN 633 927 090)   Plaintiff

v

Rimon Barbar   First defendant

and

Lamia Barbar  Second defendant

and

Barbar Brothers Pty Ltd (ACN 609 143 759)   Third defendant

HER HONOUR:

1By this proceeding, the plaintiff (“Bizcap”) seeks to recover the sum of $1,060,624.30, together with interest and costs from the first and second defendants, respectively Rimon and Lamia Barber.[1] The amounts sought to be recouped are pursuant to guarantees given by Rimon and Lamia contained in two loan agreements, guaranteeing the obligations of iPantry Trading Pty Ltd, trading as Jolly Eats (“iPantry”). It is uncontroversial that iPantry borrowed funds from Bizcap pursuant to the loan agreements and that the sums in question have not been repaid.

[1]        For ease of reference, the first and second defendants will be referred to by their first names

2Bizcap does not press for any relief against the third defendant, Barbar Brothers Pty Ltd, which also provided a guarantee.

Procedural history

3This proceeding was commenced by writ filed on 26 September 2022. On 25 October 2022, Rimon filed a defence. On 17 January 2023, Lamia filed a defence and counterclaim. On 18 April 2023, Bizcap filed a reply in defence to counterclaim.

4Both Rimon and Lamia were previously represented by lawyers.  The lawyers acting on behalf of Rimon filed a notice of ceasing to act on 12 June 2024. Similarly, the lawyers acting on behalf of Lamia filed a notice of ceasing to act on 19 June 2024.

5The matter was listed for a directions hearing on 5 July 2024. The defendants did not appear at this hearing.

6Orders were made on 8 July 2024, inter alia, that an affidavit from the plaintiff’s lay witnesses will stand as their evidence-in-chief at trial. Orders were also made for the filing of a written outline of submissions.

7Pursuant to the orders made, an affidavit was filed on behalf of Bizcap sworn by Mr Adam Szental, the Chief Operating Officer of Bizcap, dated 9 July 2024. Submissions were also filed on the same date.

8Bizcap’s solicitor, Ms Weiner filed an affidavit on 4 July 2024. This affidavit deposed to a number of interlocutory steps undertaken by her, including sending the defendants copies of various documents, being the proposed Court Book index, list of issues, trial plan and outline of evidence and chronology. Ms Weiner did not receive any response from the defendants to her emails. Ms Weiner also deposed to serving certificates of debt on Rimon and Lamia on 3 July 2024.

9The matter had been listed for trial on 16 July 2024 for some time pursuant to earlier orders made when the defendants did have lawyers acting on their behalf. I am satisfied, having regard to the history of the matter and by the contents of Ms Weiner’s affidavit that the defendants were on notice of the trial date. 

10The matter was called inside and outside of Court at the commencement of the hearing on 16 July 2024. There was no appearance for or on behalf of the defendants. In view of the non-appearance by the defendants, the trial  proceeded before me as undefended.

11Counsel for Bizcap outlined his client’s case and referred to a number of documents in the Court Book. The Court Book was marked as exhibit “P1” which included the affidavit of Mr Szental sworn 9 July 2024.

Background

12Bizcap’s business is the provision of short-term commercial loans.

13On 11 May 2022, Bizcap received an online loan application lodged on behalf of iPantry from Ausloans Finance Group, a mortgage broker. The broker was acting on behalf of iPantry. iPantry operated a business known as Jolly Eats, which conducted numerous cafes at around 14 sites.  The purpose of the loan was to fit out two new cafes and upgrade equipment.

14Rimon is a director and secretary of iPantry. His mother, Lamia, is a beneficiary under an associated family trust.

15The broker also provided various financial documents to Bizcap in order for Bizcap to assess the loan application. The documents showed that Jolly Eats had a monthly turnover of $2,000,000. The amount sought to be borrowed was $550,000. The balance sheet provided showed that iPantry had a trading income of $686,906, a net profit in excess of $3,000,000 and equity of $7,000,000. Bank statements provided revealed that iPantry had $841,594 in the bank. Overall sales exceeding $5,000,000 were recorded in the company’s business activity statements for the last two quarters of 2021.

