Cosenza & Denco Holdings Pty Ltd v Tigani & Annatom Pty Ltd
[2005] SADC 63
•7 June 2005
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
COSENZA & DENCO HOLDINGS PTY LTD v TIGANI & ANNATOM PTY LTD
Judgment of His Honour Judge Kitchen
7 June 2005
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - PARTIES
Contract of loan – first plaintiff (C) named as lender – prior discussions with borrower and guarantor that a corporation (second plaintiff) to be incorporated by C would participate in the venture, of which a loan to borrower was part – whether loan moneys provided by corporation – whether contract of loan should be rectified to substitute corporation as the lender. Economic duress – whether party was coerced to execute contract of loan.
GUARANTEE AND INDEMNITY - THE CONTRACT OF GUARANTEE - CONSTRUCTION AND EFFECT
Guarantee referred to undefined term “transaction document” – held: to be read as “transaction”, a defined term. Consideration – guarantee provided that given for stated consideration – whether stated consideration provided; guarantee executed as a deed – whether guarantee enforceable if stated consideration known by parties to be non-existent.
Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336; Crane v Hegeman-Harris Co Inc (1939) 1 All ER 662; Iarriccio & Others v Lai Investments Pty Ltd (SA Full Court judgment no. 54, 24 February 2003 (unreported)); Smorgan v ANZ Banking Group Ltd (1976) 134 CLR 457; Crescendo Management Pty Ltd v Westpac Banking Corporation (1998) 19 NSWLR 40; Universe Tankships Inc of Monrovia v International Transport Workers Federation (1983) 1 AC 366; Barton v Armstrong [1976] AC 104; Maskell v Horner (1915) 3 KB 106; Pao On v Lau Yiu Long [1980] AC 614; Ankar Pty Ltd v National Westminster Finance (Aust) Ltd (1987) 70 ALR 641; Reid Murray v David Murray (1972) 5 SASR 386; Equuscorp Pty Ltd v Jimenez & Ors (2001) SASC 165 (22 May 2001, unreported); Dockside Holdings v Rakio (2001) SASC 78, considered.
COSENZA & DENCO HOLDINGS PTY LTD v TIGANI & ANNATOM PTY LTD
[2005] SADC 63
By the originating proceeding (as amended) in this action, the plaintiffs claimed to enforce a guarantee, allegedly given by the defendants, for the repayment of a loan made on 21 December 1998 to Kingsford Olives Pty Ltd (Kingsford Olives) by the first-named plaintiff (to whom I will refer as Mr Cosenza) or alternatively by the second-named plaintiff (to which I will refer as Denco Holdings).
In the course of the first day of the trial, counsel for the plaintiff informed the court that Mr Cosenza had been adjudged a bankrupt on 12 December 2003 upon his own petition. The trial was adjourned to a subsequent date; when it resumed a notice of discontinuance of Mr Cosenza’s claim was filed by Mr Cosenza’s trustee in bankruptcy. The trial continued as an action by Denco Holdings only.
Some matters are not in dispute. I will relate them in narrative form as an introduction to these reasons.
Introduction
The first-named defendant (to whom I will refer as Mr Tigani) and Mr Cosenza had been acquainted for many years prior to the year 1998. Mr Tigani, either personally or by way of a corporation that he controlled, conducted a travel agency in Adelaide. In the early part of 1998 Mr Tigani promoted a project to grow olives on land, near Pinnaroo, which was to be acquired from Mr Tigani’s parents, and to market the production of olive oil. The structure of the project, which contemplated the obtaining of grower investors, ultimately took the form of that set out in Exhibit D4 at page 6.
In brief, the land at Pinnaroo was to be acquired by Kingsford Nominees Pty Ltd and leased to Kingsford Olives, which would manage groves of olives sub-leased in five hectare parcels to grower investors in the project and sell the production of oil to Kingsford Olives Distributors Pty Ltd for marketing under the brand name Antinori.
A number of Italian private companies operated under the name Antinori Group based in Italy. Alessio Lanfaloni (Mr Lanfaloni) was the founder and principal of that Group which had long-established interests in Europe in the olive oil industry.
In about June 1998 Mr Tigani led a group of persons on a tour to attend the World Cup Soccer series in France. Part way through that tour Mr Cosenza joined the group. In conversations with Mr Tigani, Mr Cosenza learned of the proposed olive oil project to be established near Pinnaroo and that Mr Tigani, while he was in Europe, intended to visit Mr Lanfaloni for discussions about the project.
In about August 1998 Mr Tigani, who conducted a restaurant in North Adelaide, but was contemplating entering the travel industry, contacted Mr Tigani with a view to investing in Mr Tigani’s tour group operations. Mr Tigani informed him he was reviewing his involvement in the travel industry but inquired of Mr Cosenza whether he was interested in investing, and participating, in the olive oil project. Mr Cosenza said he was interested and over the following weeks there were meetings between them, sometimes with their respective accountants, Carlo De Pizzol (Mr De Pizzol) and Ralph Tortorella (Mr Tortorella), which culminated on 21 December 1998 in the execution of a written agreement called the loan agreement (Exhibit P1, document 1) the named parties to which are Mr Cosenza called the lender, Kingsford Olives called the borrower and the second defendant Annatom Pty Ltd (Annatom) called the guarantor. Annatom was, and is, a company controlled by Mr Tigani and, as I understand, his wife Anna.
By the terms of the loan agreement, $150,000 was lent to Kingsford Olives at an interest rate of 7% per annum the repayment of which, on the terms provided for in the document, was guaranteed by Annatom.
The discussions which preceded the loan agreement, and the circumstances in which it was prepared and executed, were the subject of evidence by Messrs Cosenza, Tigani, De Pizzol and Tortorella. I will return to consider their evidence later in these reasons on the issue of who was the lender, Mr Cosenza or Denco Holdings, but there is no dispute that the sum of $150,000 was lent to Kingsford Olives, was received by it on the date of the agreement and that in the annual general ledger of Kingsford Olives to June 1999 (Exhibit P1, document 3) the sum of $150,000 is shown as a loan from Denco Holdings. Denco Holdings’ case as pleaded is that it was the lender on the terms of the agreement. The defendants’ case is that Mr Cosenza did not lend any moneys to Kingsford Olives, on the terms of the loan agreement or otherwise; the defendants say that the lender was Denco Holdings, on 21 December 1998, but not pursuant to the loan agreement and in particular there was no guarantee given by Annatom for the repayment of the loan, either as provided in the loan agreement or otherwise.
The defendants’ case is, also, that Annatom executed the loan agreement under “economic duress”.
For reasons which can be briefly summarised to have been an objection by third parties to Council approval for the use of the Pinnaroo land to grow olive trees, Kingsford Olives (as I understand) became embroiled in proceedings, before the Environment, Resources and Development Court, which severely delayed the implementation of the olive oil project and led to the Lanfaloni interests serving a statutory demand upon Kingsford Olives for moneys owed to the Lanfaloni interests. Faced with the possibility of liquidation, the directors of Kingsford Olives, who included Mr Tigani and Mr Cosenza, the latter of whom had been appointed on 30 November 1998, resolved on 11 May 2001 to appoint an administrator. On 7 June 2001 a scheme of arrangement was proposed to a meeting of creditors. Immediately prior to that meeting being held, Mr Cosenza procured from Annatom the execution of a document headed “Deed of Arrangement” (Exhibit P1, document 4) and on the following day, 8 June 2001 (although it bears both that date and the date 28 June 2001) the execution by Mr Tigani of a document headed “Acknowledgement”. By the first document:
“DEED OF ARRANGEMENT
7/6/2001
I, DEAN COSENZA, do hereby agree to allow TOM TIGANI and ANNATOM PTY LTD sixty (60) days as from the date of signing this document to repay the amount of $150,000 plus accrued interest of 7% per annum from 1/11/98.
If payment does not occur, then upon the funding of the project DENCO HOLDINGS PTY LTD will be entitled to a 50% shareholding of KINGSFORD OLIVES PTY LTD once Mr Lanfaloni and/or ANTINORI PTY LTD ceases being a shareholder with the remaining 50% to go to ANNATOM PTY LTD. (This option is voidable at the option of Dean Cosenza).
Signed:
Dean Cosenza
Signed:
Tom Tigani for and on behalf of Annatom Pty Ltd.”
And by the second document:
“ACKNOWLEDGEMENT
8/6/2001
I, TOM TIGANI, do hereby acknowledge that as at 1/6/2001 the amount owing to DEAN COSENZA and/or DENCO HOLDINGS as per loan agreement inclusive of interest and costs accrued is
$190,000$183,000.Any further amounts will be calculated as from 1/6/2001.
