Carlsund & Anor v Richmond

[2007] NSWSC 1391

CITATION:	Carlsund & Anor v Richmond [2007] NSWSC 1391
HEARING DATE(S):	27/11/2007; 28/11/2007
JUDGMENT DATE :	4 December 2007
JURISDICTION:	Common Law
JUDGMENT OF:	Associate Justice Malpass
DECISION:	I direct the entry of judgment for the plaintiffs against the defendant in the sum of $2,665,970. The defendant is to pay the plaintiffs' costs of the proceedings.
CATCHWORDS:	Plaintiffs borrow from third party lenders to lend money to the defendant - claim for repayment of loans and for loan fees
PARTIES:	Elizabeth Carlsund (1st Pl) Carl Carlsund (2nd Pl) Ross Richmond (Def)
FILE NUMBER(S):	SC 14851/06
COUNSEL:	Mr D. M. Flaherty (Pls') Mr E. A. J. Hyde (Def)
SOLICITORS:	Cameron Gillingham Boyd Solicitors (Pls') Malcolm Johns & Company Lawyers (Def)

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IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

ASSOCIATE JUSTICE MALPASS

4 DECEMBER 2007

14851/06 Elizabeth Carlsund & Anor v Ross Richmond

JUDGMENT

1 HIS HONOUR: This has proved to be a most unusual case. The plaintiffs are husband and wife. The defendant is a half-brother of the second plaintiff.

2 The plaintiffs were the owners of two properties (their home at Turramurra and a farm in the Canberra area). These properties were used as security by the plaintiffs to raise moneys from third-party lenders, for the purpose of the making of loans to the defendant. It appears that he had a need for money for a variety of reasons and lacked the security to enable advances of finance.

3 There were eight transactions involving the plaintiffs and the defendant (only seven of which are relevant for present purposes). It is common ground that no repayments were actually made by the defendant to the plaintiffs. At the present time, the home has been sold to satisfy mortgage repayments and the farm is now apparently also at risk.

4 The plaintiffs sue the defendant for money said to be owing under alleged loan agreements made between them (for balance loan moneys and fees) and a small sum for balance of cash advances ($4,500). The loan fees were allegedly payable in consideration for the loans. In respect of each loan, only part of the moneys advanced by the lenders were paid to the defendant (part of the moneys raised were applied in payment of other matters such as to interest payments, payments to the plaintiffs and borrowing expenses). The proceedings are defended. The defendant takes the stance that no moneys whatsoever are owing by him to the plaintiffs.

5 The proceedings were set down for hearing to commence on 27 November 2007 (an estimate of four hearing days was given). It came to be concluded within two days.

6 As a consequence of directions, the plaintiffs each deposed to an affidavit sworn on 27 April 2007. On 29 August 2007 the defendant deposed to a very large affidavit. On 2 November 2007, each plaintiff swore an affidavit in reply.

7 At the hearing, the plaintiffs relied on an Amended Statement of Claim, filed in Court on 27 November 2007. The defendant relied on the original defence.

8 In order to explain what happened after the commencement of the hearing, it is necessary to go into some detail.

9 The Court was first engaged in a lengthy exercise involving the dealing with objections to the affidavits (this involved a time consuming process dealing with the multiple objections to the affidavit of the defendant). This affidavit presented a different picture to that which appears from the plaintiffs’ material. It gave rise to significant credit issues (much of the defence depended upon it).

10 After this process had been completed, the Court invited the parties to make suggestions as to how the reading process could be best achieved. There was a consensus that I should go off the bench and read the affidavits in chambers.

11 Upon resuming the hearing, the affidavit of the second plaintiff was read. To the surprise of most, Counsel for the defendant informed the Court that he did not intend to cross-examine the second plaintiff. The plaintiffs’ case-in- chief was then closed.

12 Counsel for the defendant then took the course of not relying on the affidavit sworn by the defendant. At first, the stance was taken that the affidavit had not been read. Later, this stance was abandoned and an application was made to withdraw the affidavit. After taking instructions, Counsel for the plaintiffs did not oppose that happening. The defendant then closed his case and the parties moved to submissions.

