Cerimagic v. Kovac
[2008] QDC 209
•29 August 2008
DISTRICT COURT OF QUEENSLAND
CITATION:
Cerimagic v Kovac [2008] QDC 209
PARTIES:
HAZURLAD CERIMAGIC
Plaintiff
V
SUVAD KOVAC
Defendant
AND
SADETA KOVAC
Second Defendant
FILE NO/S:
406/05
DIVISION:
Civil
PROCEEDING:
Trial
ORIGINATING COURT:
District Court, Southport
DELIVERED ON:
29 August 2008
DELIVERED AT:
District Court, Southport
HEARING DATE:
14 - 17 July 2008
JUDGE:
Kingham DCJ
ORDER:
1. THE FIRST AND SECOND DEFENDANT PAY THE PLAINTIFF THE SUM OF $86,625.00
2. THE FIRST DEFENDANT PAY THE PLAINTIFF THE FURTHER SUM OF $13,375
3. THE FIRST AND SECOND DEFENDANT PAY THE PLAINTIFF COSTS OF AND INCIDENTAL TO THE PROCEEDINGS, INCLUDING THE COUNTERCLAIMS AS ASSESSED.
CATCHWORDS:
LOANS- Whether monies advanced by way of loan or for services rendered- counterclaims on that basis
PARTNERSHIP - Oral partnership agreement- Joint venture to develop property- s59 Property Law Act- Whether an agreement for the disposition of any interest in land
AGENCY- Actual- Agency by implied agreement- Ostensible authority- Whether advances to husband were loans to husband and wife
Property Agents and Motor Dealers Act 2000 (QLD) s288 and s334
Property Law Act 1974 (Qld), s59
Camden & Anor v McKenzie & Ors [2007] QCA 136
Di Bello v De Costi Seafoods (Holdings) Pty Ltd [2005] NSWCA 267
Lees v Fleming [1980] Qd R 162
McBride v Sandiland (1918) 25 CLR 69
Riches v Hogben [1986] 1 Qd R 315
Scots Church Adelaide Inc v Fead [1951] SASR 41
COUNSEL:
Mr A.M Musgrave for the plaintiff
Mr M.E Pope for the first and second defendants
SOLICITORS:
Price Roobottom Solicitors for the plaintiff
Pilgrim Geddes Lawyers for the first and second defendants
Mr Cerimagic and Mr Kovac met through the Bosnian community of the Gold Coast in late 2001 or early 2002. They thought they had much in common as refugees from conflict in their region. They quickly formed a strong bond. Mr Cerimagic said they were the best of friends. They spent time together nearly every day in 2002 and some of 2003. By May 2003 the Kovacs were experiencing financial stress. They fell behind in rent for the shop from which Mr Kovac’s company conducted a second hand furniture business. It ceased trading by September 2003. They also had difficulty meeting payments on a loan secured by a mortgage of their home. In September 2004 Mr Cerimagic sought repayment of money he said he had lent to Mr & Mrs Kovac to assist them to start the business and to buy the family home. By then the friendship between the men was over. In December 2004 the Kovacs ceased payments towards their home loan and in July 2005 the property was sold by the mortgagee.
Mr Cerimagic made payments to or on behalf of the Kovacs totalling $101,625 between July 2002 and January 2003. Mr Cerimagic says they were loan payments to both Mr & Mrs Kovac on generous terms. Mr Kovac denies they were loans and says they were payments for services rendered and expenses incurred.
Mr Kovac counterclaimed for services rendered as an employee of Mr Cerimagic’s in the course of renovations to Mr Cerimagic’s home and improvements to other properties owned by Mr Cerimagic. He also counterclaimed commission on the purchase of a property. At the conclusion of the trial his counsel conceded these claim were statute barred and they were abandoned. The remaining counterclaims fall into two categories.
Firstly, Mr Kovac claims payment for services rendered and expenses incurred as a driver in Mr Cerimagic’s employ and as a fee for assisting in the purchase by Mr Cerimagic of 2 Rolls Royce vehicles, a bobcat and an excavator. Mr Cerimagic denies the services were rendered and the expenses incurred or that there was any agreement to pay for them. Further, he argues any claim relating to the purchase of the vehicles is barred by statute.
Secondly, Mr Kovac claims he is entitled to damages and other relief arising from a partnership he says the two men formed to purchase, develop and sell property. Mr Cerimagic denies they agreed to enter into such a partnership. Further, he says if there was an agreement it is unenforceable because it was not reduced to writing.
