Decorrado v Knowles (No.2)
[2009] VCC 511
•30 March 2010 and 23 April 2010 (Costs)
| IN THE COUNTY COURT OF VICTORIA | Revised |
Not Restricted
AT MELBOURNE
CIVIL DIVISION
COMMERCIAL – GENERAL DIVISION
Case No. CI-07-03875
| ALDO DECORRADO | Plaintiff |
| v | |
| MARY KNOWLES | Defendant |
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| JUDGE: | HIS HONOUR JUDGE GINNANE |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 31 August, 1-3 and 30 September, 1-2, 5-7 and 16 October 2009 – Final written submission 13 November 2009 |
| DATE OF JUDGMENT: | 30 March 2010 and 23 April 2010 (Costs) |
| CASE MAY BE CITED AS: | Decorrado v Knowles (No.2) |
| MEDIUM NEUTRAL CITATION: | [2010] VCC 0511 |
| First Revision 23 April 2010 | |
| REASONS FOR JUDGMENT |
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Catchwords: CONTRACT – Loans – Implied terms as to interest – Amount of repayments – whether unconscionable conduct – estoppel – whether interest rate a penalty-damages for detention of debt – Fair Trading Act 1999, s.7.
COSTS – whether indemnity costs should be awarded against defendant – unsuccessful allegations by defendant amounting to fraudulent conduct by plaintiff – countervailing considerations – conduct of plaintiff in litigation.
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr C W Gilligan and | Rose Mary Brondolino & Co |
| Mr M J Corrigan | ||
| For the Defendant | Mr J A Castelan | Nanscawen Lawyers |
| HIS HONOUR: |
Introduction
1 Mr Aldo Decorrado sues Ms Mary Knowles for the balance of moneys he alleges are owing on three loans that he made to her.
2 This lengthy trial ultimately raised the following issues:
(a) what were the terms of the loan agreement made between the plaintiff and the defendant on 7 April 2004? (b) was there a second loan agreement made between the plaintiff and the defendant in June 2005 and, if so, what were its terms? (c) was there a third loan agreement made between the plaintiff and the defendant in February 2006 and, if so, what were its terms? (d) what amounts, if any, remain owing by the defendant to the plaintiff in respect of the loans and was interest payable on those amounts under s.58 of the Supreme Court Act 1958 or, as the case was ultimately put, could the plaintiff recover damages for detention of debt? (e) were the loan agreements invalid because: (i) they contained a penalty;
(ii) of unconscionable conduct that breached s.7 of the Fair Trading Act?
(f)
whether the plaintiff is estopped from claiming any further sum under the loan agreements.
The Loan Agreement of 7 April 2004
3 Ms Knowles is a market gardener. In about April 2004, the Bendigo Bank, as mortgagee, was proposing to sell a property in Werribee South that was owned by her husband, Mr B Zausa. The property was approximately 20 to 25 acres and contained four factories, one small unit and a house in which Ms Knowles, her adult son, and occasionally Mr Zausa, lived. Ms Knowles’ adult son had been seriously injured in an accident in about 2001 and was incapacitated.
4 Mr Zausa was in financial difficulties and Ms Knowles wanted to purchase the property from the Bank. She required between $1 million and $1.1 million to do so. A friend directed her to a solicitor who arranged first mortgage finance of $900,000 from Ruby Kala Pty Ltd (“Ruby Kala”).
5 Mr C Sulfaro, who worked for Ms Knowles as an accountant/bookkeeper, directed her to Mr J Cilmi as a possible source of finance for the remainder of the purchase price. Mr Cilmi was a finance consultant and a director of Northern Securities Pty Ltd (“Northern Securities”), which had an office in Coburg. Mr Sulfaro worked for Northern Securities on a sub-contract basis preparing loan agreements. He had a work background in finance and at one time had been a tax agent. Northern Securities was engaged in finance broking and introduced people with money to lend to people who needed to borrow it.
6 Mr Cilmi spoke to Mr A Decorrado, the plaintiff, to enquire whether he had funds to lend, and ascertained that he did. Mr Decorrado was semi-retired and on a number of occasions had lent money to borrowers introduced by Mr Cilmi.
7 Mr Cilmi had an arrangement with the plaintiff and Mr D Lagana to split interest payments received on loans by the plaintiff, with each payment split into three equal shares. Mr Lagana’s entitlement to this arrangement was because he had introduced the plaintiff to Mr Cilmi.
8 Ms Knowles spoke to Mr Cilmi by telephone, telling him that she wanted $100,000 to $150,000 by way of additional finance to purchase the Werribee South property. A meeting was arranged for 7 April 2004 at the office of Northern Securities. Ms Knowles and her husband attended. There is a dispute on the evidence as to who else was present. I find that the plaintiff, Mr Sulfaro, Mr Cilmi, Mr Vassalo, who at that time was a director of Northern Securities, and Mr Lagana were also present. Each of those persons gave evidence that they were present and I accept that evidence.
9 I also find that at some point after the meeting had commenced, Mr N Dean, a solicitor, joined the meeting. The presence of Mr Dean was disputed and I will explain later in these reasons why I find that he was present in the latter stages of the meeting.
10 Ms Knowles said that at the meeting on 7 April 2004, she was given documents in connection with a loan. She did not read them. She understood that she was being offered a fixed facility loan for $125,000 and that she was to pay back within twelve months the sum of $145,000, which included $20,000 for interest and charges. The twelve-month repayment date was fixed by reference to the period when Ruby Kala’s first mortgage was to be paid out. She said there was no discussion regarding interest rates.[1]
[1] Transcript “T” 403-404.
11 Mr Cilmi gave evidence, which I accept, that there was a discussion about the terms of the loan agreement during the meeting of 7 April 2004.[2]
[2] T 175 L 3-5.
12 I find that the defendant signed the first loan agreement and that her signature was witnessed by Mr Sulfaro. I also find that the defendant signed a second mortgage of the Werribee property to the plaintiff. Mr Decorrado said that he saw the original agreement and the mortgage signed and that an addendum to it was given to Mr Dean
13 Ms Knowles received a cheque for $125,000. The remaining $20,000 was three months’ interest paid in advance at the rate of $5,800 per month plus costs. The interest rate was four percent per month.
14 In respect of each of the loans, the defendant signed declarations under the Commercial Credit Code that the moneys loaned were to be applied wholly or predominantly for business or investment purchases. These declarations took the loans outside the protections provided in respect of interest rates in the consumer credit legislation.
15 Mr Cilmi’s and Mr Decorrado’s evidence was that the loan was to be for three months with a possible three-month extension. The defendant purchased the Werribee South property soon after 7 April 2004.
16 There was a dispute in evidence about the terms of the agreement signed by Ms Knowles on 7 April 2004. The plaintiff and the defendant produced separate versions of the agreement.
17 In final submissions, counsel for the defendant accepted that the agreement was in the form that the plaintiff alleged had been signed.[3] That agreement stated, in relevant parts:
[3] T 983-T 984 and Final Written submissions - paragraph 4.
“1.
The Lender shall advance to the Borrower the sum of $145,000.00 (ONE HUNDRED FORTYFIVE THOUSAND DOLLARS) on a short-term loan for the period of two (3) (sic) months.
2.
The Lender and the Borrower agree that this loan is a short-term advance to enable the Borrower to purchase the Vendors land now described as Certificate of Title Volume 10241 Folio 265 being the land situate at 585 Duncans Road, Werribee, in the state of Victoria.
The Parties hereto agree as follows:-
3. The Lender shall advance to the Borrower the sum of $145,000 (ONE HUNDRED FORTY FIVE THOUSAND DOLLARS) on a short term loan for the purposes herein described.
4. The Lender shall take a SECOND MORTGAGE by way of security over the property so described.
5. The Borrower and each of them agree to be personally, jointly and severally liable for the repayment of the Mortgaged Property within two (2) months of the date of this contract and release of the funds hereto.
6. The Borrower acknowledges that they have read and agree to the Consumer Credit Contract Schedule herein attached together with the memorandum of Common Provisions provided by the Lender.
. . .”[4] [4] Plaintiff’s Court Book (“PCB”) 192-194.
18 The agreement contained an Addendum, which purported to be signed by the plaintiff and the defendant and which stated that:
“The parties of the above agreement hereby agree that it is a condition of the advance that on receipt of payment from AMC Nominees Pty Ltd (Costas) said to be $615,000. The loan as per the above agreement is repaid in full plus any outstanding costs and interest.”
19 Mr N Dean is a lawyer holding a current practising certificate. He practised with another lawyer, Mr Buxton, under the name ‘Dean and Co’ between 1997 and about 2001. He then practised on his own account until ceasing practice as a lawyer and immigration agent in 2002 to pursue investment and development interests and to work as a lobbyist with the Fiji government. He resumed legal practice as an employee solicitor with Buxton & Associates in 2008.[5] Mr Dean is a close friend of Mr Sulfaro.
[5] T 867.
20 Mr Dean’s connection with the principal issues in these proceedings ultimately turns out to be limited, but his evidence needs to be considered in at least a little detail, because of the submissions that were made, including whether he had acted as the defendant’s lawyer and also because of the need to consider the weight to be given to his evidence about the pressures placed on Mr Sulfaro to give evidence favourable to the plaintiff.
21 Mr Dean said that he met Mr Cilmi first in the 1990s and thereafter referred a number of people who were seeking finance to him. His evidence was that he had never been engaged to act for the defendant concerning her loans.[6] He first met the defendant in 2008 after he was notified by the Legal Services Commissioner that a complaint had been lodged against him by the plaintiff for failing to lodge the second mortgage for registration.
[6] T 859 L 26-31.
22 Mr Dean denied that he attended the meeting of 7 April 2004, and said that he was out of Victoria on that day. He could not locate his diary to support that evidence.[7] His evidence was that he had attended at Northern Securities on one occasion some months after 7 April 2004, probably in May, June or July of that year. On that occasion he went there to meet Mr Sulfaro[8] and had no contact with anyone else. He said that:
[7] T 869 L 1-3 and T 905 L 5.
[8] Defendant’s Court Book (“DCB”) 80.
“I visited the office and had coffee with him and others. I do recall seeing a Mr Bruno Zausa and others stated in Mr Decorrado’s complaint at the premises. We exchanged greetings and I then left the premises. Others were in attendance but were busy with their matters.”
23 I do not accept Mr Dean’s evidence about his non-attendance at the meeting on 7 April 2004. I prefer the evidence of the plaintiff, Mr Cilmi and Mr Vassalo and find that Mr Dean arrived at the meeting after it had commenced.
24 Mr Sulfaro had referred the defendant to Mr Cilmi. It is probable that Mr Dean was present at Mr Sulfaro’s suggestion or to meet Mr Sulfaro.
