Favaro Investments Pty Ltd v Selga
[2005] VSC 521
•29 July 2005
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL & EQUITY DIVISION
No. 6542 of 2002
| FAVARO INVESTMENTS PTY LTD | Plaintiff |
| v | |
| MARK SELGA & ORS | Defendant |
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JUDGE: | Bongiorno J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 28 & 29 July 2005 | |
DATE OF JUDGMENT: | 29 July 2005 | |
CASE MAY BE CITED AS: | Favaro Investments v Selga & ors | |
MEDIUM NEUTRAL CITATION: | [2005] VSC 521 | |
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Joint venture – mining – venture capital loan in gold – loan company in liquidation – alleged oral contract with now deceased director of plaintiff to release defendants from guarantees – no agreement found – speciality - Limitation of Actions Act 1958 – Limitation Act 1936 (SA)
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M. Galvin | Dibbs Abbott Stillman |
| For the Second Defendant | Mr J. Twigg | Giannakopoulos Solicitors |
| For the Third Defendant | The Third Defendant appeared in person | |
| For the First Defendant | No appearance by, or on behalf of, the First Defendant |
HIS HONOUR:
Rimlex Mining Pty Ltd was a gold mining company. Its directors were Bruce James Michell and Daryl James Byrnes. In 1992 it entered into a joint venture with another miner one Mark Selga, or interests associated with him, to develop and work a gold mine at Moliagul, near Dunolly in central Victoria. For that purpose the joint venture needed capital, so it sought a loan from an Adelaide based company called Favaro Investments Pty Ltd, a company controlled by one Frank Favaro, who is now deceased.
On 10 April 1992 Favaro Investments lent Rimlex Mining and Selga, "the sum of 225 ounces of gold". The loan was evidenced by an agreement of that date which provided for interest at 15 per cent, or 33.75 ounces of gold per annum. The loan and interest was guaranteed by Selga, Michell and Byrnes by a deed of the same date which annexed and referred to the loan agreement, pursuant to which the advance was made.
Although there were some discrepancies between the schedule to the deed of guarantee and the agreement, it was accepted by all parties to this litigation that the guarantee applied to and was intended to guarantee performance by Rimlex Mining and Selga of the agreement. For example, the principal sum guaranteed in the deed is expressed to be $100,000 whereas in fact it was 225 ounces of gold, which it would seem was the approximate Australian Dollar equivalent of 225 ounces at the date of the loan. However nothing turns on these discrepancies now.
In July 1992, Rimlex sought further financial assistance from Favaro and on 3 August entered a further agreement to borrow 100 ounces of gold, again with interest at 15 per cent. This loan, which was only to Rimlex, was guaranteed by Michell and Byrnes. On this occasion the guarantee was incorporated into the loan agreement itself, which was expressed to be a deed. As collateral security for these loans, Favaro Investments took a charge over the assets of Rimlex Mining. The document creating the charge was dated the same day as the second loan.
Favaro Investments went into liquidation, by order of this Court, in November 2000. Mr Dean McVeigh was appointed liquidator. On 26 June 2002, it issued a writ against Selga, Michell and Byrnes to enforce the guarantees with respect to the loans which had not been repaid in accordance with their terms. The writ claims 325 ounces of gold and interest at 15 per cent against Michell and Byrnes, and 225 ounces of gold and 15 per cent interest against Selga. For reasons which have not been made apparent, the claim against Selga is now not proceeded with so that the Court is concerned only with the enforcement of the guarantee against Michell and Byrnes.
In his defence the defendant Michell denied the basis of the plaintiff's claim, took a number of substantive defences and brought a counterclaim against the plaintiff. However, by the time the matter got to trial, only two substantive defences were being pressed, that the plaintiff had released him from his guarantees by an agreement made on or about 1 December 1993; alternatively that the plaintiff was estopped from relying on the guarantees upon which it sued because of representations made by Frank Favaro on or about 1 December 1993, upon which representations Michell relied to his detriment. The second of these defences was abandoned by Michell in the course of this trial. The third defendant Byrnes also denied the plaintiff's entitlement to relief and relied upon the expiry of a relevant limitation period.
