Helms Plumbing Pty Ltd v Coulson
[2015] VCC 1566
•13 November 2015
| IN THE COUNTY COURT OF VICTORIA | Revised Not Restricted Suitable for Publication |
AT MELBOURNE
COMMERCIAL DIVISION
GENERAL CASES LIST
Case No. CI-14-02123
| HELMS PLUMBING PTY LTD | Plaintiff |
| v | |
| KEITH EDWARD COULSON | First Defendant |
| and | |
| GLENIS HELEN COULSON | Second Defendant |
---
JUDGE: | His Honour Judge Cosgrave | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 22, 23, 24 July, 27, 28, 29, 30 July, 3, 4 August 2015 | |
DATE OF JUDGMENT: | 13 November 2015 | |
CASE MAY BE CITED AS: | Helms Plumbing Pty Ltd v Coulson & Anor | |
MEDIUM NEUTRAL CITATION: | [2015] VCC 1566 | |
REASONS FOR JUDGMENT
---
Subject: CONTRACT; MORTGAGES
Catchwords: CONTRACT – waiver of contractual condition – whether party is ready willing and able to perform – whether agreement contains limited recourse loan – whether agreement wholly in writing - whether contract of sale for business or loan agreement
MORTGAGES – whether money secured by mortgage – construction of mortgage document
Legislation Cited: Transfer of Land Act 1958 (Vic)
Cases Cited:Agushi v Spiteri (2008) VSCA 89; Bergl (Australia) Ltd v Moxon Lighterage Co Ltd (1920) 28 CLR 194; Byrnes v Kendle (2011) 243 CLR 253; Charter Reinsurance Co Ltd v Fagan [1997] AC 313; Commissioner of Taxation v Firth (2002) 120 FCR 450; Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588; D.T.R Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423; Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd [2012] VSC 99; Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471; Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; Foran v Whight (1989) 168 CLR 385; Hensley v Reschke (1914) 18 CLR 452; Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2004] 1 AC 715; Hydarnes Steamship Co v Indemnity Mutual Marine Assurance Co [1895] 1 QB 500; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151; Investors Compensation Scheme Ltd v West Bromwich Building Society [No 1] [1998] 1 WLR 896; Lake v Simmons [1927] AC 487; Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1988] 3 VR 133; Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181; Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705; Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261 ALR 382; McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; National Australia Bank Ltd v Wehbeh & Anor [2014] VSC 431; NZI Capital Corporation Pty Ltd v Child (1991) 23 NSWLR 481; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; Perpetual Trustees Victoria Ltd v Tsai (2004) NSWSC 745; Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 196 ALR 257; Provident Capital Ltd v Printy (2008) NSWCA 131; R v New Queensland Copper Co Ltd (1917) 23 CLR 495; Psaltis v Schultz (1948) 76 CLR 547; Rainy Sky SA v Kookmin Bank [2011] 1 WLR; Rawson v Hobbs (1961) 107 CLR 466; Sibonna Nominees Pty Ltd v Vouzas [2013] VSCA 369; State Rail Authority of New South Wales v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; Vouzas v Sibonna Nominees Pty Ltd (2011) VSC 261.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D McAloon | Meerkin & Apel Lawyers |
| For the Defendants | Mr J Mattin with Mr H Forrester | Robertson Legal |
HIS HONOUR:
1 This case concerns the souring of the business relationship between Helms Plumbing Pty Ltd (“Helms”), a plumbing business and Mr and Mrs Coulson. Mr Coulson (“Coulson”) formerly conducted a civil contracting and drainage business called Dancol Constructions Pty Ltd (“Dancol”). Dancol was placed in administration on 17 October 2011 and went into liquidation on 24 January 2013. Helms seeks to obtain possession of property pursuant to mortgages which were allegedly taken to secure loans or other payments made to, or at the request of, Coulson. Helms also seeks judgment for the amount of the unpaid loans and payments. The defendants deny the amount claimed by Helms, the enforceability of the mortgages and allege further that Helms breached the agreement it had made with them, thereby entitling them to damages and/or a taking of accounts (which is to be set-off against any sum claimed by Helms).
Background
2 Helms was a plumbing company owned and controlled by Helmi Adams (“Adams”) out of his office in Campbellfield. Adams is a plumber of approximately 15 years’ experience, having completed his apprenticeship in 2003. He started Helms Plumbing Pty Ltd in 2006 and currently employs about 21 people.
