Decorrado v Manoukian
[2009] VSC 451
•23 DECEMBER 2009
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
No. 7536 of 2007
| ALDO DECORRADO | Plaintiff |
| v | |
| KHATCHICK MANOUKIAN & ANOR | Defendants |
---
JUDGE: | VICKERY J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 9–11, 16 JUNE and 9 DECEMBER 2009 | |
DATE OF JUDGMENT: | 23 DECEMBER 2009 | |
CASE MAY BE CITED AS: | DECORRADO v MANOUKIAN | |
MEDIUM NEUTRAL CITATION: | [2009] VSC 451 | |
---
DEBTS – Construction of loan agreement – Loan agreement silent on whether simple or compound interest payable – Whether interest chargeable after termination of loan agreement.
COSTS – Calderbank letter – Order for costs to be paid by successful plaintiff on an indemnity basis - Recovery of small sum – Balance of costs awarded on Magistrates’ Court scale.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr W. Stark | DKL Lawyers |
| For the Defendant | Mr G. Hardy | Law 554 (Gerard A. Conlan) |
HIS HONOUR:
These reasons contain the revised reasons delivered ex tempore on 16 June 2009, together with reasons and determination of costs following the further hearing conducted on 9 December 2009.
In this case the plaintiff, Mr Decorrado, claims money outstanding on two loan agreements which he entered into with the first defendant, Mr Manoukian, and ancillary relief. Mr Manoukian was a licensed real estate agent. Mr Manoukian owned two properties. One was situated at 5 Peppermint Grove, Meadow Heights, and a second at 24 Piper Street, Fawkner in Victoria. A third property situated at 10 Bromwich Court in Mill Park at the relevant time was owned by Mr Manoukian’s former wife.
In mid-2005 Mr Manoukian was in urgent need of funds. Mr Cilmi was a person well known to Mr Manoukian. For a period of time Mr Manoukian conducted his business from Mr Cilmi's office. Mr Cilmi acted as a finance broker and conducted a business known as Northern Securities. He had an arrangement with Mr Decorrado, the plaintiff, to loan Mr Decorrado's money to approved persons on request from time to time. This was a relationship based on trust.
Mr Decorrado from time to time had a pool of money deposited with Mr Cilmi for this purpose. Customarily a high rate of interest would be charged on loans lent out by Mr Cilmi using Mr Decorrado's money. In this case the relevant loans were advanced on an interest rate of three per cent per month or 36 per cent per annum. In administering the loans Mr Cilmi and Mr Decorrado would customarily meet together, usually on a monthly basis, to discuss the position of the loans and make any adjustments between them as was determined to be necessary.
In June 2005 Mr Manoukian approached Mr Cilmi for a loan of $50,000. Mr Cilmi on behalf of Mr Decorrado agreed to make funds in the sum of $50,000 available to Mr Manoukian and make an advance on that basis. In order to formalise the loan that was proposed, Mr Cilmi engaged a Mr Sulfaro to draw up a loan agreement, which I will call the first loan agreement. It was to the following effect: The lender was Mr Decorrado and the borrower was Mr Manoukian. The sum agreed to be lent and advanced to the borrower was $50,000. The loan was to be for a period of three months. The lender was to be paid the whole of the sum of $50,000 on repayment, together with interest at the rate of three per cent per month. Interest was to be payable in advance of the loan money advanced. There were security provisions in the first loan agreement found in clause 3 of the agreement. By these terms the borrower agreed as follows:
3.The Borrower personally agrees that the Lender shall have the first right to secure his loan amount so advanced and giving rise to an equitable interest (the loan) over their property specified as Volume 1003 Folio 425 and Volume 05409 Folio 702 and Volume Folio entitling him to file a Caveat and Registered Second Mortgage over the said titles to property so described, situated at 5 Peppermint Grove Meadow Heights and 24 Piper Street Fawkner 10 Bromwich Crt Mill Park 3082.
I accept that the property, 10 Bromwich Court, Mill Park was mentioned as an address in the security provision to which I have referred. However, no title particulars in respect of that property were provided. That takes on a significance in the clause because what is described as the property which is the subject of the security, entitling the lender to file a caveat and registered second mortgage over the titles to the property, are the properties "so described". This refers to what had been set out in the clause, namely the properties described by use of certificate of title numbers. Furthermore, I also accept the evidence of Mr Manoukian that this property was, at the relevant time, owned by his former wife. He was therefore not in a position to grant a security in respect of it. In this context, the absence of title particulars in my opinion evidences an intention not to have this particular property included as one of the securities under first loan agreement.
The first loan agreement, as I have described it, was executed by the parties to it, namely Mr Decorrado as a lender and Mr Manoukian as the borrower. The agreement was dated 28 June 2005. Mr Manoukian gave evidence that he was expecting the full sum of $50,000, less any interest payable in advance, to be paid to him on the signing of the agreement. If the agreement on its face is to be taken as the sole repository of the terms of the first loan agreement between the parties, there may well have been justification in adopting this construction.
However, it appears that the first loan agreement was partly in writing and partly oral. The agreement on its face did not provide for the payment of the loan moneys to be by way of instalments, rather as appears from the text of the first loan agreement, the sum of $50,000 on any fair reading was to be provided as an advance in a lump sum upon execution of the agreement or shortly thereafter. Mr Cilmi on the other hand gave evidence that at or about the time of the execution of the first loan agreement, Mr Decorrado did not have the full sum available to lend because he was awaiting payment out of other loans. Mr Cilmi said that he told Mr Manoukian of this position and that instalments of the loan to be advanced would be paid when moneys became available.
Whether or not Mr Manoukian's version of events in this respect is correct or that of Mr Cilmi is to be preferred, is of no great moment. What occurred was that the loan moneys were paid progressively by Mr Cilmi on account of Mr Decorrado and on his behalf from time to time pursuant to the first loan agreement. Those sums were not paid in a lump sum, as contemplated by the text of the agreement, but rather payment of a number was effected by sums of money advanced progressively over a period of time between 23 June 2005 and 16 September 2005.
The first loan agreement was for a period of three months which, when applied to the date of the agreement being 28 June 2005, meant that it expired three months later on 28 September 2005.
Following entry into the first loan agreement, Mr Manoukian, being in further need of funds, entered into a second loan agreement with Mr Decorrado. This again was in writing and was drawn up by Mr Sulfaro at the request of Mr Cilmi.
Mr Manoukian's position was that he did not admit to executing the second agreement as pleaded in his defence. However, he did not at trial contend that his signature did not appear in the signing section of the second agreement and it was ultimately not contested that he did in fact execute the document. Accordingly I find that Mr Manoukian did execute the second loan agreement as did Mr Decorrado. The second loan agreement was dated 22 July 2005.
The second loan agreement was in similar terms to the first loan agreement, save for two important differences. First the sum loaned pursuant to the second loan agreement was $25,000. Second the security provided pursuant to the security provision of the second loan agreement was solely in respect of the property situated at 10 Bromwich Court, Mill Park in Victoria. In this case the Certificate of Title, volume and folio number for the security property was properly included. However, it was a property, as I have found, which was then owned by Mr Manoukian's former wife. He was not therefore in a position to grant the contemplated security in respect of it.
