Corrado v La Starza - [2016] SADC 45

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
CORRADO v LA STARZA
[2016] SADC 45
Judgment of His Honour Judge Tilmouth
26 April 2016
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - FORMATION OF CONTRACTUAL RELATIONS - CONTRACT IMPLIED FROM CONDUCT OF PARTIES
Claims for the recovery of loans upheld on the merits.
Limitations of Actions Act 1936 (SA) s 35(a); Supreme and District Court Civil Rules 2006 (SA) DCR6 181(1) and (2), referred to.

CORRADO v LA STARZA
[2016] SADC 45
The proceedings

Nicola Corrado and the defendant John La Starza were the best of friends. Together they conducted a crash repair business, Reckezane Pty Ltd, from premises at 376 Magill Road, Kensington Park. The plaintiff, Mr Corrado’s widow, brings these proceedings to enforce loans she claims to have made to Mr La Starza initially for the purpose of keeping the business afloat. For the reasons to follow, her action must succeed.
Reckezane Insurance Structure
An aspect of their business arrangements was that Mr Corrado and Mr La Starza entered into mutual death, trauma and disablement insurance policies as a means of self protection against adverse personal contingencies in the business. The effect of such arrangements was that if one became unable to continue in the business, benefits of the insurance policy of the outgoing partner were available to cover the purchase of his interest in it by the other.
Tragically Mr Corrado died of leukaemia in January 2003. The diagnosis of leukaemia in 2001 led to an insurance payout of $430,264, in around late 2001 to Mr Corrado. The Magill Road property was owned jointly through a Trust arrangement. It was agreed on both sides that the combined business and property were worth $686,861, or $343,430.50 each. This meant that Mr Corrado as ‘Outgoing Proprietor’ received from the insurance money a surplus of $86,834 over the amount required for the acquisition of his share in the business by Mr La Starza.
Although an agreement, entitled ‘Buy/Sell Option Agreement’ remained in draft form unexecuted, it is common ground that the parties conducted their affairs as if it was.[1] Each insurance policy was in identical terms and for a sum not less than the market value of their combined interests in the business and in the real property from which it was run. It was further understood that neither were entitled to any interest in the other’s policy. The essence of the arrangements are best captured by the recitals B and C therein.[2]
BThe Original Proprietors wish to provide for purchase of the Outgoing Proprietor’s Interest in the business by the Continuing Proprietors upon the occurrence of the events specified in this Agreement.
CThe Original Proprietors also wish to provide funding, through life insurance, for the purchase of the Outgoing Proprietor’s Interest.
[1] T120.23-121.3.
[2] Exhibit D3.
The terms by which one was to dispose of his interest to the other is found in Clause 6(2) of the Buy/Sell Option Agreement drafted by their solicitor in January 1998.[3]
[3]    Exhibit D3.
Payment of Purchase Price
6      (1) …
(2)     Where, pursuant to Clause 11, the Outgoing Proprietor or its Primary Proprietor (if any) was required to maintain a Policy on the life of its Principal, the proceeds of which would be payable upon the occurrence of the Option Event relevant to an option or options, the Purchase Price payable under sub-clause (1) in respect of such option or options shall be reduced by the value of the proceeds paid or deemed under Clause 11(1)(e) to have been paid, under such Policy. Where the value of the proceeds is greater than the applicable Purchase Price or Purchase Prices, the Purchase Price or Purchase Prices shall be zero. Where the value of the proceeds is less than the applicable Purchase Price or Purchase Prices, the reduction shall be apportioned:
(a)between the Purchase Prices of the Outgoing Proprietor and its Primary Proprietor (if applicable) in proportion to those respective Purchase Prices; and
(b)in respect of the Purchase Price of the Interests of each of the Outgoing Proprietor and the Primary Proprietor (if applicable), between the Continuing Proprietors in respect of each Purchase Price on the same basis as the apportionment in respect of the relevant Interest for the purposes of the Put Options and Call Options under Clauses 2(3) and (4).
Clause 12 provided:
12.No interests in the Policies referred to in Clause 11 belonging to any Proprietor other than the Proprietor which effects and maintains each individual Policy shall be created or deemed to be created by any provision of this Agreement.