I also further indemnify DEAN COSENZA and/or DENCO HOLDINGS from any further claim, loss and costs that may be incurred as at 1/6/2001.
Signed:
Tom Tigani
Witness:
28/6/2001.”
The scheme of arrangement put by Kingsford Olives was accepted by the vote of its creditors, one of which was Denco Holdings. It is Denco Holdings’ case that its affirmative vote was cast only after the Deed of Arrangement document was executed by Annatom, and on the condition that the repayment of the loan of $150,000, plus accrued interest, would be guaranteed by both Mr Tigani and Annatom.
The affirmative vote of creditors for the scheme of company arrangement had to be given effect to by Kingsford Olives executing, by no later than 28 June 2001, the Deed of Company Arrangement proposed at that meeting. On 28 June 2001, Mr Tigani and Annatom executed a Deed of Guarantee and Indemnity (Exhibit P1, document 6) which was prepared by solicitors engaged by Mr Cosenza. It is Denco Holdings’ case that by the terms of that document, in consideration of Denco Holdings agreeing to vote in favour of the Deed of Company Arrangement proposed by Kingsford Olives, Mr Tigani and Annatom guaranteed repayment of the loan made to Kingsford Olives. Mr Cosenza’s evidence is that he refused to execute the Deed of Company Arrangement (as a director of Kingsford Olives) until the Guarantee and Indemnity was executed by Mr Tigani and by Annatom. Upon the Guarantee and Indemnity being executed Mr Cosenza and Mr Tigani, as director and secretary respectively of Kingsford Olives, signed the Deed of Company Arrangement on 28 June 2001.
As to the Deed of Guarantee and Indemnity the defendants’ case is that by its terms it purported to guarantee the “loan transaction” (as defined in that Deed) between the plaintiffs and Kingsford Olives, that there was no such transaction as defined and, in the alternative if there was such a transaction, the Deed “is void for uncertainty and/or the failure of the consideration on which it was granted”.
The Deed of Company Arrangement provided that a fund was to be made available by Mr Tigani sufficient to pay the costs of administration and five cents in the dollar to creditors other than Annatom, Denco Holdings, Mr Tigani and another named corporate creditor; failing the provision of that fund within three months the Deed terminated. It appears (Exhibit P1, document 8) the fund was not provided and the Deed terminated on 28 September 2001. On a subsequent date, Kingsford Olives went into liquidation.
I interpolate here that Mr Cosenza frankly admitted to committing a serious offence against Mr Tigani’s brother for which he was sentenced to an unsuspended term of imprisonment in July 2001. It is submitted, by the defendants, that this fact should give the Court reason to consider whether Mr Cosenza harboured some feelings toward Mr Tigani rendering his evidence unreliable. No such suggestion was pressed upon Mr Cosenza. In any event, the commission of the offence might be reason for Mr Tigani’s evidence to be coloured by resentment, but nothing of the kind was put to Mr Tigani. I ignore the criminal incident, and the consequences to Mr Cosenza, as a factor to which regard might be had in assessing either Mr Cosenza or Mr Tigani as witnesses.
There is the matter of Mr Cosenza’s bankruptcy. He admitted that on 11 December 2003, the day before he presented his own petition for the sequestration of his estate and he was made a bankrupt, he assigned to a man I will identify only as Mr GS “for valuable consideration” his interest “in all loans and guarantees” the subject matter of these proceedings (Exhibit D6). He was taken (in cross-examination) to the statement of affairs filed in relation to his bankruptcy. Preparatory to his being asked questions concerning the assignment and the statement of affairs, he was informed of his right to refuse to answer questions which might incriminate him of a serious offence. He, substantially, exercised that right. The significance of my reference to these matters is that it is apparent Mr Cosenza was of the view, on the date of the assignment, that he had a proprietory interest in the loan and the guarantee the subject matter of this action.
The loan agreement
Mr Cosenza’s evidence is that his conversation with Mr Tigani in August 1998 concerning Mr Cosenza’s involvement in the olive oil project resulted in there being a number of discussions between them which contemplated Mr Cosenza acquiring a 20% interest in the project in exchange for a loan of $150,000 to Kingsford Olives, the loan to be repaid within six months when the first stage of the project was opened for investment by the public which was to occur upon the sub-division of the land at Pinnaroo to be acquired by Kingsford Nominees. Part of the project proposed an agreement with the Antinori Group that it purchase the whole of the production of olive oil. Mr Cosenza said that in his discussions with Mr Tigani he made clear his concerns, and stipulated, to ensure that an agreement with the Antinori Group was “documented”, and that the project had clear title to the Pinnaroo land “and if there wasn’t a clean title being issued within six months, that I on behalf of Denco Holdings upon demand was entitled to recall the loan with interest that was accrued up to that stage”. Mr Cosenza’s evidence is that Mr Tigani agreed with those stipulations and also offered Annatom as a guarantor for the repayment of the loan in the event title to the land at Pinnaroo, or a contract with Antinori for the sale and purchase of olive oil, was not procured. He also said that Mr Tigani offered his personal guarantee, but he declined it as being unnecessary at that stage.
Mr Cosenza said that he had told Mr Tigani “all along” that the “investor or the loan holder” to the project “was going to be an associated company and ultimately once those details had been finalised I would make him aware of those”.
Denco Holdings was incorporated on 1 December 1998. Mr Cosenza was its first, and sole, director and secretary on incorporation, and he was the beneficial holder of the only two shares issued by it. Mr Cosenza said the proposed loan arrangement with Kingsford Olives was the sole purpose for incorporating Denco Holdings, and he “ believed” he told Mr Tigani of the existence of the company a few days before the loan agreement was signed.
The loan agreement (Exhibit P1, document 1) was executed on 21 December 1998. After identifying (in clause 1) the parties to it, as I earlier described them, and (in clause 2) setting out definitions of various phrases used, it provides:
“3. LOAN AMOUNT:
It is hereby agreed that the Lender will lend to the Borrower a Principal amount of $150,000 subject to the terms and conditions set out in Clause 4 of this agreement.
4. TERMS AND CONDITIONS:
4.1The first condition is that the land title for the sub-division of Section 20 Hundred of Kingsford needs to be issued on or before the Effective Date [1 June 1999].
4.2If the event in clause 4.1 does not occur and the title is not issued then this agreement will become voidable subject to the Lender’s discretion.
4.3If this agreement becomes voidable then the Borrower will be liable to repay the Lender the Principal Amount plus interest at the Interest Rate shown in Schedule A attached to this agreement. [$150,000 with interest at 7% per annum.]
4.4Annatom Pty Ltd (ACN 071671577) will act as Guarantor for the Borrower and will be liable for the Principal Amount plus interest on the Principal Amount if the Borrower fails to pay the Lender in full if Clause 4.3 applies.
4.5If the Lender is to be repaid then the payment must be made by bank cheque within thirty days from the Effective Date. The Lender will have the discretion to change the terms of payment if the Principal plus interest is not paid within the thirty days after the Effective Date.
Executed as an agreement.”
The loan agreement was prepared by Mr Tortorella, Mr Tigani’s accountant. Mr Cosenza’s evidence is that it was prepared on the day it was signed and it was signed in Mr Tortorella’s office. The loan agreement makes no mention of the existence of a contract for the purchase of olive oil being a term or condition of the loan. In cross-examination Mr Cosenza said that about one week before the loan agreement was signed he was informed by Mr Tigani an agreement for the sale of olive oil had been “ratified” and it was about that time he decided to commit to the project, although he had earlier indicated to Mr Tigani that he would do so.
As I have said, the loan agreement identifies the lender to be Mr Cosenza. Mr Cosenza’s evidence is that at the time the loan agreement was signed, Mr De Pizzol, who was present at the signing and signed as a witness to its execution, provided a cheque for $150,000 payable to Kingsford Olives drawn on Mr De Pizzol’s trust account against funds Mr De Pizzol had received from Mr Cosenza. He (Mr Cosenza) said the payment by cheque was made on behalf of Denco Holdings and there was no discussion between him and Mr Tigani “about changing any of the terms” of the loan agreement; “The terms of the agreement were effectively – with the same terms of the agreement that we had agreed to prior. There was no change. It was just a matter of Denco being the lender.” (T25/26) It is not disputed that Denco Holdings was allotted shares in Kingsford Olives and each of the other Kingsford companies.
In cross-examination Mr Cosenza said that shortly before the day the loan agreement was signed Mr Tigani told him that he (Mr Cosenza) had been appointed a director of the Kingsford companies including Kingsford Olives, an appointment of which Mr Cosenza said he had no knowledge before Mr Tigani informed him to that effect.
Mr Cosenza was pressed in cross-examination about how it was that he signed the loan agreement in which he is identified as the lender.
“QSo at the time the agreement was signed Denco Holdings had been incorporated for some three weeks.