Again in relation to the second loan agreement, moneys were not advanced in the full sum of the loan, upon entry into the agreement. Rather sums of money were advanced pursuant to the second loan agreement progressively in instalments from time to time between 3 August 2005 and 27 September 2005.
At trial Mr Manoukian's position in relation to both loans was essentially that, although Mr Cilmi did advance funds to Mr Manoukian from time to time, these funds were provided by way of loans personally from Mr Cilmi to Mr Manoukian and not from Mr Decorrado to Mr Manoukian. They were not therefore advances made pursuant to either the first loan agreement or the second loan agreement. Consequently it was said there were no moneys owing by Mr Manoukian to Mr Decorrado. He said further that if there were indeed other moneys advanced, they were paid to other persons and not himself. Consequently he says that he is not responsible for those moneys and has no liability to repay them. Mr Manoukian also said if there were moneys advanced pursuant to either or both of the agreements by Mr Decorrado, those moneys had been repaid in full.
This litigation occupied three days at trial. The problem which was highlighted, arose in my view directly by a failure on the part of Mr Cilmi to maintain adequate accounts. Indeed, his accounting system, as he frankly conceded in relation to the administration of the two loans, was virtually non-existent.
If a party wishes to enforce its rights under a loan agreement and expects to be in a position to do so by taking action in a court of law it is essential to maintain a contemporaneous record of accounts. These can become admissible upon the necessary threshold being met pursuant to s.55 of the Evidence Act1958 insofar as that section relates to business records. This is a matter of commonsense. No such business records were contemporaneously maintained in this case. There was an attempt at later times through a bookkeeper to reconstruct the accounts, however, that reconstruction was less than ideal and was no substitute for contemporaneous records being maintained.
The resolution of this case must therefore depend on findings based on the material that is available and admitted into evidence, and the evidence of the witnesses who were called. It also involves me having to make findings as to the credit of Mr Cilmi and Mr Manoukian insofar as their evidence conflicted.
I find that Mr Cilmi was neglectful of his accounts to a marked degree, as I have found. He frankly confessed that this was the case. Nevertheless, and with that reservation, I accept his evidence so far as it goes as an honest recollection of the events as far as he could recount those events.
Mr Manoukian's evidence suffered from two significant problems in terms of its credit worthiness. First, in an affidavit which Mr Manoukian swore on 14 August 2007, Mr Manoukian said this:
I did not ever receive any payment from the plaintiff, although the loan agreement has an acknowledgement of receipt of those funds from the plaintiff. On the day of execution of the loan agreement I received $5,000 from Mr Cilmi and a further $15,000 from him two days later on 30 June. Neither of these funds were from the plaintiff and I continued to receive advances from Mr Cilmi over the next three months which approximately totalled $65,000 the advances.
The statement, which included a concession made by Mr Manoukian that he continued to receive advances from Mr Cilmi over three months, which totalled approximately $65,000, was understandably responded to and emphasised by the affidavits which were put in in opposition to Mr Manoukian's affidavit by Mr Deccorado.
Mr Manoukian in a reply affidavit which was dated 31 August 2005 recanted on the position which he had taken earlier. He said in that reply affidavit:
I deny that I re-borrowed any money from the plaintiff. The loan agreement does not have any provisions in it that say that the plaintiff can re-lend the money to me once I have repaid. I also deny that I borrowed a total of about $65,000 from the plaintiff. In my first affidavit I swore that I had received approximately $65,000.
Having now seen the loan accounts and checked my records it is clear that I only ever borrowed the amount of $34,998.11 from the plaintiff. Any other moneys were borrowed from Mr Cilmi personally as he represented to me and Dib Hassan Dib that same sum of the moneys he lent us were his own funds.
Although something of an explanation is provided for the position taken earlier that approximately $65,000 was advanced, it does demonstrate the capacity of Mr Manoukian to change his story when confronted with fact and also a propensity to advance an inaccurate position.
The second matter which compromises Mr Manoukian's evidence to a significant degree arises from his statement in the first affidavit to which I have referred, being his affidavit of 14 August 2007. Mr Manoukian swore:
I did not execute the further loan agreement referred to in the affidavit of the plaintiff, that is not my signature which appears on that document.
In the witness box Mr Manoukian gave evidence as to his signature on the second agreement. He said that it looked like his signature, but certainly did not adopt the position that he had previously advanced in his affidavit, being a positive assertion that what appeared on the second loan agreement was not his signature. That is a significant matter which I take into account in assessing the credit worthiness of Mr Manoukian's evidence.
Accordingly where there is a conflict between the evidence of Mr Manoukian and that of Mr Cilmi, I prefer the evidence of Mr Cilmi.
Moneys Due Under the Loan Agreements
The plaintiff Mr Deccorado in final address produced a schedule which set out the payments said to have been advanced pursuant to the first loan agreement and the second loan agreement. Under the first loan agreement the total principal advanced between 23 June 2005 and 16 September 2005 was said to be $57,455 arising from 12 payments made in that period. As to the second loan agreement, the plaintiff said that between 3 August 2005 and 27 September 2005 a total of $18,598 was advanced pursuant to eight advances made in that period. The plaintiff therefore alleges that a total of $76,053 was advanced pursuant to the first and the second agreements.
It is common ground that advances were made during the relevant periods, however, it is not common ground that the advances were provided pursuant to either the first agreement or the second loan agreement.
I find that all of the advances that are alleged by the plaintiff were in fact paid to Mr Manoukian or at his direction and were paid either pursuant to the first loan agreement or the second loan agreement.
There were a number of advances that were the subject of a direct dispute in the sense that they were said not to have been paid to Mr Manoukian at all.
The first in this category was a payment said to have been made on 28 June 2005 by cheque No. 579 payable to Dib Hassan Dib in the sum of $10,000. This was described by the first defendant in closing address as the “on the spot cheque”. Mr Dib said at that time that he was in need of money, that he went to Mr Cilmi who was known to him. Mr Cilmi paid him the advance without any further question, “on the spot” so it was said. This was made payable by way of a cheque to Mr Dib in the sum of $10,000 on or about 28 June 2005.
I find this version of events inherently unlikely. Even though Mr Cilmi was neglectful of his paperwork, it is not likely that even he would have made an advance of such an amount unsupported by a loan agreement or at least an acknowledgement even in a rudimentary form. Mr Cilmi said in his evidence in describing the “on the spot cheque”:
The following cheque was for a cheque for $10,000. Mr Manoukian requested that the cheque be made payable to a Mr Dib and that was drawn on 28 June 2005.
I accept that brief account of the payment. There was evidence that Mr Manoukian was accustomed to borrowing moneys from Mr Dib from time to time, although the sum of $10,000 paid to Mr Dib on 28 June 2005 was not directly proven to be referable to this. More than likely it was undertaken pursuant to some form of business arrangement between the two men, although the precise details of the arrangement are not in evidence.