25 However, I accept Mr Dean’s evidence that he was not acting as the defendant’s lawyer. The defendant denied that he was. There is no evidence that he had been retained by the defendant. He did not hold a practising certificate in 2004.
26 A question arose during the evidence whether Mr Dean was given the second mortgage at the meeting on 7 April 2004. This question turned out to be of little relevance, save possibly as to the credibility of Mr Dean’s evidence, so I will state my conclusions on this issue as briefly as I can.
27 The plaintiff’s case was that on 7 April 2004, after the execution of the loan documents, Mr Dean was given the second mortgage, was instructed to register the second mortgage and agreed to do so as soon as possible. The plaintiff stated that Mr Dean required two cheques: the first for $603 to Buxton & Associates for registration and stamp duty, and the second as a cash cheque in the amount of $500. Both these cheques were drawn on Mr Cilmi’s account and were dated 19 April 2004. The date of the cheques, i.e. 19 April 2004, makes it unlikely that they were given to Mr Dean at the meeting of 7 April 2004.
28 Mr Dean says that he believes that the mortgage document was sent to Buxton & Associates who were asked to attend to the stamping of it in 2004. Registration did not occur because no consent of the first mortgagee had been obtained. This explanation is not acceptable as no such consent was required. Mr Dean stated that Mr Buxton informed him that the mortgage was delivered to him by Mr Sulfaro, but Buxton & Associates wrote that they did not have anything to do with the mortgage.[9]
[9] T 876- 877 and Exhibit P and see DCB 69 and DCB 79 dealing with the plaintiff’s complaint to the Legal Services Commissioner about Mr Dean’s failure to register the second mortgage.
29 I consider it probable that Mr Dean was asked, or volunteered, to arrange the stamping and registration of the second mortgage and required the two cheques to do that.
30 Mr Dean denied that he requested two cheques. The cheque for $500 was traced to his personal cheque account. Mr Dean’s explanation for the $500 cheque was that Mr Cilmi “over the years owed him a huge amount of money in referrals” and for immigration work that he had been performing for Mr Cilmi’s brother-in-law.[10] The fees were agreed at $2,500, however, Mr Dean had never sent Mr Cilmi a bill, so the cheque arrived without prompting.[11] Mr Cilmi had been involved in a business venture with Mr Dean concerning a country abattoir. Mr Cilmi sued him for commission alleged to have been owing. The litigation was settled.[12]
[10] T 866 L 11-15.
[11] T 910 L 11-12.
[12] T 908 L 15.
31 In the circumstances I have set out above, I find it improbable that Mr Cilmi, without a demand from Mr Dean, sent him a cheque in payment of legal fees on the same day that he was paying for registration fees. I find that the cheque was for Mr Dean’s assistance in arranging the stamping and registration of the second mortgage.
32 The defendant proposed to subdivide some of the land and sell it to Mr Costa of AMC Nominees Pty Ltd. She said that the initial proposal was for 3 acres to be sold and only later, and after 7 April 2004, was the proposal increased to 6 acres, which then attracted the price of $615,000. Thus, the defendant argued that she could not have signed the addendum because as at 7 April 2004 the figure of $615,000 had no currency in that it was agreed to some time later. However the defendant in her defence had admitted the term based on the Addendum that:
“The loan would be repaid in full upon receipt by the defendant of the
sum of $615,000 from AMC Nominees (Costas).”
33 In any event, the sale to AMC Nominees (Costas) was completed well after the whole of the loan was repaid and no moneys were paid to the plaintiff from the Costa’s sale. Accordingly, the Addendum had no relevance to the issues to be determined.
34 There was considerable evidence, particularly from the defendant, Mr Zausa and Mr Sulfaro, about the different versions of the loan agreement that were produced to her on 7 April 2004. The defendant’s counsel put to various witnesses that the defendant had been provided with a form of loan agreement, that misstated the defendant’s name as “Mark Knowles” and gave very generous terms for the repayment of money by providing that the borrower could repay the amount of $145,000 at any time.[13] The defendant also gave evidence that Mr Cilmi required new versions of the agreement to be printed and signed after the defendant signed the first version in blue pen rather than black.[14]
[13] DCB 65.
[14] T405.
35 This evidence has an effect on the general credibility of the defendant’s evidence, which is an issue to which I will return.
36 However, on the evidence including the admissions of the defendant and the final submissions of counsel, I find that the defendant did sign the first agreement in the form alleged by the plaintiff and the Addendum.[15]
[15] PCB 192-194.
The Extension of Agreement of 9 July 2004
37 The plaintiff relies on a document dated 9 July 2004 which he says extended the term of the first loan for a further term of three months in respect of the sum of $115,000, the original sum loaned, less $30,000 that had been repaid. That document states:
“EXTENSION OF AGREEMENT
BETWEEN ALDO DE CORRADO (THE LENDER) AND MARY
KNOWLES (THE BORROWER)THE BORROWER AGREES TO PAY THE LENDER THREE EXTRA MONTHS INTEREST AS SHE HAS NOT REPAID THE LOAN BORROWED BY HER.
The terms are as follows:
JULY 2004 INTEREST: $4,600 plus BREAK UP COST OF $500.00
07/08/04 $4,600.00
07/09/04 $4,600.00 plus REPAYMENT OF ORIGINAL CAPITAL.”[16][16] PCB 191.
38 The Extension of Agreement purported to be signed by the plaintiff and the defendant and their signatures witnessed by Mr Sulfaro. Mr Sulfaro denied that he had witnessed this document and said that he was astounded to see his signature on it.
39 Mr Sulfaro, in a statutory declaration of 19 December 2008, stated:
“The document that I was given on Thursday 18th December 2008 at about 5 p.m. (and is now attached) and headed Extension of Agreement, I have never seen this document before.”[17]
[17] DCB 76.
40 On 20 February 2009, Mr Sulfaro wrote to Ms R Brondolino, the solicitor for the plaintiff, stating:
“Mr Bruno Zausa handed me the attached Extension of Agreement and I was horrified if not stunned to see my name on the document as I had not seen this document before.
Why was I not informed about this document so that I would have told you straight away that I had nothing to do with it.”[18]
[18] DCB 86.
41 Mr Sulfaro repeated these assertions in statutory declarations of 6 March and 1 June 2009.[19]
[19] DCB 85, 91.
42 In final submissions, counsel for the defendant submitted that it was not clear whether the defendant did sign the document. Alternatively, he submitted that if she did sign it should be set aside on the ground of unconscionable conduct.
43 I accept the evidence of Mr Cilmi that the Extension of Agreement was signed by the defendant in his office.[20] In addition to Mr Cilmi, at least the defendant, Mr Decorrado, Mr Sulfaro, Mr Lagana and Mr Vassalo were present.
[20] T 182 L 6-30.
44 I do not accept Mr Sulfaro’s evidence that he did not witness the plaintiff’s and defendant’s signatures. The two statements of Mr Sulfaro that I have set out above are part of a larger group of statements to which I refer later in these reasons. As I later explain, I am not prepared to act on the basis of Mr Sulfaro’s evidence about this matter.
The Four Per cent Interest Rate Claim
45 A significant issue in respect of the first loan agreement is whether the defendant was obliged to pay interest on the sum outstanding until it was repaid. The plaintiff submitted that the defendant was obliged to continue to pay interest at the rate of 4 per cent per month until the loan was repaid.
46 The Extension Agreement stated that the borrower agrees to pay the lender three extra months’ interest as she has not repaid the loan advanced to her. The only interest rate payable was “for three extra months’ interest”.
47 The plaintiff submitted that as the defendant paid four sums of $4,600 in October, November and December 2004 and January 2005, an implication could be drawn from her conduct that she had agreed to continue to pay interest and that a term should be implied into the first loan agreement to that effect.
48 The defendant denied that she repaid sums totalling $18,400. For reasons that I give below I find that she did.
49 The defendant submits that other than any amount of interest included in the $145,000 referred to in the first loan agreement, there was no provision made for interest or costs. The only interest that the defendant was liable to pay was for three extra months in accordance with the Extension of Agreement. The implied term proposed by the defendant did not satisfy the principles stated in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council.[21] Nor did the payments establish a custom and usage, which might provide a basis for an implication of a term.
[21] (1977) 180 CLR 266.
50 It is noteworthy that the Extension of Agreement specifically continued interest payments for three months, but no longer.
51 In my opinion, Cook v Fowler[22] and the other authorities applied in Decorrado v Manoukian[23] establish that, because the loan agreement did not expressly provide for interest to be payable after the end of the term of the loan, interest after that time is recoverable only as damages for breach of contract. I do not consider that the defendant’s conduct in making four monthly payments of interest after the due date alters that position.
[22] (1874) LR 7HL 27.
[23] [2009] VSC 451.
52 I do not consider that the fact that the defendant paid four monthly interest payments is basis for establishing an implied term, present in the contract at the time it was made, that she was obliged to continue to make those monthly interest payments until the loan was repaid. The principles in the BP Refinery Case are not made out: the proposed term is not necessarily reasonable or equitable, it is not necessary to give business efficacy to the contract and it is not so obvious that “it goes without saying”.
53 In Decorrado v Manoukian, the present plaintiff sued on a loan agreement in the same form as the agreement sued on here. Vickery J held that the interest payable was payable to the termination date of the agreement and not thereafter.
54 The plaintiff’s case relied on conduct subsequent to the default in repayment. Generally, subsequent conduct is inadmissible in the construction, or interpretation, of a contract.
55 In Agricultural & Rural Finance Pty Ltd v Gardiner,[24] Gummow, Hayne and Kiefel JJ. stated:
[24] (2008) 238 CLR 570.
“In addition to approach issues of construction in this way would be at odds with the general principle that ‘it is not legitimate to use as an aid in the construction of [a] contract anything which the parties said or did after it was made.”[25]
[25] at 582 [35]; see also FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343, at 347- 251 and Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407, at [10-13], [308], [330-332].
56 I conclude that there was no interest payable pursuant to the first loan agreement, as extended by the Extension of Agreement after 7 September 2004, being the date of the third payment stipulated in that document.
The Second Loan Agreement
57 The second loan agreement concerned the loan of $5,000 by the plaintiff to the defendant on 20 June 2005 for three months.[26] The loan of $5,000 was for fees of $3,800 owing to Watsons Lawyers for work performed for Ms Knowles’ son.
[26] PCB 188.
58 The written agreement relied on recited the fact of the loan and contained a clause stating:
‘“The Borrower personally accepts and acknowledges receipt of the sum of $5,000.00 being funds required by the Borrower for personal and other use including business expenses that the Lender is aware of and accepts as the responsibility of the Borrower.”
59 The agreement contained a reference to an interest rate in the following terms:
“The Lender shall be repaid the whole sum of $5,000 plus 4% interest (FOUR PERCENT) per month (payable in advance) of the loan amount advanced.”
