Citibank v Pirrotta; Citibank v Nicholson (No 3) No. Scgrg-93-2260, Scgrg-93-2261, Scgrg-94-1928 Judgment No. S6591

[1998] SASC 6591

CITIBANK SAVINGS LTD  v  NICHOLSON and ORS
PIRROTTA and ANOR  v  CITIBANK SAVINGS LTD and ORS

Perry J

In May and June 1997, I conducted a joint trial of two actions arising out of a transaction which took place in November 1991 by which Citibank Savings Ltd (“Citibank”) agreed to lend $260,000 to SSAI Agencies Pty Ltd (“SSAI”).  Repayment of the loan was guaranteed by a joint and several guarantee executed by seven people: Angelo and Connie Passaniti and their daughter Patricia Tina Passaniti (known as “Tina”), Sheila and William Nicholson (“the Nicholsons”) and Pasquale and Filomena Pirrotta (“the Pirrottas”).

Apart from the guarantee, further security was provided by first mortgages given over house properties by Tina Passaniti, the Nicholsons and the Pirrottas.  In the case of the Pirrottas, the property included an attached delicatessen.

The joint trial was confined to specific issues which I had directed to be tried ahead of other issues.  Essentially, the issues which I brought to trial at that stage were as to the enforceability of the mortgages and the guarantee, the liability in negligence of a solicitor who advised the guarantors at the time of execution of the guarantee, and the question of liability on various contribution proceedings.

I delivered judgment on those issues on 12 November 1997.[1]  I will hereafter refer to that judgment as “the trial judgment”.

[1]    Judgment No S6428.

In the trial judgment, I dismissed the attacks on the validity of the guarantee and mortgages, which I held to be enforceable by Citibank.

However, I held Olson & Co, a firm of solicitors, and Melissa Ballantyne, a solicitor employed by the firm at the relevant time, to be liable in negligence for advice given by Melissa Ballantyne, inter alia, to the Pirrottas and the Nicholsons just prior to their entry into the mortgages and guarantee.

I ordered damages to be assessed in favour of the Pirrottas and the Nicholsons against Olson & Co and Ballantyne.  I adjourned the hearing of the assessment of damages to a date to be fixed.

In one of the actions brought to trial,[2] Citibank sought possession of the mortgaged premises from the Nicholsons, in aid of sale.  In view of my finding as to the validity of the mortgage, the judgment pronounced in that action includes an order that the Nicholsons give up possession of the mortgaged property to Citibank.

[2]    Action No 2261 of 1993.

It had previously been agreed between the parties that another action not brought to trial,[3] which was a possession summons issued by Citibank against the Pirrottas, was to abide the event of the trial.  In view of that agreement, after I delivered the trial judgment I made an order in that action for possession in favour of Citibank against the Pirrottas.

[3]    Action No 2260 of 1993.

I went on to order a stay of both orders for possession until further order.  This was in the expectation that the assessment of damages might result in orders for payment of damages, which in turn might generate sufficient funds to allow the amounts due on both mortgages to be discharged, making it unnecessary for the orders for possession to be enforced.

On 12 January 1998, I commenced a trial of the assessment of damages in the two actions in which I had ordered the damages to be assessed.  That trial proceeded substantially on the basis of the oral evidence and exhibits which had been tendered at the joint trial held in 1997.  Only one other witness, a chartered accountant, Mr Phillip Plummer, was called.  I will in due course refer to his evidence.  Some further documents were tendered.

The issues involved in the assessment of damages and questions relating to the form of any final judgment and order to be pronounced, turned out to be complex.

One area of complexity arises with respect to legal costs.

Following the joint trial of the preliminary issues, and after hearing further argument, on 1 December 1997 I gave a ruling on certain costs questions.[4]  In all three actions, that is, the two which had earlier been brought to trial on the preliminary issues, and in the third action, which was to abide the event of the other two, Citibank had been successful.  It sought costs against the Nicholsons and the Pirrottas.

[4]    Judgment No S6472.