I find that this payment of $10,000 was payable pursuant to the first loan agreement as an advance from Mr Decorrado provided on his behalf by Mr Cilmi.
The second sum in dispute was a payment by cheque of 29 June 2005, being cheque No. 584. That payment was by way of a cash cheque in the sum of $5,000. Mr Cilmi said of this payment, describing a cheque No. 584 of 29 June 2005 for $5,000: "Mr Manoukian, he asked me for that cheque to be cashed, in other words, he went through the bank and he cashed the cheque". The question was then put to Mr Cilmi, "How do you know he went to the bank and cashed the cheque?" The answer given by Mr Cilmi was:
Because it appeared on my bank statement as the cheque being paid and also when I asked the bank to send me a copy of the original cheque, which is the usual request the banks want when they cash the cheque.
Further to that evidence, a cheque butt was produced in evidence and a cheque was identified as being in the handwriting of Mr Cilmi. The cheque butt in respect of cheque 584 was endorsed in handwriting, "Jim Manoukian," which endorsement was said to have been done by Mr Cilmi. I accept that as a rudimentary business record. It evidences the cheque of $5,000 to cash being paid to Mr Manoukian on or about 29 June 2005.
The third payment in dispute was a cheque of 4 July 2005 payable to Collect Pty Ltd in the sum of $10,000. The evidence given by Mr Dib was that he, at about that time, was in the process of purchasing a residential property. The purchase price for that property was $160,000. The sum of $16,000 was required to be paid by way of a 10 per cent deposit. Mr Dib said that he needed to borrow the sum of $10,000 of that deposit in order to pay the deposit and secure the property. He approached his solicitor, Mr Conlan. Mr Conlan arranged for a loan to Mr Dib of $10,000 through a company associated with him called Collect Pty Ltd. Mr Dib subsequently had a need to repay the loan to the company, Collect Pty Ltd.
Mr Cilmi gave evidence in relation to the payment. He said it was a cheque dated 4 July which was payable to Collect Pty Ltd, being cheque No. 593. Mr Stark, counsel for Mr Deccorado asked the following question of Mr Cilmi, "You said you wrote on the cheque butt?" "Yeah, as Jim". The cheque butt records a payment of $10,000 on 4 July 2005 and also noted on that cheque butt was the word "Jim" as identified by Mr Cilmi. I accept that this is a business record which records the payment made on behalf of Mr Manoukian on that occasion.
Further evidence was given about this cheque where Mr Stark asked Mr Cilmi the following:
Could you have a look at where you see cheque 593 is drawn on the account? It's either going to be after 4 June or 4 July, I'm assuming.
Mr Cilmi said his eyes were playing up but he was eventually able to identify the cheque and said this:
On 8 July cheque number - the last three numbers are 595 for an amount - I'm sorry, my eyes are playing up, 593, definitely 5 July. Yes, it is 5 July, yes, so I presume that it must have been 4 July and was paid by my bank on the following day on 5 July.
I accept the evidence of Mr Cilmi and make the finding that that sum was advanced pursuant to the first agreement on behalf of Mr Deccorado, payable at the direction of Mr Manoukian to Mr Dib to pay out Collect Pty Ltd pursuant to an arrangement between both Mr Manoukian and Mr Dib.
The next payment in dispute was that of 8 July 2005, being cheque No. 595. That was a cash cheque in the sum of $2,966. Mr Cilmi said this about the cheque:
Q:When was the next cheque that you gave to Mr Manoukian?
A:On 8 July, cheque number, the last three numbers 595, for an amount of 2966 made payable to Jim Manoukian.
Q:Your cheque butt says Jim Manoukian?
A:Yes, yes.
Mr Cilmi was then shown the copy cheque in the court book and he identified the cheque as having been signed by him. Mr Cilmi then said further, in response to the following questions:
Q:When was the last time you saw that cheque, the original of that cheque?
A:Only at the time when I gave it to him, that was it. He did go to the bank and cash it.
Q:When was the next cheque that you drew for Mr Manoukian?
Mr Cilmi then referred to cheque No. 596 for $2,000, which is not in dispute.
The last cheque in dispute under the first agreement, was cheque for $10,000 dated 16 September 2005. It was a cheque drawn from the account of Lucia DiPietro who is Mr Cilmi’s partner. It was payable to Mr Dib Hassan Dib. As to this cheque, the plaintiff's counsel, Mr Stark asked the following of Mr Cilmi: "All right, now, apart from taking money out of your cheque account and paying cash, were any funds advanced to Mr Manoukian in any other way?" The answer given by Mr Cilmi was "Yes, from my wife's account with St George Bank". The examination proceeded:
Q:How did that come about?
A:Well, I didn't have any money and he insisted on having some money, so I dipped into my wife's - I got authority to sign on the account, so I used the funds to help him - them out.
Q:So on your wife's account you drew a cheque, how much was it for?
A:I think about two - 10,000 was one and there may have been another, I'm not a hundred per cent. I think there were two cheques drawn.
Q:So, if I can just take his Honour through step by step how it happened. He arrived at your office or did you go and see him?
Mr Cilmi explained further:
Yes, obviously unannounced. He was part of the family there. He come in, he says, “I need some money”, and I said, “I haven't got any”. “Come on, can't I have it?” blah, blah, blah. So, I looked into my wife's account and she had a bit of money on the side there, so I wrote a cheque. She's got a cheque account with St George Bank and I drew the money from her. I'm signatory to her account, plus the fact that she knew what I was doing, so the idea, of course, is to put money back afterwards, and I did that, Your Honour, to satisfy his constant demand on a daily basis and I did it. He definitely received the money.
He then was asked whether it was his money or Mr Deccorado's money? Mr Cilmi continued:
All the money, your Honour, was always funded by Mr Deccorado, this case and any other case. The money unfortunately waiting for settlements wasn't there on time all the time, that's why the money in this particular case was disbursed progressively but I always – Mr Deccorado made good whatever I gave. There's evidence in there that a large amount of money was put into my account to satisfy the demand,
and then the answer stops.
I make the finding that in fact the money advanced on 16 September of 2005, in the sum of $10,000, was advanced pursuant to the first loan agreement. This was undertaken pursuant to the arrangement between Mr Deccorado and Mr Cilmi which enabled Mr Cilmi to advance Mr Deccorado's money by way of loans. The arrangement also permitted Mr Cilmi to advance his own money from time to time on the basis that the loans so advanced would be treated as advances made by Mr Deccorado and would be repaid to Mr Cilmi by Mr Deccorado when funds became available.
Pursuant to the second agreement there were also some cheques which were in dispute.
The first was that of 3 August 2005. That was cheque No. 617. It was payable to Silvia Manoukian in respect of an ING home loan payment. The sum was for $6,098.11. The evidence given by Mr Cilmi, when the relevant cheque butts were put to him, was: "Are they the cheque butts you have got in front of you?" "Yes". "OK. The first cheque was on 2 August 2005", "No. 617 payable to Sylvia Manoukian for an amount of $6,098.51". The copy cheque was referred to Mr Cilmi and he said in relation to it:
It's a cheque, yes, drawn on 3 August on the butt but looks - appeared to be 2 or could be 3, anyway.