16The term of the proposed loan was 32 weeks, which is approximately eight months.

17On 15 May 2022, the broker sent an email to Bizcap enclosing copies of trust documents for the Almajo Family Trust, of which Lamia is the only beneficiary, Simba Pty Ltd Trust and the Valsie Pty Ltd Trust. This was sent following inquiries as to which entities would be willing to provide guarantees for the loan.

18On 16 May 2022, the broker sent an email to Bizcap, stating amongst other things the following:

“His lawyer raised these two points in bold, he doesn’t need the contract changed although something in writing from Bizcap will put his mind at ease.

8.1 (iv) – It doesn’t state in the event of default.  He wants something stating in the event of default.  He advised the way it’s written, you can place an interest on his property at any time.

CI 8.1 (iv) – needs to only apply if the loan is in default and it has not been rectified within 14 days.

8.3 – Questioning appointing a receiver after the guarantors personal property.  He understands a receiver can be assigned to the company although going after the individual means you can sell his property at any time.

also, clause 8.3 needs to be limited to only any transaction party that is a corporation, not a guarantor.”

19On 17 May 2022, a copy of the loan agreement was sent to Rimon and Lamia at their respective email addresses which had been provided by the broker.

20On 17 May 2022, Mr Szental of Bizcap had a telephone discussion with Rimon and Lamia separately regarding the loan agreement and guarantee. Mr Szental sets out a detailed account of the conversations he had with each of them in his affidavit.

21On 17 May 2022, iPantry, in its capacity as borrower, and Rimon, Lamia and iPantry Holding Pty Ltd (as the third defendant was then known), in their capacity as guarantors, signed a loan agreement pursuant to which Bizcap, as lender, agreed to lend the sum of $550,000 (first loan agreement). The borrower and  guarantors signed the first loan agreement electronically via Docusign.

22On 17 May 2022, Bizcap advanced the sum of $527,751.

23Between 17 May 2022 and 17 August 2022, iPantry repaid the total sum of $187,876.70 under the first loan agreement.

24iPantry sought to borrow further funds from Bizcap in June 2022 which was approved. A draft copy of a loan agreement was sent to Rimon and Lamia on 17 June 2022. On 20 June 2022. Mr Ogden of Bizcap had a telephone conversation with Rimon and Lamia separately regarding this loan agreement and guarantee.

25On 20 June 2022, iPantry, Rimon and Lamia signed the loan agreement pursuant to which Bizcap agreed to lend the sum of $450,000 (“second loan agreement”).  iPantry, Rimon and Lamia signed the second loan agreement electronically via DocuSign.

26On 20 June 2022, Bizcap advanced the sum of $431,751.  

27Between 20 June 2022 and 17 August 2022, iPantry repaid the total sum of $85,621.50 pursuant to the second loan agreement. 

28The borrower subsequently defaulted in making payments. In breach of the first loan agreement and the second loan agreement, iPantry failed to ensure that iPantry’s designated bank account had sufficient funds in it for all amounts owing to Bizcap to be satisfied and to repay the amounts due and owing.

29On 19 July 2022, Bizcap sent a letter of demand to Rimon and Lamia in respect to the amounts owing under the first and second loan agreements. iPantry, Rimon and Lamia failed and/or refused to pay the sum demanded or any other such amount.

30On 26 August 2022, Bizcap appointed receivers and managers to iPantry. On 5 September 2022, Bizcap appointed receivers and managers to Barbar Brothers Pty Ltd, Rimbar Investments Pty Ltd, Supajm Pty Ltd and IPJM Trading Pty Ltd. On or about 19 July 2022, iPantry changed its name to IPJM Trading Pty Ltd. The receivers have been only able to recover insignificant funds despite intensive investigations. Costs incurred by the receivers are in the order of $80,000.