In his letter to both men of 29 November 2001, the solicitor wrote:[4]
[4]    Exhibit P3, ‘Nick’ is Mr Corrado.
For your information, I enclose a copy of the draft agreement. The terms of the original draft agreement have now been varied in the following respects:
1.   The agreement covers your interest in Reckezane Pty Ltd and the property at 376 Magill Road (collectively referred to as the “business”).
2.   The purchase price is $343,430.50 being one half share of the agreed valuation of $686,861.00 calculated as follows:
(a)Reckezane Pty Ltd as per letter from accountant dated 15/11/1               $151,861.00
(b)376 Magill Road as per letter from accountant dated 15/10/1           $535,000.00
$686,861.00
÷ 2
$343,430.50
3.   The trauma sum insured is $430,264.00. This leaves a surplus of $86,834.00, which is to be retained by Nick after the payment of all costs and expenses.
Post dissolution events
The business had fallen into financial difficulties in the period immediately before Mr Corrado’s death during which Mr La Starza became unwell himself.[5] That he approached Mr Corrado’s widow (the plaintiff) seeking an advance of $50,000 to put into the business is not in doubt. There is no doubting he received the $50,000 by cheque on 12 December 2003, or that it was made out to and banked into the trading account of Reckezane Pty Ltd and used for the purposes of operating its business.[6] Mrs Corrado now sues for the recovery of this advance which it is claimed was made by way of loan. The defence case is that it was a gift to the Company.
[5] T49.34-.38, T85.20-.23, T86.18-.24.
[6] Exhibits P4 and P5.
Mrs Corrado further sues Mr La Starza for three further cash loans totalling $23,000, made between mid July and late 2004. The source of this cash monies was originally her Uncle George Valente. He left it with her for safe-keeping for distribution upon his death, equally to her and her two siblings. These advances are simply denied by the defendant.[7]
[7] T48.28-.31.
The original statement of claim alleged eight additional loans were made between August 2004 and the middle of December 2005, all by way of cash advances totalling $36,200. This aspect of the claim was abandoned on the first day of the trial, there being no corroboration or evidence in writing. The total claim therefore now amounts to $73,000.
No statutory bar applies to either set of loans since this is an action founded on ‘simple contract’, for which proceedings must be issued ‘within six years next after the cause of action accrued’: s 35(a) Limitations of Actions Act 1936 (SA). These causes of action accrued when Mr La Starza received his insurance monies in 2009, on the basis of his promise to repay when that occurred.
Evidence of the plaintiff
The evidence of Mrs Corrado was that she was approached by Mr La Starza in about November 2003 initially by telephone. He claimed to be ‘in deep shit’, that the business was ‘going down’ and that he needed to borrow $50,000.[8] The earlier references to Mr La Starza’s version of events confirms that this was the case. He led her to understand that ‘once he got his insurance money he was going to pay me back straight away.[9]
[8] T30.3-30.9.
[9] T31.20-31.23.
She thereupon consulted her financial adviser, Mr Blackmore, at his office in the CBD of Adelaide. A meeting between the three was arranged in the first week of December when this proposal was discussed and during which he advised her to formalise the arrangement in writing.[10] Mr Blackmore gave evidence confirming this meeting and that the defendant came to his office, although he produced no note of the same, and only met him on this one occasion.[11] He confirmed his advice was firmly against proceeding.[12]
[10] T31.26-.31.
[11] T61.19-61.27.
[12] T61.35-61.38.
Despite Mr Blackmore’s advice that she should not enter into the loan and despite his additional advice that it should be recorded in formal documents, she made the advance on an informal basis. She did so because of the nature of the close relationship between Mr La Starza and her late husband, and as she ‘trusted him with all my heart’.[13] There was no discussion with respect to interest.[14]
[13] T31.30.26-32.1.
[14] T32.2-.3.
Her evidence was that she understood the loan was made personally, despite the payee endorsement in her own handwriting on the cheque to the business as requested by Mr La Starza and that she would not have lent the money to the Company itself.[15]
[15] T31.35-.37, T36.28-37.13.
