Eleventh Klingon –v– Lalos
[2016] VCC 800
•14 June 2016
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
EXPEDITED LIST
Case No. CI-14-05036
| ELEVENTH KLINGON PTY LTD | Plaintiff |
| v | |
| LOUIS NORMAN LALOS | First Defendant |
| and | |
| TOLKIMEX PTY LTD | Second Defendant |
| and | |
| TERPSITHEA LALOS | Third Defendant |
| and | |
| GARY NEEDHAM | Third Party |
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JUDGE: | His Honour Judge Cosgrave | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 23, 24 and 25 May 2016 | |
DATE OF JUDGMENT: | 14 June 2016 | |
CASE MAY BE CITED AS: | Eleventh Klingon –v– Lalos | |
MEDIUM NEUTRAL CITATION: | [2016] VCC 800 | |
REASONS FOR JUDGMENT
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Subject: CONTRACT; EQUITY
Catchwords: CONTRACT – loan agreement – whether loan agreement enforceable against defendants
EQUITY – penalties – whether term doubling interest rate upon late repayment constitutes a penalty – interest rate allowable if penalty – whether debt properly assigned to assignee
Legislation Cited: County Court Act 1958 (Vic); Penalty Interest Rates Act 1983 (Vic); Supreme Court Act 1986 (Vic).
Cases Cited:AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170; Andrews v ANZ Banking Group Ltd (2012) 247 CLR 205; Apollo Shower Screens Pty Ltd v Building and Construction Industry Long Service Payments Corporation (1985) 1 NSWLR 561; Auzcare Pty Ltd v Idameneo (No 123) Pty Ltd [2015] NSWCA 412; Bay Bon Investments Pty ltd v Selvarajah & Anor [2008] NSWSC 1251; David Securities Pty Ltd v Commonwealth Bank of Australia (1990) 23 FCR 1; Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79; Hampton Court Ltd v Crooks (1957) 97 CLR 367; Hungerfords v Walker (1989) 171 CLR 125; Jobson v Johnson [1989] 1 W. L. R. 1026, C. A; King of the Pack Pty Ltd v Luong [2012] NSWSC 785; O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359; Paciocco v Australia and New Zealand Banking Group Ltd (2015) 321 ALR 584; Parker v Paton (1941) 41 SR (NSW) 237; Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656; Stern v McArthur (1988) 165 CLR 489; Williams v Volta [1982] VR 739.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms M Harris | T F Grundy Lawyers |
| For the First Defendant For the Second Defendant For the Third Defendant For the Third Party | In person Mr D Dealehr | Waters Lawyers Pty Ltd |
HIS HONOUR:
1 In this case the plaintiff company (“the lender”) sues the defendants for debt in relation to a loan allegedly made in February 2011. The first defendant (“Lalos”) is the director of the second defendant (“Tolkimex”) and the son of the third defendant (“Mrs Lalos”).
Background
2 The background to this proceeding is complicated and the evidence is confused in parts (for reasons I shall explain). However, I will confine the history to those aspects of the case which are the most relevant.
3 Ace Parking Pty Ltd (“Ace”) was a company which operated car parks. It also engaged in money-lending from time to time. Ace lent money on a short term basis at high interest rates. It became a client of the law firm T F Grundy Lawyers in about 2010.
4 Lalos is the son of Mrs Lalos and the late Michael Lalos. Michael Lalos died in tragic circumstances on 6 September 2009. Before that, he had operated his own business and established a family trust. Tolkimex is the trustee of that family trust. Lalos himself was a businessman and property developer.
5 In about 2007, Lalos, through a broker Angelo Sirkos, went to the bank ABN Amro Morgans (“ABN Amro”) to establish some form of superannuation facility. Lalos said that as a result of the recommendations and advice of Sirkos and ABN Amro, Lalos and entities associated with him bought certain shares. It seems that the purchases were funded in part by loans from Chimaera Capital (“Chimaera”). The price of the shares fell and Chimaera made claims on Lalos for payment. In order to try and raise additional funds, Lalos brought his parents to Melbourne and took them to the solicitor John Kotsifas (“Kotsifas”). They explained their financial affairs to the solicitor, including how Tolkimex was the trustee of the Michael Lalos family trust, and Lalos and his parents were the beneficiaries of the trust. Kotsifas drew up a power of attorney by each of Mrs Lalos and her husband in favour of Lalos. Lalos took the powers of attorney and the title to his parents’ holiday property in Queensland to try and obtain more funding to meet Chimaera’s requirements. As a result of the global financial crisis and the collapse of the share market, Chimaera went into liquidation and Lalos, together with his family and entities, lost over $1.4 million.
6 In 2009, Lalos retained Gary Needham (“Needham”) to be the solicitor for him and Tolkimex. At the time, Needham was a partner at Melbourne Legal Partners Pty Ltd (“MLP”). Lalos was keen to sue ABN Amro for the losses which he believed it had caused to himself and his associated entities.
7 Needham acted for Lalos and Tolkimex until outstanding fees and disbursements became significant. This only took place after Lalos had incurred substantial expenditure in pursuing the case. During one of the many discussions Needham had with Lalos, Lalos mentioned how after his father died, he planned to obtain control of the family properties in Queensland and Elwood. He showed Needham the power of attorney his mother had granted him. Needham told him that he thought it was appropriate to obtain a new power of attorney from Mrs Lalos if Lalos planned to assume control of the family properties.
8 In September 2010, Lalos came unannounced to Needham’s office with his mother saying that he wanted a power of attorney drawn up immediately so that he could deal with the property. He said that he considered this would be no problem because he was the only living son, and indeed the only living child, in a Greek family.[1] Needham said that he would have to explain to Mrs Lalos the nature of the power of attorney document and the consequences of signing it. Needham said that he sent Lalos out of the room and, in the presence of his personal assistant Ms Barrett, explained, inter alia, the financial and medical powers of attorney.
[1]By this time, Lalos’s brother had died.
9 Needham alleged that Mrs Lalos was particularly interested in the medical power of attorney and, in broken English, asked him a number of questions about that document and what her son could do with it. Needham claimed that Mrs Lalos seemed to understand what he said about both documents, nodding her head at different times. When Needham told her the financial power of attorney gave Lalos power over her property, she said words to the effect of “That is right”. Needham says that Mrs Lalos signed the documents in his office and that he and Ms Barrett then witnessed them. Needham said that, because this was the only occasion in his professional life as a solicitor that he had been involved in drafting and signing up a client to a power of attorney, he remembered the event.