AYes.
QDo you agree.
AYes.
QYou say that the loan was to be made by Denco, yet you were happy to sign an agreement that said the loan was going to be made by yourself, is that the effect of it.
ANo, it’s not, it was the loan – the agreement was signed on the basis that Denco was going to be the lender.
QThis isn’t the first document that you’ve signed in your lifetime, is it.
ANo, it’s not.
QWould you consider yourself as an experienced businessman at the time you signed this document.
AObviously not experienced enough, but yes.
QSo you’re saying that you knew that the document said that you, Dean Cosenza, was going to be the lender, it was quite clear to you at least that the lender was going to be Denco Holdings, yet you signed the document without making any amendment to it.
AAs I say, it was always the intentions, it was always expressed that the moneys were to be advanced by Denco and that has always been reflected in all the company balance sheets. (T88)
…
QOn the day that this document was given, in fact at the time that this document was given to you, did you say to anybody, in particular to Tom Tigani or to his accountant, ‘Look, you have got here Dean Cosenza is the lender, in fact it is my company, in fact it is Denco Holdings’, did you say anything like that to Tom Tigani or his accountant.
AAlways it was expressed that it was the company.
HIS HONOUR
QNo, can you answer the question.
AI’m sorry, could you repeat that?
LAST QUESTION READ BY REPORTER
AI can’t recall.
QDo you recall saying anything at all to correct the situation of the lender prior to you signing the document, did you say to anybody at all ‘Look, I am signing this but we should change this to Denco’ or something like that.
AThe only thing I can say is that it was always expressed, even at the time of signing that it was going to be the company that was going to be the lender.
QSo you didn’t say, at the time that you are signing the document, you are saying words to the effect of ‘Look, I am signing an agreement that Denco is lending the money’, is that wrong, is that what you are saying.
AI didn’t say that it was wrong, no, but I did say that it was – it was always expressed and acknowledged it was going to be the company that was going to be the lender, that was always said and regularly said.
QLet’s forget about what was always said but let’s concentrate about what was said at the time that the agreement was signed. Did you, from the time you received the document to the time you signed the document, make Tom Tigani or his accountant, if he was present, aware of the fact that you were signing this document which said you would personally agree to lend the money but in fact that is not what you were going to do, the money was going to be lent by Denco.
AYes.
QWhat did you say.
AThat it was the company that was going to lend the money.
QWhen did you say that.
AIt was said during the build up to the signing of the agreement and it was also said on the day.
QSo it was said on the day of signing the agreement.
AYes, that the company was going to lend the moneys.
QWas it said on the day of the signing of the agreement prior to the agreement being signed or some time later.
AI’m not sure, I can’t answer that.
QI put it to you that the situation was that you didn’t tell anybody that it was going to be Denco that lent the money until you actually handed over the cheque, which was towards the end of the day.
AThat is not true. (T90/92)
…
QBetween the time of receiving the document and the time of signing it, what conversation took place between you and Tom Tigani and between you and Ralph Tortorella.
AI can’t answer that, I have no idea, I can’t recall.
QYou have got no recollection of it all, is that the situation.
AYou asked specifics between reading a document and signing a document, I can’t answer that, I have no idea.
QYou have got no idea of what you said during that period of time.
ASpecifically I can’t.
QWell –
AGenerally, yes. There was discussions about – it was mentioned that the moneys were to be – and it was always expressed and understood that the moneys were to be advanced on behalf of the company.
QThis was specifically said by you between the time that you read the document or were reading the document and the time that you signed it; is that you evidence.
AYes.
QYou say you said this to Tom Tigani.
AYes, and it was always expressed on numerous occasions.” (T93)
The signatures of Mr Tigani and Mrs Anna Tigani appear in the loan agreement alongside the impression of the common seal of Annatom. Mr Cosenza said that Mrs Tigani was not present when all the other persons signed the loan agreement, and that she came to Mr Tortorella’s office later in the day and signed the agreement. Mr Cosenza rejected the suggestion that Mr Tigani took the loan agreement to Mrs Tigani at premises in nearby Currie Street where she was working, she signed it and some hours later he and Mr Tigani met when he (Mr Cosenza) handed to Mr Tigani the cheque for $150,000 drawn by Mr De Pizzol, saying “This is a payment from Denco Holdings”. He denied that in November, or the beginning of December, 1998 he told Mr Tigani that the shares in the Kingsford companies were to be issued to Denco Holdings, but the loan of $150,000 was to be made by him personally.
Mr De Pizzol’s evidence is that in the second half of the year 1998 Mr Cosenza, for whom he had provided accounting services for (as I infer) many years, consulted him for advice concerning the Kingsford Olives project involving an investment of $150,000. He was instructed to incorporate a company, and establish a discretionary trust with the company as trustee, to be used as the vehicle to make the investment into the project. He arranged for the incorporation of Denco Holdings on 1 December 1998.
Mr De Pizzol said he attended a number of meetings with Messrs Cosenza, Tigani and Tortorella, before 21 December 1998, concerning the Kingsford Olives project during which he “believed” the topic that a company would be used, by Mr Cosenza, to invest in the project was discussed, and the same topic was also discussed at the meeting on 21 December 1998 between the same persons at Mr Tortorella’s office. As to that meeting Mr De Pizzol said he had with him a cheque for $150,000 payable to Kingsford Olives drawn on the trust account of his firm, Carvon & Co, against funds in that account which he had received from Mr Cosenza “on behalf of Denco Holdings” over a period of about two months before that date and he handed the cheque to Mr Tigani. He said Denco Holdings had only recently been incorporated and a bank account for it had not been established. At the meeting he signed the loan agreement as witness to the signatures appearing on it except that of Mrs Tigani; in cross-examination he said he did not meet or see Mrs Tigani on this day and he believed her signature was not on the agreement when he signed it.
In cross-examination Mr De Pizzol said he thought the meeting on 21 December 1998, as with most meetings concerning the Kingsford Olives project, was after 5.00 pm but on being shown Kingsford Olives’ bank statement (Exhibit P1, document 2) which records the credit to that account of $150,000 on 21 December 1998, he agreed the meeting could have been earlier that day. He said he saw the loan agreement for the first time at the meeting on 21 December 1998, read it before Mr Cosenza signed it and noticed that Mr Cosenza was identified as the lender. Asked whether he said anything concerning that there was this exchange:
“ALook, we didn’t really think it was much of a problem. I think Mr Tigani was more concerned about getting the funds and probably at that point of time when the document was being – whoever prepared it, we believe that the offices of Bowman Manser, they may not have known that Denco Holdings at that point of time was going to be the structure. I can’t remember.
QWas there any discussion about who the lender was actually going to be on that day, not at other times.
AI cannot remember.
QSo is it the situation that you read that the lender was Dean Cosenza, you may have drawn your own conclusions, in fact, you let your client sign as Dean Cosenza.
AYes, I did.
QDid you draw to his attention that it was Dean Cosenza and not Denco.
AI would have but I believe he was the sole trustee to the company Denco Holdings Pty Ltd, so I didn’t believe it to be a problem.
QIt didn’t seem to be a problem to you, you read Dean Cosenza and Denco as more or less the same thing.
ASame thing.
QDo you recall whether anything was said by Dean Cosenza about the particular topic of the lender on the day the document was signed.
AI don’t recall.
QYou didn’t hear Dean Cosenza say, for example, ‘Look, this is a loan by Denco Holdings even though it’s written up as Dean Cosenza’ or something along those lines.
ADon’t recall. (T145/146)
…
QIs it the situation in fact that you assumed Tom Tigani and Ralph Tortorella knew the full extent of how Dean Cosenza intended to set things up without physically knowing that they had heard this to be the case. In other words, weren’t you making some assumptions as to the knowledge of Tom Tigani and his accountant.
ANo, I believe they knew that a company and trust had been set up for the investment.
QWhere does your belief come from.
AVarious meetings. We were having meetings nearly every week at the offices of Bowman Manser prior to 21 December ’98.
QYes and.
AAnd it was discussed that a structure would have been set up. Whether it was Denco Holdings, I don’t know. The reason why we came to this meeting on 21 December ’98 was because Mr Cosenza had a concern that before he would put $150,000 into this investment, there was a concern because the property was still in Mr Tigani’s father’s name or family’s name and we wanted some sort of a surety that that would happen beforehand.
QThat was actually the focus of your concerns, wasn’t it.
AYes, it was.
QAre you able to pinpoint any meeting at all or any conversation at all prior to 21 December 1998 at which you either told Tom Tigani and/or his accountant or at which you heard Tom Tigani and/or his accountant discuss the matter, namely that the 150,000 was to be a loan from Denco Holdings Pty Ltd, not the other investments, but that you specifically heard say the 150,000 will be lent by Denco Holdings.