The form of mortgage executed by both the Pirrottas and the Nicholsons contained provisions entitling Citibank to “solicitor and client” costs for legal advice and assistance.  Counsel for Citibank argued that, having regard to that provision in the mortgage, Citibank was entitled to solicitor and client costs on an indemnity or common fund basis, that is, all such costs as might have been reasonably incurred by Citibank.  I held, however, that Citibank was only entitled to costs on the basis of the formulation which appeared in the mortgages, and that they should therefore be awarded costs on a “solicitor and client” basis.

At the same time, I dealt separately with an application by counsel for the Pirrottas and the Nicholsons for a Bullock order, that is to say, an order that the costs to which they were liable vis a vis Citibank be recoverable as part of, or added to, the costs which they were otherwise entitled to against Olson & Co and Ballantyne, having succeeded against those parties.  As to that aspect of the matter, I made a Bullock order as sought.

The order for costs made in favour of Citibank had the consequence that any costs taxed pursuant to the order arguably became part of the moneys secured by the mortgage.  If that was to be so, the consequence would be that moneys paid from time by Citibank to time with respect to legal costs, attracted interest under the provisions of the mortgage, as if they were moneys advanced under the mortgage.

Insofar as the principal component in the damages awarded against Olson  Co and Ballantyne in favour of the Pirrottas and the Nicholsons falls to be assessed by reference to the liability of each of them under the guarantee and mortgage given in favour of Citibank, and insofar as that liability included Citibank’s entitlement to costs, the correctness of my ruling as to the quantification of costs, together with the associated question whether the costs become part of the moneys secured, assume some importance.

Citibank appealed to the Full Court against my construction of the relevant provisions of the mortgage insofar as they related to their entitlement to costs.  Cross-appeals were instituted by both the Pirrottas and the Nicholsons, asserting that I had erred in awarding costs to Citibank on a basis other than as between party and party.

The Full Court heard the appeal on 5 and 6 February 1998 and reserved its decision.

Citibank asserts that as at 18 November 1997 it was owed a total of $418,880.50.  This includes various amounts paid by it with respect to legal costs upon which interest had been calculated at the rate applicable to the moneys advanced under the mortgages.

No doubt more costs have been incurred, and further arrears have accumulated with respect to the repayment of principal and interest otherwise due under the mortgages.  However, the figure which I have referred to gives some indication of the amount presently at issue insofar as Citibank is concerned.

It will also be clear from what I have said so far that I will be unable finally to assess damages until the Full Court has given its decision.

Notwithstanding that, certain issues of principle which were the subject of contention on the hearing of the assessment of damages may conveniently be ruled upon at this stage.  I am hopeful that if I pronounce upon those issues, further litigation may not be necessary, and the parties may be able to resolve the matter when the basis upon which Citibank’s costs are to be quantified is clarified.

These reasons, therefore, follow an intimation given by me at the conclusion of the hearing of the assessment of damages that I would proceed to deliver such judgment as I am able to at this stage, short of proceeding to the final quantification of the damages.

This judgment is intended to be read in conjunction with the trial judgment.  The assessment will proceed on the basis of the factual findings set out in the trial judgment.  I will not, therefore, refer further to those factual findings or the factual background, except to the extent necessary to make these reasons intelligible.

I will, of course, make such additional findings on the evidence tendered before me on the hearing of the assessment of damages as may be necessary.

Some General Matters

The liability of Olson & Co and Ballantyne with respect to which damages are to be assessed, arises in negligence.

It follows that the Pirrottas and the Nicholsons must receive “... compensation in a sum which, so far as money can do, will put” them in the same position as they would have been in if the tort had not been committed; Haines v Bendall in the joint judgment of Mason CJ, Dawson, Toohey and Gaudron JJ.[5]  The joint judgment proceeds:

[5] (1991) 172 CLR 60 at 63, citing Butler v Egg and Egg Pulp Marketing Board (1966) 114 CLR 185 at 191, Todorovic v Waller (1981) 150 CLR 402 at 412, Redding v Lee (1983) 151 CLR 117 at 133, Johnson v Perez (1988) 166 CLR 351 at 355, 386, MBP (SA) Pty Ltd v Gogic (1991) 171 CLR 657, Livingstone v Rawyards Coal Co (1880) 5 App Cas 25 at 39, British Transport Commission v Gourley [1956] AC 185 at 197, 212

“Compensation is the cardinal concept.  It is the ‘one principle that is absolutely firm, and which must control all else’[6] ...  Cognate with this concept is the rule, described by Lord Reid in Parry v Cleaver[7] as universal, that a plaintiff cannot recover more than he or she has lost.”