13 Like his affidavit, the defence was also a lengthy document. It denied the loans. It admitted the lending of certain moneys. It pleaded express and implied terms (relating to an alleged joint venture partnership involving what was described as the Mollymook Project). These terms went to questions of liability to pay loan fees and repay loan moneys. It also raised alternative matters of defence (allegations that the contracts were unjust and unconscionable).

14 By the close of evidence, the alternative defences had been abandoned and the express and implied term defences had lost evidentiary support. Broadly speaking, what was then left to be pursued by the defendant was the putting of the plaintiffs to proof of their case (proof of the alleged loan agreements as pleaded by the plaintiffs and that the alleged loans had become repayable).

15 A further matter of taking of accounts was raised in submissions. It was not pursued as it had not been pleaded and no basis for it could be advanced. There was also the raising of a matter of discharge of loans. I will return to it in due course.

16 I shall now turn to look at the various transactions. The initial transaction took place in July 1997 (the July 1997 loan). It was not the subject of any claim made by the plaintiffs. It was not in fact made to the defendant himself. It was repaid out of the subsequent borrowing.

17 The documentation relating to the seven transactions is to be found in an exhibit to the affidavit sworn by the second plaintiff (the exhibit). A significant part of that material is either handwritten and/or illegible or, at best, difficult to read. It is in these difficult circumstances that I shall proceed to do my best to comprehend this amorphous mass of material.

18 The first of the seven transactions took place in May 2002 (the May 2002 loan). There was an advance from Magney Mortgages Limited (Magney) in the sum of $350,000, secured by way of first mortgage over the home. The relevant documents may be found at pp17-21 of the exhibit (an Agreement and a distribution sheet).

19 The Agreement contains material that is headed “Terms Of Loan”. The material identifies the borrower as the defendant and the loan amount as being in the sum of $350,000. It provided for the sum of $200,000 to be paid to the defendant. It also provided that the sum of $100,000 was to be paid to the plaintiffs as being the sum of a previous loan. It further provided for a fee of $110,000, which was expressed to be payable on maturity of the facility. The term of the loan was expressed to be 31 December 2002.

20 The July 1997 loan was discharged from the moneys advanced. The sum of $200,000 was paid to Primestone Developments Pty Limited (Primestone) from those moneys (as directed by the defendant) and the plaintiffs received a sum of $108,141.95. The defence admits that the plaintiffs lent to the defendant or his nominee the sum of $200,000.

21 The second transaction took place in August 2002 (the August 2002 loan). Further moneys were advanced by Magney ($666,000) and secured by the mortgage earlier given by the plaintiffs in respect of the May 2002 loan.

22 The relevant documentation may be found at pp33-37 of the exhibit. It was effected by way of an “Addendum” dated 18 August 2002 to the Agreement for the May 2002 loan.

23 The addendum is a handwritten document, which was signed by the defendant. He provided it to the plaintiffs by facsimile. It commences with the words “This addendum supersedes the Terms of Loan dated 3 May 2002”. The material contained in the addendum identifies the borrower as the defendant and the loan amount as being $666,000. It provided that there was to be a “drawdown” of $666,000 and that, inter alia, $350,000 was to be applied to refinance the existing loan and that $172,000 was to be paid to the defendant.

24 The addendum makes reference to a fee of $707,000 to be payable to the plaintiffs and the term of the loan is expressed to be 30 June 2003. Of the moneys advanced by the mortgagee, $350,000 was applied to refinance the May 2002 loan and a sum of $172,000 was paid to the defendant. The defence admits that the defendant or his nominee was lent the sum of $172,000.

25 The third transaction took place in December 2002 (the December 2002 loan). The documentation relied on by the plaintiffs may be found at pp42-49 and 103 of the exhibit. It includes facsimiles from and signed by the defendant and a distribution sheet. There is no document in the form of an agreement. The facsimile material contains the words and figures “new borrowings 862,500”.