If the advances made by Mr Cerimagic were loans, Mrs Kovac denies she was a party to the transactions or that her husband was authorised to incur liabilities on her behalf.
At the heart of the disputes is the nature of the relationship between Mr Cerimagic and Mr Kovac and the financial arrangements they reached. The claims against Mr Kovac and his counterclaims both depend on findings of fact about those issues. The claim against Mrs Kovac raises the further issue of whether she was a party to any of the transactions which found Mr Cerimagic’s claim, whether directly or through an agent.
The issues are:
1. What was the relationship between Mr Cerimagic and Mr Kovac and what was the nature of their financial dealings, in particular:
(a) Did Mr Cerimagic lend money to Mr Kovac or were the advances he made payments to Mr Kovac as an employee or contractor?
(b) Did Mr Kovac provide services and incur the expenses as an employed driver for Mr Cerimagic?
(c) Did Mr Kovac assist Mr Cerimagic in the purchase of a number of vehicles and did Mr Cerimagic agree to pay him for that assistance?
(d) Did Mr Kovac and Mr Cerimagic enter into partnership agreements to buy, develop and sell identified properties and, if so, what orders should be made?
2. If the advances made by Mr Cerimagic were loans, is Mrs Kovac liable for any of them?
What was the relationship between Mr Cerimagic and Mr Kovac and what was the nature of their financial dealings?
In resolving the different accounts the two men gave of their relationship and of their financial dealings, the credibility of their evidence is of central importance. In assessing credit, counsel for both parties invited me to draw adverse inferences from the manner in which the other gave their evidence. I have not done so. English is a second language for both. Due regard must be given to misunderstandings and cultural differences.
Both Mr Cerimagic and Mr Kovac gave evidence with the aid of interpreters. Evidence that, on one view, might be considered evasive or non-responsive was sometimes explained by misunderstandings which arose between witness and counsel. It was not always the witness who was mistaken about what had been said.
Cultural differences between their style of communication and that requested of witnesses in courtrooms also intrude into the assessment of credibility. In broad terms, Mr Cerimagic and Mr Kovac adopted a similar approach to answering questions. Both, at times, sought to answer questions by giving information not requested but which they evidently considered gave some context to their answers or addressed an assumption inherent in the question. At other times they each posed questions to their questioner. It seemed to me that, in the main, this type of response indicated the witness did not agree with a proposition and illustrated why they considered it could not be sustained, rather than signifying an intention to avoid answering the question. It did mean that, on occasions, there was no direct response to a proposition repeatedly put.
I listened for both misunderstandings and cultural differences during the evidence of the two men and the other witnesses who gave evidence with the aid of interpreters. I make this observation without intending to be disrespectful to any person, rather to indicate that I have made allowance for these factors in making my assessment of credit.
My resolution of the issues in this case has not depended upon drawing an adverse inference against any witness based on the manner in which they gave their evidence. This is not a word against word case. There is a deal of documentary evidence. There is also evidence given by a number of other witnesses with various degrees of connection to the parties. That evidence has been critical to my assessment of the credibility of the different accounts of the relationship between the parties.
Did Mr Cerimagic lend money to Mr Kovac or were the advances he made payments to Mr Kovac as an employeeor contractor?
Mr Cerimagic claims Mr & Mrs Kovac owe him $100,000. That figure, he says, represents the rounded down figure arrived at after consolidating a series of loans between July 2002 and February 2003 and acknowledged in a loan agreement (exhibit 8) and promissory note (exhibit 9) both dated 5 February 2003. That figure, he says, was accumulated over three advances.
The first was an advance of $15,000 on or about 29 July 2002, evidenced by a handwritten document prepared in the Bosnian language by Mr Kovac (exhibit 1). The document is undated but nominates the date of the loan as29 July 2002 and the date for its repayment as 29 July 2003 unless repaid earlier. Mr Cerimagic says he advanced that sum so the Kovacs could establish their second hand furniture business.
The second was an advance on or about 11 January 2003 of $18,625, $10,000 in cash and $8,625 by cheque paid to Chateau Realty. That was the deposit for the purchase by the Kovacs of a family home at Chartwell Drive, Benowa. Mr Cerimagic says he reached an oral agreement with the Kovacs, that he would lend them the deposit, they would seek finance on the contract and he would lend them any further funds required after finance was obtained to complete the purchase, including stamp duty and legal costs. Mr & Mrs Kovac would repay the funds advanced 3 years after the contract was signed unless the property was sold before then.