[6]    Citing Skelton v Collins (1966) 115 CLR 94 at 128 per Windeyer J.

[7] (1970) AC 1 at 13.

Although the decision in Gates v CML Assurance Society Ltd[8] was concerned with the question of the measure of damages for misrepresentation under s52 of the Trade Practices Act 1974 (Cth), the appropriate measure of such damages was held to be the same as in tort. The following passage in the joint judgment of Mason, Wilson and Dawson JJ[9] is, therefore, apposite:

[8] (1985-86) 160 CLR 1.

[9] Ibid 13.

“Because the object of damages in tort is to place the plaintiff in the position in which he would have been but for the commission of the tort, it is necessary to determine what the plaintiff would have done had he not relied on the representation.”

See also Copping and Ors v ANZ McCaughan Ltd and Ors.[10]

[10] (1996) 67 SASR 525 per Doyle CJ at 530.

Here the damages fall to be assessed either as of the date upon which the mortgage and guarantee was entered into (8 November 1991) or the date upon which the transaction with Citibank was settled (21 November 1991).  The difference between the two dates is, for present purposes, immaterial.

In one sense the loss suffered by the Pirrottas and the Nicholsons by reason of their entry into that transaction is the total amount for which they have become liable to Citibank, that is, the derivative liability under the guarantee, referable to the total indebtedness of SSAI to Citibank.  An additional component is referable to the costs of the action taken by Citibank to enforce its security, that is, in seeking possession in aid of sale of the properties the subject of the mortgages, and in defending the challenges to the validity of its security documents.

But to allow in full damages based upon those two heads of loss would result in a degree of over-compensation.

In that respect, I accept the argument put forward by Mrs Simpson on behalf of Olson & Co and Ballantyne that in assessing the true value of the loss suffered, the court must take into account what the position of the guarantors would have been if the moneys had never been lent to SSAI by Citibank.

The starting point is the situation of the Pirrottas and the Nicholsons as it stood just prior to the Citibank transaction.

In the case of the Pirrottas, they had some time beforehand passed over to SSAI moneys which they had borrowed personally from the State Bank, the original loan being in the sum of $30,000, repayment being secured over the Pirrottas’ Henley Beach property.

In the case of the Nicholsons, their matrimonial home was mortgaged to National Australia Bank.  The advances which had been made on that mortgage had nothing to do with SSAI.  They were in part utilised for the purchase of the house and in part for the purchase of a car.

Also to be taken into account in some way is the then existing liability of the Nicholsons (as opposed to the Pirrottas) on a guarantee executed by eight persons (four couples) in total.  The guarantee related to a fluctuating overdraft of SSAI upon which approximately $100,000 was due at the time of settlement of the Citibank transaction.

Strictly the assessment of damages is in two parts, in that there were orders for the assessment of damages made in two separate proceedings.

One order was made in the Pirrottas action against Citibank.[11]  In that action, the assessment is in the context of the claim by the Pirrottas against Olson & Co and Ballantyne as defendants to that action.

[11]   Action No 1928 of 1994.

The other order for assessment for damages was made in the context of Citibank’s action against the Nicholsons.[12]  In that action, the Nicholsons joined Olson & Co and Ballantyne as third parties.  The order for assessment of damages was in terms that the Nicholsons as defendants recover against Olson & Co and Ballantyne as third parties, damages to be assessed.[13]

[12]    Action No 2261 of 1993.

[13]    See the order dated 9 December 1997, court file document 72 in action 2261 of 1993.

But notwithstanding the fact that there are the two separate orders for the assessment of damages, there are some questions of general principle applicable to both.

I have already referred to Citibank’s assertion that it is owed $418,880.50 plus costs, arrears and interest accrued since 18 November 1997.  The Pirrottas and Nicholsons are liable to repay that amount as joint guarantors, that liability being reinforced by a parallel obligation arising by virtue of the provisions of the mortgages.[14]

[14]   Mortgage Covenants, para 1, referred to in the trial judgment at 19-20.