ANo, I don’t.” (T147/148)
The cheque book stub (Exhibit P8) for the cheque drawn by Mr De Pizzol on his firm’s trust account records that the cheque was payable to Kingsford Olives “for (Dean Cosenza)”, not for Denco Holdings; Mr De Pizzol explained:
“AI can. Our trust account – we have got to prepare a ledger, our trust account is audited by another accountant yearly, so what would have happened is whoever was doing the bookkeeping for that, for the trust account, would have needed to know which client it was in relation to.
QHave you finished.
ANo, the reason being deposits would have been put in by Dean Cosenza, then we would have a reflecting amount leaving that trust account. So it was basically to make it easier for the book-keeper to understand the transaction.
QDoes you trust account run a transfer journal. Do you have a transfer journal in your trust account.
AI’ve got to understand what your terminology –
QLet me explain, you say that you received the money from Dean Cosenza.
ACorrect.
QYou say the money was paid out by Denco Holdings, and you say there was a loan from Dean Cosenza to Denco Holdings, wouldn’t your trust account then have a page which reflects the transfer of the funds from Dean Cosenza to Denco Holdings.
ANo, it wouldn’t.” (T150)
Mr De Pizzol was asked whether it was proper and not uncommon for an individual, who had promoted the establishment of a family trust, to personally lend money to an entity to acquire shares in that entity, but direct or require the shares to be issued in the name of the family trust. He said
“Whether it’s a proper way, probably – I don’t know whether it’s a proper way, it can still be done is what I’m saying. I don’t see any difference whether the money came directly from Dean Cosenza or whether it came from Denco Holdings Pty Ltd as trustee for Denco trust, I don’t see the relevance. I can’t see any difference in that.” (T142)
In his evidence Mr Tigani explained that an element of the Kingsford Olives project was that the lenders to the project would obtain 20% of the shares in each of the three companies (Kingsford Olives, Kingsford Nominees and Kingsford Olives Distributors) for $150,000 lent.
“… It was anticipated that all loans made to the company would be recalled (sic) once a prospectus had commenced, which was predicated to be on 1 July of 99. The moneys would come back from Kingsford Olives Pty Ltd”.
He said he told Mr Cosenza at the meeting in August 1998:
“… like other directors we were loaning the company $150,000 and that upon the sale of the prospectus each of the directors would get their loan accounts settled.”
He said the lenders to the project (at the time of that meeting as I understood his evidence) were, or were to be, his company, Annatom, and Mr Lanfaloni’s company, Antinori Pty Ltd, to each of which shares were to be issued in the Kingsford companies.
Mr Tigani said that in late October 1998 there were several meetings between him and Mr Cosenza, attended by Mr De Pizzol and Mr Tortorella, “and I asked (Mr Cosenza) several questions of whether he was in or out and he basically said to me he was in”; Mr Tigani said he understood that on 30 November 1998 Mr Cosenza “was actually made a director and his company was made a shareholder”. He said he was not aware Denco Holdings was incorporated on 1 December 1998:
“ANo, I am not, but I was told that he had - because he was doing all this with Ralph, he wasn’t doing it with me personally, and through his accountant, but I was aware he had a company ready to go and Ralph was processing it.
QSo you didn’t have any actual knowledge that the company was in existence, you just heard it was going to be; is that the situation.
AI assumed it was all being done.” (T159-160)
Mr Tigani’s evidence is that he was told by Mr Cosenza “everything would be finalised by the end of November” but in the first few days of December 1998 Mr Cosenza spoke of “problems with his wife … and he mentioned the idea that he would be putting funds into it in his own name … and then he asked for us to have a meeting with Ralph (Mr Tortorella)”. Mr Tigani described that “arrangements” had been made for the prospectus “and huge expense” had been incurred for “machinery and committing ourselves to land and advertising and all these sorts of things”. He said there was a meeting with Mr Tortorella to “draft the loan agreement – we put all the points to (Mr Tortorella) most of it being dictated on the terms by (Mr Cosenza). (Mr Tortorella) quickly was putting it on the computer and gave (Mr Cosenza) a copy.” He said that in the first few days of December, and after Mr Cosenza had been appointed a director, Mr Cosenza first raised with him the giving of a guarantee by Annatom for the repayment of the loan to Kingsford Olives. As to that stipulation Mr Tigani said “It was a bit late. I was a bit casual because I had known (Mr Cosenza) for years … so I was pretty casual in the way we did things with him”. It is also Mr Tigani’s evidence that lending money to Kingsford Olives at 7% interest had not, to his recollection, been discussed between him and Mr Cosenza before the meeting with Mr Tortorella; he said his view was that he could not find an investor to replace Mr Cosenza “We were under a bit of pressure … so we agreed to his terms”.
Mr Tigani said the document, the loan agreement, which Mr Tortorella prepared – he implied it was in the early part of December – was taken by Mr Cosenza and brought by him to the meeting held on 21 December 1998 at Mr Tortorella’s office. “We sat down and discussed the terms of this agreement; it was to be in the name of Dean, he wanted myself and Annatom to secure it. As I said, at the time I didn’t have a problem.” When the document was signed by him and Mr Cosenza, Mr De Pizzol witnessed their signatures. He said that he then took the document to Mrs Tigani’s work place, she signed it, and he left it at Kingsford Olives’ office after telephoning Mr Cosenza to arrange to meet him there at about 3.00 pm. He said the cheque for $150,000 was not given to him by Mr De Pizzol at the meeting in Mr Tortorella’s office, but to Mr Cosenza and was brought by Mr Cosenza to the meeting arranged at 3.00 pm who handed it to him saying it was “on behalf of Denco”; Mr Tigani said he responded “that’s fine” and he banked the cheque later that afternoon. He rejected Mr Cosenza said anything about the terms on which the cheque was handed to him.
In cross-examination Mr Tigani re-stated his evidence that he was present with Mr Cosenza when the loan agreement document was prepared by Mr Tortorella. He said he knew the terms of the document, that he was not “terribly concerned about the contents” and that he had no concerns about signing it “because all the companies had loaned money to the company, and the prospectus was to pay the company loans around about early July” (T189-190). Mr Tigani was taken to the Defence filed by the defendants which pleads (para 2.1) that the loan agreement was entered into by Annatom “under economic duress and as a consequence of a misrepresentation by (Mr Cosenza) and is thereby void and/or unenforceable”. To the suggestion that he was under no duress to sign the loan agreement he said “The only duress was that Dean hadn’t come up with the dollars. Investment needed to go on and we were under pressure to conform with what he wanted … the duress was that Dean was supposed to have financed this thing by 1 December. Then later on after he was made a director of the company or whatever, he comes and tells me that the only way he’s going to fund this is giving (sic) a guarantee”. As to the allegation that Mr Cosenza misrepresented the loan agreement as embodying oral terms previously agreed between him and Mr Cosenza, Mr Tigani said “The situation was that Dean, at that time, wanted to invest the money himself. What actually happened at the end was that Denco invested the money and that’s how I see it differs” (T195).
Mr Tortorella, in his evidence, spoke of there being a number of meetings between him and Messrs Cosenza and Tigani, in relation to the project, over a period of time preceding a meeting with them at his office which he thought probably occurred in the week before Christmas 1998; at that meeting, he said, “We were putting some terms and conditions down in the agreement. Obviously Mr Cosenza wanted certain things in there to make sure the fund recorded an interest term, and a couple of other things as well”, and he prepared on his computer a “word document loan agreement” – he identified it to be Exhibit P1, document 1 – which he asked Messrs Cosenza and Tigani to take away with them. He understood Mr Cosenza was going to see his accountant. He arranged a meeting at his office on 21 December 1998 for the parties to come together to sign the agreement. He said the meeting on that day, which Mr De Pizzol attended, was at about 8.00 am, but he (Mr Tortorella) needed to attend to other matters and in consequence there were times when he was not present at the meeting; he said he did not see a cheque pass between the persons at the meeting – he agreed that could have occurred at a time he was absent from the room where the meeting was being held.
Mr Tortorella said he first learned of Denco Holdings when he received a facsimile from Mr De Pizzol identifying the company as that which was to hold the shares in the project, that is shares in each of the three Kingsford companies. He did not say when the facsimile was received. Except that Mr Tigani understood the shares were issued to Denco Holdings on 30 November 1998, there is no other evidence as to when Denco Holdings became a shareholder in the Kingsford companies. There was no challenge to Mr Tigani’s understanding on that matter, so I infer that Mr Tortorella and Mr Tigani were both aware of an entity named Denco Holdings even though it was not incorporated until 1 December 1998.