10 Some months later, Lalos was trying to obtain finance to continue the proceeding against ABN Amro. Because Needham and his wife had borrowed previously from Ace, Needham offered to contact the solicitor who acted for Ace in that transaction – namely, Terry Grundy (“Grundy”) of T F Grundy Lawyers.
11 The lender contends that Ace agreed to lend $80,000 to Lalos, Tolkimex and Mrs Lalos for 6 months and that, as a result, Grundy prepared the loan and ancillary documents necessary to effect such a transaction. Ace lent the money to the defendants on or about 18 February 2011.
12 On about 26 May 2011, the defendants repaid $30,000. When the loan was due for repayment, the defendants failed to repay the principal owing.
13 On 16 February 2012, Grundy said he sent a Notice of Default to each of the defendants.
14 On about 27 March 2012, Ace filed a complaint at the Magistrates’ Court of Victoria in Melbourne. The defendants filed a defence and a third party notice against Needham and MLP. The third party claim alleged that Needham and/or MLP arranged a facility agreement for the defendants whereby Needham received $64,400 which he applied to payment of the first and second defendants’ outstanding fees owed to MLP, and did not transfer the money to the defendants for their personal use. Later, when the defendants sold a family property at Elwood, Needham and/or MLP allegedly disbursed the settlement funds contrary to the instructions of Lalos and, in particular, retained funds for their legal costs when there was no entitlement to the amount retained. The claim alleged that Needham and MLP thereby breached its retainer and fiduciary and other duties owed to the defendants.
15 Subsequently, the parties transferred the proceeding from the Magistrates’ Court of Victoria to the County Court of Victoria.
16 In about February 2015, there was an application to substitute the lender for Ace as the plaintiff in the proceeding. This was because Ace had assigned the alleged chose in action constituted by the debt to the lender by a deed entered on or about 6 February 2013.
17 On 12 February 2015, in the County Court of Victoria, His Honour Judge Macnamara made an order by consent that pursuant to Rule 9.06 of the County Court Civil Procedure Rules 2008 (Vic) (“County Court Rules”) , that Eleventh Klingon Pty Ltd (ACN 007 397 551) be substituted as the plaintiff in place of Ace. I was not taken to any of the material filed in support of the application. However, because all parties were legally represented at the hearing, I assume that the defendants received notice in writing of the assignment as required by section 134 of the Property Law Act 1958 (Vic). In any event, none of the defendants pleaded or alleged during the trial that no valid notice was given of the statutory assignment or that it was invalid or defective in any way.
18 At the same hearing before Judge Macnamara, the proceeding was set down for trial on 25 August 2015 on an estimated duration of 8 days.
19 On 26 March 2015, Judge Macnamara dismissed the plaintiff’s application for summary judgment. At this time, Mr Herbert of counsel represented the defendants.
20 On about 22 April 2015, the defendants filed further amended defences.
21 On 30 June 2015, at a hearing in which both the lender and the defendants were represented by counsel, His Honour Judge Lacava ordered, inter alia:
(a) the defence of each of the defendants dated 22 April 2015 be struck out;
(b) by 4pm on 7 July 2015, each of the defendants must file and serve any further amended defence upon which that party seeks to rely;
(c) if the defendants are so advised to serve an amended third party notice, they must do so on or before 4pm on 7 July 2015.
22 The defendants filed and served proposed further amended defences.
23 On 28 July 2015, at a hearing in which Lalos represented himself and Mr Hone, a solicitor, represented Mrs Lalos, Judge Lacava made orders as follows:
(a) pursuant to rule 23.02 of the County Court Rules, the further amended defences delivered and filed by each of the first and third defendants are struck out;
(b) pursuant to section 29(e) of the Civil Procedure Act 2010 (Vic), the defendants are not permitted to file further amended defences except with leave of the court;
(c) the trial date of 25 August 2015 is confirmed and the trial will proceed on the basis of the pleadings as they presently stand, that is, the defendants be permitted to rely on the amended notice of defence dated 10 February 2014;
(d) Lalos and Mrs Lalos pay the lender’s costs of and incidental to the summons dated 10 July 2015, such costs, absent agreement, to be taxed by the Costs Court on an indemnity basis.
24 On 25 August 2015, when the matter was scheduled for trial, there was difficulty in finding an available Judge. The matter came before Judge Kennedy who heard argument from the parties and then made a number of orders, the most of relevant of which are as follows:
(a) the matter is transferred to the Expedited List of the Commercial Division;
(b) the trial is adjourned until 23 May 2016 with priority, to be heard before His Honour Judge Anderson (estimate 10 sitting days);
(c) the matter is listed on Monday 16 May 2016 at 10.30am before the Commercial Division Duty Judge to confirm that there are no outstanding issues;
(d) leave to Ian G Hone to file and serve a notice ceasing to act forthwith. Mrs Lalos therefore will be unrepresented but was present in court and was advised that the trial was to proceed on 23 May 2016;
(e) any application to amend a pleading is to be made on or before 18 September 2015. Such application should be on affidavit and should annex a form of the proposed pleading;
(f) the notice of dispute filed on 19 August 2015 is valid insofar as it relates to Lalos. However, it is invalid and of no effect insofar as it purports to be filed on behalf of Tolkimex and Mrs Lalos
25 Minute (f) of the orders referred to in the preceding paragraph related to a Notice to Admit which the lender served on the defendants on 5 August 2015. The defendants filed a Notice of Dispute dated 18 August 2015 disputing the documents and facts. The defendant’s notice denied the authenticity of the documents annexed to the lender’s notice and also denied almost all of the facts. The defendants did admit that T F Grundy Lawyers were the solicitors for Ace for the purpose of the facility agreement and guarantee.
26 Her Honour also noted in ‘Other Matters’ that:
“The matter is expected to proceed on 23 May 2016 and there should be no further adjournment applications. Should the parties wish to retain lawyers, this should be done expeditiously to ensure that the trial date is maintained. It is the intention of Mr Lalos to obtain representation for himself and the second defendant. He understands that the second defendant can otherwise not appear unless leave is given.”
27 On 18 September 2015, Judge Anderson ordered that the time to make the application to file and serve an amended defence be extended from the time set by Her Honour Judge Kennedy until 4pm on 21 September 2015.