26 There is correspondence that reveals a refinancing with a discharge of the security granted to Magney and the granting of a security, by way of first mortgage over the home, to Challenger Managed Investments Limited (Challanger) and an advance to the plaintiffs in the sum of $862,500.

27 The defence admits that the defendant or his nominee was lent the sum of $112,175.

28 The fourth transaction took place in February 2003 (the February 2003 loan). Moneys in the sum of $123,000 were advanced by Mountainview Retreat Retirement Village Pty Limited (Mountainview) and secured by second mortgage over the home.

29 The documents relied on by the plaintiffs are to be found at pp50-79 of the exhibit. There is an Agreement. It is not signed by the defendant. It is referred to as Addendum No.3 and the terms of the Agreement say that it is to be read in conjunction with the Terms of Agreement dated 2nd December 2002 (if there was such a document, a copy of it was not adduced in evidence). The Agreement is expressed to be made between the defendant and the plaintiffs and it provided that “There will be a draw down of $123,000”. Provision was made for a fee of $110,000 (“FEE as per ADDENDUM No. 2, except that $110,000.00 to be paid by 30th June 2003”) and the term was expressed to be 30 June 2003.

30 The defence admits that the defendant or his nominee was lent the sum of $83,596.33.

31 The fifth transaction was made in May 2003 (the May 2003 loan). A further advance (in the sum of $150,000) was made by Mountainview to the plaintiffs and secured by the second mortgage earlier given in respect of the February 2002 loan.

32 The documents relied on by the plaintiffs may be found at pp81-88 of the exhibit. There is a form of Agreement which is not signed by the defendant. It is headed as “Addendum No.4 May 2003” and the Agreement provided that it superseded Addendum Agreement No.3 and is to be read in conjunction with the Terms of Addendum No.2 dated 2nd December 2002. The term of the loan was expressed to be 31 December 2003. Provision was also made for a fee (“FEE as per ADDENDUM No. 2, except that $110,000.00 to be paid by 31st December 2003”).

33 The defence admits that the defendant or his nominee was lent the sum of $135,738.89.

34 The sixth transaction was made in August 2003 (the August 2003 loan). An advance of moneys in the sum of $715,000 was made by Provident Capital Limited (Provident) to the plaintiffs and secured over the farm.

35 The relevant documents may be found at pp94-96 of the exhibit. There is a form of Agreement expressed to be Agreement 2 dated 29th August 2003. The material provides, inter alia, “Payment to Ross Richmond 135,530.00”. The term of the loan is expressed to be two years and the fee is $33,470. It is signed by the defendant.

36 The defence admits that the defendant or his nominee was lent the sum of $43,246.

37 The seventh and final transaction was made in December 2003 (the December 2003 loan). A further advance in the sum of $75,000 was made by Challenger to the plaintiffs, secured by the mortgage earlier given in respect of the December 2002 loan. The relevant documents may be found at pp102-104 and p114 of the exhibit. There is a form of Agreement dated 11th December 2003. It contains, inter alia, the following:-

“The purpose of this agreement is to outline the terms of a loan from Mr Carl Carlsund and Mrs Elizabeth Carlsund (CA & EG Carslund) to Mr Ross Richmond.
The loan funds being obtained from a mortgage on the property of CA & EG Carlsund at 24A Boomerang Street, Turramurra, NSW 2074 which will be held by Challenger Managed Investments Limited as Custodian on behalf of Challenger Mortgage Trust.
BORROWER:- MR ROSS RICHMOND
LOAN AMOUNT:- $75,000.00 taking the total advance to $937,500.00.
Note: This further amount is to be loaned to Mr Ross Richmond and is part of the whole of the Mortgage held by Challenger Mortgage Trust (see original Mortgage document dated 3rd May 2002
and
Addendum 1, July 25 2002,
Addendum 2, December 2,
Addendum 3, February 2003,
Addendum 4, May 2003

NOTE: The Mortgage held by Howard Mortgage Trust has a limit of $75,000.00
FEE:-
TERM OF LOAN:- 1st January 2005
There will be no renewal”

The Agreement was signed by the defendant. The distribution statement shows that $68,245.33 may have been paid to Primestone. The defence admits that the defendant received cheques totalling $21,550 from the plaintiffs.