Mr Tortorella’s evidence is that during the meeting on 21 December 1998 there was no discussion that Denco Holdings was to be the lender to Kingsford Olives, and not Mr Cosenza. Taken to the bank statement of Kingsford Olives (Exhibit P1, document 2) and the annual general ledger of that company (Exhibit P1, document 3) Mr Tortorella said the handwritten name “Dean” against the credit of $150,000 into the account of Kingsford Olives on 21 December 1998, was written by him, well after June 1999, when he was preparing the annual general ledger as part of the task to prepare a draft of the ledger, and other documents, for the financial year to June 1999. Having prepared the draft, he said, “It was highlighted to me that the funds they want to be shown in those accounts were to be shown as a loan from Denco” and the final general ledger document (Exhibit P1, document 3) therefore records there being a loan of $150,000 from Denco Holdings on 21 December 1998.
I interpolate here that the loan agreement, where its purports to be executed by Kingston Olives, has affixed the common seal not of that company but of Kingston Olives Distributors. However, no party to this dispute adverted to that fact, there is no dispute that Kingston Olives was lent $150,000 on 21 December 1998 and the loan agreement identifies the borrower as Kingsford Olives. It is to be inferred that the wrong common seal was inadvertently affixed. The error, however, indicates the lack of appropriate attention by those involved in the events culminating on 21 December 1998.
Mrs Tigani was not called, so what she might have said concerning when and where she signed the loan agreement is not known. No reason was advanced for not calling Mrs Tigani. I infer that her evidence would not have assisted the defendants.
Mr Cosenza became decidedly unsure when pressed about the sequence of events on 21 December 1998 concerning his evidence of the timing of Mrs Tigani’s visit to Mr Tortorella’s office on that day in relation to the signing of the loan agreement and Mr De Pizzol handing the cheque to Mr Tigani. Mr De Pizzol was firm in his evidence that Mrs Tigani did not attend the meeting, that he did not see her sign the loan agreement and that he did not hand the cheque to Mr Cosenza to (as it was suggested to him in cross-examination) await the formal execution of the agreement by Mrs Tigani. I accept Mr De Pizzol’s evidence that on 21 December 1998 he may well have believed that Mr Tigani alone was authorised to witness the affixation of the common seal of Annatom to the loan agreement and therefore no additional signatory was required.
Mr Tigani’s evidence to the effect that Mr Cosenza told him that the loan of $150,000 to Kingsford Olives was to be made by him (Mr Cosenza) personally because of problems with his wife was not put to Mr Cosenza. It is the fact that Denco Holdings was incorporated on 1 December 1998. Mr Tigani said that he was aware in the first few days of December 1998 that Mr Cosenza “had a company ready to go”, which was being “processed”, the other lenders were, or were to be, Annatom and Antinori Pty Ltd, associated with Mr Tigani and Mr Lanfaloni respectively, and Mr De Pizzol’s evidence is that in what he described as weekly meetings with Messrs Cosenza, Tigani and Tortorella prior to the loan agreement being signed, the setting up of a “structure” (for Mr Cosenza) was discussed.
Mr Tortorella said his “understanding” was that the loan to Kingsford Olives was to be made by Mr Cosenza, and he prepared the loan agreement accordingly; however, as I find, the other participants in the meetings before the preparation of that agreement knew, or in the case of Mr Tigani he was aware, that an intended participant in the project was to be a company associated with Mr Cosenza.
The Deed of Arrangement and the Acknowledgement
I have set out earlier in these reasons the terms of these documents.
Mr Cosenza’s evidence is that in about January 2001 a statutory demand was made upon Kingsford Olives for the payment of moneys allegedly owed to, what I will call, the Lanfaloni interests. Mr Cosenza said he was concerned about the olive oil project, the failure to pay in response to the statutory demand, and he wanted to be paid the $150,000 lent to Kingsford Olives, the repayment of which he said he had demanded in February 2001. He related that Mr Tigani approached him with a proposal to put Kingsford Olives into voluntary administration stating that he had someone else who would take up the Lanfaloni investment, or the olive oil purchase arrangement. Being, he said, convinced by Mr Tigani that the project could still proceed he agreed to the appointment of an administrator, which occurred on 11 May 2001. Between the date of that appointment and a meeting of creditors, Mr Cosenza said, he spoke with Mr Tigani concerning an arrangement that in the event that Lanfaloni and Antinori Pty Ltd ceased to be a shareholder, Denco Holdings and Annatom would each obtain 50% of the shares in Kingsford Olives, that there would be an acknowledgement of the amount outstanding on the loan made (in December 1998) to Kingsford Olives and the provision of guarantees by Mr Tigani and Annatom concerning that loan, all in exchange for his assistance by voting for an arrangement to be proposed at the forthcoming meeting of the creditors of Kingsford Olives on 7 June 2001. Mr Cosenza said he prepared and typed the two documents headed “Deed of Arrangement” and “Acknowledgement” respectively; he said he could not remember why the Deed of Arrangement stated that interest was to accrue from 1 November 1998.
I note that, by the first document, time was given to Mr Tigani and Annatom for the repayment of the $150,000 loan. That implies Mr Tigani was obligated, by some means, to answer for the loan. As to that Mr Cosenza said his solicitors prepared the document titled Deed of Guarantee and Indemnity upon which Denco Holdings principally relies in this action.
The Deed of Guarantee and Indemnity
Mr Cosenza said that this document (which for brevity I will refer to as the guarantee) was prepared as part of the agreement which was reached between him and Mr Tigani before the meeting of creditors of Kingsford Olives to be held on 7 June 2001. It was prepared, he said, by his solicitors a couple of days after his instructions to them. His evidence (in cross examination) is that when the guarantee was prepared, he gave it to Mr Tigani on 9 or 10 June 2001, a matter of days after the meeting of creditors held on 7 June 2001, when they met at the corner of King William Street and Franklin Street in Mr Tigani’s motor vehicle where, for almost an hour, “we had discussed the terms of the guarantee. He (Mr Tigani) said he would - I provided him a copy of that and he was going to have it effected and signed by himself and his wife and have it returned immediately or forthwith” (T116); he said he and Mr Tigani each had a copy of the guarantee and they read it together, that Mr Tigani said he would speak to his solicitor about it and “if there was any problem, fine, let me know”.
Mr Cosenza said that on the morning of 28 June 2001 he was sitting for an examination; he received a message on his telephone from Mr Tigani to the effect that he (Mr Cosenza) had to go to the offices of Kingsford Olives’ administrator to sign the Deed of Company Arrangement, before the close of business on that day, or Kingsford Olives would go into liquidation. He said he told Mr Tigani, who was on his farm at Pinnaroo, the guarantee had to be signed before he would execute the Deed of Company Arrangement and they agreed to meet at the administrator’s office. He related that Mr Tigani, en route from Pinnaroo, contacted him, informed him Mrs Tigani could not be at the administrator’s office that afternoon and “was it ok to have her signature and her approval on the guarantees provided at home that evening; and I did agree to that”. He said he met Mr Tigani at the administrator’s office, Mr Tigani signed the guarantee, both he and Mr Tigani signed the Deed of Company Arrangement and later in the day, at the Tigani’s house in Highbury, at about 7.30 pm, Mr & Mrs Tigani signed the guarantee and affixed the common seal of Annatom.
Each of the guarantee and the Deed of Company Arrangement is dated 28 June 2001.
Mr Tigani’s evidence concerning the documents deed of arrangement, acknowledgement and guarantee, is that a few days before the creditors’ meeting on 7 June 2001, Mr Cosenza wanted from him an assurance that the “loan account” to Kingsford Olives was secure, that he (Mr Cosenza) would not be responsible for any ongoing expenses if he were to vote in favour of the proposal to be put at the meeting and he wanted payment within 60 days, failing which he wanted 50% of the shares in “the company”; then, he said, on the day before the creditors’ meeting Mr Cosenza “came with a piece of paper basically showing me acknowledgement (sic) that the company was owing him, I think at that time the interest was about 190, which we corrected it and worked out to be 183” (T170). He said he recalled signing the acknowledgement. On the next day, 7 June 2001, the date of the creditors’ meeting, he said he and Mr Cosenza, in Mr Tortorella’s presence, discussed the Deed of Arrangement (Exhibit P1, document 4), went through it, he signed it, Mr Tortorella witnessed his signature, they all attended the creditors’ meeting and he then went to his office where his wife signed the document and Annatom’s common seal was affixed to it. He said Mr Cosenza came to his office (later I infer) and took the document away.
It is plain, and Mr Tigani acknowledged, that the creditors’ meeting he spoke of in the context of the signing of the documents called Deed of Arrangement and Acknowledgement was the second meeting of the creditors of Kingsford Olives, held on 7 June 2001, the meeting at which the creditors resolved that the company execute the Deed of Company Arrangement; recital D to the deed states the creditors’ meeting (the second) was held on that date and that such a resolution was passed.