28 On 21 September 2015, Judge Anderson ordered that the Commercial Division Duty Judge hear the defendants’ applications to file and serve an amended defence and to withdraw any admissions contained in the defences already filed by them in the proceeding on 28 September 2015. His Honour directed Lalos to serve a copy of this order and the earlier order of 18 September 2015 together with all affidavits and the draft proposed pleadings on the plaintiff and third parties as soon as reasonably practicable and in any event, no later than 4pm on 23 September 2015.
29 On 28 September 2015, there was a hearing before Judge Anderson at which both Lalos and Mrs Lalos represented themselves. The orders made by Judge Anderson were as follows:
(a) the first defendant’s application to withdraw admissions contained in the defence filed on behalf of all defendants dated 10 February 2014, and his application to file and serve an amended defence is dismissed;
(b) the application by the third defendant to withdraw admissions contained in the defence filed on her behalf and behalf of all defendants dated 10 February 2014, and her application for leave to file and serve an amended defence is adjourned to 22 October 2015;
(c) it is considered by the court that the third defendant might appropriately be given legal assistance by the Victorian Bar Pro Bono scheme in the form of preparing an affidavit and appearing on her behalf upon the return of the applications referred to in paragraph (b);
(d) on or before 12 noon on 16 October 2015, the third defendant must file and serve an affidavit which addresses the following matters in relation to the enduring powers of attorney both dated 14 September 2010 in relation to medical treatment and financial respectively:
(i) whether the signatures of "T Lalos" on each of the powers of attorney are the signature of the third defendant;
(ii) if either signature is that of the third defendant, the circumstances in which the document was signed;
(iii) whether on 14 September 2010 or any date in the months leading up to, or about that date, there were any discussions between herself and her son Louis Lalos concerning the granting of a power of attorney;
(iv) the full factual basis for the third defendant's statement in her affidavit sworn 21 September 2015 in paragraph 18 that "my signature was obtained by Mr Lalos upon a single blank piece of paper upon my visit to his home";
(v) the third defendant's best and fullest recollection of any discussion which was summarised in paragraph 18 of her affidavit;
(vi) when the third defendant first became aware that Mr Lalos had borrowed money from Ace Parking Pty Ltd or some other person or company in about February 2011 for the purpose of paying legal costs or for some other purpose;
(vii) any discussions the third defendant has had at any time with her son Mr Lalos in relation to the use by Mr Lalos of an enduring power of attorney in order to borrow money in February 2011;
(viii) the third defendant's best estimate of the length of time of the trial of the proceeding between the plaintiff and the third defendant, setting out the names of each witness she would propose to call at trial.
(e) at the adjourned hearing of the third defendant's application on 22 October 2015, the court will also hear an application by the plaintiff that the present trial date of 23 May 2016, with an estimate of 10 sitting days, be vacated and that the court fix an earlier trial date on the basis of the ill-health of one of the plaintiff's key witnesses and the likely reduced estimate for the trial.
(f) the plaintiff must file and serve any affidavit material it in support of the application for vacating the trial date and the setting of an earlier trial date by 4pm on 8 October 2015. The affidavit must set out:
(i) the medical evidence in relation to the ill-health of the plaintiff's key witness;
(ii) the plaintiff's best estimate of the length of time of the trial of the proceeding between the plaintiff and the third defendant, setting out the names of each witness it would propose to call at trial.
(g) any further application by the plaintiff for summary judgment against the first defendant should not be made until after 22 October 2015, but if such an application is to be made it should be made as soon thereafter as is reasonably practicable; and
(h) the date for the mediation of the disputes between the plaintiff, the first and third defendants and the first third party on 19 October 2015 is confirmed.
30 On 22 October 2015, there was a further hearing before Judge Anderson at which Lalos represented himself. There was no appearance for Tolkimex and Mr Bevan of counsel represented Mrs Lalos on a pro bono basis. At that hearing, Judge Anderson ordered as follows:
(a) it is noted that:
(i) Mr Bevan of Counsel appears on behalf of the third defendant through the Victorian Bar Pro Bono Scheme. He was only appointed this week to assist the third defendant and sought a further two weeks to comply with paragraph (d) of the orders made 28 September 2015. He informed the Court that a period of two weeks should be sufficient for the third defendant to give proper instructions through an interpreter and to swear an affidavit again with the assistance of an interpreter;
(ii) the third defendant will be responsible for engaging and meeting the costs of an interpreter and in ensuring that pro bono counsel is properly instructed in order that she can comply with the directions of the Court. Beyond compliance with the directions in paragraph 4 of the order of His Honour Judge Anderson made 28 September 2015 as extended by paragraph (c) of this order, if the third defendant wishes to be legally represented, she will need to make necessary arrangements, including being responsible for any costs incurred;
(iii) Mr Bevan raised with the Court, the likelihood that the third defendant will seek to file an amended defence which would raise issues concerning whether the plaintiff should be permitted to enforce the loan agreement and security documents against her, in circumstances where she may allege that, even though the first defendant was properly appointed as her power of attorney, that the use of that power of attorney to bind her to a loan agreement was inappropriate;
(iv) the applications before the Court today are as follows:
a. the application by the third defendant to withdraw admissions contained in her defence and for leave to file and serve an amended defence;
b. applications by the plaintiff and the first third party for orders for their costs of the Judicial Resolution Conference before Judicial Registrar Burchell on 19 October 2015;
c. application by the plaintiff to vacate the trial date and to set an earlier trial date so that the plaintiff will not be affected by the ill-health of one of its key witnesses;
d. the plaintiff has indicated that it wishes to pursue a summary judgment application against the first defendant and the second defendant.
(b) all applications in this matter including any application by the plaintiff for summary judgment against the first defendant shall be heard on 23 November 2015 before His Honour Judge Anderson or, if he is not available, by the Commercial Division Duty Judge.
(c) by 4pm on 9 November 2015, the third defendant must file and serve an affidavit which complies with paragraph (d) of the order of His Honour Judge Anderson made 28 September 2015. In addition, the affidavit by the third defendant must exhibit a proposed further amended defence.
(d) by 4pm on 19 November 2015, the plaintiff and the first third party must file and serve any affidavits upon which they intend to rely in answer to the third defendant's application to withdraw admissions contained in her defence and for leave to file and serve an amended defence.