The second defendant Michell's defensive release was particularised in his defence as follows:
"The Release Agreement was partly in writing, partly oral and partly implied. Insofar it was in writing, it is contained in a facsimile letter dated 1 December 1993 from Michell to Selga. Insofar as it was oral, it was contained in a discussion in September 1993 between Michell and Favaro. The substance of the discussion was that Favaro offered to release Michell from all personal liability in relation to the First Loan Agreement, the Guarantee and the Second Loan Agreement, if Michell stopped making the Complaints. Michell responded by saying that he would think about the offer. It was also contained in a telephone discussion between Selga and Michell on or about 1 December 1993. The substance of the discussion was that Selga said that he was telephoning on behalf of Favaro, who wanted to renew the offer which had been made to Michell in the said discussion in September 1993. Michell responded by saying that he would accept the offer and send a fax to confirm his acceptance. Insofar as it was to be implied, it was to be implied to give business efficacy to the Release Agreement."
The complaints to which those particulars referred were complaints said to have been made by Michell.
On 19 March 1993, Favaro Investments Pty Ltd appointed a receiver pursuant to his charge when Rimlex Mining could not repay the loans in accordance with their terms. The receiver took possession of the mining site pursuant to his appointment but very shortly thereafter, Mr Michell became concerned about the actions of the receiver with respect to the receivership. He began complaining to the receiver and then to a number of other persons and bodies. He did this himself, and on occasions through a firm of Bendigo solicitors, Cahills. His complaints concerned works at the mine site, suspicions as to attempts to defeat creditors by the receiver, the alleged failure of the receiver to advertise the mining operation for sale before disposing of part of it, the contravention of mining inspectors directions and various other matters which he considered needed rectification. Mr Michell's complaints were directed not only to the receiver, but to regulatory bodies, a professional association, State government ministers and to Favaro Investments itself.
In his evidence Mr Michell told the Court that in September 1993 Frank Favaro phoned him and said he was making a nuisance of himself. He said Favaro told him that every time he wrote to the receiver he, Favaro, received a bill. He said Favaro made him an offer that if he would just go away he would have nothing further to worry about because Favaro would release him from his guarantees. He said he told Favaro that he was going to "make a claim on the tenements" once the receivership was finished. Apparently at that time the receiver had or was in the process of disposing of Rimlex Mining's mining tenements to a company called March Mining Pty Ltd. Mr Michell said he did not accept Favaro's offer and continued to write letters and have his solicitor write letters on his behalf.
Mr Michell also gave evidence of a conversation in late November or early December 1993 in which it is alleged the agreement to release him from his guarantees was made. He said that Mark Selga phoned him in late November and told him he was calling on behalf of Frank Favaro. He said Selga was using a speaker phone and that Favaro was in the room. He said Selga told him Frank Favaro was going to put the same proposition as he had put in September. Michell then said he spoke to Favaro who said:
"I was making a nuisance of myself and causing the receiver to expend a lot of money".
Mr Michell went on:-
"Selga more or less wasn't part of the conversation that followed. That conversation was with me and Mr Favaro and Mr Favaro repeated the comments that he'd made previously and said that I was making a nuisance of myself in causing the receiver to expend a lot of money. He said that he wanted me to stop making all these complaints to all the authorities and to leave the receivership in peace".
Michelle said that Favaro wanted him to cease making complaints. He said:
"We discussed the issue of plant equipment and that's something my mind went blank on in the discussion in September. I'd been making various claims on certain plant and equipment and made a few threats to sue over it".
A few questions further on Mr Michell said:
"Mr Favaro and I discussed this issue of equipment. I told Mr Favaro I wanted those things returned and Mr Favaro told me that that wasn't a matter for him. It was a matter for Mr Eustace (the receiver) and that if I was able to prove to his satisfaction who owned what, then that would be fine".
Further on, again, he said that Mr Favaro again said:-
"If I would just go away and be quiet, he would release me from the personal guarantees or extinguish the personal guarantees and that would be it".
Mr Michell said there was further conversation about the equipment he had raised and that Mr Favaro said that he'd have to sort that out with the receiver. Mr Michell said that he then said:
"Yes, OK, I'll do that"
and that they then talked about the mechanics of removing the equipment from the site. Mr Michell said the conversation finished with his saying to Favaro "Well, I'll confirm that in writing".
The following day, Mr Michell said he sent a fax to Mr Selga for transmission to Mr Favaro.