60 The defendant’s counsel accepted that the Amended Defence admitted that the defendant had signed this agreement.[27] Despite this, the defendant, in oral evidence, denied that she had signed the second agreement.[28] She said that she was liable only to repay $3,800 plus interest and that she had done so.
[27] T 992 -993.
[28] T 420 L 6-10.
61 Mr Cilmi gave evidence that he was present on the separate occasions when the second loan agreement was signed by Ms Knowles and Mr Decorrado.[29] I accept his evidence.
[29] T 182.
62 The balance of the $5,000 – that is, $1,200 – consisted of interest at 4 per cent per annum for three months, i.e. $600 plus $300 to pay for the completion of the agreement and $300 to lodge a caveat.30
63 The evidence establishes that Mr Cilmi wrote a cheque for $3,800, which was provided to Watsons Lawyers.31 Mr Cilmi said that he did so because the plaintiff asked him to and that the plaintiff reimbursed him the sum loaned.32 The loan was to pay for a cheque that was written out by Mr Cilmi on Ms Knowles’ behalf.
64 Mr Cilmi said that he wrote the cheque to Watsons Lawyers because he was told that Ms Knowles’ son was involved in an accident and that the amount was to pay legal expenses owing to his lawyers.
65 The defendant’s evidence was that she had intended to pay Watson’s bill herself. When she learned that Mr Cilmi had paid that bill, she straightaway went and repaid him. Mr Sulfaro said that the defendant regarded the matter as a mix up and within a day or two attended Northern Securities office and repaid the sum by paying cash.33 Mr Zausa supported this evidence.34 Receipt number 21 in Exhibit G purports to record a payment of $3,800 and to bear the signatures of John Cilmi and C Sulfaro. Mr Sulfaro said that Mr Cilmi gave him a cheque to pay to Watsons Lawyers. He performed that task and kept a copy of the cheque and Watson’s receipt and then gave them to the defendant and a copy of them to Mr Cilmi.35
66 Mr Cilmi denied that he had signed receipt number 21 and said that he had never been repaid the sum of $3,800.36
67 I do not accept that the defendant repaid the sum of $3,800. For reasons that I give below, I do not consider that the receipt was signed by Mr Cilmi or that the sum was repaid.
T 184 L 17-21.
PCB 83.
T 185.
T 828-829.
T 593.
T 831 L 19-23.
T 191 L 16-17.
68
The defendant argued in the alternative, that even if the amount of $3,800 was outstanding it had not been loaned pursuant to the second agreement – but loaned before the second agreement was entered into and therefore was not a loan under the second agreement.
69 The defendant relied on the preamble to the second agreement, which states: “Now therefore the Parties and each of them hereby agree to the following terms and conditions stipulated prior to the release of any sum or sums agreed between them.”
70 The defendant relied on the words “prior to the release of any sum” and submitted that Mr Cilmi’s payments to Watsons Lawyers had nothing to do with the plaintiff, who had not proved that he had provided the sum to the defendant. The sum had been paid by Mr Cilmi before the agreement was prepared or signed.
71 The plaintiff replied that the mere fact that Mr Cilmi has made the payments did not matter, providing Mr Decorrado had reimbursed him and had become responsible for the amount. Mr Decorrado gave evidence that:
“I was led to understand it was for a solicitor’s firm, to pay the account for a solicitor’s firm, and I reimbursed Mr Cilmi on the signing of the document, signing of the loan. It was Watson’s Lawyers, I think, the bill.”[37]
[37] T 58 L 21-25.
72 In cross-examination, the plaintiff, when asked how he had reimbursed Mr Cilmi, stated:
“I can’t remember exactly, but he was reimbursed.”[38]
[38] T 132 L 1-2.
73 Mr Cilmi, when cross-examined about the second loan agreement, and whether Mr Decorrado had repaid him the amount of $3,800, said that eventually he would have been compensated. He said:
“There were quite a few times I was asked to provide funds and then he
would reimburse me at a later stage. that he received or money that he sent to me had to be lent. In other words, he would have put some money to my account, the $5000 to compensate for my drawings.”[39]
[39] T 236-237.
74 The commercial reality is that the plaintiff arranged for Mr Cilmi to advance the money to Watsons Lawyers on behalf of the defendant and that Ms Knowles accepted that such an advance had occurred. The defendant must have been aware, as result of the first loan agreement, that Mr Cilmi was advancing money that had come or was to come from the plaintiff.
75 I do not consider that the fact that the recital to the second agreement states that the parties had reached agreement before the money was advanced, when this in fact was not the case, prevents the plaintiff relying on the second loan agreement. The agreement has to be read as a whole and in the context of the commercial reality of the plaintiff and defendant’s legal relationship.
76 I find that the plaintiff did loan the sum of $5,000 to the defendant.
77 Although it appears not be claimed by the plaintiff, I would, as in the case of the first loan agreement and for the same reasons, find that there was no implied term providing for the payment of interest I find that there was no interest payable under the second loan agreement after the date on which the sum loaned was repayable.
The Third Loan Agreement
78 The third loan agreement upon which the plaintiff sues was for a loan of $7,000 for three months alleged to have been made to the defendant and evidenced by a written agreement dated 16 February 2006. The agreement was in a number of respects in the same terms as the second loan agreement.[40]
[40] PCB 185-187.
79 The third loan agreement recited that:
“The Parties and each of them hereby agree to the following terms and conditions stipulated prior to the release of any sum or sums agreed between them.”
80 It contained a clause stating:
“The Borrower personally accepts and acknowledges receipt of the sum of $7,000.00, being funds required by the Borrower for personal; and other use including business expenses that the Lender is aware of and accepts as responsibility of the Borrower.”
81 The interest rate clause provided:
“The Lender shall be paid the whole sum of $7,000.00 plus interest of 4.5 % per month (FOUR POINT FIVE PERCENTUM PER MONTH) payable in advance of the loan amount advanced. Default interest shall be 5.5% per month if the loan is not paid by the due date.”
82 The plaintiff’s case was that the purpose of the third loan agreement was to assist the defendant refinance the mortgages over her property. Either at, or in the months after, the meeting of 7 April 2004, Mr Cilmi was asked by the defendant, or by Mr Zausa, to arrange the re-financing.
83 Mr Cilmi forwarded a loan application to Paramount Mortgage Services in Sydney, who lodged the loan application with Challenger Financial Services (“Challenger”).
84 The process of obtaining re-financing approval took fourteen months. According to Mr Cilmi, this was because of the complexity of the application and because of issues associated with planning and obtaining of certificates, with some documents being mislaid. The defendant changed her solicitors, who were handling the matter. The defendant said that Mr Cilmi had been at fault and had caused the delays in obtaining finance.
85 In July 2005, Challenger notified the defendant, through Paramount Mortgage Services, that it had approved mortgage finance for $1,050,000 with the security described as 585 Duncans Road, Werribee South.
86 In a letter of 22 June 2005, Challenger described the purpose of the loan as:
“To assist with the re-finance of an existing investment loans (sic) (900K
first and 140K second).”[41]
[41] PCB 162.
87 The interest rate was 8.25 per cent per annum, payable monthly in advance.
88 Mr Cilmi said that he was informed through Mr Sulfaro that the defendant was running short of funds and that there were none available to pay the valuation or application fees charged by Challenger and required for the loan to proceed. On 28 June 2005, Mr Cilmi wrote a cheque on his personal account payable to Challenger for $3,355, which consisted of a valuation fee of $2,200 and an application or administration fee of $1,155.
89 On 4 August 2005, Mr Cilmi sent a further cheque for $2,310 as an establishment fee, making a total of $5,655 that he had paid to Challenger.
90 Mr Cilmi said that it had been imperative to pay these fees to Challenger to obtain the loan approval. He said that he had been promised funds by the defendant, but they never came. In the end he was requested by Mr Zausa, on behalf of his wife and by Mr Sulfaro, to create a new loan to cover the fees paid to Challenger.[42]
[42] T 188 L 27-189, L 10.
91 The settlement of the defendant’s loan from Challenger occurred on 21 December 2005 and Northern Securities, on behalf of the plaintiff, received the sum of $61,471.62. A commission of $11,100 was paid to Paramount Mortgage Services and Northern Securities received a small share of it.
92 The difference between the amount of $5,655 in cheques paid by Mr Cilmi and the sum of $7,000 said to be secured by the loan agreement was the amount of pre-paid interest payable by the defendant and costs associated with the lodging of a caveat.
93 The plaintiff gave evidence identifying his signature and the defendant’s on the agreement and said that it was signed in his presence.[43]
[43] T 61-62.
94 Mr Cilmi said that the February 2006 document was signed and witnessed in his presence at Northern Securities’ office with the plaintiff present and that “probably Domenic Lagana and I would say Mary Knowles and Bruno Zausa would have been present as well”.[44]
[44] T 186 L 11-14.
95 The defendant identified her signature on the third loan agreement but could not recall how it got there. In cross examination she said that it looked like a photocopy of her signature.[45]
[45] T 428-9 and T 513 L27 -28 and paragraph 17 of the Defence.
96 Mr Sulfaro had no recollection of the agreement being signed. He said that the signature of the witness on the third loan agreement looked like his, but the borrower’s signature did not look like the defendant’s.[46] He was instructed by the defendant to write out a cheque to re-pay Mr Cilmi for the fees payable to Challenger.[47]
[46] T 825 L 24-25.
[47] T 826 L 12-18.
97 The defendant acknowledged that Mr Cilmi had paid a couple of fees in respect of the Challenger re-financing, but said that he had never asked for repayment. She thought that the bank had paid for them.[48]
[48] T 428 L 14-16.
98 I find that the agreement was signed by the plaintiff and the defendant. I find that the moneys that Mr Cilmi advanced were not repaid. There was no evidence of a cheque produced by the defendant to prove that the loan had been repaid. Receipt number 18 in the receipt book referred to below was dated 24 February 2006 and was for $7,000. For reasons that I give below I am not prepared to act on the basis that any of the receipts were genuine.
99 The defendant again put an alternative argument based on the assumption that the loan had not been repaid. This argument relied on the fact that the cheques paid by Mr Cilmi were paid approximately eight months before the third agreement had been signed. The defendant submitted that Mr Cilmi’s payments to Challenger were not connected with the plaintiff and that he could not recover them because they were not advanced under the third loan agreement.
100 In my opinion, there was no requirement that the amounts loaned be paid directly to the defendant. It is sufficient if they were paid on her behalf and for her benefit to a third party – Challenger.
101 However, the plaintiff’s case is based on the written loan agreement and the issue remains whether any money was advanced by or on behalf of the plaintiff that falls within the terms of the third loan agreement.