As to the balance of the alleged second series of cash loans, her Uncle a bachelor, approached her in the middle of 2004 with the $23,000 in cash, all in denominations of $100. He instructed her ‘When I pass away, this is to be split up between you and your two siblings’.[16] She lodged the cash in a safe at home. The manner of distribution on the contingency of his death was written out by him on notepaper in his own hand, and counter-signed by Mrs Corrado and also by her father, the witness Altomare.[17] Mr Altomare gave evidence supporting her account of these events, that he was present and witnessed the handwritten note as it was made by his brother-in-law and in entrusting the cash in the way suggested by her.[18] Mr Valente died in March 2014.
[16] T38.29-.31.
[17] Exhibit P6.
[18] T78.18-80.4.
Mrs Corrado’s evidence was that in July 2004 she was again approached by Mr La Starza, who again claimed to be in financial trouble. He urged upon her that he needed money to pay people urgently ‘you need to help me I’m in trouble and this can only be done in cash’.[19] This entreaty led her to take $7,500 of the cash from the safe and to hand it to him, on the express promise ‘When I get my insurance money, I promise I will pay you back’.[20]
[19] T40.27-40.38.
[20] T41.19-41.23.
Not longer than three months later he visited her at home ‘very stressed out’ in desperate need of money, claiming that ‘his life is at stake and so is my children’s.’[21] She thereupon made a further cash advance from the safe of $10,000. She told him at the time that ‘I needed it to be paid back’ to which she was reassured ‘trust me - I will pay you back when I get my insurance money’.[22] Some three or four months later, he came to her home for a fourth time claiming a need to ‘pay off some loan sharks and to pay off some people that he had got into trouble with’ and so she handed him the remainder of her Uncle’s cash from the safe.[23]
[21] T41.34-41.38.
[22] T42.5-42.10.
[23] T42.16-42.34.
Over the years since then, Mrs Corrado refrained from enforcing repayment on the basis of Mr La Starza’s continued reassurances that she would be repaid. The point came in 2005 when Mr La Starza’s father visited her stating that she was ‘not to loan John anymore money without his permission’.[24] At some point Mr La Starza told her he had received an insurance payout, but when confronted with when she was ‘going to get paid’, he claimed to have ‘no money left’.[25] Eventually she instructed Mr Blackmore to issue a letter of demand, which was dated 9 September 2011.[26] Proceedings were instituted on 30 November 2012.
[24] T43.9-43.10.
[25] T43.26-43.33.
[26] Exhibit P7.
Evidence of the defendant
For his part Mr La Starza gave evidence there was no such meeting with Mr Blackmore, and that he did not even know him.[27] He accepted the circumstances of the initial approach to Mrs Corrado because the business was in financial difficulties, in large part due to the fact that Mr Corrado could no longer contribute to it and that he spent much of his time assisting Mr Corrado in his final days.[28] He denied any discussions as to repayment or about expecting to receive insurance money.[29]
[27] T106.10-106.21 and see his cross-examination of Mr Blackmore at T64.14-66.29..
[28] T85.29-86.6.
[29] T86.9-86.24.
Mr La Starza’s initial position boiled down to the understanding that he was entitled to the surplus of $86,430.50 from the insurance payout received by Mr Corrado. He said in evidence, by way of illustration:[30]
I did gift my $86,000 and then I spent a bit of time with my best mate and I went back to work and got 50 back – there was no misunderstanding there was any repayment of any loans it wasn’t a loan, it was just like a gift back but verbal.
[30] T90.8-90.22. Like statements to the effect that the surplus was a gift from him occur at T17.15-.19, T20.15-.17, T96.28-.33, T103.34-.37.
A number of times he resorted to the letter of 29 November 2001 from Electroserve’s solicitor Mr Pearce in material part quoted above, referring to the surplus of $86,834 in order to support this contention. At another point he claimed recalling Mr Corrado saying ‘Give him the money back if he needs it …’.[31]
A variant of this position was added during his evidence:[32]
… the surplus – was like a reverse loan policies, became – from my understanding, it triggered my insurance policy so I could pay out the party.
[31] T49.16-.20.
[32] T90.29-90.32.