The third advance was made on 28 January 2003, when Mr Cerimagic paid $68,000 into the trust account of McLaughlin Solicitors who were acting for the Kovacs on the conveyance. This amount represented the balance required to be raised by the Kovacs in order to obtain finance.
On 5 February 2003, the loan agreement and promissory note were executed. These documents were prepared by a lawyer, Mr Stinchcombe, after he met with Mr Cerimagic, Mr Cerimagic’s daughter Sabina and Mr Kovac. The appointment with Mr Stinchcombe was instigated by Mr Kovac. Sabina interpreted Mr Cerimagic’s instructions. The loan amount was nominated as $100,000, because the $15,000 earlier advanced for the business had not been repaid and it was rolled in with the loans for the purchase of the house. The loan amount was rounded down to $100,000. The total amount actually advanced was $101,625. Mr cerimagic does not seek the difference of $1,625. The loan was unsecured, no interest was payable and the loan was to be repaid in three years unless the house was sold earlier. Mr Cerimagic told Mr Stinchcombe he wanted the documents prepared because he wanted to be assured he would get his money back.
Mr Stinchcombe wrongly recorded the loan period and prepared the documents for a 5 year term. Sabina pointed this out to Mr Cerimagic after he returned from a second appointment with Mr Stinchcombe which she did not attend. Mr Cerimagic was content to leave the loan period at 5 years, he said because Mr Kovac had indicated he was likely to sell the house earlier than that.
Mr Cerimagic also said he lent Mr Kovac $10,000 on or about 5 February 2002 and $15,000 on or about 7 July 2002 on the same terms. That is the loans were repayable in 12 months and no interest was charged. He said that he had forgiven both those loans. Loan agreements for each of those advances were prepared by Sabina and signed by both men (exhibits 15 and 18 respectively).
Mr Kovac alleges none of the advances were loans. Rather they were payments in arrears for services he had already rendered to Mr Cerimagic. The documents evidencing the transactions are important contemporaneous items of evidence about their dealings. (Camden & Anor v McKenzie & ors) Mr Kovac alleged the documents did not accurately record the transactions. He says they were sham documents prepared at Mr Cerimagic’s insistence in order to shield Mr & Mrs Kovac from having to reveal a source of income to Centrelink.
The transactions between the two men occurred in the context of an intense personal relationship. Both men asserted their belief they had a close friendship during the period in dispute. This was verified by relatives and others who observed them together. On Mr Cerimagic’s case, he was a generous friend who lent Mr Kovac money on favourable terms so the Kovacs could start a business and buy a family home. This fits comfortably with those independent observations of their relationship. The documents upon which Mr Cerimagic relies are consistent with such a relationship.
The picture presented by Mr Kovac is confusing and contradictory and is at odds with how others described their interactions. Mr Kovac described Mr Cerimagic as variously his closest of friends, his employer and his partner. He portrayed Mr Cerimagic as benevolent (if deceptive) in insisting that written loan agreements were prepared to protect Mr Kovac from losing Centrelink benefits. If Mr Kovac’s assertion is accepted, the credit of both men is called into question.
Unless Mr Cerimagic was planning from the outset to set up the basis for a false claim against the Kovacs, there could be no benefit to him in insisting false documents were prepared. Nothing was said to Mr Stinchcombe or to Sabina to suggest the documents were being prepared for any purpose other than Mr Cerimagic’s assurance that the funds would be repaid. Mr Kovac’s personal circumstances when they met were hardly likely to induce in Mr Cerimagic a belief that he could profit financially from their relationship in the future. The possibility that Mr Cerimagic embarked on a course of deception of the Kovacs from the outset is not compelling.
Mr Kovac said Mr Cerimagic treated him either as a servant or a slave depending on how he felt on the day. Yet he also presented Mr Cerimagic, during the same period, as a man who generously entered into partnership agreements which would deliver equal profits to Mr Kovac for manifestly unequal contributions and which did not contemplate Mr Kovac bearing any risk for an unsuccessful venture. I will return in due course to those allegations.
There are other factors that tell against Mr Kovac’s dismissal of the documents. It was Mr Kovac, not Mr Cerimagic, who prepared and presented the agreement evidencing the advance of 29 July 2002. By the time the loan agreement and promissory note were entered into, February 2003, the Kovacs were no longer receiving benefits from Centrelink. Those benefits ceased in September 2002. There was then no incentive for Mr Kovac to mask income.