Mr Tigani said that around about 28 June 2001, between 7.00 am and 8.00 am, he received a telephone call from Mr Cosenza who told him “he had formulated our deed of arrangement between Denco and the parties and that he needed it to be signed”. He told Mr Cosenza he would not be home until 10.00 pm. He said he telephoned his wife to bring home the company seal. Mr Cosenza then came to his house at about 10.30 pm, said he had formulated the deed of arrangement, placed “this” document on the coffee table and turned to the pages of the document that had to be signed; “I didn’t question it because I was confident that is what it was, plus I was a bit tired at the moment”. The document was signed and Mr Cosenza left the house stating he would see Mr Tigani at the meeting “tomorrow”. Mr Tigani identified the document to be the guarantee.
The next day, Mr Tigani said, he and Mr Cosenza signed the Deed of Company Arrangement at the administrator’s office; that day was clearly 28 June 2001, the date of the deed which the administrator also signed. Mr Tigani agreed that the deed was signed on the last day it could be signed to give effect to it.
Mr Tigani rejected Mr Cosenza’s account of when the guarantee was handed to him and the events and circumstances in which it was signed. For his part Mr Cosenza rejected Mr Tigani’s version of events concerning the guarantee and its execution.
Mr Tigani signed the guarantee twice, once in his personal capacity and once, with Mrs Tigani, to the affixing of the Annatom common seal. Mrs Tigani was not called. I infer her evidence would not have assisted the defendants’ case.
There is a clear conflict between Mr Cosenza and Mr Tigani concerning what occurred at the execution of the loan agreement, the handing over of the cheque for $150,000 on 21 December 1998, and also the execution of the guarantee.
As to the guarantee, it bears the same date as the Kingsford Olives’ Deed of Company Arrangement. There is no dispute but that the latter was signed on the date it bears. The guarantee appears, in the definition of “Transaction”, to have been drawn on the footing that the meeting of creditors to vote on Kingsford Olives’ company arrangement was yet to be held - it refers to “a meeting of creditors of the Borrower to be held on 7 June 2001 at 11.30 am”, which implies the document was drafted before that date. That inferentially supports Mr Cosenza’s evidence that, having obtained Mr Tigani’s agreement that he and Annatom would guarantee the loan to Kingsford Olives in exchange for a vote in favour of the proposal to Kingsford Olives’ creditors on 7 June 2001, Mr Cosenza went to his solicitors to instruct them to prepare the guarantee. Both Mr Cosenza and Mr Tigani put the date of their discussions, about what Mr Cosenza wanted in exchange for his agreement to vote in favour of the proposal to Kingsford Olives’ creditors, to have been before 7 June 2001. I find that Mr Cosenza did approach his solicitors before that date, but the guarantee document was not ready until a few days after that date. As I observed earlier, the document called Deed of Arrangement, dated 7 June 2001, implies that Mr Tigani and Annatom had an obligation to pay the loan of $150,000; Mr Tigani, at least, had no such obligation unless he had agreed to enter into a guarantee as Mr Cosenza asserts, but Mr Tigani denies.
The document titled Deed of Arrangement was prepared by Mr Cosenza - it is cryptic and not clear as to each of the subject matters with which it appears to deal, but in my opinion, the giving of time to Mr Tigani to repay what is clearly the $150,000 loan to Kingsford Olives is explicable only on the basis that Mr Tigani (and Annatom) had agreed to guarantee the repayment of that loan in order to secure a favourable vote by Mr Cosenza, or his interests, at the creditors’ meeting. I find that Mr Tigani did agree that he and Annatom would guarantee the repayment of the loan.
Mr Tigani denies there was a meeting between him and Mr Cosenza, a few days after 7 June 2001, in Mr Tigani’s car in the city when a copy of the guarantee was given to him for execution by him and Annatom, and it was discussed. I prefer Mr Cosenza’s evidence. I consider it to be wholly unlikely that Mr Cosenza held the guarantee, prepared by his solicitors, and failed to tell or delayed telling Mr Tigani of it, or doing anything about it, until virtually the last moment that the Kingsford Olives’ deed could be executed to save that company from liquidation.
Against that finding, I return to the loan agreement.
The loan agreement bears an impression of the common seals of both Kingsford Olives (purportedly) and Annatom, the affixing of each of which is witnessed by Mr Tigani and, in the case of the latter seal, also by Mrs Tigani. I accept Mr De Pizzol’s evidence that Mrs Tigani’s signature did not appear on the document when he signed, but I infer, in the absence of any evidence to the contrary, that the seal of both companies had been stamped on the document by the time Mr De Pizzol signed it. Mr De Pizzol was firm in his evidence that he handed the cheque for $150,000 to Mr Tigani; Mr Cosenza said he saw that occur, and that at some later point (as he finally settled upon) Mrs Tigani came to Mr Tortorella’s office and signed the loan agreement. Mr De Pizzol did not see Mrs Tigani sign the document - he, as I accept, likely did not know her signature was required, which is consistent with him handing the cheque to Mr Tigani after Mr Tigani had signed the agreement. As I have said, Mrs Tigani was not called - I infer her evidence would not have assisted the defendants’ version of events, through Mr Tigani, on this issue. I prefer the evidence of Mr Cosenza and Mr De Pizzol as to when and where it was that the cheque was handed over.
Mr Cosenza asserts it was always his intention that Denco Holdings would be the lender to Kingsford Olives. That is inconsistent not only with the naming of him as the lender in the loan agreement, but also the acknowledgement document, the guarantee and the notice (Exhibit P2) dated 1 October 2002, addressed to Mr Tigani which opens:
“1.Thomas Tigani owes Denco Holdings and/or Dean Cosenza of GPO Box 1201, Adelaide 5001 (“the secured”) the amount of AUD 203,477 as at 1/10/2002. The total being of the amounts owed in respect of loan agreement dated 21/12/98 AND deed of guarantee and indemnity dated 28th June 2001”
and goes on, under the heading Schedule, to demand payment of the debt as that secured “pursuant to and particularised” by the guarantee. It is signed by Mr Cosenza as a director of Denco Holdings.
Except that Mr Cosenza spoke of advancing moneys for legal services relating to Kingsford Olives in or after 1999, a discussion about which between him and Mr Tigani resulted in the substituted figure appearing in the acknowledgement, the only financial transaction (be it a loan or otherwise) between the plaintiffs, or either of them, and Kingsford Olives was the loan of $150,000 on 21 December 1998.
I accept Mr De Pizzol’s evidence that the financial statements of Denco Holdings show a loan from Mr Cosenza to that company in the sum of $150,000 paid to Kingsford Olives on 21 December 1998, but that is not, in my view, determinative of Mr Cosenza’s intention on entering into the loan agreement.
Mr Tortorella said that (what I infer to have been a draft of) the loan agreement was handed by him to Mr Cosenza some few days before 21 December 1998; Mr Tigani said much the same thing. Mr Cosenza said that the loan agreement he signed was first produced at the meeting on 21 December 1998. I see no reason to not accept Mr Tortorella’s evidence that a copy of the proposed loan agreement was given to Mr Cosenza, some days before 21 December 1998, at the meeting between him and Messrs Cosenza and Tigani when he (Mr Tortorella) understood that Mr Cosenza was to be the lender. It is likely that Mr Cosenza had forgotten he was provided with a draft. Mr Cosenza said that he had not committed himself or Denco Holdings to enter into the transaction “until a few days before” 21 December 1998.
I have no doubt that in the early part of December 1998 Mr Tigani was aware Mr Cosenza had set up, or had in train the setting up of, a corporation for the purposes of the project; Mr Tigani may have been unclear what part the corporation was to play, but in my view it would not have surprised him were he to have learned that the lender was to be that corporation - he knew that both he and the Lanfaloni interests separately had corporations which were, or were to be, lenders to the project. Mr Cosenza said he told Mr Tigani that were he to commit to the project, a company would be the lender and the shareholder; however, by the time of the pre‑21 December 1998 meeting with Mr Tortorella, Mr Cosenza, I find, did not make that clear to Mr Tigani, or to Mr Tortorella who prepared the draft agreement on his understanding that Mr Cosenza was to be the lender.
In my view, it is more likely than not that Mr Cosenza, for whatever reason, either kept open until the last moment his options as to who would be the lender, or he failed to draw a distinction between himself and a corporation he controlled; as to the latter, Mr De Pizzol seems to have shared the same lack of insight, at least in respect of this particular transaction. However, whichever it be, I have come to the conclusion that by 21 December 1998 Mr Cosenza intended the lender to be Denco Holdings but, because of the focus of the parties on the terms of the agreement, nothing was said to that effect before the loan agreement was signed.