(e) if the plaintiff intends to proceed with a summary judgment application against the first and second defendants, the plaintiff must file and serve affidavit material in support of the application at least 14 days before the adjourned hearing date on 23 November 2015.
(f) in relation to the plaintiff's application concerning the present trial date, the plaintiff should consider further options in relation to the proposed evidence of Mr David Lester, including whether his evidence might be heard in advance of trial and whether the plaintiff should be permitted to rely upon an affidavit sworn by Mr Lester in lieu of evidence in chief.
(g) by 4pm on 16 November 2015, the plaintiff must file and serve any affidavit by Mr Lester upon which it would be intended to rely upon at trial. Such affidavit should address the matters presently raised by the pleadings together with the further matters which have been stated by Mr Bevan, pro bono Counsel for the third defendant as matters which may possibly be raised by way of defence on her behalf.
31 On 23 November 2015, there was a further hearing before Judge Anderson at which Lalos represented himself. There was no appearance for Tolkimex and Mr Bevan of counsel represented Mrs Lalos on a pro bono basis. At that hearing, Judge Anderson ordered as follows:
(a) it is noted that the following applications are before the Court:
(i) an application by the third defendant to withdraw admissions contained in her defence and for leave to file and serve a further amended defence and counterclaim;
(ii) an application by the plaintiff for summary judgment against the first and second defendants;
(iii) an application relating to the evidence of Mr Lester and whether it should be received prior to the trial of the proceeding on 23 May 2016;
(iv) the application by the plaintiff and the first third party for costs orders arising from the judicial resolution conference on 19 October 2015.
Plaintiff's summary judgment application
(b) the plaintiff's further application for summary judgment against the first and second defendants is adjourned to 17 February 2016 before His Honour Judge Anderson or the Commercial Division Duty Judge if Judge Anderson is not available;
(c) by 4pm on 7 December 2015, any further affidavit material to be relied upon by the plaintiff must be filed and served;
(d) by 4pm on 6 February 2016, the first and second defendants must file and serve any affidavit material in opposition to the summary judgment application;
(e) it is noted that the second defendant is currently not represented by solicitors and cannot take any further step in the action unless a notice that lawyers are acting is filed and served or an order is made by the Court that the second defendant be represented otherwise than by lawyers;
Third defendant's application for leave to withdraw admissions and to file and serve a further amended defence and a counterclaim
(f) by 4pm on 14 December 2015, the third defendant must file and serve:
(i) a further proposed amended defence and any counterclaim;
(ii) an affidavit deposing to the truth of the factual basis for the proposed further amended defence and counterclaim;
(g) the further proposed pleading of the third defendant must address the issues raised by plaintiff's counsel in the hearing today as follows:
(i) paragraph 23(a) - the plaintiff's knowledge or the circumstances by reason of which the plaintiff ought to have known of the matters set out in paragraphs 16 - 22 inclusive;
(ii) paragraph 31(a) - the plaintiff's knowledge or the circumstances by reason of which the plaintiff ought to have known of the matters referred to in paragraphs 24 - 30 inclusive;
(iii) paragraph 31(b) - the plaintiff's knowledge or the circumstances by reason of which the plaintiff ought to have known the facility agreement was improvident and or manifestly disadvantageous for the third defendant;
(iv) paragraph 32 - appropriate particulars of dishonesty and fraud;
(v) paragraph 35 - particulars of the notice referred to;
(vi) paragraph 39 - the first third party's knowledge or the circumstances by reason of which the first third party ought to have known of the matters referred to in paragraph 24;
(vii) generally, where conclusions of law are stated, for example in paragraphs 33, 34, 37 and 42, the factual basis for those allegations;
(viii) insofar as relief is sought against the plaintiff and the first third party, whether that relief is sought pursuant to a counterclaim which the third defendant proposes to bring against the plaintiff and the first third party.
(h) in the absence of compliance with paragraph (g), the plaintiff shall be at liberty to pursue its summary judgment application also against the third defendant. If it intends to do so, it must, prior to 29 January 2016, give written notice to the third defendant of its intention to seek summary judgment against the third defendant and the affidavit material upon which it intends to rely, including previously filed affidavits and any further affidavits which must be filed and served by that date.
(i) the third defendant's application to withdraw admissions and to file and serve a further amended defence and a counterclaim and any summary judgment application against the third defendant will be heard on 17 February 2015.
Evidence of Mr Lester to be heard in advance of trial
(j) any such application by the plaintiff must be made before the Commercial Division Duty Judge at an appropriate time according to the urgency of the situation. Prior to such application being made, written notice must be given to all other parties, specifying the precise orders that will be sought from the Court.
32 On 17 February 2016, there was yet another hearing before Judge Anderson at which Lalos represented himself. Again, there was no appearance for Tolkimex and Mr Bevan of counsel represented Mrs Lalos on a pro bono basis. At that hearing, Judge Anderson ordered as follows:
(a) it is noted that Mr Bevan of Counsel informed the Court that his instructing solicitor had been unable to obtain instructions from the third defendant and she had not returned the draft affidavit sworn by her for filing as required by paragraph (f)(ii) of the order of His Honour Judge Anderson dated 23 November 2015;
(b) any application by the solicitors for the third defendant to file and serve a Notice of Ceasing to Act as the solicitors for the third defendant must be made as soon as is reasonably practicable and in accordance with the usual process of the court;
(c) Mr Bevan was given leave to withdraw from the proceeding;
(d) a copy of this order must be served on the third defendant by ordinary mail on the plaintiff as soon as is reasonably practicable;
(e) it is noted that the third defendant is in breach of paragraph (f)(ii) of the order of Judge Anderson made 23 November 2015. As a consequence of that breach, the Court is not prepared today to deal with her application to withdraw admissions contained in her defence and for leave to file and serve a further amended defence and counterclaim;
(f) unless by 4pm on 18 March 2016, the third defendant:
(i) files and serves an affidavit in compliance with paragraph (f)(ii) of the order of Judge Anderson made 23 November 2015; and
(ii) makes written application directed to the associate to His Honour Judge Anderson seeking to pursue her application at the earliest available date before Judge Anderson to withdraw admissions contained in her defence and for leave to file and serve a further amended defence and counterclaim,
her amended defence dated 10 February 2014 shall be struck out and the plaintiff shall be entitled to forthwith make application to the Commercial Division Judicial Registrar or the Commercial Division Duty Judge, upon notice to the third defendant, to enter judgment in default of defence, together with the costs of the proceeding.