The figure claimed by Citibank includes various legal costs and expenses incurred by Citibank, not only with respect to the two actions brought to trial before me, but also with respect to the separate possession summons brought by Citibank against the Pirrottas.[15]

[15]    Action No 2260 of 1993.

There was another action, which resulted in Citibank taking possession of and selling Tina Passaniti’s property.  Costs associated with that action have also been included in the indebtedness asserted by Citibank.

By reason of the Bullock order pronounced in both of the actions brought to trial, the ultimate liability for the costs of action payable by the Pirrottas and the Nicholsons to Citibank is transferred to Olson & Co and Ballantyne.  The quantification of those costs will not be possible until a decision has been given on the appeal to the Full Court.

But there would be a double recovery by the Pirrottas and the Nicholsons if, pursuant to the Bullock order, they were to recover from Olson & Co and Ballantyne the costs for which they are liable to Citibank and then to recover the same amount as an element in the damages assessment against Olson & Co and Ballantyne.

It follows that the first adjustment which must be made in the process of calculating those damages is to deduct Citibank’s costs in the two actions brought to trial[16] from whatever total indebtedness is due to Citibank on the advance which it made to SSAI.

[16]    Being actions No 2261 of 1993 and 1928 of 1994.

Counsel for the Nicholsons and the Pirrottas contended that the damages recoverable against Olson & Co and Ballantyne should include the difference between the party and party costs which they are entitled to as against Olson & Co and Ballantyne, and the actual costs, on an indemnity basis, which they have paid their solicitors.  The argument is untenable; it would make nonsense of he costs order which was made.  Authority is against the proposition: see Longlo v Fayed (No 5)[17] and generally see McGregor on Damages.[18]

[17] [1993] 1 WLR 1489.

[18]    Sweet & Maxwell, 16th ed, 1997 para 750 and the other cases there cited.

There were, of course, seven guarantors who executed the guarantee.  I identified them at the commencement of these reasons for judgment.

The only guarantor who so far has paid or suffered a payment to Citibank is Tina Passaniti, whose house was sold pursuant to the mortgage given by her as collateral security to the guarantee.  That realised a net sum of $63,398.17, which has already been taken into account in the calculation of the amount now said to be due by Citibank.

Each guarantor has a right of contribution against the other guarantors.

Mrs Simpson is correct in asserting that, as a matter of principle, all solvent guarantors with unlimited liability as between themselves, will share the debt equally.[19]  But that result only obtains where there is a full working-out of the equitable right of contribution between the co-guarantors.

[19]    The Modern Contract of Guarantee, O’Donovan and Phillips, 3rd edition 1996, the Law Book Co at 623 and Mahoney v McManus (1981) 180 CLR 370.

Excluding Ms Passaniti, at least in practical rather than legal terms, on the basis of the contribution already made from the sale of her house, there are six guarantors (or three couples) who remain liable under the guarantee.

Mrs Simpson submitted that they were each liable for an “equal share of the principal debt”.  She further submitted that allowance should be made for recovery of contribution by the Pirrottas and the Nicholsons against Angelo Passaniti and Connie Passaniti, the other co-guarantors (excluding for present purposes Tina Passaniti).

In my opinion, that argument is unsound both from the point of view of principle and from the point of view of the facts.

It is not accurate to say that the six remaining guarantors are each liable for an “equal share of the principal debt”.  They are each liable vis a vis Citibank for the whole of the principal debt.

The negligence of Olson & Co and Ballantyne which resulted in the entry by the Pirrottas and the Nicholsons into the transaction in question, having regard to the events which have subsequently occurred, exposed the Pirrottas and the Nicholsons to a liability for the whole of the principal debt, not some pro rata proportion of it to be determined upon a working out of any claim of contribution as between the co-guarantors.

It is that total liability to which regard must be had as the starting point for the assessment of damages, not a liability for such balance of the principal debt as might remain if a successful claim for contribution were to be made against Angelo and Connie Passaniti.