A third variant of his case came when Mr La Starza claimed the business insurance broker Mr Anderson spoke to him and Mr Corrado, in effect, assuring him this was the nature of the arrangement.[33] Much later, he said this on the latter subject during what was supposed to be final submissions:[34]
MR LA STARZA: I didn’t receive it in my hands but Tim Anderson come up to me and said ‘What would you like to do? There’s a surplus amount of X amount of dollars and it’s like –‘, he made he understand as if it was a policy that was triggered because it was mine because I got paid out the share the way this policy was set up and he goes – I said ‘What do you mean, why is there a surplus?’. He goes ‘It’s just the way it’s worked out between the two parties’, whether it was his age, I don’t know the exact reason. He said ‘There’s two things you can do. You can keep it or gift it’. I said ‘Can you explain to me about the gift, what does that mean?’, and he told me ‘Because of the sick party, you know, maybe a couple of other firms have just gifted it to the other side’, but that’s why I don’t understand that you guys are looking into the policies and trying to decide how they work when you know there’s a -
[33] T69.10-.15, T90.33-91.1, T91.20-.34, T92.23-.28, T93.2-.11, T98.34-99.10.
[34] T174.2-174.18.
As a consequence Mr La Starza was given liberty to subpoena Mr Anderson, who later gave evidence on the topic denying any such discussion or arrangement. That evidence is examined later.
Analysis of the competing evidence of the parties
It is not possible to accept the evidence of Mr La Starza for a myriad of reasons, quite apart from the differing and confusing basis upon which he puts his case. In the first place, it simply makes no sense for Mr Corrado to have gifted such a large sum, in his dying days at the relatively young age of 33, leaving a widow with two young children then aged three years and five months to care for. Secondly, the contemporaneous letter of 29 November 2001 to which he referred for support, spells out the exact opposite to that for which he contends. Thirdly, it was not Mr La Starza’s insurance claim that triggered the mutual arrangements, it was Mr Corrado’s. Fourthly, his understanding was contrary to the express terms of the Buy/Sell undertaking referred to earlier.
More significantly, his stance is completely at odds with the evidence not just of Mr Blackmore, but also that of the financial advisor Mr Anderson. The nub of Mr Anderson’s evidence is best understood in the following exchanges with Mr La Starza:
QWhy are the numbers the same on this paper.
AWhen the original policies were taken out there were policies taken out on each life, that were associated with the buy-sell agreement, the buy-sell agreement was then triggered through the illness of Nick Corrado and the settlement was completed with Gary Pearce associated with the buy-sell agreement. John La Starza kept his policies paid after that date and kept them going for many years. I brought a claim for John on a personal basis and that claim was settled with the insurer in 2009.
QSo this amount that I have been paid, 465, you are saying it’s not the buy-sell agreement amount.
ACorrect.
QWhat is it for.
AYour personal insurance.
HIS HONOUR
QOn the happening of what event.
ATotal and permanent disablement for a mental health issue.[35]
[35] T190.32-191.13.
…
QSo the sum they were both insured for was the same.
AYes. There was a valuation done on the business and the property, which you are referring to, and that was divided by 2. The insurance proceeds was to fund that amount so you then retained 100% of the property on 336 Magill Road and the company Reckezane Pty Ltd. The surplus proceeds that you are referring to were over and above the requirements of the agreement, because on your insurance policy over the years the CPI indexation. That increases the sum insured. This was discussed at the meeting where yourself, your spouse, your ex-spouse Carmela, the late Nick Corrado and Marta Corrado were present and with the document you have, it was discussed regarding the surplus claim proceeds were retained by the estate or the exiting party of the agreement. That was left with you and Nick and your respective spouses to do. We had a further discussion on 8/11/2001 where this was further discussed and brought to your attention, there was sufficient and surplus funds. Then on 12/11/2001, both yourself and the late Nick Corrado contacted me, and provided me with instructions that you have agreed and settled on the share purchase agreement and the surplus proceeds were to be retained by the late Nick Corrado.[36]
[36] T195.2-195.25.
…
QWhat you’ve said now is exactly what I was told, so I don’t understand. That’s exactly what I was told, that we instructed you to swing the surplus funds to Nick’s estate. That’s what you just said.
ACan you repeat that?