(g) the plaintiff's application for summary judgment against the first and second defendants is dismissed;
(h) the first defendant informed the Court that he proposed to make application to the Court to further amend his defence to rely upon the provisions of the Banking Code of Conduct. Any such application by the first defendant should be made as soon as possible and must be accompanied by a proposed further amended defence and, insofar as further facts are relied upon as the basis for the further amendments, the truth of those facts must be deposed to in a supporting affidavit;
(i) the costs of the plaintiff's application for summary judgment against the first and second defendant, of the third defendant's application to withdraw admissions contained in her defence and for leave to file and serve a further amended defence and counterclaim, and of the hearing today, including the costs of the first and third party, are reserved;
(j) reserve liberty to apply;
(k) it is noted that, notwithstanding paragraph (f) of the order of Her Honour Judge Kennedy dated 25 August 2015 and the failure by any party to file an objection with the Directions Group in accordance with that order, the proceeding against the second third party (in liquidation) has not yet been finalised;
(l) the proceeding against the second third party (now in liquidation) by the defendants is struck out with no order as to costs.
33 Mrs Lalos did not, by 4pm on 18 March 2016, file and serve an affidavit in compliance with the order of Judge Anderson made on 23 November 2015. She also did not make written application to the associate to Judge Anderson seeking to pursue her application to withdraw admissions in her defence and leave to file and serve a further amended defence and counterclaim. As a result, her amended defence dated 10 February 2014 was struck out. The lender was entitled to apply on notice to Mrs Lalos to enter final judgment against her in default of defence. The lender did not do so but proceeded to trial against all defendants.
Conduct of the proceeding
34 Before coming to the issues to be decided in this case, I shall say a few words about the conduct of the trial in this proceeding.
35 When the matter commenced, I took appearances from Ms Harris for the plaintiff and Mr Dealehr for the third party. Lalos represented himself as the first defendant. By virtue of the orders made by Her Honour Judge Kennedy on 25 August 2015, Lalos was not permitted to represent Tolkimex, the second defendant.[2] Mrs Lalos was present in court but sat in the public gallery. Lalos appeared to make submissions on her behalf, although he neither sought nor obtained leave to represent Mrs Lalos.
[2]Leave being irrelevant in any event, as Tolkimex was in liquidation.
36 Because he was a self-represented litigant, I informed Lalos about the trial process and afforded him considerable leniency throughout the hearing.
37 On the second day of trial, Mrs Lalos joined Lalos at the Bar table. From time to time Mrs Lalos expressed annoyance at Lalos’s manner and, on occasion tugged at him to sit down when he rose to speak to me. Proceedings reached a point at which Lalos said that he could no longer speak on his mother’s behalf. Although Mrs Lalos did not have an extant defence filed, I allowed her to cross-examine Needham. She asked some questions. She struggled with the process. She became upset and left the Bar table. After lunch, she did not return to court again for the balance of the trial.
38 Also on the second day of trial, Lalos became exasperated at one point and stated that he was no longer going to play any active role in the trial, although he would remain at the Bar table for the rest of the day and observe the proceeding. At this stage, Mr Dealehr made an application for the claim against the third party to be struck out or dismissed. I made orders that the third party claimed filed on 5 July 2013 by the defendants against Needham be dismissed. Mr Dealehr subsequently left the court. Lalos remained in court for the duration of the trial, made final submissions and replied to points made by counsel for the plaintiff.
Issues
39 The issues to be determined in this case are as follows:
(a) did Ace lend $80,000 to any and which of the defendants?
(b) did any and which of the defendants breach the agreement pursuant to which Ace advanced $80,000?
(c) did Ace assign the chose in action comprising the debt to the lender?
(d) if one or other of the defendants did breach the loan agreement, what is the lender’s loss?
(e) what rate of interest is applicable to any of the outstanding moneys owed to the lender?
40 At the outset, I note that the defendants are in an unusual position. This is due partly to the Notice to Admit served by the lender and partly to the court orders striking out the defendants’ defences. Judge Kennedy held that the Notice of Dispute was valid only in relation to Lalos. It was invalid and of no effect in relation to Tolkimex and Mrs Lalos. As a result, by reason of rule 35.05(2) of the County Court Rules, Tolkimex and Mrs Lalos are taken to admit the authenticity of the documents attached to the Notice and the facts set out in the notice.
41 In the amended defence dated 14 February 2014, the defendants admitted aspects of the statement of claim. Because no later defence was accepted by the court, and there was no successful application to withdraw admissions made, this initial amended defence is the pleading to which the court must have regard. As a result, the defendants admit:
· the incorporation of the lender and Tolkimex;
· at all material times, Lalos held an enduring power of attorney for Mrs Lalos dated 14 September 2010;
· On 18 February 2011, Ace agreed to lend the defendants $80,000 for 6 months;
· the terms of the facility agreement are, with some exceptions, as set out in the statement of claim; and
· by letter dated 25 September 2012, Lalos and Tolkimex admitted owing the debt to Ace.
42 In the amended defence, the defendants denied or did not admit that:
· on 18 February 2011, the lender advanced $80,000 to the borrowers;
· the defendants breached the facility agreement by failing to repay the principal outstanding by 18 August 2011 save for the sum of $30,000;
· on about 16 February 2012, Ace gave written notice to each of the defendants detailing moneys owing under the facility agreement to be due and owing;
· the defendants remained indebted to Ace
(a)Did Ace lend $80,000 to any and which of the defendants?
43 Apart from the admissions in the defence and the effect of the Notice to Admit, Grundy and Needham gave evidence about the loan. The gist of the evidence was that Ace agreed to lend money to the defendants in relation to the legal costs incurred in connection with the proceeding which Lalos was conducting against ABN Amro. Lalos completed, or at least signed, a loan application document in which he sought a loan of $80,000 for a six month period for the payment of legal costs. The security offered was real estate in St Kilda and Frankston. Lalos completed and signed a document that the credit was sought predominantly or wholly for commercial or investment purposes.
44 Grundy at the relevant time was Ace’s solicitor. He prepared and sent to Needham on about 10 December 2011 a series of documents for execution by the borrowers. The documents were as follows:
·a loan facility agreement;
·mortgages over the properties;
·a deed of guarantee;
·a disbursement order;
·a form of acknowledgment to be signed by the borrower or surety to the certifying Australian legal practitioner;
·a form to be completed and signed by Needham as the solicitor for Lalos.