That fax, which was produced, is significant for a number of reasons. First, it purports to confirm an agreement already made. Secondly, it says that Frank Favaro will extinguish the personal guarantee of Bruce Michell. Thirdly, it purports to release Bruce Michell from all debts prior to the appointment of the receiver manager at the mine at Moliagul on 19 March 1993. Fourthly, it releases all equipment from the mine site that has been withheld that belongs to Rimlex Pty Ltd (not Rimlex Mining Pty Ltd) or is under its control or listed on a letter sent to the receiver on 30 July 1993. Fifthly, Mr Michell will not complain any further to the various bodies involved with the mine including the Mines Department nor offer any unsolicited comments. The letter then goes on to talk about ownership of the plant and equipment and what Mr Michell would "require" concerning written confirmation from the receiver with respect to that equipment.
The most significant thing about that fax is of course it does not confirm the agreement, if there was one, which was reached in the previous conversation. It goes considerably further. For one thing, the evidence of Mr Michell with respect to the oral agreement is clear that no agreement was reached about the equipment, Mr Favaro telling Mr Michell that that was a matter for the receiver. The fax speaks otherwise. There is no reference in Mr Michell's version of his conversation with Mr Favaro to a release from all debts incurred prior to the appointment of the receiver manager, whatever that refers to, and there was no reference in the evidence of Mr Michell as to the conversation concerning a list of equipment contained in a letter sent to the receiver on 30 July.
Mr Selga also gave evidence of the telephone conversation but his evidence was to quite a different effect. He said he did the talking. He made no reference to there being a loud speaking telephone and no reference to any conversation between Mr Favaro and Mr Michell, although he did acknowledge that Mr Favaro was present in the room with him. He said:
"Michell said he thought he would accept Favaro's offer and would notify us in the next day or so".
Selga said, in his evidence, that the offer which he made to Michell was in these terms:-
"The offer was that if Bruce would cease making - creating problems that he would release the guarantees of Michell and Byrnes. He asked me to call Bruce and speak to him about this".
The onus is on the second defendant to prove an agreement which constitutes a release. On Mr Michell's version of the telephone conversation in late November, there was an oral contract with a man who cannot give evidence because he is dead. The only other witness to the conversation in which that contract is said to have been formed does not corroborate Michell's version which is materially different to the version pleaded in his defence and completely different to the version which he set out in a fax which he sent the following day.
Selga does not give evidence sufficient to support an agreement. At best he deposes to an offer which Mr Michell says he will probably accept, but then rejects by the fax of 1 December. That fax in reality constitutes a counter-offer despite what it says. The reason it is a counter-offer of course is that it refers to a number of matters which on no version of the evidence were discussed let alone agreed to in this telephone conversation.
Selga's version of the conversation is to be preferred. It accords more with Michell's pleaded case although it does not lead to a conclusion that a binding agreement was reached, either in the conversation itself or subsequently by the receipt of the fax of 1 December.
The probabilities strongly favour the view that no agreement was ever reached. If it had been, one wonders why the solicitors who were then acting for Mr Michell were not consulted to have the agreement documented in the same way as the guarantee had been documented. That was not done. Mr Michell's evidence was that he never spoke to Frank Favaro again for many years after the conversation at the end of November 1993. The fax of 1 December was this last communication. Cahills were acting for Mr Michell at all relevant times and one would have thought that where a sum of money of the order of $150,000, was involved it would have been a matter that would have been taken up with them.
I am not satisfied that there was any release of Mr Michell's guarantees by the plaintiff. Accordingly, the plaintiff is entitled to judgment against him.
The third defendant Mr Byrnes was unrepresented on this trial. Accordingly it is clear that I should be careful to ensure that every possible defence which was pleaded by him was properly considered. This I have done. The defence which was pleaded on his behalf was that the action against him was brought out of time, either because it was out of time by virtue of the Limitation of Actions Act 1958 (Vic), or the Limitation Act 1936 (S.A.), whichever might have applied to an action on these guarantees. However, having carefully looked at that legislation which is of identical effect as far as it could affect this case I am satisfied that the action upon which the plaintiff sues is an action on what the law refers to as, "specialities"; that is to say contracts evidenced by deed; in this case guarantees contained in two deeds. In the circumstances the limitation period is 15 years, not six and I am satisfied that on any view this action was commenced within time. As there were no other defences taken by Mr Byrnes and as I am satisfied that the loan, the agreement and the non-payment of the loan, were all proved, the plaintiff is entitled to judgment against Mr Byrnes as well.
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