True it is that if any one of the guarantors pays out more than a one-sixth share, a right to contribution arises in equity.   But if, for the reasons which I will come to, Connie and Angelo Passaniti should be excluded from the exercise, and Tina Passaniti is excluded on the footing that she has already made her contribution, this leaves only the Pirrottas and the Nicholsons.  If the assessment then proceeds on the basis of an equal division of the balance due to Citibank, the equitable principle of equality of contribution by the guarantors will be satisfied.

Even if I am wrong in that analysis, on the facts of this case, there does not appear to be any realistic prospect of recovery from either Angelo or Connie Passaniti.  At least, no basis has been established in the evidence to support the view that there could be any successful claim for contribution against them.

Angelo Passaniti was declared bankrupt on 18 August 1997 and Connie Passaniti in about 1980.  While it is true that Connie Passaniti is now discharged from her bankruptcy, there is no indication in the evidence that she has any means which could possibly satisfy a claim for contribution.

Mrs Simpson also argued that before assessing the damages to which the Nicholsons and the Pirrottas were entitled as against her clients, Citibank should first be left to proceed against them to enforce its claim under the guarantee.  She contended that Citibank should be left to recover what it could from either or both of the couples, and that the measure of their recovery would then be the measure of the loss suffered by whoever it was against whom Citibank made a recovery.

In my opinion, that argument is not sound.  It would leave the quantification of the damages payable by Olson & Co and Ballantyne dependent in large measure upon the whim of Citibank as to whom it chose first to proceed against, and what assets were available to answer to the debt, having regard to the recovery measures taken by Citibank.

The true principle is that if a negligent act exposes the plaintiff to a liability to a third party, it is the measure of that liability which is the starting point for the assessment of damages against the tortfeasor, not the amount which the third party happens to be able to recover upon whatever processes of execution it chooses to pursue.

It follows then that I should approach the assessment of the damages on the footing that the first component in the damages is the total indebtedness to Citibank less the costs associated with the two actions brought to trial, payable pursuant to the Bullock order.

But if the assessment of damages resulted in a judgment for the full amount in favour of both the Pirrottas and the Nicholsons, there would be a double recovery.  So that each of them should have judgment against Olson & Co and Ballantyne for one-half of the sum represented by the total indebtedness to Citibank, less the costs payable on the Bullock order with respect to the two actions brought to trial.

In the case of each of the Pirrottas and the Nicholsons, further adjustments must be made in the process of assessment in order properly to reflect the position as it would have been with respect to each couple if the transaction with Citibank had not been entered into.

I will deal separately with the adjustments to be made in each case.

Assessment of Damages Recoverable by the Pirrottas

I have already mentioned earlier in these reasons the fact that the Pirrottas had provided to SSAI, moneys which they borrowed personally from the State Bank, amounting to $30,000.  Those moneys were advanced by State Bank in December 1990, repayment being secured by a mortgage given by the Pirrottas over their Henley Beach property.  The moneys were utilised by SSAI as part of its working capital.  It assumed responsibility for the monthly repayments.

I had earlier assumed that it was an interest only loan, as the interest rate on the application for the loan is 17% and the monthly instalment is shown as $461.70.  But the calculations proffered by Mr Plummer satisfy me that it was a loan as to which the principal and interest were to be progressively discharged by equal monthly payments of the amount which I have indicated.

The pay-out figure advised by the State Bank with respect to the Pirrottas loan from State Bank as at the date upon which it was paid out by Citibank, that is, 21 November 1991, indicates the balance of the loan to be $29,858.79 and outstanding interest $240.70, making a total of $30,129.59 (including FID).  That amount, plus “discharge fees” of $114 was paid to State Bank on settlement by Citibank.

The total paid to State bank, as advised by Citibank to SSAI by letter written on the date of settlement, was $135,142.81.

The indebtedness of SSAI on its overdraft with State Bank must have been about $105,000, , having regard to the total payment to State Bank on settlement.

The transaction with Citibank, viewed from the Pirrottas point of view, involved a substitution, in lieu of a personal liability to State Bank of the order of $30,000, of a liability on a guarantee as two out of seven guarantors, of a principal debt owed by SSAI, then of the order of $260,000, their obligations under the guarantee being secured by a fresh mortgage over their Henley Beach property.