Mr Kovac alleged he earned the funds advanced by doing work on Mr Cerimagic’s family home and fulfilling other duties, such as driving Mr Cerimagic about. It is clear from the evidence of witnesses with no stake in the outcome of these proceedings that Mr Kovac did help Mr Cerimagic to some extent in the renovations. Mr Izmirlic did tiling work at the Cerimagic home for three to four weeks. He frequently saw Mr Kovac there. He observed Mr Kovac take rubbish away from and deliver materials to the property. Once he saw Mr Kovac driving Mr Cerimagic in Mr Kovac’s truck. On another occasion he saw Mr Kovac driving Mr Cerimagic in a car. It was Mr Kovac who approached Mr Izmirlic to take on the job and, when Mr Cerimagic was unhappy with his work, it was Mr Kovac who told him he was no longer required.
Over a four day period, Mr Praguda did some concreting work at the Cerimagic home. Mr Kovac removed some tiles from around the front of the pool and Mr Praguda helped him load them on a truck. When he drove past one day he saw Mr Kovac unloading some flowers or trees.
Sabina did not see Mr Kovac doing any work. That would be surprising if Mr Kovac had done work of the scope and degree he alleged. Mr Kovac would have it that he was working fulltime, at times for up to 10 hours. However, Sabina’s evidence is not necessarily in conflict with the activities observed by independent witnesses. She was not always at home. What they observed could well have occurred whilst she was not there.
There is also an inherent improbability in Mr Kovac working for Mr Cerimagic to the degree he alleged at the same time as he was establishing his second hand furniture business. In late July 2002 he was involved in establishing the trading company, locating suitable premises, sourcing stock for the store and setting up the business. Once the business opened, Mrs Kovac staffed the store. Mr Kovac retained responsibility for locating, buying and delivering stock to the store and delivering stock to customers. He also banked the daily takings, giving Mrs Kovac funds for their family expenses. Even accepting these duties did not engage him on a full time basis, they would exclude the scale of devotion to Mr Cerimagic’s projects that Mr Kovac contended.
Mr Cerimagic denied Mr Kovac did any work other than to transport some equipment to the home for one of Mr Cerimagic’s contractors. He said Mr Kovac wanted a contractor, who was doing plastering and painting work, to engage him, but did not ask Mr Cerimagic to intervene on his behalf. Mr Kovac was present in everything, said Mr Cerimagic, in all his dealings. It was rare for them not to see each other for more than 24 hours. Regardless, he was insistent Mr Kovac never was his employee.
Mrs Kovac was convinced Mr Kovac was working for Mr Cerimagic but her husband was the source of that belief. She did not observe him working. She did not know what the arrangements were between them. Mr Kovac made it clear financial affairs were his concern as the head of the household. She once saw a black book in the glove box of her husband’s truck. She did look inside but could not say what it recorded. Mr Kovac told her it was none of her business and to put it back. Some time later she helped her husband look for the book when he could not find it.
Mr Kovac said he noted in that book the work he did for Mr Cerimagic and the amount he would be paid. From time to time, he said, Mr Cerimagic would cross out the amount that Mr Kovac had nominated as his fee and would write in a higher figure. Mr Cerimagic denied ever seeing the book or writing in it.
Mr Kovac could not produce the book. He accused Mr Cerimagic of taking it out of his truck. This accusation he rested on the fact that Mr Cerimagic possessed a copy of the handwritten loan agreement for the advance of $15,000 on or about 29 July 2002 (ex 1). Mr Kovac said he made 2 copies of the document and both were folded up in the back of the black book. Mr Cerimagic tendered one copy of the document during his case. Mr Kovac asserted that, if Mr Cerimagic had the document, it established that Mr Cerimagic had taken the book.
Mrs Kovac did not see any papers folded up in the back of the book when she looked in it. Mr Cerimagic said he had a copy of the loan agreement because Mr Kovac gave it to him when he lent him the money. It makes little sense for Mr Kovac to prepare and sign two copies of a loan agreement and then retain both copies in his possession. I accept Mr Cerimagic’s account of how he came to have possession of his copy.