102 I am entitled to take into account the circumstances, or “matrix of facts”, that led to the third loan agreement. Its raison d’être was the cheques that Mr Cilmi wrote to Challenger on behalf of the defendant. The terms of the recital cannot defeat the purpose of the agreement, which was to secure the repayment of moneys advanced on behalf of the defendant.
103 Nevertheless, the plaintiff cannot succeed in respect of the third loan agreement unless he has proved on the balance of probabilities that he reimbursed Mr Cilmi.
104 The plaintiff’s evidence relevant to this issue is as follows:
“Q: Could you tell the court, please, how the $7000 was made up?--- A:
It was made up, I believe, of two cheques payable to Challenger by Mr John Cilmi on Ms Knowles’ behalf and the loan was to reimburse Mr Cilmi for those cheques.
Q: Do you have any recollection as to at what approximate date
those amounts had been paid by Mr Cilmi?---A: No, not offhand. Q:
Did you have any understanding of whether or not the payments had been advanced by Mr Cilmi before you entered into the agreement?
A: No.”[49] [49] T 62, L 16-25
105 In cross-examination, Mr Decorrado gave the following evidence:
“Q:
This was, you say, the loan for $7000 in February 2006 and as I understand it, it relates to amounts paid by Mr Cilmi to Challenger?---
A: Yes. Q: Do you remember what they were for?--- A: It’s been clarified. I think it was for re-establishing – refinancing
for Mary Knowles.Q: You recall that that was paid by Mr Cilmi in July 2005 or
thereabouts?---A: I’m not quite sure when Mr Cilmi actually paid it. Q:
I’ll suggest this to you: that also had nothing to do with you at all. Those payments to Challenger, they had nothing to do with you?---
A: I never actually paid the money over to him, but I paid the money
over to Mr Cilmi.Q: When did you to that?--- A: It would have been either just before or just after. Q: Before or after what?--- A: It would be probably just after the contracts were signed, on the
same basis as the other loan.Q: Am I right again that you can’t point to a single document that
evidences a payment by you to reimburse Mr Cilmi?---A: No. I retained the contract, that was my – that is all the paperwork
I required.Q: So am I right in when I say there is no documents?--- A: Not that I know of. Q: ….that evidence you reimbursing Mr Cilmi?--- A: Not that I know of. Q: Do you know if you paid by cheque?--- A: I don’t know. I can’t remember.”50
106 I accept the plaintiff’s evidence that he did reimburse Mr Cilmi in the sum of $5,665. I base that finding on the evidence of the plaintiff set out above, the evidence of the bookkeeping arrangements between the plaintiff and Mr Cilmi set out in my consideration of the second loan agreement and the acknowledgement of receipt contained in the third loan agreement. As a result, the plaintiff is owed the sum of $7,000 which is the amount claimed under the third loan agreement.
The Defendant’s Alternative Argument – the Default Interest Rate was a Penalty
107 In the alternative, the defendant argued that the plaintiff’s claims for default interest rates after the expiration of any of the agreements could not be maintained because they constituted a penalty.
108 The defendant submitted that the interest rates of 4 percent per month in the first agreement and 5.5 per cent in the third agreement constituted a penalty since:
(a) the rates were extravagant, as Mr Cilmi had acknowledged; (b) in all the circumstances, including the nature of the relationship between the plaintiff and the defendant, the interest rates were unconscionable and oppressive; and (c) there was a massive disproportion between the interest claimed, and the loss that the plaintiff could conceivably have suffered as a result of any breach. 109 I have decided that no interest was payable under the first and second loan agreements after their expiration, that is the repayment date as extended under the Deed of Extension. Accordingly I consider the penalty argument only in respect of the third agreement.
T 134 L 10 to T 135 L 6 cf, Mr Cilmi’s evidence T 244 L 24- T 245 L 4.
110
The principles to determine if a contractual provision operates as a penalty were set out in Dunlop Pneumatic Tyre Company Co Ltd v New Garage & Motor Co Ltd.[51] In O’Dea v Allstates Leasing System (WA) Pty Ltd.[52] Deane J. stated that a clause was a penalty where it required payment of a sum which was:
“extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach.”[53]
[51] [1915] AC 79, 86-87.
[52] (1983) 152 CLR 359.
[53] at 399-400.
111 The defendant referred to the authorities discussed by the Court of Appeal in Yarra Capital Group Pty Ltd v Sklash Pty Ltd,[54] including in particular the statement in the judgment of Mason and Wilson JJ. In AMEV-UDC Finance Ltd v Austin,[55] that:
“Equity and the common law have long maintained a supervisory jurisdiction, not to rewrite contracts imprudently made, but to relieve against provisions which are so unconscionable or oppressive that their nature is penal rather than compensatory. The test to be applied in drawing that distinction is one of degree and will depend on a number of circumstances including (1) the degree of disproportion between the stipulated sum and the loss likely to be suffered by the plaintiff, a factor relevant to the oppressiveness to the terms of the defendant and (2) the nature of the relationship between the contracting parties, a factor relevant to the unconscionability of the plaintiff’s conduct in seeking to enforce the term.”
[54] [2006] VSCA 109.
[55] (1986) 162 CLR 170, at 193.
112 The plaintiff submitted that there was a loss to the plaintiff. He could not reinvest the moneys. That had not been repaid. If he had been able to do so he would have attempted to reinvest the money into the short term money market earning 3 or 4 per cent. There was evidence that the plaintiff had entered into a number of other agreements. The plaintiff had unsuccessfully sought to amend his claim to add a Hungerford’s claim. The plaintiff referred to the High Court decision in Ringrow Pty Ltd v BP Australia Pty Ltd and the judgment of Habersberger J. in Harrison Ford Pty Ltd v Ford Motor Company of Australia Ltd.[56]
[56] [2008] VSC 235.
113 The Yarra Capital Group Case bears some analogies with the present in that it concerned the question of whether an interest rate payable upon default of repayment was a penalty. However there are important differences; in the Yarra Capital Group Case the lender and borrower were both professional moneylenders and the loan was not supported by security as is the case here.
114 In Zachariadis v Allforks Australia Pty Ltd,[57] the Court of Appeal applied the “genuine pre-estimate of damages” and “out of all proportion” tests to the determination of whether a provision was a penalty.
[57] [2009] VSCA 258.
115 I am satisfied that the defendant has established that the rate fixed by the third loan agreement upon default of repayment of 5.5 per cent per month was a penalty. It is appreciably higher than the already high monthly rate of 4.5 per cent. No attempt was made to explain what connection the higher rate bore to the loss the plaintiff might have contemplated at the time he entered into the third loan agreement if the loan was not repaid on time. Indeed in respect of the second loan agreement, which contained the lower rate of 4 percent per month, Mr Cilmi stated:
“ I say the interest, obviously it is a bit extravagant, but that is the terms and conditions of the loan that the borrower had accepted from the lender.”[58]
[58] T 237 L 30 - T 238 L 1.
116 It is noteworthy that the third loan agreement is the only loan agreement that had such a default rate. I find that the default interest rate it is out of all proportion to the loss upon default of repayment that the plaintiff could have estimated he would suffer at the time the agreement was made and that it is unenforceable as a penalty. It is therefore unnecessary to consider the defendant’s further argument that the interest rate was so unconscionable and oppressive as to be unenforceable.
The Defence that the Three Loans were Repaid
117 Once the plaintiff established the making of the loans under the three agreements the central issue became whether the defendant had repaid the loans. The defendant bears the onus of proving repayment of the loans.[59]
[59] Young v Queensland Trustees Ltd (1956) 99 CLR 560.
118 A few days after 7 April 2004, the plaintiff sold the business she conducted on the Werribee property and repaid $30,000 of the loan by a cheque made payable to cash which she said she gave to Mr Cilmi. Her evidence was that Mr Cilmi wanted cash and asked her to go and cash the cheque, but she said she was unable to do that. Mr Cilmi denied that he had received the money and said that it had been paid to Mr Lagana. However, both sides accepted that the defendant had repaid the plaintiff the sum of $30,000.
119 The plaintiff then said that there were four payments of cash of $4,600 in October, November and December 2004 and January 2005.[60] Curiously the defendant denied that she made those repayments. I accept that those payments were made. The plaintiff throughout this proceeding has given credit for them and I consider it not probable that he would have done so had he not received them.
[60] T 53 L15.
The Receipt Book as Evidence that the Defendant had Repaid the Loans
120 The defendant gave evidence that she purchased a receipt book and used it to record the initial repayment of $30,000 and subsequent repayments. She said that she saw Mr Cilmi sign the first receipt for $30,000 when she gave him the cheque. She explained Mr Sulfaro’s signature on the receipt by stating:
“He put it in the next time because I wanted two signatures in the book.”[61]
[61] T 412 L 14-15.
121 The key issues in this part of the case were whether the receipts were genuine and whether the defendant had made the repayments recorded in the receipt book.[62]
[62] The receipt book was Exhibit G.
122 The plaintiff’s case was that the receipts were false documents and had not been issued on his behalf and were at least, in the case of Mr Cilmi’s purported signatures, forgeries.
123 To assess the submissions I need to set out the evidence on the issue.
The Defendant’s Evidence about the Receipt Book
124 There were eleven signed receipts in the receipt book, all of which Ms Knowles said had been signed by Mr Cilmi and/or Mr Sulfaro.
125 The defendant regarded the book as her pay in book. She said that the individual receipts represented –
“me going to Northern Securities and giving them the amounts that is on here and these are the amounts I give in to Northern Securities to Mr Sulfaro and Mr Cilmi.” [63]
[63] T 415 L 4-8.
126 She said that Mr Zausa accompanied her when she visited Northern Securities’ office to make repayments. She saw Mr Cilmi sign a couple of receipts and on each occasion she saw Mr Sulfaro sign. She said that Mr Sulfaro–
“counted the money, I believe, and he signed the book. Then he would take the book if Mr Cilmi was in and Mr Cilmi – he would go to the office and he would come back with the book signed and …
… by Mr Cilmi and he would reach me the book back and he took the top
part and I kept the bottom part.”[64][64] T 417 L 16-22.
127 Mr Cilmi denied that any of the signatures were his.
The Defendant’s Reliance on the Ledger Book
128 As a result of a call made during cross-examination of the defendant for a book, that disclosed money received by her from the sale of machinery/ equipment and produce, and documents disclosing payments for expenses such as water bills for the period April 2004 to February 2006, the defendant produced a ledger book,[65] which she referred to as her “cash farm book and a pay book”. She said that she used it to record mortgage repayments and proceeds from the sale of farm equipment. It had not been discovered. The book had no covers – the defendant gave evidence that they may have been destroyed by a fire that occurred at her property, or she may have thrown them out. The ledger book was a “scrap book” with the entries in it later entered into a computer.[66]
[65] Exhibit 12 - T 943.