The question was then put: "Does it have your signature on it?" "That's got my signature on it, yes, it's to Sylvia Manoukian". The cheque was paid to Mr Manoukian’s wife and I infer that that this cheque was advanced at the direction Mr Manoukian pursuant to the second agreement.
The second cheque in dispute under the second loan agreement was dated 22 September 2005. This was a cash cheque in the sum of $3,000. The evidence of Mr Cilmi, in response to questions put by the plaintiff’s counsel, proceeded as follows:
Q:Can you just tell his Honour the next payment, 22 September?
A:22 September, it's cashed to Mr Manoukian.
Q:What cheque number?
A:Cheque No. 65 for $3,000.
Q:Could you look at 218 in the Court Book, that is the cheque in question, $3,000 again, please pay cash.
Following this examination, the cheque of 22 September 2005 was then admitted by Mr Manoukian’s counsel as being advance to Mr Manoukian under the second loan agreement.
The next cheque, another cash cheque but for $2,000, was also dated 22 September 2005. This cheque was also given to Mr Manoukian pursuant to the second loan agreement.
The cheque dated cheque of 27 September 2005 was the last cheque in issue in this proceeding. Again I find that the cheque payable on 27 September 2005, being cheque No. 669, which was payable to cash, was in fact paid by Mr Cilmi on behalf of Mr Decorrado to Mr Manoukian pursuant to the second loan agreement.
I therefore find that each of the cheque payments, which are referred to in the schedules prepared by the plaintiff, were in fact paid to Mr Manoukian or at his direction and were paid pursuant to either the loan first agreement in the case of those cheques dated between 23 June 2005 and 16 September 2005, or the second loan agreement, in the case of those cheques dated between 3 August 2005 and 27 September 2005.
I therefore find that a total of $57,455 was advanced under the first agreement as principal by Mr Decorrado to Mr Manoukian and the sum of $18,598 was advanced under the second agreement as principal by Mr Decorrado to Mr Manoukian. I further find that on 28 August 2005 the sum of $46,703 was repaid by Mr Manoukian under the first agreement, leaving an amount of principal then outstanding of $10,752 pursuant to the first loan agreement.
The sum of $18,598 was initially outstanding as principal under the second agreement, subject to what I have to say further on the matter.
Subsequently, on 28 December 2008 the sum of $6,000 was repaid, and on 14 March 2006 the sum of $11,500 was repaid. I have not been able to discern whether these payments were in respect of principal or interest or both, or whether they were payments in respect of the first loan agreement or the second loan agreement, or both, and if so, in what proportions.
Interest
As to interest there were two issues which arose. First, whether or not interest should be calculated under the agreements on a compound interest basis or should it to be calculated on a simple interest basis. The second issue which arose concerning interest is whether or not the interest payable under each loan agreement extended beyond the respective periods of the loan agreement in each case. The first agreement terminated three months after it commenced on 28 September 2005 and the second agreement terminated three months after it commenced on 22 October 2005.
Simple or Compound Interest?
When one examines the agreements they had common terms relating to interest which are found in clause 4 in each case. Taking the first agreement, clause 4 provided the following as to interest:
The lender shall be paid the whole sum of $50,000 plus interest of three per centum per month, payable in advance of the loan amount advanced.
The second agreement was in similar terms, other than the fact that it referred to the sum of $25,000 and not $50,000.
As is clear, the text of both clauses in the loan agreements was silent on the question as to whether or not simple interest should apply or compound interest should apply.
Morton v Elgin Strazinsky & Anor[1] was referred to me by Mr Hardy, who appeared as counsel for the first defendant, Mr Manoukian. The case involved a loan at call agreement. The loan agreement in that case included a term relating to interest which was expressed in the following terms:
Interest would be paid at the rate of interest charged by the Commonwealth Bank of Australia for overdrafts in excess of $10,000.
[1](2008) 19 VR 294.
As was said by the Court of Appeal in the judgment of Neave JA:[2]
Whatever may have been the case historically today there is no presumption that interest payable on a loan made by a private lender is to be calculated as either simple or compound interest.
In Ellington Group Architects Ltd v Attorney General, the New Zealand Court of Appeal said that the question whether interest payable is to be simple or compound interest is to be approached without reference to any predisposition the courts may have demonstrated in favour of simple interest as against compound interest. It is purely one of contractual interpretation. The agreement is to be interpreted so as to give effect to the meaning intended by the parties. Hence any presumption in favour of simple interest is out of place in determining the words in issue.
[2]Supra at [28]
I adopt that statement of principle in analysing the loan agreements in this case.
A question arose as to whether or not a term should be implied into the loan agreements in order to give to them business efficacy. As was said by Mason J in Codelfa Construction Pty Ltd v State Rail Authority New South Wales:[3]
The implication of a term is to be compared and at the same time contrasted with the rectification of the contract. In each case the problem is caused by a deficiency in the expression of the consensual agreement. A term which should have been included has been omitted. The difference is that with rectification the term has been omitted and should have been included was actually agreed upon, the implication of the term is one which it is presumed that the parties would have agreed upon had they turned their minds to it. It is not a term that they have actually agreed upon. Thus in the case of an implied term the deficiency in expression of the consensual agreement is caused by the failure of the parties to direct their minds to a particular eventuality and to make explicit provision for it. Rectification ensures that the contract gives effect to the parties' actual intention. The implication of a term is designed to give effect to the parties' presumed intention.
[3](1982) 149 CLR 337 at 346
In this case I am satisfied that the parties did not in fact turn their minds to the question as to the rate upon which interest should be calculated, whether it be on a compound basis or a simple interest basis. A lacunae therefore emerges from the agreement, but nevertheless it is one which calls for construction and interpretation.
Having considered the matter, I am not able to imply a term one way or the other, nor should I attempt to do that. This case rather involves the construction of an ambiguous term and doesn't call for implying a term into the agreement to give it business efficacy. A similar approach was taken in Morton where Neave JA said:[4]
In my opinion this is a case where the court was called upon to interpret the relevant term, rather than to decide whether a term could be implied into the contract, requiring interest to be compounded. The reference in the loan agreement to the rate of interest charged by the Commonwealth Bank of Australia is capable of being interpreted as requiring payment of interest on either a compound or a simple interest basis.
[4]at [37]
The conclusion arrived at in the Morton case was expressed in part by Neave JA where her Honour said:[5]
In my opinion the intention of the parties viewed objectively in the light of the circumstances in which the loan was made was that interest should be compounded but the loan agreement was not drafted by lawyers who might have appreciated the difference between a provision relating to the rate of interest and the manner in which interest was to be assessed. In my opinion, a reasonable bystander would have assumed that the reference to the Commonwealth Bank's rate of interest meant that the interest was to be assessed and paid on the same basis as it would be assessed and paid on a bank loan.