Mr Cerimagic’s insistence that Mr Kovac was never his employee is not inconsistent with Mr Kovac having helped him during the renovations. Given the frequency and duration of their contact it would be most unlikely that Mr Kovac did not lend a hand from time to time. After evaluating all the evidence presented on this issue, I have reached the view that the most accurate description of Mr Kovac’s assistance to Mr Cerimagic at this time comes from Mr Kovac in a passage in the statement tendered as his evidence in chief. He said:
“21. In my home town, you did not need to be a builder to build your own house. All you needed was Council approval. Friends you helped. You did not charge them for the work you did. In turn they would help you when you were doing your house so that it was a form of barter system.”
I am persuaded Mr Kovac did assist Mr Cerimagic during the renovations of his home, but not to the extent alleged. It is reasonable to draw the inference that Mr Kovac hoped his aid would be reciprocated. It was. Mr Cerimagic provided the Kovacs with access to a source of funding on terms they could not have obtained elsewhere. Their only income was, at least initially, Centrelink benefits. Mr Cerimagic charged no interest. He gave flexible repayment options. He forgave significant debts. He did not secure the loans against any of their assets. He did not think these terms were remarkable. They were offered, he said, in friendship - “in our country…when you lend to your friend you don’t charge interest.”
I am satisfied Mr Kovac was not Mr Cerimagic’s employee or contractor. All the documentary evidence characterises the advances as loans. On the balance of probabilities, I am satisfied they accurately record that Mr Cerimagic made the advances by way of loan on the terms recorded.
Was Mr Kovac Mr Cerimagic’s driver?
Mr Kovac counterclaimed payments for services rendered and expenses incurred as Mr Cerimagic’s driver. My findings about the nature of the assistance rendered to Mr Cerimagic during the renovations encompasses Mr Kovac’s counterclaim on this score as well. There is independent evidence that Mr Kovac did drive Mr Cerimagic on occasions. Given their friendship that is unremarkable. I am not persuaded Mr Kovac was engaged as Mr Cerimagic’s driver for reward.
Did Mr Kovac earn a fee in relation to the purchase of some vehicles by Mr Cerimagic
Mr Kovac counterclaims fees payable for services rendered to Mr Cerimagic in the course of his purchase of two Rolls Royce cars, a bobcat and an excavator. Mr Cerimagic denies the services were rendered. His counsel argued a claim relating to the purchase of the vehicles is, in any event, barred by statute.
I am not satisfied Mr Kovac rendered any such services or that Mr Cerimagic agreed to pay for them. It was established that Mr Kovac did not source the Rolls Royce cars. Mr Cerimagic saw them garaged in a house that Mr Avanelle, a real estate agent, took him to inspect. Mr Kovac was not with Mr Cerimagic that day. At Mr Cerimagic’s request, and without charging a fee, Mr Avanelle negotiated with the owner of the cars and facilitated their purchase. Mr Kovac accompanied Mr Cerimagic and his daughter the day the vehicles were paid for and collected but played no role in the negotiations. It was Mr Avanelle, not he, who rendered the services claimed.
As to the equipment, in response to a request by Mr Kovac’s counsel, Mr Cerimagic produced in court a statement from a Mr Montgomery to the effect that he was the owner of the bobcat and excavator and that he negotiated its sale directly with Mr Cerimagic. The statement was received into evidence. There is no cause to reject it.
In light of my finding in relation to both claims, it is unnecessary to decide whether they are statute barred. Whilst s334 of the Property Agents and Motor Dealers Act 2000, provides it is an offence to act as a motor dealer without a licence, there is no prohibition on recovering a fee for facilitating a sale, unless it is as reward for sale on consignment (s288). The arrangement asserted by Mr Kovac would not appear to fall within that prohibition.
Were Mr Kovac and Mr Cerimagic partners?
Mr Kovac alleged he entered into oral partnership agreements with Mr Cerimagic involving two properties. The essential terms of both were that Mr Cerimagic would purchase an identified property in which neither then held any interest, that they would be developed and then resold at which time they would equally share the profits. Inherent in those terms appears to be an acceptance there would be an account for expenses incurred by the parties in the partnership venture, not an equal distribution of the proceeds of sale.
Counsel for Mr Cerimagic argued s59 of the Property Law Act 1974 presents an insurmountable obstacle to Mr Kovac’s claims in contract because there are no memoranda in writing evidencing the agreements. S59 applies to agreements for the disposition of any interest in land. The section prevents any action being brought upon such a contract unless there is some memorandum or note evidencing the agreement.