[66] T 949.
129 The defendant said that she failed to refer to the book in evidence-in-chief because she had lost it. She was unable to offer an explanation for why she had not mentioned that she had kept such a book.[67]
[67] T 947 L 10-11.
130 The defendant relied on the ledger book to substantiate the payments recorded in the receipt book. The defendant argued that it matched Mr Sulfaro’s description of a book in which a record of payments had been kept.
131 Not all entries had dates. The defendant said that she saw Mr Sulfaro make every entry in it concerning the loan repayments.[68] Mr Sulfaro had the receipt book open on the office desk when he made entries in the ledger. Few of the pages of the ledger book had entries, but page 14 had the written heading “Mary Knowles” and under that, “Repayment of Loan to Northern Securities (Vic) Pty Ltd 2nd Mortgage for Farm Loan”. Eight payments were recorded.
[68] T 949 L 18-19.
132 Not all of the payments recorded in the receipt book were recorded in the ledger, e.g. the $3,355 and the $7,000 payments were not recorded in it. The ledger book did not record all the payments made received for machinery. Three pages were also produced relating to the defendant’s sale of machinery for $275,000.[69]
[69] Exhibit 13.
133 The evidence concerning the ledger book required the Court to accept that Mr Sulfaro received money at Northern Securities’ office on behalf of the plaintiff and then at the defendant’s premises, wrote entries in the ledger book on behalf of the defendant, recording a number of those payments.
Credibility of the Defendant’s Evidence
134 Consideration of the defendant’s evidence about the receipt book cannot occur without regard to submissions put by the plaintiff on the credibility of her evidence generally.
135 The plaintiff drew attention to a number of changes and inconsistencies on significant matters in the defendant’s evidence.[70] These included stating that she did not recall the first loan agreement but then identifying her signature on it, denying that she had signed the Addendum but then agreeing that it was her signature on it, and, in the case of the Extension of Agreement, denying that she had signed it but then stating:
“I can’t remember signing it. It’s got my signature it. It’s got my signature on it and I have signed it because it says so here but I cannot remember this document at all.”[71]
[70] These matters are summarised in the plaintiff’s submissions at T 1050-1055.
[71] T 419 L 30-31.
136 There were also inconsistencies in the defendant’s evidence about whether she had signed the second and third loan agreements.[72] Thus she gave contradictory answers on whether she had signed the second loan agreement, despite her defence admitting that she had signed it.[73] There were also contradictions in whether she had signed the third loan agreement.[74]
[72] See the plaintiff’s final submissions at T 1057-1059.
[73] Paragraph 12 of the Defence and T 420 L 6-7 and T 487-488.
[74] Paragraph 17 of the Defence and T 428-9 and T 513 L 27-28 – “this is a photocopy of my signature”.
137 I considered that because of these inconsistencies, the defendant’s evidence was not reliable.
Mr Zausa’s Evidence about the Receipt Book
138 Mr Zausa gave evidence that he accompanied Ms Knowles to Northern Securities’ office to repay the sum of $30,000. The cheque was handed to Mr Cilmi, who told them that future payments should be made in cash. He did see Mr Cilmi sign the receipt on that occasion, but he didn’t recall if Mr Sulfaro was present on that day.[75]
[75] T 586 L 22 -25.
139 Mr Zausa said that the receipt book was used to keep a record of how much had been paid to Mr Cilmi. He said that he had written eighty per cent of the receipts and an employee of Ms Knowles, referred to in evidence as “Irene”, had written some.[76]
[76] T 585-586.
140 Mr Zausa identified a number of receipts, which he said had been signed by Mr Cilmi in his presence.[77] He said that on a number of other occasions Mr Cilmi was not at Northern Securities’ office when they went to deliver a cheque, but would sign the receipt book on their next visit.[78] Mr Zausa also gave evidence that he saw Mr Sulfaro sign a number of receipts. The defendant and Mr Zausa gave evidence that the source of money for the repayments was the sale of a business and machinery.
[77] These receipts were at DCB 53 and 54.
[78] T 588 -589.
141 I was not persuaded that Mr Zausa’s evidence contained a reliable account of the use of the receipt book or that the moneys recorded in it were in fact paid. In a number of respects he displayed a lack of recollection of important events in the dealings between the plaintiff and the defendant. These include: that he identified a document as being signed on 7 April 2004, which ultimately not even the defendant relied on.[79]
[79] The document that Mr Zausa identified is at DCB 65 and T 570 L22- 27, cf T 632 L11-19.
142 Second Mr Zausa readily agreed that he did not remember the full details of discussions concerning the first loan agreement.[80]
[80] T 569 cf T 571 L 17-19.
143 Third Mr Zausa could not remember the details of the Challenger refinancing of the defendant’s mortgages.[81]
[81] T 600 L 3-8.
Mr Sulfaro’s Evidence about the Receipt Book
144 Mr Sulfaro was called as a witness on behalf of the defendant. He had worked for the defendant between March 2003 and August 2003 looking after her office and thereafter performed bookkeeping part time for her.[82] From 1 September 2003 until 30 September 2004, he worked for Northern Securities preparing loan agreements, for which he was paid per agreement.[83] Mr Sulfaro drew the first loan agreement.
[82] T 736.
[83] T 827 L 4-6.
145 Mr Cilmi and Mr Sulfaro have known each other for many years.
146 Mr Sulfaro said that Ms Knowles, in company with Mr Zausa, attended Northern Securities’ office from time to time to pay off the loan, bringing her receipt book. He said that he had signed a number of receipts recording her payments. He identified his signature on receipts 1, 2, 4, 7-10, 12 and 15.[84]
[84] T 745- 747 and T 821.
147 He described the procedure that occurred in respect of such payments as follows:
“Because both her and Mr Zausa would come up and they would ask for me or Mr Cilmi and I would invariably see them and they’d come with an envelope and the receipt book and I’d count the money in front of Mr Zausa or Ms Knowles and then I’d take it into Mr Cilmi, who would recount it again and he’d then sign the book and I would sign the book and he’d then put the receipt in the envelope and put it in another envelope in his filing cabinet.”[85]
[85] T 744 L 23-31.
148 Mr Sulfaro stated that if he wasn’t present, that he presumed that Mr Cilmi would have counted the money and signed the receipt. For instance, in respect of receipt 1, which concerned the $30,000 repayment, he stated that he remembered signing the receipt after the sum was paid, probably a few days after, and that Mr Cilmi’s signature was already on it.[86]
[86] T 745 L 8-13.
149 Mr Sulfaro initially gave evidence that he saw Mr Cilmi sign receipts 2, 4, 7, 8, 9 and 15. However, he then stated:
“In some of these I mightn’t have been there or Mr Cilmi mightn’t have
been there, you know what I mean.”[87]
and:
“Well, because his signature – sometimes I wasn’t there, Your Honour,
and sometimes he wasn’t, you know because sometimes I’d be out.”[88][87] T 746 L 27-29.
[88] T 747 L 9-12.
150 Receipt 21 concerned the alleged repayment of the loan to pay Watsons Lawyers - the amount secured by the second loan agreement. Mr Sulfaro said that the defendant came and repaid Mr Cilmi the sum of $3800 shown on that receipt.[89]
[89] T 750 L 4-8.
151 Mr Sulfaro gave differing versions of relevant events in a series of statements, statutory declarations and affidavits. I have previously referred to and indicated that I would not accept his evidence about the Extension of Agreement. The reasons that I give for not accepting Mr Sulfaro’s version of events in respect of the matters discussed below are also my reasons for not accepting his evidence in respect of the payments recorded in the receipt book.
152 Mr Sulfaro’s evidence falls into two categories: a first group which broadly supports the plaintiff’s case and which Mr Sulfaro now says were produced as a result of pressure and intimidation and a second group, commencing six months later, in which he attributes his previous affidavits to intimidation and says that he did receive the money to which the receipts relate. In order to determine whether I should accept Mr Sulfaro’s evidence, it is necessary to set out some of the terms of the documents, in which Mr Sulfaro has adopted conflicting positions.
153 In the first category are the following: first, a letter of 26 June 2007 that Mr Sulfaro wrote to the plaintiff:
“Dear Aldo,
This is the summary that you requested from me:
I was employed by Northern Securities from the 01/09/2003 to
30/09/2004.I was not there for the following receipt numbers;
Receipt No 10 Dated 19/11/04 was not working there Receipt No 12 Dated 24/09 No year Receipt No 15 Dated 11/02/05 was not working there Receipt No 18 Dated 24/2/06 was not working there (self employed selling and delivering Meander Books: Bruno & Mary took me to my initial interview past Dandenong) Receipt No 21 Dated 17/06/05 I was called in by John Cilmi as Mary & Bruno had asked for some money to pay Watson Lawyers for their son. Mr Cilmi asked me if I could deliver the cheque to the lawyers as I lived close by. I met Bruno and I think his son also came along. We paid the Lawyers and I enclose copy of cheque by John Cilmi and Copy of Receipt issued by Watson Lawyers. It was evening by the time I arrived at Watson Lawyers.”[90]
[90] PCB 282
154 The significance of this letter was Mr Sulfaro’s signature appears on Receipts 10, 12, 15, 18 and 21, but he states that he could not have signed the receipts on the dates that they bear.
155 Mr Sulfaro agreed that he had signed the letter, but could not remember if he prepared it. He said that his statement in the letter about being accompanied by Mr Zausa and her son to Watsons Lawyers might have been wrong. He could not explain why he had written the letter, stating:
“I’ve got no idea, Your Honour. I really haven’t. They might have asked
for something in writing, you know, and I supplied. I don’t know.”[91]
[91] T 830 L 1-4.
156 Mr Sulfaro did not suggest that he had written this letter as a result of any intimidation.
157 Next, Mr Sulfaro swore an affidavit of 5 May 2008, which was filed on behalf of the plaintiff in opposition to setting aside a default judgment that had been entered.[92] In it he described himself as a very close personal friend of the defendant and her husband. He described the execution of the first loan agreement in April 2004 and the extension agreement of July 2004. He stated:
“That to the best of my recollection I collected approximately four monthly payments from the Defendant. These payments were made in cash and I was required to sign for the payments made. At all times I gave the cash that I received to Mr Domenic Lagana. I am informed by Mr Lagana and believe that these payments were then given to the Plaintiff.”[93]
[92] PCB 101.
[93] PCB 103.