If the Pirrottas had not entered into the transaction with Citibank, they would have remained personally liable to State Bank on the $30,000 loan, albeit with the benefit of an arrangement with SSAI, that the company would meet the repayment, by monthly instalments, due to State Bank.  Approximately $30,000 was still due as at 21 November 1991.

What must be brought into account in assessing the damages recoverable by the Pirrottas from Olson & Co and Ballantyne, is whatever it is proper to allow for the contingency that SSAI may not have fully extinguished that obligation to State Bank.

Relevant to that aspect of the matter is the fact that shortly before the settlement with Citibank, the Pirrottas had received at least two letters from State Bank drawing attention to the fact that the monthly instalment due on the loan had not been made.

Although there is very little evidence of the true financial position of SSAI as at November 1991, it is clear that it suffered from an acute shortage of capital.  That inference may safely be made having regard to the history of its operation as revealed by the evidence.  That history indicates that it was obliged virtually to re-finance its operations on several occasions prior to November 1991 in order to obtain sufficient funds for container loads of goods to be shipped from the United States.

That it lacked working capital is also clear from the fact that, following the refusal by State Bank to advance any further finance, it was obliged to approach Citibank, with whom it incurred a total liability of $260,000.  After the accumulated liability to State Bank and the amounts due by the Nicholsons and the Pirrottas on their prior mortgages had been paid off, that left a balance in the hands of the company of slightly less than $30,000, barely sufficient for another container load of goods from the United States!

Within six to nine months after November 1991, the business of the company folded, coincidentally with the recurrence of a serious illness suffered by Connie Passaniti.

In fact, some further payments were made to Citibank on its loan to SSAI, albeit somewhat desultory payments, the last of them being on 3 December 1996.  It is likely that they were made from a source other than SSAI.

Mr Plummer gave evidence and produced a schedule of calculations indicating that if regular payments had been maintained on the State Bank mortgage taken out by the Pirrottas from 14 December 1990 when the funds ($30,000) were originally advanced, as at January 1998 there would have been a balance remaining of $7,858.22.

While I think it likely that Connie Passaniti would have endeavoured to maintain payments on Mr and Mrs Pirrotta’s loan account for as long as possible, even after the company’s operation failed, realistically there was a substantial risk that the Pirrottas would have been left to meet a substantial payment out of their own resources in order finally to discharge it.

I realise that it is speculative as to whether, when the crunch came and there was a default by both SSAI and a failure by Connie Passaniti, by one means of another, to defray the payments, the Pirrottas would have been able or willing to pay it out in cash, or whether they would simply have met the monthly re-payments themselves.

Be that as it may, it seems to me that what I must do in calculating this aspect of the assessment of damages is simply to fix upon a sum of money which represents a fair assessment of the risk that the burden of repayment would have shifted to them.

Given the factors to which I have referred, I would allow for that risk, the sum of $15,000.

There must be added back in favour of the Pirrottas their costs, as between solicitor and client, of defending action 2260 of 1993, that is, the possession summons by Citibank.

It was reasonable for them to have defended that action.  By solicitor and client I do not mean solicitor and own client, or costs on an indemnity or common fund basis.

This means then that, in my opinion, the quantification of damages recoverable by the Pirrottas against Olson & Co and Ballantyne should be calculated as follows:

$ ( A - B     2 - C + F )

where:

Ais the total indebtedness due to Citibank;

Bis the total of the costs payable under the costs orders already made in favour of Citibank, which are the subject of the Bullock order;

Cis 15,000;

Fis the amount of the costs incurred by the Pirrottas in defending action 2260 of 1993, taxed on a solicitor and client basis.

Assessment of Damages Recoverable by the Nicholsons

The Nicholsons’ liability to National Australia Bank as at 21 November 1991 was $35,932.16.  That amount was paid by Citibank at settlement.

The Nicholsons’ situation differs from that of the Pirrottas in that the Nicholsons’ liability to National Australia Bank was a truly personal liability which had nothing to do with the company.  Put another way, the Nicholsons personally benefited from the loan from National Australia Bank.  Had the Citibank transaction not occurred they would have continued to make monthly repayments to discharge the loan out of their own resources.