It is common ground the agreements were oral. Counsel for Mr Kovac expressly disclaimed any reliance on acts of part performance and there were none which could be said to be unequivocally referable to or at least of the same nature as the agreements in question (McBride v Sandiland at 78-9).
If s59 applies, therefore, Mr Kovac’s claims in contract must fail. The question is whether the alleged agreements are properly regarded as contracts for the disposition of any interest in land. Counsel for Mr Kovac argued they were not. They were, he said, partnership agreements which conferred a right to share in the profits of the partnership and which did not confer an interest in the land itself. Mr Kovac’s case was that he acquired no interest in the land as distinct from those rights he had pursuant to the partnership agreement to share in the profits produced by the partnership.
The circumstances of this case share distinct similarities with those considered by Connolly J in Lees v Fleming. There, the plaintiff and the defendant, an employee of a real estate agent, orally agreed that the plaintiff would purchase certain land, the land would be developed and resold, and the plaintiff and defendant would share any consequent profit or loss. His honour concluded s5 of the Statute of Frauds (the predecessor to s59) did not apply as the agreement neither provided the plaintiff with an interest in the land itself or with an interest in the proceeds of the sale of that land as such. Rather, it gave the plaintiff a right to a share in the partnership profits after account (at p169).
He also concluded the statute did not apply where, at the time of the agreement, neither party had an interest in the land which was to be purchased from a third party (at p170). His reasoning on that point was disclaimed by the Court of Appeal in Riches v Hogben. The Court of Appeal concluded s59 did apply where, at the time of the agreement, neither party had an interest in land the subject of their agreement. However, Mr Justice Connolly’s conclusion the statute did not otherwise apply to an agreement of that type was not criticised.
Williams J conducted a comprehensive analysis of the authorities dealing with s59 and its counterparts, including Lees v Fleming. He concluded that:
“a partnership or joint venture agreement which involves the acquisition of land at some time in the future, and in terms of which no party to that agreement is to acquire any interest in the land as distinct from such rights as he may have as a partner, is not caught by the Statute of Frauds.” at 336
That is the type of agreement alleged by Mr Kovac. S59 does not preclude him from proving the agreements by oral evidence.
Mr Kovac alleged the first agreement was reached in August 2002 in relation to a large property at Chambers Flat Rd, Crestmead, which Mr Cerimagic purchased in September 2002. The terms alleged were that Mr Cerimagic would purchase the property and fund the costs of its renovation and improvement. Mr Cerimagic would pay Mr Kovac to assist with that work. Mr Kovac would make representations to the local council for a zoning change to increase its resale value. Then the property would be sold and the profits shared equally. The effect of the alleged terms was that, other than representations to the Council, Mr Kovac was to be separately recompensed for all work on that venture.
In March 2003, Mr Cerimagic purchased a property at Missigs Rd, Haigslea. On a date unspecified, Mr Kovac alleged he and Mr Cerimagic entered into an oral partnership agreement about that property. The terms alleged were that Mr Cerimagic would purchase the property and then resell it and the profits would be shared equally. On his account, no contribution of funds, time, labour or expertise was required of Mr Kovac.
The terms alleged by Mr Kovac exposed him to no risk. The contributions by the partners were manifestly unequal. Mr Kovac was to be remunerated for any work he did on the one property that was to be developed. Yet he was to share equally in the profits. The agreements present as improbable. Mr Kovac’s evidence of the conversations during which the agreements were reached was vague, particularly in relation to the second agreement alleged.
Mr Cerimagic denied entering into them. There is some independent evidence of relevance but that is only of limited assistance.
Mr Natolo, a real estate agent, had coffee with the two men some 10 times and showed them two properties. Sabina Cerimagic attended once. Neither man had good English but it was Mr Kovac who did the talking. Mr Kovac told Mr Natolo they were looking for a property worth up to $5 million. Mr Natolo was not privy to discussions between the two men which he said were conducted in Yugoslavian. They did not buy any property through him.
Mr Zulic had coffee with the two men almost every evening for several months from the beginning of 2002. He said they had both told him they were investing together and he told them they should make a written agreement. He said they told him they had already bought property together. He was not specific about what was said or on what occasion, other than that such things were said by both men during the identified period. His evidence fixes the conversations during a period when no property had been acquired. There is no dispute they were purchased in September 2002 and March 2003.