[5]at [42]
In Morton the Court was able to make two important findings of fact. There was evidence that the respondents had previously sought an extension of credit from their banker, the ANZ, and from other banking institutions and must therefore have known that banks charge compound interest on loans. A further finding was made that the respondents would also have been aware that the appellant would have had to pay compound interest on any indebtedness to the bank.
However, Morton, is distinguishable from the present case. In Morton what was essential to the finding ultimately made as to the construction of the interest provision was that the term relating to the payment of interest referred to the rate of interest charged by the Commonwealth Bank of Australia for overdrafts in excess of $100,000. No such reference to a banking rate appears in the agreements in question in the present case. It is not possible, therefore, to construe the interest clause as requiring the payment of interest on a compound basis by reference to what is the usual practice of banks or what was known to the parties to be the basis upon which banks charge interest.
One is then drawn back to the fundamentals of the agreement. It is to be noted that the agreement provides for a very high rate of interest, that of 3 per cent per month or 36 per cent per annum. In my opinion, given that this is an exceptionally high rate of interest, it was not intended by the parties that the interest be compounded upon those rates. More than likely, given the high level of interest that was chargeable, interest was intended to be chargeable on a simple interest calculation, and I so find.
Whether Interest Payable on the Loans Beyond Termination
The second question relates to whether or not interest was properly payable on the loan in each case beyond the period when the loans came to an end. As I have said, the first loan agreement expired on 28 September 2005 and the second loan agreement expired on 22 October 2005. In this regard, I accept the principle stated in Cook v Fowler[6] where Lord Cairns said, in relation to interest payable on a loan agreement which had expired:[7]
According to well known principle, which has been referred to in many cases and which may be taken most conveniently from a note to the case of Monssen v Rich or any claim in the nature of a claim for interest after the day up to which interest was stipulated for would be a claim really not for a stipulated sum in interest but for damages and then it would be for the Tribunal for which that claim was asserted to consider the position of the claimant and the sum which properly and under all the circumstances should be awarded for damages.
[6][1874] 7 LR 27.
[7]Supra, commencing at 32
More recently Cook v Fowler was considered and applied in Lai v Gong,[8] a case determined by Young J in the Supreme Court of New South Wales in 1997. In adopting the approach in Cook v Fowler, Young J said:
One starts with the statement of Lord Selborne in Cook v Fowler.
There is no general rule that a covenant to pay or not to pay interest at a certain rate bound to the date or repayment implies a contract to pay or not to pay the same rate after the date of repayment.
Young J then proceeded to cite from Fisher and Lightwood,[9] where the learned authors say:
Where the security does not expressly provide for payment of interest after the time fixed for redemption, interest will still be recoverable, not on the contract, but as damages for the detention of the debt and therefore only to the extent of the damages claimed. The most recent case to illustrate that proposition is the Hawkesbury Valley case and the report on this aspect of it is fully dealt with in 6 BPR 14053. The contractual rate of interest was 21 per cent but there was no provision in the mortgage to apply that rate after the due date. The chief judge held that the appropriate rate was set - the rate set in the Schedule (j) to the Supreme Court Rules.
[8] [1997] NSWSC 100
[9]Australian Edition, at 39.40
The matter was dealt with further by the Supreme Court of Western Australia in Hardy v Shadbolt[10] where the principle in Cook v Fowler was also applied. It was noted by the Court in that case that, if established, a claim for damages in the nature of interest may be allowed in the appropriate case under the principle of Hungerfords v Walker.
[10][2004] WASCA 175 at paragraphs 55 to 58.
In the present case, a contractual rate of interest of 3 per cent per month or 36 per cent per annum was set but there was no provision in either loan agreement for that high rate to extend beyond the date of the agreement. However, in this case no claim was made or pleaded for damages in the nature of interest founded upon Hungerfords v Walker and no evidence was advanced in support of any such claim.
Accordingly, I find that interest payable on both agreements was payable on each instalment advanced from the time of the advance in each case to the termination date of each agreement. Interest pursuant to the agreement in respect of those instalment payments was payable on a simple interest basis at the contractual rate of 3 per cent per month.
Ancillary Relief Claimed
In this case the plaintiff sought in addition to the sums claimed to be due pursuant to the first agreement and the second agreement, ancillary relief relating to the security properties in question. The plaintiff claimed a declaration pursuant to s.90(3) of the Transfer of Land Act 1958 that Mr Deccorado was entitled by virtue of the provisions of the agreement to an equitable charge upon the security properties referred to in both agreements.
For the reasons which I have earlier stated, no such declaration could or should be made in respect of 10 Bromwich Court, Mill Park because, as I have found, it was not the subject of the first agreement. Further, not being a property owned by Mr Manoukian, the property could not be provided as security for the second loan agreement, without the express consent of Mr Manoukian’s former wife. There being no evidence of any such consent, the 10 Bromwich Court, Mill Park property was not security for either of the agreements.
For this reason, there was no security provided to support the second loan agreement.
The plaintiff nevertheless sought relief in his originating motion and statement of claim in respect of the 24 Piper Street, Fawkner property and the 10 Bromwich Court, Mill Park property, and this relief was sought under both the first loan agreement and the second loan agreement. The relief sought in respect of these properties was an injunction restraining the removal of caveats, declarations of there being equitable charges over the properties in favour of the plaintiff, and an order for possession and sale of the two properties following non-payment of the sums found to be due and payable by the defendant to him. No relief was sought under either agreement in respect of the property situated at 5 Peppermint Grove, Meadow Heights.
It is common ground that the sum of $6,000 was paid by Mr Manoukian on 28 December 2005 and the sum of $11,500 was also paid by Mr Manoukian on 14 March 2006. These payments were by way of repayments to Mr Decorrado in respect of the sums advanced. However, no concession was made as to the character of these payments, namely as to whether or not they were paid in respect of interest or principal or indeed whether they were payable pursuant to the first agreement or the second agreement. Accordingly, on the evidence before me I am quite unable to determine whether the sums totalling $17,500 were paid in respect of interest or paid in respect of principal and, whether they were paid pursuant to the first agreement or the second agreement, or both, and if so, in what proportions.
Consequently the sums repayable in respect of the first agreement and the second agreement are uncertain. The amount that is properly due pursuant to each of the agreements separately considered, is not able to be determined. It may be that if those sums were payable by way of principal in respect of the first agreement after taking into account interest that is properly calculated in accordance with my findings, that the sum outstanding in respect of the first agreement is in fact very small indeed. Alternatively, if it is payable under the second agreement equally so. Whatever the true position may be, the quantum of the outstanding sum due on each loan agreement is not able to be determined with certainty.
The orders sought by the plaintiff in the nature of declarations are discretionary and I am in a position to grant, or refuse, the relief on proper discretionary grounds.
As I have said, the property being 10 Bromwich Court, Mill Park is not open to declaratory relief on the basis that I have already referred to.