45 The terms of the facility agreement were as follows:
(a)The borrowers must pay interest on the date of the Advance from and including the date for that Advance up to but not including the repayment date at the Interest Rate applicable to the facility;
(b)All interest for the period of the loan will be payable in advance by deduction from the sum advanced;
(c)Interest accruing for a calendar month accrues on the 18th day of the calendar month;
(d)If any amount payable by the borrowers is not paid when due, interest will accrue on such unpaid amount to the extent permitted by applicable law during the period from and including its due date to but excluding the date it is paid (as well as after as before judgment) at the Overdue Rate. Any such interest will be calculated on a monthly basis, will be compounded monthly and will be payable from time to time on demand by the lender;
(e)The borrowers must repay the principal outstanding together with all other moneys then owing or payable in respect of the loan facility not later than 18 August 2011;
(f)If the borrowers fail to pay on the due date in the manner required any amount due and payable by it under the facility agreement, then the lender may by written notice to the borrowers declare all moneys owing under this agreement (whether actually or contingently) to be immediately due and payable; and
(g)The following definitions apply to the terms of the facility agreement unless the context otherwise requires:
(i)Advance means a Drawing provided by the lender to the borrowers under the facility;
(ii)Drawing means each Drawing up to the applicable Limit;
(iii)Interest Rate means the rate of 2 per cent per calendar month;
(iv)Limit means the sum of $80,000 and such other limits as the lender in its absolute discretion may in writing agree;
(v)Overdue Rate means the rate equal to the aggregate of 4 per cent per calendar month; and
(vi)Principal Outstanding means the total principal amount of all outstanding Advances.
46 The guarantee was entered into between Ace and Lalos as the guarantor. Recital A to the guarantee noted that the facility agreement and mortgage were entered into by Ace on the one hand and Tolkimex, the Estate of Michael Lalos (through Lalos as the trustee) and Mrs Lalos on the other hand. The security for the advance was a unit at 364 Barkly Street, St Kilda and two units in Davey Street, Frankston. Lalos personally guaranteed the obligations of Tolkimex to comply with the covenants of the loan facility agreement and mortgage.
47 The disbursement order was important. During the trial, Lalos asserted on a number of occasions that there was no proof that any borrower received any of the loan funds advanced by Ace. Rather, he asserted that the solicitor, Needham, had unlawfully taken the funds and used them for his own purposes. The disbursement order set out how the loan funds were to be applied as follows:
·Ace Parking Pty Ltd as prepaid interest $9,600
·Octavius Securities & Investments Pty Ltd
- loan application fees $5,000
·Legal fees and disbursements $1,000
·Melbourne Legal Partners Trust Account $64,400
48 Lalos signed the disbursement order confirming that the mortgage advance of $80,000 was to be disbursed in this way. As is clear from the disbursement order itself, no funds were directly payable to any of the borrowers. The object of the loan was to put MLP in funds in order to pay for costs and expenses associated with the ABN Amro litigation.
49 Needham’s evidence was that Lalos signed each of the loan and security documents, including the disbursement order, in his presence. In cross-examination, Lalos agreed that the signatures on these various documents looked like his, but he nonetheless denied that he signed any of the documents. He also denied having seen the documents previously. He maintained this position even though some of the documents were annexed to the Notice of Dispute served upon him. Before all the documents prepared by Grundy could be put to Lalos, he terminated his cross-examination by refusing to answer any more questions. In the circumstances, I directed Lalos to leave the witness box and return to his seat at the Bar table.
50 Although Needham was not an impressive witness, I accept his evidence that Lalos signed the various loan and security documents in his presence.
51 I am more comfortable in reaching this conclusion because of other aspects of the evidence. First, Lalos agreed that the signatures on the relevant documents looked like his signature. Secondly, Lalos agreed that Ace made a loan and advanced moneys. Lalos was critical of Needham for not following Lalos’s instructions. In Lalos’s view, after the sale of his wife’s property, there were sufficient funds available to pay out the debt to Ace but Lalos said that Needham failed to repay the money as Lalos directed him to. This in effect was an acknowledgment of the debt owing to Ace.
52 Thirdly, in a letter from Voitin Lawyers dated 25 September 2012 to Grundy, the author, who was the solicitor acting for Lalos and Tolkimex at the time, admitted that the sum of $50,000 was due and payable to Ace. There had been a loan of $80,000 and only $30,000 had been repaid. The letter stated that Lalos and Tolkimex wanted to pay Ace in full.
53 Fourthly, Lalos wrote a letter to Grundy dated 27 November 2012 in which he referred to his instruction to Needham to pay out Ace from the settlement funds available after the sale of his wife’s property. On the second page of the letter, Lalos said:
“Since this time, Gary [Needham] has not been able to settle the dispute and the manner in which your employees have acted with me has left me with no alternative but to tie this matter up in court as I have now appointed new solicitors Voitin Lawyers who are acting on my behalf and Tolkimex.”
54 This letter suggested that Lalos was well aware of the moneys owing to Ace but in the circumstances, he was planning to litigate the dispute in court for as long as he could.
55 Fifthly, Grundy recalled Lalos delivering back to his office the loan agreement, guarantee, mortgages and disbursement order in relation to the $80,000 loan. Grundy said that Lalos’s signature and Needham’s signature as his witness were on the documents when Grundy received them. It would be odd for Lalos to deliver loan documentation intended for his benefit to the financier’s solicitor if he had not signed the documents. Grundy went on to explain and produced photocopies of the cheques written distributing the loan funds. Also, he referred to and produced the firm’s trust account ledger showing receipt of the $80,000, the trust account receipt and a copy of the cheque for $30,000 dated 26 May 2011 by which Lalos repaid part of the debt.
56 In short, I find that Ace lent $80,000 to the defendants in accordance with the terms of the facility agreement. On the evidence, there was no, or no serious dispute, that the defendants repaid only $30,000.
(b)Did any and which of the defendants breach the agreement pursuant to which Ace advanced $80,000?
57 Each of the defendants entered the financing agreement with Ace. Because the borrowers failed to repay money on the due date, each of them breached the facility agreement.
(c)Did Ace assign the chose in action comprising the debt to the lender?