38 The documentation relied on by the plaintiffs is supported by what is deposed to in the affidavit of the second plaintiff. As earlier recorded, the defendant has chosen not to cross-examine the second plaintiff on this affidavit. Accordingly, what he has deposed to therein stands unchallenged.

39 This affidavit depicts the role played by the defendant in relation to the various transactions. It was he who both approached the plaintiffs in relation to each of them and dealt with the lenders. He arranged for solicitors to act in relation to the mortgage transactions and gave them instructions. There appears to have been no lawyer involvement in the documentation of the relationship between the plaintiffs and the defendant. However, the defendant was involved in the drafting of documents. The second plaintiff has deposed to the defendant suggesting the terms of the form of loan agreement that was used in respect of the May 2002 loan. A similar form of agreement remained in use thereafter. The only exception seems to be the Agreement for the August 2003 loan, which was drafted by the first plaintiff but used the form of agreement suggested by the defendant. In respect of the transactions where no such form of agreement had been used, the documentation relied on by the plaintiffs had been supplied by the defendant.

40 At first glance, the terms of the agreement for the December 2003 loan may be thought to fix the total amount advanced by the plaintiffs to the defendant at the sum of $937,500 (the figure is in fact the sum total of the December 2002 loan ($862,500) and the December 2003 loan ($75,000)). However, it seems to me that further examination of that document reveals this not to be the case. I shall return to that matter shortly.

41 Before proceeding further, I should briefly dispose of one matter that was raised by the defendant in the course of submissions (it has been earlier mentioned). Whilst it did not appear to be pursued with any conviction, for completeness it should be addressed. It was suggested that liability of the defendant in respect of loans had been discharged. There was a seizing upon words used by the second plaintiff in his affidavit (“the August 2002 loan was discharged”).

42 The evidence does not support any such allegation. There was a discharge of the first mortgage held by Magney over the home. The last transaction involving an advance from that entity was the August 2002 loan. The mortgage was discharged when Challenger took a fresh first mortgage to secure the advance made in respect of the December 2002 loan. It seems to me that what was said by the second plaintiff in his affidavit was no more than a loose reference to the discharge of that original first mortgage.

43 The task that remains is to determine whether or not the plaintiffs can discharge the onus of demonstrating their claim on the balance of probabilities. What the plaintiffs can recover in those circumstances depends on the sufficiency of the evidence that they have placed before the Court.

44 Such evidence is not without its problems. The documentation appeared to have difficulties. The evidence of the second plaintiff leaves much to that documentation.

45 Significantly, the problems that may appear to confront the plaintiffs disappear when regard is had to the conduct of the parties and an analysis is made of the transactions that took place between them. There was an evolving state of affairs between July 1997 and December 2003. During the period, further advances were made from time to time and variations were made to terms (including terms as to repayment).

46 An analysis of the transactions reveals that the plaintiffs looked to a number of sources of finance in raising moneys to lend to the defendant (four lenders were involved in what might be described as three streams of finance). This analysis assists an understanding of the documentation and helps resolve what initially appeared to be evidentiary deficiencies.

47 The moneys for the May 2002 loan and the August 2002 loan were provided by Magney. It was given a first mortgage over the home. The December 2002 loan was made from moneys advanced by Challenger. The raising of moneys from that entity saw the discharge of the first mortgage that had been held by Magney and the granting of a fresh first mortgage. The moneys lent by the December 2003 loan also came from that entity and were secured by the same mortgage. The total of the amounts advanced by Challenger was $937,500 ($862,500 plus $75,000).

48 The moneys raised for the February 2003 loan and the May 2003 loan were raised from finance provided by Mountainview. Those moneys were secured by a second mortgage over the home. The home was sold to effect a partial discharge of that mortgage.

49 The moneys loaned by the August 2003 loan came from moneys provided by Provident and those moneys were secured by a mortgage over the farm.