QWhat you said was you got a phone call from me and Nick saying the surplus amount was to go to Nick, that’s what me and Nick discussed, that’s what I think this whole little period is what you’ve just said, so I don’t understand why you said you had nothing to do with the surplus.
AYou were talking about the surplus of $86,834, you’re referring to I had nothing to do with that. That figure was a surplus of the insurance proceeds over and above the valuation, your share of the valuation of the business, so I had nothing to do with the valuation of the business, I had nothing to do with the valuation of the property, that was between yourself, the late Nick Corrado and your accountant. Is that clear?[37]
…
QDid we instruct you to put the surplus to Nick’s account.
AMaybe if I could assist you: the surplus proceeds were discussed at the meeting on 30/10/2001 where the four of you were present, as I repeat myself, and the surplus proceeds were discussed then to be retained by your business partner and friend, Nick Corrado.[38]
[37] T196.4-196.22.
[38] T198.2-198.8.

It became very clear in later exchanges that Mr La Starza was utterly confused between Mr Corrado’s insurance entitlements, which were in fact settled years earlier in 2001, and those related to him which were not in fact settled until 2009.[39]
[39] T199.10-199.20, T199.33-200.9.
Documents tendered through Mr Anderson under cross-examination, conclusively prove that Mr La Starza received payments for a total and permanent disablement claim on 27 January 2009 and 11 March 2009 of something in the order of $700,000, and that the disablement was taken to commence on 27 March 2003,[40] quite apart from admissions to that effect contained in paragraph 7.1 of his second defence.
[40] Exhibit D12.
Apart from the above matters, the evidence of Mrs Corrado is supported by the objective facts, that the business had fallen into financial difficulty, that Mr La Starza had become unwell and that he had been expecting an insurance benefit at least from 27 March 2003.
The evidence of Mr La Starza’s ex-wife embodied in her Statutory Declaration,[41] to the effect that Mr Anderson discussed with both parties who ‘agreed that Nick should be gifted the surplus’, must equally be rejected for similar reasons, especially given the letter of 29 November 2001 was sent after that alleged discussion and that it is inconsistent with that course of events.[42]
[41] Exhibit D11, T132.6-132.25.
[42] Exhibit D3.
So far as the suggestion that the loan was for the business and not for Mr La Starza is concerned, the evidence of Mrs Corrado explains why her cheque was made out to the business. Having the advice not to proceed was one thing, whilst entering into an arrangement in which it was inherently less likely she might not be repaid since the business was financial trouble, is quite another. As she had promises from an old friend whom she implicitly trusted to repay, and as he clearly had expectations of receiving large sums under insurance policies, the only proper construction of the facts was that the loan must have been a personal one.
The second cash loans of $23,000.
So far as the combined loans of $23,000 sourced from the Uncle’s cash in safe-keeping is concerned, there is no reason to doubt the evidence of Mrs Corrado, particularly given that the objective circumstances gave every reason for Mr La Starza to be in continuing need of loans. Her evidence of the existence of the cash is of course corroborated in documentary and oral testimonial forms.
Although it is necessary to be cautious about such arrangements in the highly unusual circumstances, there is no reason to disbelieve the plaintiff upon her evidence about those loans. The defendant’s bare denial cannot suffice in light of the adverse conclusions as to his general credibility and reliability in respect of the first loan.
Nothing written herein should be construed as compromising Mrs Corrado’s obligation as Trustee of the $23,000, to account to her Uncle’s estate in the first place, and to her siblings in the second. It is unnecessary to determine the precise nature of the trust, because she was clearly under a fiduciary duty to account for the money according to her Uncle’s wishes on any view of the facts, and because nothing less than a bare trust was erected in the circumstances.
Conclusion and Orders
In the result there will be judgment in favour of Mrs Corrado in respect of the first loan of $50,000, and in the sum of $23,000 in respect of the further three cash loans.
There is an outstanding issue as to the reasonable ‘loss or expense incurred’ by Mr Anderson in responding to the subpoena, as provided for in DCR6, 181(1) and (2) of the Supreme and District Court Civil Rules 2006 (SA), to consider. The parties should be heard with respect to the issues of interest and costs.