It follows that if the Nicholsons were to be paid damages representing the balance due to Citibank, or one half of the balance due to Citibank, without any further adjustment, they would be better off than they should be.  This is because their obligation on the loan from National Australia Bank was extinguished by Citibank.  If in turn, the Nicholsons’ liability arising from their guarantee of SSAI’s obligation to repay Citibank is effectively extinguished by the recovery of damages from Olson & Co and Ballantyne, they would be better off to the extent of the present value of the discharge in 1991 of their loan obligation to National Australia Bank.

So that there is no doubt that the Nicholsons must bring into account in the assessment of damages an amount which makes allowance for the benefit which they have derived by reason of the extinction of their personal liability to National Australia Bank.

Various approaches to the quantification of the allowance to be made in that regard were suggested during the course of argument.

I have been assisted by calculations prepared by Mr Plummer.

The Nicholsons’ indebtedness to National Australia Bank in fact arose in two accounts.  One was a home loan at a relatively low interest rate commencing with an advance of $24,436.27 on 6 August 1990.  The other was a separate advance of $13,286 as at the same date, which was lent at a higher rate of interest and for a shorter term.  That related to the purchase of a car.

Monthly repayments on the home loan amounted to $301 and on the loan for the car $262 per month.

On the basis of Mr Plummer’s calculations, which have not been challenged, if regular payments had continued on the home loan to 12 January 1998, the amount then due would have been $14,148.99.

If regular payments had been maintained on the car loan, it would have been paid out in full by July 1996.

Based on Mr Plummer’s evidence, Mrs Simpson submitted that if the loans had continued after 21 November 1991, their liability was:

$
Amount owed at 21.11.91  35,932.16
Interest on both loans from 21.11.91                   14,509.28
Amount still outstanding as at 12.1.98:
         (on the home loan)  14,148.99
  $64,590.43
  =======

There are other possible methods of approach.  In one sense one could say that the liability of the Nicholsons as it stood at 21 November 1991, but valued as of today, equals the monthly repayments due on both loans to date, together with the balance now due.

If a calculation were to be made on that basis, it would proceed along the following lines.

$
86 payments of $301  =             25,886.00
70 payments at $262  =             18,340.00
Balance now due (on home loan)     =             14,148.99
  58,374.99
   =======

Both of those approaches suffer from the fact that they are based on a situation which in fact has not occurred.  The Nicholsons have in fact not incurred any interest on the amount which was due to National Australia Bank as of 21 November 1991, and neither have they been liable to make any monthly repayments to National Australia Bank after that date, although for the purposes of the calculation of this adjustment, an assumption of regular periodic repayment must arguably be made.

Of course, part of the repayments made by SSAI to Citibank should notionally be attributed to the servicing of the amount advanced by Citibank to pay out National Australia Bank.  The payments made by SSAI to Citibank, excluding the proceeds of the sale of Ms Passaniti’s property, totalled $94,121.31.

But that has operated to reduce the amount due on the loan made by Citibank as of today, which in turn reduces the liability of the Nicholsons on the guarantee.

There is no exact method of calculation of the amount which should be brought into account by the Nicholsons to reflect the benefit which they have gained from the discharge of their liability to National Australia Bank, looking at the situation as of today.

After considerable reflection, I have reached the view that the appropriate approach is that suggested by Mr Strawbridge for the Nicholsons.  That is simply to allow the amount for which the National Australia Bank loan was paid out in November 1991, that is, approximately $36,000.

There is a further adjustment to be made.

On 3 August 1990 the Nicholsons, with others, guaranteed an advance from the State Bank to SSAI Agencies of $60,000.

Shortly after that, on 17 October 1990, the Nicholsons and others executed another guarantee.  That was in place of the earlier one, and was for an amount of $100,000.  The Nicholsons secured their obligations under that guarantee with a second mortgage to State Bank.

On settlement of the transaction with Citibank on 21 November 1991, the second mortgage was also discharged, as was the indebtedness due to State Bank.  I have already referred to the fact that SSAI’s indebtedness to State Bank, paid out as part of the settlement with Citibank, was approximately $105,000.

What this suggested adjustment comes down to is an allowance for the risk which the Nicholsons were exposed to as at November 1991, that they might be called upon at some time thereafter to make a payment on the guarantee of SSAI’s indebtedness to State Bank.