In the Statement of Claim Denco Holdings seeks rectification of the loan agreement to substitute its name for that of Mr Cosenza in the body of the document. Alternatively, it is submitted that the definition of “loan transaction” in the guarantee, when construed against the events which preceded that document, is wide enough to include the loan of $150,000 which the defendants admit was made by Denco Holdings on 21 December 1998 at an interest rate of 7% per annum, and repayable on demand.
Rectification may be granted where “the instrument sought to be rectified constitutes the only agreement between the parties, but does not reflect the common intention”; Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 at 350 per Mason J. It is not sufficient to show that the instrument does not represent the parties’ common intention “unless positively also one can show what the common intention was”; Crane v Hegeman-Harris Co. Inc. (1939) 1 All ER 662 at 665. Rectification cannot be ordered “unless all parties laboured under the same misapprehension as to the content of the instrument in which the parties had mistakenly expressed their agreement”; Iarriccio & Others v Lai Investments Pty Ltd (SA Full Court judgment no. 54, 24 February 2003 (unreported) Perry J).
I am not satisfied that all the parties to the loan agreement apprehended that the lender in that agreement was wrongly named, that is it should have been Denco Holdings and not Mr Cosenza.
In his closing address, counsel for Denco Holdings did not pursue the relief of rectification – he made no mention of that remedy. He also expressly disclaimed any reliance upon the concept of agency, that is that Mr Cosenza entered into the loan agreement as agent for an undisclosed Principal, namely Denco Holdings.
That being the case, namely there is no claim that Denco Holdings was a party to the loan agreement, it is strictly unnecessary to decide upon the allegation by Annatom that it entered into the agreement under economic duress and as a consequence of misrepresentation by Mr Cosenza. However, in case this matter goes further, I will deal with Annatom’s allegation of duress and misrepresentation. I will dispose of the latter first.
The only misrepresentation asserted by Mr Tigani concerning the loan agreement was that which I set out earlier in these reasons – it was to the effect that Mr Cosenza changed his position from wanting to personally invest in Kingsford Olives to the investor being Denco Holdings. That in my opinion is wholly incapable of founding the defence of misrepresentation, and I did not understand counsel for the defendants to submit otherwise.
On the issues of the alleged misrepresentation and economic duress, as with all issues in this case which turn on the state of mind of Annatom, I proceed on the basis of what in my view has emerged to be the fact, that is Mr Tigani was the mind and will of Annatom; Smorgan v Australia & New Zealand Banking Group Ltd (1976) 134 CLR 457 at 481 per Stephen J.
The basis of the defence of economic duress was stated by McHugh JA (with whom, it appears to me, Mahoney JA agreed) in Crescendo Management Pty Ltd v Westpac Banking Corporation (1998) 19 NSWLR 40 at 45/46 where his Honour said, citing Universe Tankships Inc of Monrovia v International Transport Workers Federation (1983) 1 AC 366.
“The rationale of the doctrine of economic duress is that the law will not give effect to an apparent consent which was induced by pressure exercised upon one party by another party when the law regards that pressure as illegitimate… The proper approach in my opinion is to ask whether any applied pressure induced the victim to enter into the contract and then ask whether that pressure went beyond what the law is prepared to countenance as legitimate? Pressure will be illegitimate if it consist of unlawful threats or amounts to unconsciounable conduct. But the categories are not closed. Even overwhelming pressure, not amounting to unconsciounable or, unlawful conduct, however, will not necessarily constitute economic duress.”
His Honour went on to refer to the following passage from the dissenting advice in Barton v Armstrong [1976] AC 104 (noting that it was said in a later case to be consistent with the majority advice)
“… in life, including the life of commerce and finance, many acts are done under pressure, sometimes overwhelming pressure, so that one can say that the actor had no choice but to act. Absence of choice in this sense does not negate consent in law; for this the pressure must be one of a kind which the law does not regard as legitimate. Thus, out of the various means by which consent may be obtained – advice, persuasion, influence, inducement, representation, commercial pressure – the law has come to select some which it will not accept as a reason for voluntary action; fraud, abuse of relation of confidence, undue influence, duress or coercion.”
However,
“… in a contractual situation commercial pressure is not enough. There must be present some factor ‘which could in law be regarded as coercion of his will so as to vitiate his consent.’ … In determining whether there was coercion of will such as that there was no true consent, it is material to inquire whether the person alleged to have been coerced did or did not protest; whether, at the time he was allegedly coerced into making the contract, he did or did not have an alternative course open to him such as an adequate legal remedy; whether he was independently advised; and whether after entering the contract he took steps to avoid it. All these matters are, as was recognised in Maskell v Horner (1915) 3 KB 106, relevant in determining whether he acted voluntarily or not.” Pao On v Lau Yiu Long [1980] AC 614 at 635.
It is not necessary for the victim to prove that the illegitimate pressure was the sole reason for him entering into the contract – it is sufficient if it was one of the reasons and “once the evidence establishes that the pressure exerted on the victim was illegitimate, the onus lies on the person applying the pressure to show that it made no contribution to the victim entering into the agreement; Crescendo’s case at page 46.
It is the case, I find, that at a point which Mr Tigani fixed to have been late in October 1998, Mr Cosenza “basically said to me he was in” as a participant in the venture and (either then or at some later time – it is not clear to me which it was) Mr Cosenza informed him everything “would be finalised by the end of November”.
Mr Cosenza’s evidence is that although he did not decided to commit to the project until about one week before the loan agreement was signed he had earlier indicated to Mr Tigani that he would do so.
It was in the early part of December 1998, Mr Tigani said, that Mr Cosenza first raised with him the matter of the guarantee being given by Annatom for the repayment of any loan to be made to Kingsford Olives; that was clearly many days before the meeting with Mr Tortorella when the loan agreement was drafted. The topic of the guarantee emerged “a bit late”, Mr Tigani said, but his attitude about it was casual (as he described it) because of his long-standing association with Mr Cosenza. There is no suggestion by Mr Tigani that he protested, or stated any reluctance, about giving the guarantee when it was first sought or at any time thereafter. He said his recollection is that the matter of interest being paid on the loan to Kingsford Olives was first discussed at the meeting with Mr Tortorella when the loan agreement was drafted, but as to interest and, it is likely, the matter of a guarantee he asserted his state of mind to be that those were agreed to because “we were under a bit of pressure”. There is no suggestion by Mr Tigani that he, by words or action, conveyed that to be a reason for agreeing to Mr Cosenza’s request; indeed his evidence is that as to the guarantee he told Mr Cosenza he “didn’t have a problem”. In cross-examination he elaborated upon the “bit of pressure” to be expensive arrangements concerning the prospectus and the “huge expense” incurred in relation to machinery, the Pinnaroo land and advertising. There is no evidence that that expenditure was made after Mr Cosenza indicated his commitment to the project, or if it was that Mr Cosenza knew about it.
It is the fact that it was not until the last (the third) version of the defendants’ defence that a plea of economic duress, or misrepresentation, was raised concerning the loan agreement. There is no evidence of there having been, before that time, any step by Annatom, or by Kingsford Olives, or by Mr Tigani as a director of either of them, seeking to avoid the loan agreement or any of its terms.
In my opinion, and I find, Annatom’s allegation of economic duress must fail. There was no illegitimate pressure amounting to unlawful threats or unconsciounable conduct, applied by or engaged in by Mr Cosenza leading to the executing of the loan agreement. Even if, and in my view it has not been shown to be the case, Mr Cosenza knew it was likely impossible for an alternative lender into the project be found in time for the project to be on foot by mid 1999, and he had previously contractually bound himself as a participant without a guarantee from Annatom and an agreement for the payment of interest, or either of those things, still in my opinion Annatom has failed to prove that, through Mr Tigani, it was coerced into entering the loan agreement. Mr Tigani had time to consider Mr Cosenza’s demands, and he explicitly admitted he was not concerned about the contents of the loan agreement – as I find he was confident loans to Kingsford Olives would be repaid in July 1999 from payments by grower investors into the project.
The case urged by Denco Holdings is that
1. the negotiations, which extended over several weeks leading to the preparation of the written loan agreement, the signing of the agreement and the essentially contemporaneous handing over of the cheque, leads to the inference that the cheque was proffered, and taken, as a loan by Denco Holdings upon the same terms as appear in the loan agreement; or
2. the defendants admitting that on 21 December 1998 there was a loan by Denco Holdings to Kingsford Olives at 7% interest and that the loan was repayable on demand;
and the terms of the guarantee are such that the defendants are liable upon the guarantee for Denco Holdings claim.