31On 7 September 2022, Bizcap’s solicitors served a letter of demand on Rimon and Lamia seeking payment of the sum of $1,354,925.80. iPantry, Rimon or Lamia have not paid the sum demanded or any part thereof.

Bizcap’s submissions

32Counsel for Bizcap noted correctly that the Credit Code did not apply to either of the loans as they are business loans. He took the Court to various relevant provisions in the loan agreements, including clauses 4, 6, 7, 8 and 11. Clause 7 contains the guarantee and indemnity obligation. Clause 11 relates to an event of default. Bizcap relied upon two events, namely, a breach of clause 11(e), which is the failure to have sufficient monies in the bank account designated and the non-payment of sums owing, which is a breach of clause 11(a). Fees are referred to in the schedule and include administration fees, default fee and dishonour fee. Clause 15 deals with costs. It states that the borrower must pay the lender all costs including legal fees, plus GST on a full indemnity basis.

33Pursuant to clause 22.12 of the loan agreements, Bizcap is entitled to rely upon a certificate of debt as conclusive evidence of the amounts owing, save for any manifest error. Bizcap relies upon the certificates of debt which were served upon Rimon and Lamia and exhibited to the affidavit of Ms Weiner. Calculations of the amounts owing are also set out by Mr Szental in his affidavit. No evidence has been produced by the defendants to demonstrate that the debts claimed are incorrect. In the circumstances, Bizcap contends the certificates of debt are conclusive evidence of the amount payable by Rimon and Lamia to Bizcap.

34Counsel for Bizcap took the Court to the matters raised in Rimon’s defence dated 25 October 2022. In paragraph 1(k), Rimon alleged the default fee clause was a penalty and unenforceable.  Counsel submitted that Rimon had the burden of proof on this issue which he had not discharged. There was no evidence provided by the defendants to establish that the fee was disproportionate or unconscionable in any way which could give rise to a finding that the default fee was a penalty. The default fee is akin to a default interest provision which is commonly seen according to Bizcap. However, the clause is slightly different in the sense that it is either a flat fee of $2,500 or 15 per cent of the initial loan sum, whichever is the greater. In the absence of any evidence or submissions on this topic by the defendants, I am not persuaded that the default fee claimed is unconscionable or so out of proportion as to render it unenforceable.

35Reference was made in paragraph 1(k) of Rimon’s defence to the amounts claimed for costs incurred by the receiver appointed to iPantry. Bizcap’s counsel informed the Court that this aspect of its claim is no longer pursued. This was essentially for commercial reasons on the basis that seeking to establish each of the items of the receiver’s costs in a taxation would be a disproportionate exercise having regard to the amounts claimed.

36In paragraph 2 of Rimon’s defence he alleged that Bizcap had failed to mitigate, but as this is a debt claim, this is not a defence which is available as opposed to a claim for damages. The plaintiff relied upon the decision of Australian and New Zealand Banking Group Limited v Richard Kay Liebmann[2] in support of this proposition.

[2]Per Einstein J [2010] NSWSC 545, 66-67

37As for Lamia’s defence, she alleges in paragraph 6 of the defence that her signature was obtained by undue influence by her son over her. Counsel referred to paragraph 6 of her defence which sets out a number of grounds as to why she alleges the guarantees given by her are unenforceable. Counsel noted that there was no evidence being called by her consistent with the matters alleged and there was no evidence of her being under any special disadvantage. In fact, the evidence before the Court showed that the mother stood to benefit from the financial success of iPantry. 

38Counsel then took the Court to various other company records in the Court Book, the purpose of which was to show that Lamia had an interest in the iPantry business given she was a shareholder and director of a number of interrelated companies. She is also a beneficiary of a trust operated by Almajo Pty Ltd, being one of those companies. Counsel noted that she had only recently resigned as director of these companies on 7 June 2024, not long before her solicitors ceased to act. The thrust of this argument was to show that Lamia was not someone who was lacking commercial acumen given she had been a director and shareholder of a number of businesses associated with the borrower. It was submitted that it had been in her financial interests for iPantry to borrow money in order to grow its business.