158 Mr Sulfaro swore a second affidavit of 19 June 2008, which was filed on behalf of the plaintiff in opposition to an application to set aside a default judgment.[94] In the second affidavit he stated that he had read Mr Joyce’s report dated 10 June 2008, to which I refer below, and had perused copies of receipts 1, 2, 4, 7, 8, 9, 10, 12, 15, 18 and 21. He swore that his writing did not appear on any of the receipts and that when he issued receipts he would write out the entire receipt and then sign it. He swore:
“Save for the signature that appears on receipt no.1, and which bears a
very strong resemblance to mine, all other signatures are not mine.”
and:
“My writing does not appear on any of the receipts. When I issued
receipts I would write out the entire receipt and then sign it.”
[94] PCB 104.
“As deposed in my Affidavit sworn the 5 May 2008 and filed herein prior to my being employed by Northern Securities I was employed by the Defendant. I do not recall the brand of receipt books used by the Defendant when I was employed by her. However the pages contained in those receipt books were similar to the copies of the form of receipt shown to me. It was not unusual for me to pre-sign receipts which I would then use when collecting funds on behalf of the Defendant. It is possible that receipt no.1 is one of those pre-signed receipts, however I have no knowledge of the transaction referred to in that receipt. It is not my usual practice to initial receipts issued by me unless there is some alteration which requires acknowledgment by initialling.”[95]
[95] PCB 104-105.
159 Mr Sulfaro then changed his position and ultimately asserted that he had sworn the affidavits because of intimidation and pressure. He wrote a statement on 4 March 2009 addressed “To Whom It May Concern” and headed “Re: Affidavit dated 05/05/2008” which stated:
“On the above date I was called to the offices of MS Rose Mary Brondolino & Co. Solicitors of Ground Floor 104 Johnson Street Fitzroy 3065 to give an Affidavit on behalf of Mr. Aldo Decorrado v Ms Mary Knowles I went along with Mr Noor Dean. Mr Dean was told that he was not allowed to stay in the Interview room. The reason for taking Mr Dean with me was that I have been ill for quite a number of years and I am on eight (8) tablets per day. Mr Dean was asked to leave the interview room and Mr Decorrado and Mr Domenic Lagana came into the interview room and sat down I immediately felt intimidated.
I commenced to give my statement of events and immediately Mr Lagana and Mr Decorrado commenced to interrupt Ms Brondolino and me while I was giving my version of events as I remembered them:
1) I stated in my affidavit that Mr Noor Dean drew up the Deed of Agreement but it was I that drew it up on behalf of Northern Securities Pty Ltd (Vic) as I was employed by them and I drew it from their template on the computer.
2) At no time was Mr Dean representing M. Knowles.
3) At no time do I remember Ms Knowles’ ex husband Mr Bruno Zausa saying to me that she could not pay her interest. I do not know why I would make that statement as the Original Deed of Agreement does not mention anything about interest payments.
I have read and reread my affidavit I do not remember a lot as Mr Decorrado and Mr Lagana kept disputing what I was saying during the interview I just gave up as I could not take the pressure any longer.”[96]
[96] DCB 89. Mr Sulfaro repeated these allegations in a statutory declaration made on 6 March 2009 - DCB 88.
160 At some point, probably in the early months of 2009, Mr Sulfaro made a complaint to the Law Institute of Victoria about Ms Brondolino’s conduct of the meeting of 5 May 2008 at which his first affidavit was sworn.
161 In early May 2009, Mr Sulfaro made a similar complaint to the Legal Services Commissioner. The substance of Mr Sulfaro’s complaint was that Ms Brondolino had allowed Mr Lagana and the plaintiff to be present when she interviewed him and that he felt under a lot of pressure from Mr Lagana.[97]
[97] DCB 90.
162 On 18 May 2009 and on 21 May 2009, Mr Sulfaro wrote to the Legal Services Commissioner.[98] In the latter correspondence he stated:
“Further to my letter to you dated 18/05/09 I would like to add that it has come to my notice that there is a court case starting in the County Court in Melbourne against Ms Mary Knowles in early June 2009. I believe that this is unjust and unfair as apparently her solicitor is not aware of the situation.
I thought that my situation would be dealt with first.
I believe that Ms Knowles lives alone with her disabled son and some eight years ago she lost her two grand children in a house fire these two children were both under five years of age. I believe that it is unfair what they are trying to do to her.”[99]
[98] DCB 90 and part of Exhibit O.
[99] Part of Exhibit O.
163 On 25 May 2009, the Legal Services Commissioner wrote to Ms Brondolino seeking her reply in respect of the complaint made by Mr Sulfaro.[100]
[100] Part of Ex O.
164 Mr Sulfaro made a further statutory declaration on 30 June 2009 in respect of his affidavit of 19 June 2008, i.e. the second affidavit made on behalf of the plaintiff, in which he stated:
“At the time that I gave the affidavit for the receipt book (which I believe is now in the court system) I was reminded by Mr Lagana who was again present with Mr Decorrado that his previous threats to me still applied if the affidavit was not given to his satisfaction, to this day I do not know why Ms Brondolino allowed them to stay there while I was giving my affidavit. I was again giving an affidavit under duress and it really distressed me.
Ms Knowles and Mr Bruno Zausa would come into the offices of Northern Securities (Vic) Pty Ltd at Suite 5 1. 95 Bell Street Coburg 3058. They would ask for me or Mr Cilmi they would then hand me the money I would count it and then I would take it in to Mr Cilmi who was in his office. He would then sign the book take the original after I had signed and then I would take the book back to Ms Knowles and Mr Zausa who were waiting outside.”[101]
[101] Exhibit 11.
165 This was the first occasion when Mr Sulfaro departed from his previous sworn statements that his signature did not appear on a number of the receipts.
Evidence of Ms Brondolino
166 At this point it is appropriate to refer to the evidence of Ms Brondolino, who is the plaintiff’s lawyer, concerning the preparation of Mr Sulfaro’s affidavits.
167 I allowed the plaintiff to re-open his case to call Ms Brondolino about the allegations of Mr Sulfaro and Mr Dean made in respect of the events at her office when the affidavits of May and June 2008 were sworn. These allegations had not been put to any of the relevant witnesses called on behalf of the plaintiff.
168 Ms Brondolino’s evidence was that on 5 May 2008 Mr Cilmi had an appointment with her for 5.30 pm, but at that time Mr Sulfaro and Mr Dean attended without an appointment, telling her that Mr Lagana had made an appointment for them.
169 After conferring by telephone with the plaintiff’s counsel, Ms Brondolino directed Mr Dean to remain outside her office because, as she said, he had acted for the defendant on the occasion of the first loan agreement. She then sat down and proceeded to take instructions for Mr Sulfaro’s affidavit. Mr Dean came to the door after fifteen to twenty minutes and said that he was leaving. The plaintiff and Mr Lagana were present at the office at the time, because they anticipated that Mr Cilmi would arrive. They had recently made affidavits. Mr Cilmi did not arrive until 7.00 pm. Mr Sulfaro was not intimidated in her presence and no threats made to him about his affidavit. The plaintiff sat outside and Mr Lagana walked in and out. Mr Sulfaro appeared quite comfortable and the atmosphere was jovial.[102]
[102] T 934-937.
170 The plaintiff and Mr Lagana were also present at Ms Brondolino’s office when Mr Sulfaro gave instructions about the affidavit of 16 June 2008.[103] All three appeared to be very comfortable in each other’s presence and were jovial. It was explained to Mr Sulfaro that he would have to come to Court when the matter was on, and he was quite happy to do so.[104]
[103] T 939 L 29-31.
[104] T 942 L 14-21.
171 Mr Dean gave evidence about the meeting of May 2008. He said that he was requested by Mr Lagana to attend Ms Brondolino’s office to swear an affidavit on behalf of the plaintiff.[105] He and Mr Sulfaro met at Ms Brondolino’s office. Mr Sulfaro waited in the reception area while Mr Dean went in to speak with Ms Brondolino. Ms Brondolino asked him whether he could make a statement in relation to the preparation of the loan documents.[106] He told Ms Brondolino that he could not talk to her because he did not know anything about the matter. Mr Dean stated that the plaintiff and Mr Lagana were standing behind him during his conversation with Ms Brondolino.[107] Mr Lagana was not questioned about this. Mr Dean did not make a statement and he left Ms Brondolino’s office.
[105] T 862 and DCB 80.
[106] T 863; T 890.
[107] T 891.
172 Mr Dean wrote to the Legal Services Commissioner on 26 February 2009 concerning the plaintiff’s complaint about his failure to register the second mortgage and in relevant parts stated:
“10.
Sometime later as a result of a Court action against (Ms Knowles who is known to me) by Mr Decorrado, I was approached by Mr Legana who asked me to attend at the offices of Ms Brondolino and to make and swear an Affidavit on behalf of the Lender Mr Decorrado. I attended the office of Ms Brondolino where I met this Lawyer for the first time. She in turn called her Counsel involved in this matter and I was asked certain questions relating to the loan documents with Ms Knowles.
11.
I repeated to both Ms Brondolino and her Barrister (who was on the telephone to her) that I could not and would not make any affidavit that I considered as false. I had nothing to do with this matter and merely met the parties at the offices of Mr Cilmi in Coburg on a day some years ago. I left the office of Brondolino & Co and have not spoken to her or any person since with the exception of Mr Sulfaro, Mr Decorrado and Mr Legana.
12.
Sometime late last year, Mr Decorrado and Mr Legana both visited me at the offices of Buxton & Associates where I am employed. They sought to have me make a statement which I considered to be false in relation to this matter. I refused to do so. They left the premises shortly thereafter.
13.
I deny any wrong-doing in this matter. I have not received any monies in relation to the subject documents neither have I dealt with them.”[108]
[108] DCB 80.
173 In evidence, Mr Dean said, that when the plaintiff and Mr Lagana visited him at work the plaintiff told him that:
“I have made Mr Cilmi a very rich man and you will never look back. You are going to be a rich man if you assist me. I want to get this Mrs Knowles. I’m after her property.”[109]
[109] T 864 L 211-28.
174 Mr Dean said that he replied that he did not know the defendant and had no dealings with her. Mr Dean’s evidence was that the plaintiff said that they had all the paperwork there and it showed that Mr Sulfaro was responsible for “all these papers”.
175 The plaintiff replied:
“It doesn’t matter, all you have to say is that you prepared it, you assisted
her, that she had assistance present on the day.”
176 Mr Dean said that he refused the request because it would be a lie.[110]
[110] T 864- T 865.
177 Mr Dean also gave evidence of threats made to Mr Sulfaro by Mr Lagana. The first was long before the events of April 2004 when he had been at Mr Sulfaro’s office in West Footscray, when Mr Lagana came into that office and threatened to break his leg and throw him from wall to wall.[111] Mr Dean advised him to go to the police. Mr Sulfaro did not give evidence of this incident and it was not put to Mr Lagana in cross-examination.
[111] T 893.