For the reasons which I have already given, the viability of the future trading operation of SSAI as at November 1991 was questionable.  We know that in fact its trading operations ceased soon thereafter.  It did, however, manage to repay to Citibank $94,000-odd dollars.  The modest injection of capital which followed from the making of the loan by Citibank was obtained at considerable cost, having regard to the total liability which it assumed ($260,000) to obtain a mere $30,000 in its hands.

State Bank was unwilling to lend it any further money, which is why SSAI approached Citibank in the first place.  Of course, if the Citibank loan had not been made, given the thirst by SSAI for an injection of working capital, it no doubt would have made approaches to other financiers.

So that there are all sorts of possibilities, which make any allowance on this head speculative indeed.

The other guarantors on the guarantee executed on 17 October 1990 apart from the Nicholsons, were Mr and Mrs Sharma, Francis and Alide Passaniti, Angelo Passaniti and Mr Soman.  Although Angelo Passaniti has been declared bankrupt, that was relatively recently.  There is no evidence as to the financial position of the other guarantors.

In all the circumstances, I do not think that it would be right to assess the risk of the Nicholsons being called upon to pay something with respect to that guarantee in other than a relatively nominal, modest figure.  I would allow $5,000 on that head.

Mr Strawbridge submitted that a further refinement should be made in calculating the adjustment to be brought into account against the Nicholsons.

He referred to evidence from Mrs Nicholson to the effect that she did not receive any remuneration from SSAI for her work with the company after November 1991 and before its trading operations ceased, as it was agreed that any entitlement to wages or salary would be offset against the benefit she and her husband derived from the taking over by SSAI of their indebtedness to National Australia Bank.

On the whole of the evidence, which on this topic is fragmentary and unsatisfactory, and is unsupported by any company records, I am not prepared to accept that any such understanding was reached.

In the result, the assessment of damages against the Nicholsons will proceed on the following basis:

$ ( A - B    2 - (D + E) )

where:

Ais the total indebtedness to Citibank;

Bis the total of the costs payable under the costs orders already made in favour of Citibank, which are the subject of the Bullock order;

D=      36,000

E=      5,000

Conclusion

The final quantification of the damages recoverable by both the Pirrottas and the Nicholsons from Olson & Co and Ballantyne must await the decision of the Full Court on the appeal to that court.

I should say that, once quantified, I will direct payment of the assessed damages into court.  One reason for that course is that the rights of Citibank must be preserved, as they will clearly be the ultimate recipient of the moneys.

However, Citibank has no money judgment at this stage.  But given the acknowledged indebtedness of the Pirrottas and the Nicholsons to Citibank, it would be absurd to suggest that Citibank should proceed to obtain a money judgment against them, before payment out is effected.

In order for the total indebtedness of Citibank to be discharged, it is obvious that the Pirrottas and the Nicholsons will have to make up the amount of the adjustments which I have allowed against them in the working out of the assessment of damages.  If they both do so, no problem will arise.  In the final result, they would each then have answered to one half of the total of indebtedness due to Citibank.  That result would be equitable as between the Pirrottas and the Nicholsons, given their position as solvent co-guarantors.

But a disparity could arise if, for example, neither of them made up the difference represented by those adjustments and Citibank was minded to realise on its securities against only one couple.

For those reasons, the amounts of the damages will be ordered to be paid into court in order to give to me, so far as is possible, the ability to maintain a position of equality between the Pirrottas and the Nicholsons.

At this stage, given my inability to arrive at final figures, the assessment will have to be in the form of a declaration.

I order and declare that in each case, the assessment of damages be calculated on the following basis:

As to the Pirrottas:

$ ( A - B     2 - C + F )

As to the Nicholsons:

$ ( A - B    2 - (D + E) )

where:

Ais the total indebtedness to Citibank;

Bis the total of the costs payable under the costs orders already made in favour of Citibank, which are the subject of the Bullock order;

Cis 15,000;

Dis 36,000;

Eis 5,000;

Fis the amount of the costs incurred by the Pirrottas in defending action 2260 of 1993, taxed on a solicitor and client basis.

I will hear the parties as to the form of the order, and as to the question of the costs of the hearing of the assessment of damages.