As to there having been an oral agreement that Denco Holdings on 21 December 1998 lent $150,000 to Kingsford Olives upon the same terms as set out in the loan agreement, including the guarantee by Annatom, I have found that Mr Cosenza and Mr Tigani were not ad idem that the lender for the purposes of the loan agreement was Denco Holdings; neither rectification to substitute the name of Denco Holdings as lender, nor a finding that Mr Cosenza was the agent for Denco Holdings in entering into the loan agreement, being available or pursued, in my opinion the terms of the loan agreement, and particularly the guarantee by Annatom, was settled upon when the identity of the lender was Mr Cosenza. Mr Cosenza’s evidence is that when the cheque was handed by Mr De Pizzol to Mr Tigani (as I have found), Mr Cosenza said nothing to identify who was the provider of the funds represented by the cheque or the terms on which it was proffered, and neither (on the evidence) did Mr De Pizzol. Mr Tigani seems to have understood the cheque was “on behalf of” Denco Holdings, but that understanding was derived from the circumstances in which he described he obtained the cheque – I do not accept his evidence about when and where he received the cheque.
Commercial agreements, particularly parol agreements, made between businessmen, a description which in my view aptly describes both Mr Cosenza and Mr Tigani, are not to be scrutinised through the eyes of a lawyer; they are to be given effect to according to the intention to be gathered from the evidence of the contemporaneous events and circumstances. I have carefully considered all the evidence given in this case, including particularly Mr Cosenza’s apparent confusion, or at least uncertainty, as to whether he was, or Denco Holdings was, or both were the lender, and I am not satisfied it has been proved that Denco Holdings was the lender upon terms identical to those in the loan agreement.
It is admitted by the defendants that there was a loan of $150,000 by Denco Holdings to Kingsford Olives on 21 December 1998, at an interest rate of 7% per annum; absent any agreement about when it was to be repaid (which is the case) it was, as counsel for the defendants conceded, repayable on demand. Counsel for Denco Holdings accepted, as the defendants admitted in the defence, that the loan, together with interest of $49,669 accrued to 1 October 2002, totalled $199,669.
The final issue then is whether Mr Tigani and Annatom are liable to Denco Holdings, for the loan and accrued interest, under the terms of the guarantee executed by them on 28 June 2001.
The liability of a surety upon a contract of guarantee is strictissimi juris, and ambiguous contractual provisions should be construed in favour of the surety; Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 70 ALR 641 at 648.
The defendants challenged the enforceability of the guarantee upon a number of grounds.
Before I briefly summarise and determine the defendants’ submissions, I set out what appear to me to be the provisions of the guarantee material to those submissions. In the guarantee Mr Tigani and Annatom are described (jointly and severally) as the Guarantor; Mr Cosenza and Denco Holdings are described (jointly and severally) as the Secured and the Borrower is Kingsford Olives.
“RECITAL
A.The Secured has at the request of the Guarantor entered into the Transaction hereinafter described in consideration for this guarantee and indemnity
IT IS AGREED as follows:
1. DEFINITIONS AND INTERPRETATION
1.1 Definitions
The following definitions apply in this Deed unless the context requires otherwise:
…
(d)Loan Transaction shall mean a certain agreement between the Secured and the Borrower whereby the Secured has loaned the sum of $150,000 to the Borrower at rate of interest of 7% per annum calculated from 1 November 1998;
…
(f)Transaction means a certain agreement made between the Secured and the Borrower pursuant to which the Secured has agreed in consideration for this guarantee and indemnity to vote in favour of a proposal for the execution of a Deed of Company Arrangement (hereinafter “the Deed of Company Arrangement”) at a meeting of creditors of the Borrower to be held on 7 June 2001 at 11.30am;
…
2. GUARANTEE
In consideration of the Secured having at the request of the Guarantor (which request is testified by the Guarantor’s execution hereof) entered into the Transaction Document the Guarantor hereby covenants as follows:-
2.1 Guarantee of Payment
guarantees to the Secured the due and punctual payment by the Borrower as and when due all payments and moneys due under or pursuant to the Loan Transaction on any account whatsoever (hereinafter called the said debt) and payable to the Secured pursuant to or in respect of the Loan Transaction or resulting from any breach thereof by the Borrower or any of them if there is more than one
…”
The phrase “Transaction Document” appearing in clause 2, and several times in clause 2.5(a)(ix), of the guarantee is not defined.
The defendants’ contentions, in the order in which they were made, are
1. there is no evidence before the Court that, at the request of the guarantor, the secured entered into “the Transaction Document” which is the consideration identified in clause 2 of the guarantee – there is no document which is, or could be, matched to the undefined phrase Transaction Document and therefore the claim against the defendants cannot succeed because that which was to be given as the consideration stipulated by the guarantee, namely entering into the transaction document, has not been proved to have been given.
As to this submission:- First – the guarantee has been executed as a Deed. A promise made, or obligation undertaken, by Deed does not have to be proved to have been obtained by consideration moving from the promisee or obligee and even if the guarantee by Deed contains a statement that it is entered into for a consideration which does not exist, and was known by both promisor and promisee not to exist, then it would probably not be invalidated; Reid Murray v David Murray (1972) 5 SASR 386 at 396. Second – the “Transaction”, in my opinion, being clearly defined as the agreement by which the secured was to vote in favour of the Deed of Company Arrangement to be proposed on 7 June 2001, then the phrase “Transaction Document” should be read as “Transaction”; it is plain in my view upon all the evidence that the word “Document” is otiose and its inclusion was an error.
In Equuscorp Pty Ltd v Jimenez & Others ((2001) SASC 165 (22 May 2001) unreported), Prior J said (at para 5)
“Authority abounds for the general proposition that words may generally be supplied, omitted or corrected in an instrument where it is clearly necessary to avoid absurdity…”
His Honour referred to Dockside Holdings v Rakio (2001) SASC 78 at para 51 for the principle that where the nature of the mistake, and what was intended, is sufficiently clear, the court is justified in reading a document “as if” the appropriate language had been used.
It would be absurd to determine the enforceability of the guarantee in this case by reference to the phrase “Transaction Document”, which permits of no sensible construction upon the Deed as a whole, where it is apparent from the Deed that it is the “Transaction” which the parties to the Deed focused upon, not some, admittedly, non-existent document, in circumstances where only Mr Tigani and Mr Cosenza had the carriage of the Kingsford Olives proposal to its creditors.
I find that the phrase “Transaction Document” in the guarantee should be read as if “Transaction” only appeared.
2. The defendants’ second contention is that there is no evidence before the Court of an agreement between the parties, and upon the terms, identified in the guarantee as the “Loan Transaction”, namely a loan by Denco Holdings to Kingsford Olives of $150,000 at 7% per annum per interest calculated from 1 November 1998; it is submitted that the defendants’ guarantee is of a “non-existent” loan transaction, the guarantee is therefore “inoperative (and) inapplicable” and Denco Holdings claim must be dismissed.
The document called Deed of Arrangement (Exhibit P1, document 4) bears the signatures of Mr Cosenza and Mr Tigani. It refers to “$150,000 plus accrued interest at 7% per annum from 1 November 1998”. Mr Cosenza effectively controlled Denco Holdings; he and Mr Tigani were directors of Kingsford Olives, and together were directing its activities. Mr Tigani was a director of Annatom.
In his evidence Mr Tigani said that he and Mr Cosenza went through, and discussed, the Deed of Arrangement document at a meeting between them immediately before the creditors meeting on 7 June 2001, for the proposal to be placed before which Mr Tigani was seeking Denco Holdings affirmative vote. In my view, and I find, the principal debt, which was part of the subject matter of that document, could only be the loan of $150,000 which Denco Holdings (as I have found) made to Kingsford Olives and it is with reference to that loan the words concerning accrued interest from 1 November 1998 occur. The discussions concerning the document took place between the two persons who were, or who respectively controlled, the parties to the document, and who also between them directed the activities of Kingsford Olives.
I infer, and find, that Mr Cosenza, Denco Holdings, Mr Tigani and Annatom clearly understood, and acknowledged by the document, that interest on the loan of $150,000 had accrued from the stated date. When agreement was reached between Denco Holdings and Kingsford Olives concerning the date from which interest was to accrue is not known, but having regard to the identity of those who discussed the document and signed it, the document is capable of being, and I find it is, evidence of there being such an agreement in relation to the loan of $150,000 at 7% per annum interest made by Denco Holdings to Kingsford Olives on 21 December 1998, which is the loan encompassed within the term “Loan Transaction” as defined in the guarantee.
Kingsford Olives has not paid the debt, the subject of the guarantee, which, I am satisfied, was due and owing at the date these proceedings were issued.
There will be judgment for Denco Holdings against the defendants in the sum of $199,669 plus interest on the sum of $150,000 from 1 October 2002 to the date of judgment. I will hear the parties on the quantum of interest, and also on the question of costs.
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