178 The second was that Mr Sulfaro told him some weeks after the meeting of 5 May 2008, that before that meeting, the plaintiff and Mr Lagana threatened to break his other leg if he did not say what they wanted him to say.[112] A couple of weeks after his meeting at Ms Brondolino’s office, Mr Sulfaro was again threatened by Mr Lagana.[113] He told Mr Sulfaro to go to the police.
[112] T 892.
[113] T 894.
179 These matters were not put to the plaintiff or Mr Lagana in cross-examination.
180 I do not find that these incidents throw light on the central issues in the case. I am not prepared to make findings against Mr Lagana, when these events were not put to him.
181 I refused an application to call counsel to state whether Mr Sulfaro had complained of intimidation when they met outside Court during a directions hearing. I did not consider that any such evidence would be probative.
182 I do take into account that Mr Sulfaro feared Mr Lagana, who had some significant criminal convictions and that Mr Sulfaro suffered from medical disabilities. But in May and June 2008 Mr Sulfaro was still supporting the plaintiff’s case. It is true that my conclusions mean that those affidavits do contain errors of fact, e.g. Mr Dean did not act as solicitor for the defendant. But I do not consider that the evidence establishes that the Mr Sulfaro’s first two affidavits were produced as a result of intimidation from the plaintiff, or Mr Lagana.
183 I accept Ms Brondolino’s evidence. I see nothing sinister in the plaintiff and Mr Lagana being present when Mr Sulfaro’s affidavits were prepared in May and June 2008. Mr Sulfaro had prepared at least the first loan agreement.
Conclusions concerning Mr Sulfaro’s Evidence
184 I have already found that the plaintiff and the defendant did sign the Extension of Agreement in July 2004. I consider it probable that it was witnessed by Mr Sulfaro.
185 I consider that for the following reasons, Mr Sulfaro’s evidence that the defendant made repayments and that he and Mr Cilmi signed receipts in respect of those should not be accepted:
•
First, there are the contradictory letters, affidavits and statutory declarations. In particular, Mr Sulfaro was unable to provide an explanation for why he wrote the letter to the plaintiff of 26 June 2007.
•
Second, he denied that his signature appeared on documents that even the defendant and Mr Zausa accepted contained his signature. The defendant and Mr Zausa said that Mr Sulfaro’s signature appeared on the Addendum and the Extension of Agreement but he denied it and expressed horror at seeing his name on it.[114] Mr Joyce, a hand writing expert, whose evidence I refer to below concluded that Mr Sulfaro had signed the Extension of Agreement.
•
Third, despite the intimidation he felt at the time that he made his first affidavit, and having obtained Mr Dean’s advice and spoken to the police about the intimidation, he made a second affidavit of 19 June 2008.[115] His explanation for this delay was that it took a long time for him to choose to react to the intimidation.
•
Fourth, it was never put to Mr Lagana in cross-examination that he had intimidated Mr Sulfaro when he was making his affidavits.[116]
[114] See T 481 (the defendant) T634 (Mr Zausa) and T 794 and DCB 86 (Mr Sulfaro).
[115] T 805, T 808, T 816.
[116] T 271-T 287 and T 931 L 1-L 6.
The Plaintiff’s Evidence about the Receipt Book
186 The Plaintiff’s evidence on this issue included both the evidence of the plaintiff, Mr Cilmi, Mr Vassalo and Mr Lagana as well as the expert evidence of Mr Joyce.
Evidence of Mr Decorrado
187 Mr Decorrado said that he received $30,000 in cash paid into his joint bank account with his wife on 30 April 2004. He also received a cheque following the Challenger refinancing for approximately $61,000 on 23 December 2005.[117] In the period between those two payments he received four payments of $4,600 each in the four months October 2004 to January 2005, which had been paid to Mr Lagana by Mr Sulfaro.[118] Mr Decorrado said that he had never seen the receipt book before and that he did not receive the moneys recorded in the receipt book.[119]
Evidence of Mr Cilmi
[117] T 52 L 18-32.
[118] T 53 L 1-18.
[119] T 128 L 24- 31.
188 Mr Cilmi denied that the signatures in the receipt book that bore his name were his signatures.[120] He denied that he signed any receipts.[121] He said that because of the layout of the office he would have known if the defendant and Mr Zausa attended it. He said that Northern Securities had its own receipt books and that if money had been received a receipt would have been issued. Mr Cilmi stated that it appeared that Mr Sulfaro had signed the receipts but he couldn’t be “a hundred percent sure”.[122]
Evidence of Mr Vassalo
[120] T 190 L 23- 191 L 31; T 226 L 1- 23.
[121] T 193 L 19-22.
[122] T 226 L 24-26.
189 Mr J Vassalo was a director of Northern Securities between 2002 and 2007. He was present when the first loan agreement was signed and supported the plaintiff and Mr Cilmi’s account of the events of that day. His office at Northern Securities was close to the reception desk and he would have been able to hear of any person’s attendance. He had never known the defendant to attend the office and pay money. Any money that came in would have been given to him to put in the office safe.[123]
Evidence of Mr Lagana
[123] T 155 L 13-17; T 167 L 9-16; T 172 L 7-16.
190 Mr Lagana gave evidence that after September 2004 he received four monthly payments of $4,600 from Mr Zausa and Mr Sulfaro.[124] He said that he asked Mr Zausa if he wanted a receipt and Mr Zausa said not to worry about it.[125] He said that he was informed by Mr Zausa that as soon as “Costa’s paid out their property, as soon as settlement takes place, we’ll get paid out, and this was on a regular basis.”[126]
237 The plaintiff argued that the conduct of the defendant in relying on a forged receipt book was a reason against finding that the defendant had shown “good cause to the contrary” within the meaning of s.58 of the Supreme Court Act.
238 The plaintiff in a further submission after I had reserved judgement, for which leave was granted, argued that in fact that he was not claiming penalty interest per se, but rather using the penalty interest rate as an appropriate measure of his loss for the detention of the debts after the due date for their repayment. He argued that after the date on which the loans were repayable, interest was not recoverable on the contract, but as damages for the detention of a debt. In the case of the first loan agreement this argument was put as an alternative to the submission that the obligation to pay interest continued after the date for repayment as an implied term – an argument that I have not accepted. In a departure from his position in his initial submissions, the plaintiff submitted that the discretion under s.58 of the Supreme Court Act had no relevance and his damages, measured by the penalty interest rate, must be calculated from the intended repayment date to the date of judgment in the case of the first and second loan agreements and, although it was not expressly stated, presumably also under the third loan agreement, if I found that the default interest rate was a penalty.
239 The defendant responded to this submission by taking issue with the proposition that the plaintiff had suffered damage at the rate measured by s.58 of the Supreme Court Act as a result of a breach of any of the agreements or for “detention of debt”. The defendant argued that the claim was an attempt to reargue a Hungerford v Walker claim,[159] which the plaintiff had sought unsuccessfully to amend his Statement of Claim to add. Alternatively, it was put that there was no evidence that the plaintiff suffered loss in any event - there was no evidence as to what the plaintiff would have done with the money, if the loans had been repaid when due. The evidence at trial was that many of the loans, that the plaintiff entered into through Northern Securities, were failures and that the plaintiff had not recovered interest.[160] Further because of the arrangement about splitting interest with Mr Cilmi and Mr Lagana, the plaintiff would have only received one-third of any interest paid by the defendant.
[159] Hungerfords v Walker (1989) 171 CLR 125.
[160] T 71, L 105-106, 119-120.
240 I was not referred to authority on whether a claim for damages for detention of debt was a Hungerford’s claim. In Hardie v Shadbolt,[161] the Western Australian Court of Appeal dealt with the position where a contract made no express provision for payment of interest after the termination date. Roberts - Smith J., with whom the other members of the Court agreed, applied the principles in Cook v Fowler[162] and stated that:
“The appellant’s failure to make payment of principal and the contractual interest on the termination date was a breach of contract, for which the respondent’s remedy was damages.”[163]
[161] [2004] WASCA 175.
[162] (1874) LR7HL 27.
[163] [2004] WASCA 175, at [46].
241 In Hardie, the plaintiffs, in their Statement of Claim, claimed in the alternative damages, quantified as the amount of principal and interest due on the loan termination date, plus loss of opportunity to use the moneys comprising the principal outstanding from time to time to their commercial advantage, being an amount equivalent to interest earned on the outstanding moneys at the rate of 18 per cent per annum compounded at four monthly rests. Roberts-Smith J. stated that, if established, such a claim may be allowed under the principles in Hungerford’s Case and did allow the statutory rate of 6 per cent per annum from the respective termination date to the date of payment as opportunity cost loss.
242 By way of contrast to Hardie’s Case, in this case the plaintiff in his amended submission does not put the case in this way. He does not claim damages for loss of opportunity in accordance with Hungerford’s Case, but is rather claiming damages for detention of debt.
243 The plaintiff’s amended submission however does mean that the plaintiff seeks to avoid the direct operation of s.58 (1) of the Supreme Court Act and the possibility of the defendant showing “good cause to the contrary” under that sub-section. There is some ambiguity in the framing of the plaintiff’s claim see the particulars to paragraphs 11 and 16 of the amended statement of claim, but his amended submission was ultimately the subject of detailed submissions and I propose to consider the plaintiff’s claim as one for damages for detention of debt.
244 I have considered the cases cited on this question and which are summarised in Fisher and Lightwood’s Law of Mortgage.[164] I consider that damages for detention of debt is the appropriate means of compensating a lender when a loan is not repaid on the due date and the loan contains no default interest rate. In Lai v Gon, Young J stated:
“… The court rate is not always the rate to be adopted in this sort of case,
though it is a very good general guide.”[165]
[164] Australian edition 1995, pps 790-791 and 795.
[165] (1997) 8 BPR 15 cf. Re Andersons Seeds Ltd [1971] 2 NSWLR 120 at 123.
245 I propose to follow that course. I note that in Decorrado v Manoukian, a rate of two thirds of the rate fixed by the Penalty Interest Rates Act was applied and only from the date a demand had been validly made pursuant to s.58(1) of the Supreme Court Act.[166] In this case I see no reason to reduce the interest rate used as a measure of damages, even if I have power to do so. I will apply the rate fixed by the Penalty Interest Rates Act which is currently 10.5 per cent per annum. It will be payable on a simple interest basis from the date when the loans were repayable.
[166] [2009] VSC 451 at [112].
246 Although it appears not to have been the subject of specific submission, it was not suggested that if I found, as I have, that the default interest rate under the third loan agreement was unenforceable as a penalty, that the plaintiff was able then to seek damages for detention of debt in respect of the amount due and owing under that loan agreement. Damages in that measure are not claimed under paragraph 21 of the amended statement of claim. It would not appear consistent with the approach in, or rationale of the detention of debt cases, that where an express default interest rate is held to be unenforceable, that damages for detention of debt could be recovered as an alternative.
