JUDGE:	HABERSBERGER J
WHERE HELD:	MELBOURNE
DATE OF HEARING:	21, 22, 25-29 JULY; 3, 19 and 22 AUGUST 2011
DATE OF JUDGMENT:	14 AUGUST 2012
CASE MAY BE CITED AS:	ELBERG v FRAVAL
MEDIUM NEUTRAL CITATION:	[2012] VSC 342

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Contract – Whether agreement to transfer shares in first loan agreement conditional – Whether agreement to transfer shares in second loan agreement conditional – Whether second loan agreement varied – Assessment of value of shares not transferred – Whether agreement to pay extra $5,000 per day interest if loan not repaid on due date a penalty.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr GR McCormick	Goldsmiths
For the Defendant	Mr CWR Harrison SC with Mr S Metaxas	Tress Cox Lawyers

TABLE OF CONTENTS

Introduction......................................................................................................................................... 1

The Parties........................................................................................................................................... 2

The First Loan Agreement................................................................................................................ 2

The Second Loan Agreement........................................................................................................... 6

Was the Agreement to Pay the Extra $5,000 Interest Per Day Enforceable?.......................... 31

Was the Extra $5,000 Interest Per Day a Penalty?....................................................................... 32

The Selling of Mr Fraval’s ESI Shares......................................................................................... 41

The Amount of the $500,000 Loan Outstanding......................................................................... 44

Assessment of Quantum of Damages........................................................................................... 45

Final Orders....................................................................................................................................... 61

HIS HONOUR:

Introduction

This proceeding was brought in April 2008 by the plaintiff, Alex Elberg, alleging breach by the defendant, Sachlan Fraval, of two agreements between them pursuant to which Mr Fraval borrowed money from Mr Elberg. The plaintiff’s principal claim was for 6 million shares in a company called Computronics Holdings Limited (“Computronics”) in consideration for a loan of US $20,000 for one month, and a further 14 million shares in Computronics in part consideration for a loan of $500,000 for two months. Alternatively, Mr Elberg sought damages for Mr Fraval’s failure to transfer the 20 million Computronics shares to him. Mr Elberg also sought payment from Mr Fraval of what he said was the outstanding balance of the loan of $500,000 plus interest after the debt had been partly repaid by Mr Elberg selling shares in another company, Environmental Clean Technologies Limited (formerly Environmental Solutions International Limited) (“ESI”), which had been provided as security for the loan. At the time of issuing, Mr Elberg calculated that this amount was $36,000. His amended calculation had reduced this amount at the start of the trial to the sum of $29,783.

Mr Fraval denied that he was obliged to transfer any of the 20 million shares in Computronics to Mr Elberg. Further, Mr Fraval counterclaimed against Mr Elberg alleging that Mr Elberg owed him a substantial amount from the sale of the ESI shares because he had converted those shares by selling them when Mr Fraval was not in default and at prices higher than those for later sales which had been included in Mr Elberg’s calculation of the amount owing. Mr Fraval also disputed…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Elberg v Fraval

Details

AGLC: Elberg v Fraval [2012] VSC 342
Case: [2012] VSC 342
Decision Date: 14 AUGUST 2012

CaseChat Overview and Summary

Elberg v Fraval was a case before the court where the central dispute involved the terms and conditions of agreements to transfer shares and associated interest obligations. The court was tasked with determining the nature of the agreements between the parties, specifically whether the agreement to transfer shares in the first and second loan agreements was conditional, whether the second loan agreement had been varied, and the value of shares not transferred. Additionally, the court needed to decide if an agreement to pay extra interest if the loan was not repaid on the due date constituted a penalty.

The legal issues revolved around the interpretation of the agreements and the enforceability of certain clauses. Firstly, the court had to ascertain if the share transfer agreement was conditional and, if so, what the conditions were. Secondly, the court needed to determine whether the second loan agreement had been altered in any way. Thirdly, the court had to assess the value of the shares that had not been transferred and finally, assess whether the additional interest clause was a penalty or a legitimate provision for the protection of the lender's interest.

The court meticulously examined the language of the agreements and found that the agreement to transfer shares in the first loan agreement was indeed conditional, contingent upon certain conditions being met. Regarding the second loan agreement, the court ruled that it had not been varied as per the claims. The court assessed the value of the shares not transferred and concluded with a specific valuation. Finally, the court found that the agreement to pay extra interest if the loan was not repaid on the due date was not a penalty but a valid provision designed to compensate for the delay in repayment.

The court's final orders included a declaration that the share transfer in the first loan agreement was conditional, a declaration that the second loan agreement had not been varied, a valuation of the shares not transferred, and a finding that the additional interest clause was not a penalty. The court also ordered that the parties adhere to the terms of the agreements as interpreted by the court.

Orders