58 By deed of assignment dated 6 February 2013, the lender agreed to buy and Ace agreed to sell, assign and transfer, the debt of $50,000 owed by the borrowers to Ace. The lender pleaded the assignment in paragraph 11 of the amended statement of claim filed 19 February 2015. Because this was after the defendants’ amended defence was filed in February 2014 and there was no later amended defence accepted for filing by the court, the defendants made no responsive plea to this allegation in the amended statement of claim. By operation of rule 13.12 of the County Court Rules, subject to one presently immaterial exception, every allegation of fact in a pleading is taken to be admitted unless it is specifically, or by necessary implication, denied or not admitted. Accordingly, I find that Ace assigned the debt to the lender. The admission of the assignment in this case is consistent with the defendants’ consent to the order made on 12 February 2015 whereby the lender was substituted for Ace as the plaintiff in the proceeding.
(d)If one or other of the defendants did breach the loan agreement, what is the lender’s loss?
59 Broadly speaking, the lender’s loss is the outstanding capital of $50,000 and, at least according to the lender, accrued interest. As appears from the disbursement order, the borrowers’ pre-paid interest of $9,600, being the interest due for the term of the loan. Grundy sent the Notice of Default to the borrowers on 16 February 2012 alleging the default from 18 August 2011 when the money was due. The Notice claims the outstanding principal and interest of $12,064.51.
60 The question of interest is a matter of concern.
61 The facility agreement provides for the payment of interest as follows:
“3.3 Interest
(a) The Borrowers must pay interest on the date of the Advance from and including the date for that Advance up to but not including the Repayment Date at the Interest Rate applicable to the Facility.
3.5 Overdue Amounts
If any amount payable by the Borrowers is not paid when due, interest will accrue on such unpaid amount, to the extent permitted by applicable law, during the period from and including its due date to but excluding the date it is paid (as well as before judgment) at the Overdue Rate. Any such interest will be calculated on a monthly basis, will be compounded monthly and will be payable from time to time on demand by the Lender.”
Clause 1.1 of the facility agreement defined Interest Rate and Overdue Rate as follows:
“Interest Rate means the rate of 2% per calendar month;
Overdue Rate means the rate equal to the aggregate of 4% per calendar month.”
62 The gist of these terms of the facility agreement appears to be that the borrower pays interest at the rate of 2% per calendar month and, if the borrower fails to pay any amount when it is due, interest accrues at 4% per calendar month. This interest is to be calculated on a monthly basis, compounded and will be payable by the borrower to the lender on demand. Hence, upon default, the interest rate doubles.
63 The High Court in Ringrow Pty Ltd v BP Australia Pty Ltd[3] unanimously confirmed that Lord Dunedin’s speech in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd[4] still represented the law of penalties in Australia. In that case, Lord Dunedin stated that:[5]
[3](2005) 224 CLR 656.
[4][1915] AC 79.
[5][1915] AC 79, 86-7.
“2. The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage…
3. The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the making of the contract, not as at the time of the breach…
4. To assist this task of construction various tests have been suggested, which if applicable to the case under consideration may prove helpful, or even conclusive. Such are:
(a) It will be held to be a penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach.
(b) It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid…
(c) There is a presumption (but no more) that it is penalty when “a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage”.
On the other hand:
(d) It is no obstacle to the sum stipulated being a genuine pre-estimate of damage, that the consequence of the breach are such as to make precise pre-estimation almost an impossibility. On the contrary, that is just the situation when it is probable that pre-estimated damage was the true bargain between the parties.”
The later High Court decision in Andrews v ANZ Banking Group Ltd[6] did not undermine this position.
[6](2012) 247 CLR 205.
64 The court in Ringrow Pty Ltd v BP Australia Pty Ltd[7] also stated that:[8]
“The law of penalties in its standard application is attracted where a contract stipulates that on breach, the contract-breaker will pay an agreed sum which exceeds what can be regarded as a genuine pre-estimate of the damage likely to be caused by the breach”.
[7](2005) 224 CLR 656.
[8]Ibid at [10].
65 It should be noted in this context that, as identified by Gordon J in Paciocco & Anor v Australia and New Zealand Banking Group Ltd,[9] other members of the court in Dunlop laid down supporting principles as follows: [10]
“(2) Where the damages which may arise out of a breach of contract are of their nature uncertain, the law permits the parties to agree beforehand on the amount to be paid on breach in determining whether the sum being paid is a penalty. It will not be a bona fide pre-estimate of damage if the sum stipulated is in excess of any actual damage which could possibly or probably arise from the breach or if the parties have stipulated for the payment of a larger sum in the event of a breach of an agreement for the payment of a smaller sum: Lord Parker at 97.
(3) Where the damage of the breach of a covenant to pay a fixed or definitely ascertainable sum is capable of exact definition, the substitution of a larger sum for that smaller ascertainable sum will not be a pre-estimate of damage, but a penalty: Lord Parmoor at 101–102.”
[9](2014) 309 ALR 249 at [19].
[10]Ibid. Although this decision was reversed by the Full Federal Court in Paciocco v Australia and New Zealand Banking Group Ltd (2015) 321 ALR 584, the court did not dispute this part of Her Honour’s judgment. The Full Federal Court decision is currently under appeal in the High Court.
66 I accept that whether a provision is a penalty is a question of interpretation to be determined having regard to the whole agreement at the time the contract is made, not at the time of breach.
67 During closing submissions, I said to plaintiff’s counsel that on its face, the 4% interest provision appeared to me to be a penalty. The term doubling the already high interest rate was intended to act as an in terrorem threat and punishment for default rather than as compensation to the lender for being kept out of its money. The 4% interest rate was payable as a consequence of a breach of contract and not as a result of the withdrawal of an incentive.[11]
[11]See O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359, 366-7; Stern v McArthur (1988) 165 CLR 489, 540; Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656 at [12]; King of the Pack Pty Ltd v Luong [2012] NSWSC 785 at [16]; Auzcare Pty Ltd v Idameneo (No 123) Pty Ltd [2015] NSWCA 412 at [21].
68 At trial, the lender’s counsel, after initially appearing to be surprised by the point, contended that there was no penalty. Doing the best I can to understand the lender’s submissions, counsel contended there was no penalty because:
(a) the contract was a non-continuing agreement being a one off payment with no monthly or interim payments required by the lender;
(b) the borrowers had full use of the money without having to account for the principal during the term of the loan;
(c) the lender assumed a greater risk than usual by providing funding to these borrowers. The borrowers understood and agreed to the payment of higher than usual interest rates;
(d) the courts have held that no penalty exists where an agreement contains a term that upon default of repayment of one instalment, the whole amount of the moneys advanced becomes immediately due and payable.