As to the property, being 24 Piper Street, Fawkner, that could only be properly referrable to the first loan agreement. The question remains alive as to precisely how much money is owing presently under the first agreement, but in any event it is likely that the sum that is repayable under the first agreement is small.
As I have found, it has not been possible to determine, with any degree of certainty, how much is presently outstanding on each loan. The injunction and the declarations sought by the plaintiff in his claim for final relief, as set out in his statement of claim dated 3 October 2007, were sought in aid of the further orders claimed that, in the event of the first defendant failing to pay the amount declared due under each loan agreement, the plaintiff should be granted an order giving him possession of the properties, together with the right to exercise a power of sale over them, as if the plaintiff was exercising a power of sale pursuant to s.77 Transfer of Land Act 1958. Section 77(1) of the Act provides that, within one month of a notice to pay or demand to pay being served on a mortgagor, the notice or demand remains unsatisfied, the mortgagee, having regard to the interests of the mortgagor, may proceed to sell the mortgaged property. An order to similar effect was claimed by the plaintiff in this case. However, it has not been possible to determine how much is outstanding under either of the loan agreements, at any relevant time. Accordingly, it has not been possible to declare any such sum that is due and owing. In these circumstances, it would not be open to make the orders for possession and sale as sought by the plaintiff. Accordingly, and in the exercise of the Court’s discretion, I have declined to grant the injunctive and declaratory relief sought by the plaintiff on the ground that to do so would serve no useful purpose.
As to the caveats lodged in support of the claimed equitable charges, by reason that the sums secured in each case cannot be determined, the caveats ought to be removed.
Costs to be Paid on Magistrate’s Court Scale
As to orders which I make, I also take into account in refusing the declaratory relief, the position that although it appears that moneys will be payable by Mr Manoukian to Mr Decorrado pursuant to the loan agreements, these sums are not likely to be great and if the plaintiff is not paid pursuant to any judgment debt that ensues upon the pronouncement of judgment in this case, the plaintiff may take such steps as he may be advised to execute upon that judgment debt.
I might say that these steps were always available to the plaintiff and remain so. There was no necessity on the face of it to bring this proceeding in this Court claiming the relief by way of declarations on the caveats and powers of sale that ensue. It would have been far more appropriate for this proceeding to have been brought in a Magistrates' Court where the sums properly due on the loan agreements could be determined in an appropriate jurisdiction.
As to costs, the amount recovered by the plaintiff, or likely to be recovered by the plaintiff, based on my findings, is likely to be of small magnitude. It was not appropriate to have brought a proceeding in this Court for sums on that scale. I indicated in the course of delivering reasons on my findings as to liability that, if I was to order that any costs be paid in favour of the plaintiff, I would consider ordering that they be taxed on the scale appropriate to the Magistrates' Court.
Since the delivery of my reasons as to liability ex tempore on 16 June 2009, on 9 December 2009 the parties made further submissions on the question of costs of the proceeding. I now proceed to deal with those submissions.
Plaintiff’s Claim for Costs Based on Allegations of Fraud and Conduct of the Case
The plaintiff made application seeking payment of his costs on an indemnity basis against the first defendant. The plaintiff relied upon the rulings of Harper J in Ugly Tribe Co Pty Ltd v Sikola[11] where his Honour stated the well established principles for orders for the payment of indemnity costs. His Honour said,[12] in observations with which I agree that, "In seeking costs on an indemnity basis the first defendant is asking the court to depart from its usual course", "Special circumstances must be present to justify such a departure". His Honour then refers to special circumstances as including a number of matters. In this case three of those matters were relied upon by the plaintiff. The first is the making of an allegation, known to be false, that the opposite party is guilty of fraud. The second is making an irrelevant allegation of fraud. The third is conduct which causes loss of time for the court and to other parties.
[11][2001] VSC 189.
[12]Supra at [7]
The plaintiff relied upon matters set out in the first named defendant's affidavit sworn 14 August 2007. He referred to a passage in paragraph 11 of that affidavit where the first defendant swore:
I did not execute the further loan agreement referred to in the affidavit of the plaintiff. That is not my signature which appears on the document.
That statement, appearing in the affidavit of 14 August 2007 is not a positive allegation of fraud. It was a denial that what was contained on the document was his signature, but he made no positive allegation that anybody forged his signature, still less did he make an allegation that any specific person did so or that either Mr Cilmi or Mr Decorrado forged his signature.
In any event, the first defendant’s affidavit of 14 August 2007 was not put in or relied upon by the first defendant in the prosecution of its case. The affidavit got into evidence because passages of it were put by Mr Stark, counsel for the plaintiff, in the course of his cross-examination of Mr Manoukian.
As to the allegation made in the first defendant’s defence and counterclaim dated 31 October 2007, in relation to the second loan agreement, it merely pleaded that that second loan agreement was not admitted and the execution of it was not admitted. This matter occupied little time at the trial. Further, in the absence of any pleading alleging fraud, no evidence could be properly led which was directed to proving such an allegation.
Paragraph 12 of the first named defendant's affidavit sworn 14 August 2007 was also relied upon. What was said in that paragraph amongst other things was that he, the first defendant, was told that he would not receive a copy of the loan agreement because the plaintiff was a pensioner who wished to receive tax free money from his lending business. Mr Manoukian swore in paragraph 12:
12.I was constantly seeking a copy of the loan agreement from Cilmi who put me off but after pressing the matter, I was told I would not receive a copy of the loan agreement because the plaintiff was a pensioner who wished to receive tax-free money from his lending business. Cilmi asked me to trust him.
This was said to amount to an allegation that the plaintiff was a dishonest person who was prepared to receive tax free money and not pay tax upon the interest he earned. I do not accept this as an allegation of fraud on the part of Mr Manoukian directed at Mr Deccorado which should be reflected in any costs order. The evidence, such as it was, was hearsay. The statement is of no weight and could not be relied upon, nor could it be expected to be relied upon and I do not ascribe any weight to the statement. The first defendant’s pleadings in this case did not make any such allegation of fraud as an alleged basis for denying discretionary relief to the plaintiff or on any other basis.
The next allegation relied upon was found in paragraph 13. I am not satisfied that paragraph 13 constituted any allegation of fraud. It simply read:
Between November 2005 and March 2006 I made four further payments to Cilmi as he applied pressure to finalise the loan to the plaintiff. I protested that I had not received a statement either relating to the instalments or the settlement sum.
I am not satisfied that that amounted to anything in the nature of an allegation of fraud, and it was not pleaded as such.
Paragraph 4 of that affidavit was then referred to where it said:
I believe that Cilmi received the sum of $75,000, the subject of the loan agreement and the further loan agreement and converted those funds to his own purposes.
That on its face does not amount to fraud. An allegation of conversion is not tantamount to fraud. The first defendant’s pleadings did not make any such allegation of fraud.
There was no attempt made by the first defendant to amend his pleading to allege fraud or anything akin to fraud. Further, the first defendant did not conduct his case in a manner which alleged fraud and no witness was called for the purpose of prosecuting a case founded upon allegations of fraud.