247 I do not propose to reduce the damages awarded to the plaintiff for detention of debt, because of the arrangement or agreement that the plaintiff had with Mr Cilmi and Mr Lagana to divide the interest payments received. There was no precise evidence that enables me to determine the legal status of that arrangement.[167] I approach the issue on the basis that it is the plaintiff, who has loaned the money, who has suffered the damage as a result of the detention of debt.
[167] See T 79 and T 201.
248 Had I been considering whether to award interest under s.58(1) of the Supreme Court Act, I would have reached the same result as I have in respect of the award of damages for the detention of debt. This is because I am not persuaded that the defendant has shown “good cause to the contrary” within the meaning of s.58(1). I have found that the loan agreements themselves contain no enforceable interest rate after the repayment date, and unless interest was awarded under s.58(1), the defendant would have had the benefit of an interest free loan over a substantial period. Secondly, the defendant has wrongly maintained that she had repaid the loan when in fact she has not. This consideration counters the plaintiff’s delay in commencing proceeding and the plaintiff’s failure to provide an account of moneys outstanding. Such an account would have been of little utility in circumstances where the defendant was prepared to assert that she had repaid the loans.
Alleged Repayment of $17,500
249 The defendant, in one of the table of calculations provided to the Court, relied on a payment of $17,500 said to have been made by the defendant. On the defendant’s case this arose from evidence from Mr Cilmi and Mr Lagana about a disbursement of interest a couple of days after the first loan agreement.[168] The plaintiff’s explanation was that the figure disbursed was three month’s interest at the notional rate of $5,800 per month, which sums together with costs, had comprised the $20,000 component of the $145,000 loan and had to be treated as notionally received by the plaintiff, Mr Cilmi and Mr Lagana.[169] I accept this explanation. I am not persuaded that the defendant repaid the sum of $17,500 as alleged.
[168] T 1105, which formed part of MFI 1, apparently relying on DCB 13 and T 206 and T 280-281.
[169] T 1107- T 1108.
Amount Owing to the Plaintiff
250 The ascertainment of the amount due to the plaintiff in accordance with my reasons will require some further calculation.
251 The plaintiff is entitled to judgment in respect of the first loan agreement for the sum of $145,000, together with the three amounts due under the Extension of Agreement of $5,100, $4,600 and $4,600 from the dates they were payable. From these amounts must be deducted the sums of $30,000 as from 28 April 2004, $18,400, being four amounts of $4,600 credited as from 7 October, 7 November, 7 December 2004 and 7 January 2005 respectively and $61,471 credited as from 23 December 2005.
252 Damages for detention of debt, calculated on a simple interest basis at the rate of 10.5 per cent per annum, will be added in the case of the three amounts payable under the Extension of Agreement from the dates they were payable, being 9 July 2004, 7 August 2004 and 7 September 2004. In respect of the sum of $145,000, simple interest at the rate of 10.5 per cent per annum is payable from 7 October 2004, being the date when, pursuant to the Extension of Agreement, the first loan was to be repaid: see paragraph 5 of the amended statement of claim and after allowance at the appropriate dates is made for the repayments that I have set out in the second sentence of previous paragraph.
253 In the case of the second loan agreement, the sum of $5,000 is owing, and to that sum will be added damages for detention of debt calculated on a simple interest basis at the rate of 10.5 per cent per annum on that sum from 20 September 2005.
254 In the case of the third loan agreement, the sum of $7,000 is owing. No interest is recoverable on this loan because I have held that the default interest rate is unenforceable as a penalty.
255 I direct the plaintiff to file and serve minutes of orders to give effect to this Judgment.
256 I will hear the parties on costs and any other matters that arise.
Ruling on Costs
257 Counsel for the plaintiff has provided minutes of Proposed Orders to give effect to the Reasons for Judgment that I delivered on 30 March 2010 and also provided a subsequent memorandum on 21 April 2010.
258 The main issues in dispute are whether I should allow two counsels’ fees to the plaintiff and whether I should award indemnity costs to the plaintiff.
259 I consider that I should award two counsels’ fees to the plaintiff. In my opinion the retention of two counsel was reasonably necessary at the time of briefing for the attainment of justice and the enforcement of the plaintiff’s rights: see Oldaker v Currington.[170] I have reached this conclusion, having considered the issues that were ultimately argued at trial. While the defendant’s counsel submitted that a number of them related to credit and that he had presented the case on his own, I consider that they were of sufficient complexity to justify the briefing of two counsel, both of whom were very experienced junior counsel.
[170] [1987] VR 712
260 The plaintiff, in support of its application for certification for two counsel, also referred to the possibility of the counsel who had held the brief initially, being unable to continue to appear because of his involvement in a telephone call with the plaintiff’s solicitor, which was the subject of evidence. Ultimately, counsel was not prevented from appearing. I do not place weight on that factor.
261 The second principal issue is whether I should award indemnity costs against the defendant. Counsel for the plaintiff referred to many matters concerning the defences, which were maintained at trial and the content of, and manner in which, evidence was given by the defendant and the witnesses called on her behalf. I will not repeat each of them. The principal matters related to the defendant’s claim that she had repaid substantial sums of money to the plaintiff as evidenced in a receipt book. This defence was said, correctly in my view, to be an allegation of fraud, in that it amounted to an allegation that the plaintiff was wrongly concealing repayments of the loan. It also contributed to the length of the trial. I did not accept that evidence, and did not accept the defendant’s evidence that Mr Cilmi, on behalf of the plaintiff, had signed the receipts concerned. I also did not accept the evidence of other witnesses called on behalf of the defendant, who swore that Mr Cilmi signed those receipts. The plaintiff referred to authorities dealing with the situation where a party has engaged in unmeritorious, or deliberate or high-handed or other improper conduct warranting the Court showing its disapproval and preventing the successful party being left out-of –pocket.[171]
[171] The plaintiff referred to a number of authorities including: Australian Guarantee Corporation Ltd v De Jager [1984] VR 483; PCRZ Investments Pty Ltd v National Golf Holdings Ltd [2002] VSCA 24; Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 and Degman Pty Ltd (In Liq) v Wright (No 2) [1983] 2 NSWLR 354 and to Williams Civil Procedure, para 63.02.200.
262 The Court can take into account, in determining whether to award indemnity costs against a party, that she had made allegations that the opposite party was guilty of fraud, knowing them to be false. [172]
[172] See Ugly Tribe Co Pty Ltd v Sikola [2001] VSC 189 at [7].
263 The defendant countered by pointing to aspects of the plaintiff’s case including the large sum that the plaintiff had originally claimed against the defendant in comparison with the amount ultimately claimed in final submissions, and the still smaller amount that I awarded in judgement. Counsel referred to the statements in Decorrado v Manoukian[173] as to the consequence of the plaintiff and Mr Cilmi not keeping proper loan records. The defendant also submitted that the proceeding could have been more expeditiously and appropriately dealt with in the Magistrates Court.
[173] [2009] VSC 451.
264 I take into account that a key issue between the parties was concerned with the defendant’s allegation that she had repaid substantial sums of money, which were recorded in the receipt book and which the plaintiff denied receiving. I have rejected that allegation by the defendant. It in effect amounted to a claim that the plaintiff and Mr Cilmi were giving false evidence and were fraudulently not accounting for all the monies that the plaintiff had repaid.
265 Whist such a consideration might often lead to an order for indemnity costs, there are other considerations particular to this case, which in my opinion do not make that an appropriate exercise of the discretion as to costs.
266 These was first the failure of the plaintiff, or Mr Cilmi, to “maintain a contemporaneous record of accounts” to use the phrase of Vickery J. in Decorrado v Manoukian.[174] Second and connected to the first matter, was the failure of Mr Cilmi to provide an account to the plaintiff of the amount of the loan outstanding. Third, was the fact that the plaintiff had entered into loan agreements with the defendant charging very high interest rates and originally claimed compound interest on the moneys outstanding, which meant that his claim originally was for many hundreds of thousands of dollars. This claim was not pursued at trial following the judgment in Decorrado v Manoukian in June 2009 but it had by then been on foot for some time. I consider that these actions of the plaintiff each contributed to the length of the proceeding and provide some counterbalance to the conduct of the defendant referred to above.
[174] [2009] VSC 451 at [16]-[17].
267 A further basis for the plaintiff’s claim for indemnity costs was a Calderbank offer made by the plaintiff on 28 September 2009, while the trial was part heard. In that offer the plaintiff’s solicitors indicated that they were prepared to accept in settlement of the proceeding a total of $80,000 plus costs, to be taxed in default of agreement on County Court Scale D. The offer was left open until 4.00 pm the following day, 29 September 2009. The trial resumed on 30 September 2009. I do not consider that I should award indemnity costs on the basis of that offer. I consider that taking into account the stage of the proceeding at which the offer was received and the time allowed to the defendant to consider the offer, that the rejection of it by the defendant was not unreasonable: see Hazeldene’s Chicken Farm Pty Ltd v Victorian Work Cover Authority (No.2).[175]
[175] (2005) 13 VR 435.
268 I therefore propose to award costs to the plaintiff against the defendant on a party- party basis.
269 A further issue argued was in respect of the question of a stay. The defendant sought 120 days so that refinancing of her property could occur to enable the judgment to be paid. I do not propose to grant that application. I consider that the defendant has had an opportunity to refinance her property, both while this trial was awaiting hearing, during the period that I reserved judgment and since 30 March 2010 when I delivered my Reasons for Judgment. I do propose however, to grant a stay of thirty days during which interest will continue to run, because the orders proposed, including those proposed by plaintiff’s counsel on 21 April 2010, require the defendant to redeliver the mortgage to the plaintiff and enable her to seek to refinance her property.
270 I will deal with the remaining matters in dispute briefly.
271 I accept that a period of ten hours was appropriate for counsel’s preparation in relation to the application before his Honour Judge Holt on 26 June 2008, which related to the application to set aside a default judgment. That application appears to have been a detailed matter and I consider the hours claimed to be appropriate.
272 I consider that I should reduce the hours claimed in respect of preparation for mediation. While no doubt the hours claimed were thought necessary, I consider that as the mediation occurred in the course of the trial, that an award of four hours’ preparation is appropriate.
273 I accept that the order sought in respect of preparation by counsel for the plaintiff is appropriate.
274 I consider that the fee claimed by counsel upon hearing judgment on 30 March 2010 was appropriate.
275 In the minutes of proposed orders there was an application made in paragraphs 3 and 4 for a default judgment entitling the plaintiff to recover possession of the defendant’s land and be at liberty to sell it. Those orders were not ultimately pressed, but in any event I am not persuaded that they are appropriate in this proceeding.
276 I will make Orders in accordance with these Reasons.
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