69 None of these reasons is persuasive. The first two are irrelevant and raise matters entirely immaterial to a proper consideration of the issue. Even if the lender assumed a greater risk than normal with these borrowers, and the borrowers agreed to the interest rate, those factors do not affect the question of whether there was a penalty. The final reason states correctly a proposition of law regarding accelerated payments.[12] However, the proposition has no application to the present facts.
[12]See for example O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359, 366.
70 A provision for the payment of interest at a higher rate after default which does not operate retrospectively is not a penalty provided it can be seen as a genuine pre-estimate as compensation for loss which the lender would suffer as a result of being kept out of its money.[13] The effect of the facility agreement is that it looks to require a payment which is out of all proportion to the damage likely to be suffered as a result of the borrowers’ breach.
[13]David Securities Pty Ltd v Commonwealth Bank of Australia (1990) 23 FCR 1, 30-31.
71 In my view, it was significant that the lender adduced no evidence of the extent of the likely or potential loss it would suffer if the loan moneys were not repaid on the due date. Without such evidence, it is difficult for a court to find that the amount sought constitutes a genuine pre-estimate of the lender’s loss by being kept out of its money. Even if the onus is on the borrowers to show that the term in question is a penalty, once there is some evidence for this view, there is an evidentiary onus on the lender to explain such things as the details of its business, the rates at which it is able to lend, how often contracts were entered into and the manner and terms upon which the overdue loan moneys could have been redeployed. These matters were wholly within the knowledge of the lender. It is appropriate to evaluate evidence according to the power of the party to adduce it. Where facts are peculiarly within the knowledge of one party, comparatively little evidence may be sufficient to discharge the onus of proof lying on the opposite party.[14] For reasons which were not explained, the lender failed to call evidence on these important issues.
[14]Parker v Paton (1941) 41 SR (NSW) 237, 243; Hampton Court Ltd v Crooks (1957) 97 CLR 367, 371-2; Apollo Shower Screens Pty Ltd v Building and Construction Industry Long Service Payments Corporation (1985) 1 NSWLR 561, 564-5.
72 In the circumstances, I find the term requiring the payment of interest on the outstanding principal at a rate of 4% per calendar month was a penalty.
73 What are the consequences of a contractual clause being a penalty?
74 Generally, a penal clause will be treated as void or unenforceable at least to the extent of its invalidity.[15] As Nichols LJ stated in the Court of Appeal decision in Jobson v Johnson[16] although, strictly speaking, a penalty clause will remain a term of the contract, if it is sued upon, it will not be enforced by the court beyond the amount of the contracting party’s loss.[17] Accordingly, a penalty clause is “in practice a dead letter”[18] as parties must prove the compensation they seek. To the extent that clause 3.5 imposes the Overdue Rate it will not be enforced.
[15]See the discussion in AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170 at 192–3 per Mason and Wilson JJ, 201–3 per Deane J (dissenting judgment), 212 per Dawson J (dissenting judgment); 68 ALR 185; Jobson v Johnson [1989] 1 WLR 1026, CA. For the position where the clause is not activated by breach see [43-160].
[16][1989] 1 W. L. R. 1026, C. A
[17]Ibid, at 1040F-G.
[18]Ibid, at 1039.
75 The lender should not recover interest at 4% per calendar month on the outstanding debt. Nor should the lender be entitled to compound interest. The High Court in Hungerfords v Walker[19] accepted that incurred expense and opportunity cost arising from paying money away or the withholding of moneys as a result of a defendant’s wrong are something more than the late payment of damages. Where they were pecuniary losses resulting from the defendant’s wrongdoing, the plaintiff could seek compensation through an award of damages. In Hungerfords case, the court held that the plaintiff was entitled to recover damages for the loss of use of its money. The damages were assessed as compound interest on the money that had been withheld.[20] But it was essential that the plaintiff prove its loss. It had to justify why an award of damages, which included an award of compound interest, was appropriate. The lender in this case has not discharged its onus of proof.
[19](1989) 171 CLR 125.
[20]Hungerfords v Walker (1989) 171 CLR 125, 150.
(e)What rate of interest is applicable to any of the outstanding moneys owed to the lender?
76 I note that the lender made reference in submissions to the Consumer Credit legislation and its provisions regarding interest rates. In circumstances where the defendants borrowed from the lender for business or commercial purposes, that legislation had no application and the reference to it was mistaken and irrelevant.
77 As noted above, as an alternative to obtaining compound or simple interest at the default rate, the plaintiff sought to obtain an award of interest pursuant to statute.
78 Section 60(1)[21] of the Supreme Court Act 1986 (Vic) provides that:
“The Court, on application in any proceeding for the recovery of debt or damages, must, unless good cause is shown to the contrary, give damages in the nature of interest at such rate not exceeding the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 as it thinks fit from the commencement of the proceeding to the date of the judgment over and above the debt or damages awarded”
[21]Section 60 of the Supreme Court Act 1986 (Vic) applies in the County Court by operation of section 50 of the County Court Act 1958 (Vic).
79 The defendants bear the onus of showing that there is such “good cause… to the contrary”.[22]
[22]Williams v Volta [1982] VR 739 at [742] (the court was considering section 78 Supreme Court Act 1958, the equivalent former provision relating to awarding interest on damages).
80 The defendants have not advanced any argument as to why I should not award interest.
81 Additionally, in similar circumstances to this proceeding, White J in Bay Bon Investments Pty Ltd v Selvarajah & Anor,[23] held that the default interest rate in the agreement between the parties was an unenforceable penalty but still awarded the plaintiff interest pursuant to statute.
[23][2008] NSWSC 1251.
82 In the circumstances, I consider that the lender is entitled to interest at the rate set out in section 2 of the Penalty Interest Rates Act 1983 (Vic) for the period from the commencement of the proceeding until judgment. The amount of principal claimed in the writ is not to include any interest component.
83 I note that the plaintiff did not claim in the prayer for relief interest at the rate of 2% per calendar month from the time the loan was due for repayment until it was in fact repaid. Both because it was not pleaded, and because such claim was not based upon the terms of the loan (which provided for interest at that rate only until the time due for repayment), I would not have allowed this claim had it been made.
84 I will hear the parties on the final form of orders and costs.
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