For these reasons, the observations made by Harper J in Ugly Tribe v Sikola relating to the making of an allegation, known to be false, that the opposite party is guilty of fraud, is not made out.
As to the second matter, the making of an irrelevant allegation of fraud, again in this trial no such allegation was prosecuted or maintained.
Accordingly, I dismiss the application of the plaintiff for his costs to be paid on an indemnity basis on the principles relating to wrongful allegations of fraud referred to in Ugly Tribe v Sikola.
Plaintiff’s Claim for Costs Based on First Defendant’s Conduct of the Case
It was then said by the plaintiff that the length of the trial was unnecessarily extended by Mr Manoukian in his conduct of it - firstly, in relation to what was called the similar fact evidence issue and secondly, in relation to an issue relating to legal profession privilege.
As to the similar fact evidence issue, that matter was pressed by the first defendant and a ruling was required on it. The legal argument in respect of it took a little time during the trial. Nevertheless, although I ruled against the first defendant on the issue, the question of admissibility of the challenged evidence required careful consideration and I do not regard it as a matter which was not unarguable. I do not regard the raising of this issue as unnecessarily extending the trial.
As to the question of legal professional privilege claimed in respect of meetings between Mr Deccorado and his solicitor, it was argued by the first defendant that any privilege which may have arisen, had been waived arising from the fact that third persons were present at one or more of the meetings and confidentiality had been lost. Again, this required a careful assessment of the circumstances of those meetings and consideration of the applicable law. In my opinion, again the matter was not unarguable, even though I found against the first defendant on the question. I do not regard the raising of this issue as unnecessarily extending the trial.
The plaintiff also took issue with the first defendant calling a witness, Mr Sulfaro. The first defendant was perfectly entitled to call such witnesses as were relevant to the proceeding. This was not a trial confined to affidavits or witness statements but was a trial conducted in the normal course with witnesses being called by each party as they were advised. Mr Sulfaro was a relevant witness, critically being the person who drew both the first agreement and the second agreement and was able to give evidence as to the preparation of those agreements, in particular, the second agreement and his instructions in relation to it. His evidence was clearly relevant to the trial and the first defendant were perfectly entitled to call him to give evidence.
It was next submitted by the plaintiff that the pre-trial conduct of the action by the first defendant extended it considerably in terms of both lost time arising from interlocutory applications and cost. However, no affidavit material was provided in support of these allegations. In the absence of a properly prepared application, which includes detailed affidavit material upon which a judgment can be properly made, it is not possible to determine the matter of interlocutory applications on a costs application such as this. Accordingly, I decline to make any orders as to costs on the basis of the pre-trial conduct of the proceeding.
I turn to other matters which I have already alluded to in this case which should be visited upon the plaintiff in the exercise of the Court’s discretion as to costs. The amounts ultimately in issue in this case were not appropriate for determination by this Court. The action could have been brought in a Magistrates' Court to determine the sums owing one way or the other and at a great saving in cost. Further the plaintiff sought to bring his action founded upon what was frankly conceded by his agent Mr Cilmi as being inadequate accounting evidence. In those circumstances, he incurred difficulty, time and cost in proving his case, a problem which could have been avoided had the transactions been the subject of proper accounting, as they ought to have been. The inadequacy of the plaintiff’s accounting records was the substantial cause of this case being instituted in the first place and substantially contributed to the length of the trial. The plaintiff was compelled to call oral evidence based to recount events of accounting detail which occurred in 2005 to substantiate his claims.
First Defendant’s Calderbank Offer
The first defendant delivered a Calderbank letter to the plaintiff dated 1 May 2009. The letter relevantly said:
Solely to avoid the costs of litigation to each party and with a denial of liability, the defendant is prepared to settle this matter and hereby offers to do so on the basis that the defendant will pay to the plaintiff the sum of $40,000 within 14 days of the date of acceptance of this offer on the basis that the plaintiff withdraws the caveat in Dealing No. A3895381H and otherwise the counterclaim in the proceedings be dismissed with no order as to costs on the claim or counterclaim.
In Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2)[13] the Court of Appeal[14] set out the principles applicable to a consideration of Calderbank offers. Set out below are the relevant passages from the judgment of the Court of Appeal:[15]
[13][2005] VSCA 298 (13 December 2005)
[14]Warren, C.J., Maxwell, P., and Harper, A.J.A.
[15]Ibid [at 23 – 25].
In our view, these competing considerations can be sufficiently accommodated by applying a test of (un)reasonableness. The critical question is whether the rejection of the offer was unreasonable in the circumstances. We see no justification for a more stringent test such as "manifestly" or "plainly" unreasonable.
Of course, deciding whether conduct is "reasonable" or "unreasonable" will always involve matters of judgment and impression. These are questions about which different judges might properly arrive at different conclusions. As Gleeson CJ said recently, "unreasonableness is a protean concept". But a test of reasonableness is, we think, entirely appropriate to the exercise of a discretion such as this.
Factors relevant to assessing reasonableness
The discretion with respect to costs must, like every other discretion, be exercised taking into account all relevant considerations and ignoring all irrelevant considerations. It is neither possible nor desirable to give an exhaustive list of relevant circumstances. At the same time, a court considering a submission that the rejection of a Calderbank offer was unreasonable should ordinarily have regard at least to the following matters:
(a)the stage of the proceeding at which the offer was received;
(b)the time allowed to the offeree to consider the offer;
(c)the extent of the compromise offered;
(d)the offeree’s prospects of success, assessed as at the date of the offer;
(e)the clarity with which the terms of the offer were expressed;
(f)whether the offer foreshadowed an application for an indemnity costs in the event of the offeree’s rejecting it.
[Footnotes omitted]
The central question arising from the Calderbank offer in this case is therefore whether or not the rejection of it by the plaintiff was unreasonable in the circumstances. This is turn depends, at least in part, upon the plaintiff’s prospects of success, assessed as at the date of the offer. A factor in making this assessment is whether the offer by the first defendant to the plaintiff, in effect an offer of a payment of $40,000 “all in” on 1 May 2009, was in fact bettered by the plaintiff when considered against the final outcome of the trial.
Assessment of the Plaintiff’s Claim and Costs
I now turn to the assessment of the quantum of the plaintiff’s claim and costs in order to resolve this issue.
The plaintiff and the defendant arrived at an agreement as to the total sum due and owing under the first loan agreement and the second loan agreement to the end of each agreement. No differentiation was undertaken between the amount owing under the first loan agreement and the amount owing under the second loan agreement. The agreement was:
MUTUAL ADMISSION
The Plaintiff and the First Defendant agree and admit that the principle money owed by the First Defendant to the Plaintiff under the First Loan Agreement and the Second Loan Agreement referred to in the Statement of Claim of the Plaintiff in these proceedings and the Reasons for Judgment pronounced on 16 June 2009, and all interest thereon calculated down to the end of each of the said agreements, (agreed to be 22 October 2005) is the total sum of Thirty Five Thousand Three Hundred and Seven Dollars and Nineteen cents ($35,307.19).