50 The agreement that brought about the December 2003 loan needs to be construed in this context. It can then be seen that the reference to “the total advance to $937,500” relates only to the stream of finance that had by then been provided by Challenger pursuant to a first mortgage over the home and, as has earlier been said, was the total of the sums advanced by the latter. The sum of $937,500 fell well short of the total of the moneys that had been lent to the defendant by the plaintiffs at that time.

51 It seems to me that it was the intention of that Agreement to distinguish those advances from what had been lent from other sources. It seems to me that this follows from what appears following the word “note”.

52 The Court does not have before it any document that is entitled as either Addendum No.1 or Addendum No.2 (the documentation suggests that the latter relates to the December 2002 loan). It does have Addendum No.3 (which relates to the February 2003 loan in the sum of $123,000) and Addendum No.4 (which relates to the May 2003 loan in the sum of $150,000). By deduction, a reference to Addendum No.1 may relate to the first Addendum which brought about the August 2002 loan.

53 Although they put their security at risk for the benefit of the defendant, it might be thought that the plaintiffs stood to be rewarded handsomely from the transactions. It might also be thought that the defendant may have been getting a harsh deal. Be that as it may, there is now no defence mounted on any such bases.

54 It seems to me that the plaintiffs have discharged the onus of demonstrating both that loans were made in the sums as alleged and that each of the loans had become repayable.

55 The admissions made in the defence concede that the eight loans were made. These concessions left the quantum only of each of the alleged loans in issue.

56 Whilst the defendant only received part of what was advanced by the financiers, the documentation demonstrates that the loans to him were intended to be made in the amount that was advanced by the lender and that he should receive only that for which the documents made provision.

57 Each of the loans have an expressed expiry date. The expiry date in each instance has now passed and no payment has been made by the defendant. Accordingly, each became repayable to the plaintiffs.

58 A summary of the loans made is as follows:-

Loan Date Loan Amount

May 2002 350,000
August 2002 666,000
December 2002 862,500
February 2003 123,000
May 2003 150,000
August 2003 715,000
December 2003 75,000

59 There was initial difficulty in working out precisely what is being claimed by the plaintiff and how its calculations are made up. The Amended Statement of Claim presents a set of calculations. There are also some calculations in the affidavit of the second plaintiff. Various outlines of submissions have been put before the Court. The then current version was handed up on 28 November 2007. The problem that remained was of inconsistency in the material.

60 Ultimately, the plaintiffs clarified their claim. The loan moneys claimed are restricted to the following:-

December 2002 862,500
February 2003 123,000
May 2003 150,000
August 2003 715,000
December 2003 75,000

_______

1,925,500

61 That being so, the remaining questions concern loan fees and cash advances. During final submissions, the Court was informed that the plaintiffs were not pressing the claim for cash advances.

62 A summary of the loan fees provided for in the documentation is as follows:-

Loan Date Loan Fees

May 2002 110,000
August 2002 707,000
December 2002 ___
February 2003 110,000
May 2003 110,000
August 2003 33,470
December 2003 ___

63 The evidence proves that the defendant has agreed to pay these fees. No basis is advanced for them not to be paid.

64 The loan fees claimed are restricted to the following:-

August 2002 707,000
August 2003 33,470
_______
740,470

65 For completeness, further mention should be made of an inconsistency relating to the loan fee of $707,000, a matter which has since been clarified.

66 It was erroneously treated in paragraph 46 of the Amended Statement of Claim as having been paid in December 2002. The affidavit of the second plaintiff deposed to it as being unpaid. It was also the subject of a claim in the written submissions relied on by the plaintiff and dealt with as being claimed by the defendant in his written submissions (see paragraph 14 thereof). However, in those submissions, for reasons which are unclear, it was treated as being in the sum of $608,872.53 (the submissions had been framed on the basis that the affidavit of the defendant would be in evidence).

67 I direct the entry of judgment for the plaintiffs against the defendant in the sum of $2,665,970. The defendant is to pay the plaintiffs’ costs of the proceedings.

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