Mrs Muratovic met Mr Kovac some time in 2003. He introduced her to Mr Cerimagic. The two men picked her up from her home in a car driven by Mr Kovac. They travelled to Ipswich. On the way, a large parcel of land was pointed out to her. Mr Cerimagic told her they would make money when they subdivided the land and they were “half and half”. A reasonable inference would be that the large parcel of land was the property at Chambers Flat Rd, Crestmead. However, Mr Kovac said they did not look at that property the day they travelled with Mrs Muratovic.
Mrs Muratovic said they travelled a further 20 minutes from that property to Ipswich where she translated Mr Cerimagic’s negotiations with a real estate agent for the purchase of the property at Missigs Rd, Haigslea. Later, she says she overheard Mr Cerimagic and Mr Kovac talking about going 50/50 in that property.
That evidence does support a conclusion there were discussions between the two men about investing together. It does not establish agreements were concluded and on the terms alleged. Mr Natolo knew nothing of the arrangements between them. A number of inferences may be drawn from Mr Kovac’s involvement in looking for real estate with Mr Cerimagic. Mr Zulic’s evidence was imprecise and asserted an existing agreement over property already purchased at a time before Mr Kovac alleges either agreement was reached. The conflict in the evidence led by Mr Kovac about whether they looked at the Chambers Flat Rd property when Mrs Muratovic was with them was not explained and undermines the reliability of her account. The conversation she said she overheard about the Missigs Rd property was, at best, a discussion about a future prospect.
Mr Cerimagic denied the alleged agreements were reached but was not asked whether there had been discussions about the potential to do business together in the future.
I have already canvassed the evidence about the nature of their friendship during this time. Mr Kovac had an understandable desire to establish himself and his family as quickly as possible. Mr Cerimagic was already well established. Regardless of which view is taken of their financial relationship, there was evident financial inequality. Since their friendship has deteriorated, Mr Cerimagic has acted consistently with his account that he had lent money to his friend. He asked for the loans to be repaid in September 2004. After the mortgagee of the Kovac’s house had entered into possession to sell it, Mr Cerimagic pursued relief in the courts.
On the other hand, Mr Kovac’s actions have not been consistent with his account that he had claims both as an employee and a partner of Mr Cerimagic. In his application for finance to purchase the family home the only source of income disclosed was the furniture business. He told Mr Avanelle, the agent engaged in that sale, that this was his employment. It was not until these proceedings were commenced that Mr Kovac alleged he was owed money by Mr Cerimagic, whether as an employee or pursuant to a partnership. In the meantime he had lost his business and his family was evicted from their home. He did not satisfactorily explain why he did not press any claim against Mr Cerimagic when his financial position was so dire.
Mr Cerimagic impressed me as a person who derived some pleasure from his benevolence towards others. Given the nature of their relationship, it is reasonable to infer that Mr Cerimagic might hold out hope for Mr Kovac that they would invest together. I am persuaded he made statements to that effect. That is consistent with the conversations Mr Zulic and Mrs Muratovic attested to. However, I am not persuaded that Mr Kovac and Mr Cerimagic entered into agreements in the terms alleged.
In summary, the terms of the agreements are improbable given their manifestly unequal contributions and potential liabilities. The evidence of independent witnesses does not establish agreements were concluded. Their evidence is consistent with the men hatching plans for the future. Mr Kovac’s characterisation of their personal and financial relationship is confused and contradictory. Mr Cerimagic has acted consistently with his assertions about their relationship. Mr Kovac has not. Mr Kovac bears the onus of establishing his case about the alleged partnerships on the balance of probabilities. The combination of the factors I have identified leaves me unpersuaded that Mr Cerimagic entered into the alleged partnership agreements.
As against Mr Kovac, Mr Cerimagic has established his claim and Mr Kovac’s counterclaims against him are dismissed.
2.Is Mrs Kovac liable to repay all or any of the payments made by Mr Ceramagic?
The funds were advanced over three transactions but fall into two categories: a loan to establish the business and advances towards the purchase of the family home. Mrs Kovac did not sign any of the documents relied upon by Mr Cerimagic as evidence of any of those transactions. Nor is she referred to as a borrower in any of them. She denies she is liable for any of them.
Whilst these advances came later, it is convenient to first deal with the advances towards the purchase of the home. Mr Cerimagic was insistent that the money was lent to both Mr and Mrs Kovac. He relies on conversations with Mr and Mrs Kovac about the loan as well as the documents subsequently prepared which consolidated the amounts advanced towards the purchase of the house with the earlier advance to establish the business. Those documents are a loan agreement and promissory note, which name only Mr Kovac as the lender.