DATED: 4 September 2009
Having heard submissions on the matter on 9 December 2009, having been satisfied that a demand had been validly made pursuant to s.58 (1) Supreme Court Act 1986, I ruled that the first defendant should pay two thirds of the interest fixed under s.2 Penalty Interest Rates Act 1983 on the sum of $35,307.19 as and from 23 October 2005, calculated on a simple interest basis.
After taking into account a repayment made by the first defendant on 28 December 2005 in the sum of $6,000 and a further repayment made by him on 14 March 2006 in the sum of $11,500, and adding the interest payable to the date of judgment being 23 December 2009, the total sum owing by the first defendant to the plaintiff amounts to $24,144.50 (being $24,099.86 to 9 December 2009 plus $44.64 for 13 days from 9 December 2009 to the date of judgment).
The plaintiff’s costs on the Magistrates’ Court scale, as calculated by the plaintiff’s counsel, total $24,906.75. This includes the sum of $3,019.80 in respect of costs, calculated on the Magistrates’ Court scale, for an application for an interlocutory injunction made to the Court on 5 September 2007, when costs of the application were reserved. The Court on that occasion granted an injunction as follows:
THE COURT ORDERS THAT:
1.Pursuant to section 90(3) of the Transfer of Land Act 1958 until further order of this Honourable Court the Defendants be restrained from removing the caveats lodged in
(a)Dealing number AD964275H over the property situated at 10 Bromwich Court, Mill Park, Victoria 3082, being the land more particularly described in the Certificate of Title Volume 9733 Folio 803, and
(b)Dealing number AE895381H over the property situated at 24 Piper Street, Fawkner, Victoria 3060, being the land more particularly described in the Certificate of Title Volume 10973 Folio 604, on the grounds that the Plaintiff has a Caveatable interest in each property.
Costs are usually reserved when the Court, at the time of the making of an interlocutory order, is not then in a position to decide upon whom the costs of the application should finally fall.
In this case, as I have found, there was no basis for the plaintiff to have lodged or maintained a caveat over the 10 Bromwich Court, Mill Park property, it being owned by the first defendant’s former wife and it being a property in which he had no interest. This ought to have been revealed to the plaintiff had a title search been undertaken at the relevant time and had other appropriate inquiries been made. Further, even if it was available to be offered as a security by the first defendant, it was security only for the second loan agreement, and not the first.
On the other hand, the 24 Piper Street, Fawkner property, was provided as security only for the first loan agreement.
The notices to pay served by the plaintiff on the defendant dated 15 December 2006 and 30 April 2007 did not differentiate between the sums due and owing on the two loans. A total sum of $103,229 was claimed to be due and owing by the first defendant to the plaintiff on both loans.
The plaintiff ultimately failed in his claim for an injunction. However, at the time of making the application, there was clearly an arguable case for the orders to have been made as they were. In the exercise of the Court’s discretion as to costs, I do not make any orders as to the costs of the interlocutory relief one way or the other, so that each party will bear their own costs of the application.
This being the case, in calculating a figure for costs for the purposes of assessing the Calderbank offer, I deduct the sum of $3,019.80 in respect of costs, calculated on the Magistrates’ Court scale, for the application for the interlocutory injunction made to the Court on 5 September 2007, from the amount claimed for costs by the plaintiff.
Consideration of the Calderbank Letter
Against these findings, the first defendant’s Calderbank letter delivered to the plaintiff dated 1 May 2009 which offered $40,000.00 “all in”, falls to be considered. As at that date, the total sum owing to the plaintiff for principal and interest in accordance with the calculations described in these reasons amounted to $23,313.55. Costs on the Magistrates’ Court scale amounted to not more than $5,886.95, and the total amounted to $29,200.50. This is, of course, well below the $40,000 “all in” offer made by the first defendant on 1 May 2009.
In my opinion, it was unreasonable for the plaintiff to have refused the Calderbank offer when he did. The letter squarely put the plaintiff on notice as to the consequences of an unreasonable rejection of the offer which was made. The letter concluded with the following statements:
This offer is made in a genuine attempt to compromise the proceedings and to avoid further unnecessary costs and is made without an admission of any liability by the defendant to the plaintiff. The offer is also made in accordance with the principles set out in Calderbank v Calderbank [1976] Fam 93 and Hazeldene’s Chicken Farm Pty Ltd and Victorian WorkCover Authority (No. 2) (2005) 12 VR 435 and upon the basis that the defendant will seek a costs order in his favour upon an indemnity basis as and from the date of the expiration of this offer, in the event that the plaintiff does not recover an amount from the defendant, by judgment or otherwise, in the proceedings no less favourable to the plaintiff than the terms of the offer herein made.
Unless earlier withdrawn, this offer will remain open until 4:00 pm on Friday, 15 May 2009.
The plaintiff ought to have appreciated the state of the accounts upon which he proposed to prove his case, and the risks he was facing in this regard. Further, he ought to have appreciated that the notices to pay which he served on the first defendant dated 15 December 2006 and 30 April 2007, in which he claimed the total sum of $103,229, were placed far too high. The statement of claim prepared by the plaintiff dated 3 October 2007, on which the plaintiff proceeded to trial, claimed a total of $138,762 in respect of principal and interest claimed to be outstanding on the two loans. Again this figure was placed far too high. The claims for interest on the two loans calculated on a compound interest basis were at best risky claims, given that neither of the loan agreements made provision for payment of compounded interest. Further, neither of the loan agreements made provision for the payment of interest beyond the date of termination, and no claim was made in the statement of claim for interest in the nature of damages beyond the dates of termination. The claims for ancillary relief founded upon the properties referred to in the security provisions of the loan agreements were also at risk, and the consequences of failure in this regard should have been appreciated by the plaintiff. Had he accepted the offer which was put to him by the first defendant on 1 May 2009, there would have been no need to proceed in an attempt to enforce the securities, with all of the attendant costs which that exercise involved.
In my opinion, the plaintiff ought to bear the first defendant’s costs of the proceeding, as and from the expiration of the Calderbank offer, which was 15 May 2009, and should pay those costs from that date on an indemnity basis.
Orders
I have considered all of the very detailed written and oral submissions advanced by each party on the question of costs and the orders which should be made. A number of awkward points were pressed. However, I am satisfied that practical justice according to law will be achieved in this unfortunate case if the following orders were to be given, which I now pronounce:
1.The first defendant is ordered to pay the sum of $24,144.50 to the plaintiff in respect of principal and interest outstanding under the two loans.
2.The second defendant is directed to remove the caveats lodged on the properties, being 24 Piper Street, Fawkner, 10 Bromwich Court, Mill Park and any caveat lodged in respect of 5 Peppermint Grove, Meadow Heights.
3.The first defendant is to pay the plaintiff’s costs of the proceeding, including reserved costs, to 15 May 2009 which I fix at $5,886.95.
4.The plaintiff is to pay the costs of the proceeding of the first defendant from 15 May 2009 on an indemnity basis.
---
3
0