39Bizcap noted there was no evidence before the Court to establish any claim of undue influence. The category of adult son/mother was not a recognised category which gave rise to a presumption of influence.[3] But in any event, there was no evidence before the Court which would suggest that Bizcap was aware, or ought to have been aware, of any claim of this nature. Bizcap says it had no reason to disbelieve or question the circumstances in which Lamia executed the loan agreements.

[3]        Permanent Mortgages Pty Ltd v Vandenbergh (2010) 41 WAR 353, [173]

40Bizcap also pointed to the clear warnings and comprehensive notices given in both loan agreements and in the schedule in respect of the guarantee providing various warnings and recommendations before signing the respective documents.  Although it is accepted that Bizcap did not suggest or require an independent solicitor’s certificate to be obtained, this and of itself is not a basis for making a finding of unconscionable conduct or undue influence, which would give rise to the guarantees being unenforceable.

41For the same reasons, there was no basis upon which to find Bizcap had taken unconscientious advantage of Lamia, being an alternative defence alleged in in paragraphs 6(i) and (j) of her defence. There is no evidence that Lamia suffered from any special disadvantage. Even if there was, Bizcap could not have known of such alleged special disadvantage and did not unconscionably exploit any alleged disadvantage in the circumstances.

42Having regard to the materials put forward, including the affidavit of Mr Szental together with the written and oral submissions made, I am satisfied that Bizcap has established its claim against Rimon and Lamia. It is clear that the amounts of monies in question were advanced to the borrower, and that there has been default in repayment. I am further satisfied that the guarantees given by these defendants contained in the loan agreements in favour of Bizcap are and remain enforceable.  There is no material or evidence before the Court which could give rise to a finding of unconscionability or undue influence so as to the vitiate the effect of these documents and render them voidable or liable to be set aside. In those circumstances, Bizcap is entitled to the relief sought.

Relief sought

43Counsel for Bizcap informed the Court that the only relief now sought in the statement of claim was the monetary claim. The  property orders sought regarding possession and the sale of properties referred to in paragraphs G to J in the prayer for relief are no longer pursued. As already noted, Bizcap does not seek to recover any costs claimed associated with the appointment of the receiver to iPantry.

44Bizcap pressed for judgment on the basis of the amounts claimed in the certificates of debt dated 3 July 2024. Bizcap’s solicitor had prepared a schedule in respect of the amounts of interest claimed which was provided to the Court on 16 July 2024.  Interest is sought from the date after the writ was filed up until 16 July 2024 at the statutory rate of 10 per cent. The total amount of interest claimed in respect of both loans is calculated in the sum of $221,901.01.

45As for costs, Bizcap sought an order that its costs of and incidental to the proceeding be paid on a full indemnity basis pursuant to the loan agreements.  Bizcap noted the Court had a discretion in respect of the awarding of costs, but submitted it was appropriate to make an order for indemnity costs having regard to it being an agreed contractual term in the event of default. I am of the view that it is appropriate to order costs on an indemnity basis as it reflects the parties’ contractual agreement.

Final Orders

46Given Bizcap has proved its claim, I will make the following orders:

1.  There be judgment for the plaintiff against the first and second defendants in the sum of $1,451,952.80 made up as follows:

(a)$628,873.30 in respect of the first loan agreement dated 17 May 2022 between the parties;

(b)$601,178.50 in respect of the second loan agreement dated 20 June 2022 between the parties;

(c)$221,901 in interest from the date of the writ up until 16 July 2024.

2.  The second defendant’s counterclaim is dismissed.

3.  The first and second defendants pay the plaintiff’s costs of and incidental of the proceeding on the indemnity basis to be taxed in default of agreement

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Certificate

I certify that these 11 pages are a true copy of the Reasons for Judgment of Her Honour Judge A Ryan delivered on 24 July 2024.

Dated: 24 July 2024

Associate to Her Honour Judge A Ryan