In reliance on those documents, defence counsel urged me to accept that money advanced towards the purchase of the house was lent only to Mr Kovac. This view of the transaction was bolstered, in his submission, because these proceedings were initially commenced against Mr Kovac alone. Mr Cerimagic said he relied on lawyers to draft the necessary documents both for the loan and for legal proceedings. There is also evidence that Mr Cerimagic asserted his claim against both Mr and Mrs Kovac. On 14 and 27 July 2005, Bell Legal Group sent letters on his behalf to both Mr and Mrs Kovac claiming from both the full amount now sought to be recovered. The second letter included a Notice of Intention to Sue directed to them both.
That Mrs Kovac is not mentioned in the loan agreement and promissory note does not dispose of the claim against her. It is evidence which must be viewed in the context of and weighed against other evidence of those transactions.
I accept Mr Cerimagic’s evidence about his conversation with the Kovacs when, he says, Mrs Kovac expressed her deep gratitude for his assistance to buy the property. I am satisfied, even given her express denial, that the conversation took place. I am also persuaded that she knew Mr Cerimagic was lending them money, agreed to the loan and was a party to it.
Even were I not so persuaded, I am also satisfied Mr Kovac had his wife’s authority to raise the funds necessary to buy their family home. Agency by implied agreement arises from conduct of parties towards each other which makes it reasonable to infer consent to the relationship of agency. (Scots Church Adelaide Inc v Fead)
Mr Kovac and Mr Cerimagic are at one when it comes to the role of a man as the head of a household. The husband handles the finances and makes the decisions. Mrs Kovac confirmed that it was Mr Kovac who handled the family’s finances. He made all the arrangements and decisions. She signed the documents he presented to her, apparently without enquiry.
The contract was in joint names. Mrs Kovac was aware they would have to borrow money to finance the purchase of the family home. She agreed she was worried about their capacity to do so. She knew the finance raised through Bluestone Mortgages was insufficient to cover the purchase price in full. She knew Mr Cerimagic was the source of some funds used for the purchase.
Whilst Mrs Kovac said she did not know how much he provided and that she thought any money he advanced was money owed to her husband, Mr Kovac had her authority to raise the money needed to buy the house on her behalf. Whether she knew the source or nature of the loans is not to the point.
I am persuaded by Mr Cerimagic’s evidence that he was approached by Mr Kovac to lend money to him and to his wife so that they could purchase their family home. I accept that Mrs Kovac authorised her husband to raise the necessary funds and acknowledged the loan in a conversation with Mr Cerimagic. That accounts for some $86,625 of the amount claimed by Mr Cerimagic. I find both Mr and Mrs Kovac are liable to repay that amount.
The loan in late July 2002 of $15,000 for the establishment of the second hand furniture business is in a different category. I do not accept that Mrs Kovac’s consent to her husband taking responsibility for the family’s finances translates to a finding that any debt incurred by Mr Kovac created a joint liability with his wife. There is no evidence that she gave him such untrammelled authority or that either contemplated that he could incur a personal liability on her behalf in relation to the particular loan or any other business debt.
There is no evidence to suggest that either Mr Kovac or Mr Cerimagic contemplated a liability for Mrs Kovac from that transaction. Mr Cerimagic’s characterisation of the advance as a loan to them both bore the hallmarks of a retrospective conclusion. Nothing was said to him to suggest the loan was to be made to them both. Mr Kovac did not say that he was borrowing the funds for them both.
Mr Kovac established a trading company to operate the business. He was its sole director and shareholder. He patently drew a distinction between business and personal finances.
Mrs Kovac knew little about the establishment of the business. Whilst it was to be a source of family income and she was to work in it, it was a business venture beyond the scope of personal financial affairs. There were no dealings between Mr Cerimagic and Mrs Kovac about the establishment of the business. Mrs Kovac did not conduct herself in a way that left open a finding of ostensible authority, based as it is upon the principles of estoppel by conduct. (Di Bello v De Costi Seafoods (Holdings) Pty Ltd) I find Mrs Kovac is not liable for the $15,000 advanced towards the establishment of the business.
Orders
1. The first and second defendant pay the plaintiff the sum of $86,625.00
2. The first defendant pay the plaintiff the further sum of $13,375
3. The first and second defendant pay the plaintiff costs of and incidental to the proceedings, including the counterclaims as assessed.
Money has been paid into court pending judgment. I will hear from the parties as to what further orders need to be made
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