3 Adams first met Coulson in about 2011. Coulson operated Dancol, a company which possessed valuable water accreditations. These accreditations allowed Dancol to tender for and perform work on the assets of various water authorities in metropolitan Melbourne. Helms did not possess these accreditations.
4 In 2011, Helms began performing work as a subcontractor on various jobs for Dancol. These jobs were tendered for and won by Dancol and, in all instances, it was the entity that was paid by the client for the work. Helms would complete work and subsequently invoice Dancol.
5 Commencing with a job at Bonview Road, Malvern, Helms and Dancol agreed to undertake work on a profit sharing basis. These jobs were interchangeably termed ‘joint jobs’ and ‘profit share’ jobs throughout trial. Under this arrangement Dancol would win the work, Helms would assist in the completion of the work, and both companies would divide the net profit 50/50 after each company recouped the costs expended in performing the work.
6 Generally, the relationship with Coulson and Dancol was useful to Helms as it provided a stream of work which, in the absence of Dancol’s water accreditations, was otherwise not available to it.
7 Coulson worked for about 20 years at the Melbourne and Metropolitan Board of Works in a variety of areas. He established Dancol with a friend, Hikmat Daniel, in about 2002. After some time, Coulson and Daniel decided to go their separate ways with Coulson focussing on drainage works and Daniel on building.
8 During 2011, Dancol’s financial position deteriorated and the company went into voluntary liquidation in October that year. In his first report to creditors dated 15 November 2011, the administrator, Ross McDermott (“McDermott”) said that on his initial assessment of Dancol’s financial position there was an estimated deficiency of assets of about $412,000. This contrasted with a deficiency of $346,000 set out by Coulson in the Report as to Affairs (“RATA”). Based on the figures in the RATA, McDermott suggested that there would be a dividend of 6.9 cents in the dollar for unsecured creditors if Dancol went into liquidation. His primary recommendation was to adjourn the forthcoming creditors meeting to a date before Christmas.
9 McDermott’s second letter to creditors dated 6 December 2011 provided extra information for creditors to use in making decisions at the meeting convened for 13 December 2011. McDermott commented that, based exclusively on Dancol’s trading figures, the business should close. He referred to the possibility of an arrangement with Select Solutions Group Pty Ltd, a prominent business in the infrastructure sector and a subsidiary of SP AusNet. Attached to the creditors’ letter was a proposed Deed of Company Arrangement (“DOCA”). Because the DOCA did not provide a dividend to unsecured creditors, McDermott said that he could not recommend its acceptance. He said that, to secure his endorsement, the DOCA had to offer a higher return to creditors than they would receive upon Dancol’s liquidation. McDermott made some recommended changes to the DOCA which would have resulted in the unsecured creditors receiving a dividend of about 8.43 cents in the dollar.
10 McDermott said that the options for creditors were threefold: hand the company back to its director Coulson; execute a DOCA; or place the company in liquidation. He recommended that Dancol be placed in liquidation. He said he could not recommend that the creditors adjourn the proposed meeting because the company was unable to sustain itself during any further trading.
11 Coulson was keen to keep the company trading over the 2011 Christmas period. On 21 December 2011 McDermott was appointed Deed Administrator for Dancol when it entered a DOCA. Coulson took steps to produce sufficient cash to sustain the business operations of the company over the Christmas holiday period. He explored some options for future trading, not only with Select Solutions Group Pty Ltd, but also TRIO Plumbing and Cooke & Dowsett Pty Ltd.
12 In a further letter to committee members of Dancol on 13 February 2012, McDermott sought input from the committee regarding whether Dancol should continue to trade under the DOCA or whether it should go into liquidation. At the time, the administrator had a liability of about $14,000 because insufficient moneys were available to it to discharge all its liabilities. The letter noted that Coulson did not wish to proceed with future trading arrangements with SP AusNet because those arrangements were not sufficiently lucrative for Dancol.
13 The letter also said that Coulson had introduced a potential purchaser for the business. This purchaser, which later proved to be Helms, was said to be interested in acquiring all of the Dancol business, including assets, leased assets, licences and goodwill, for a cash payment of $100,000 to the administrator. The debtors and work in progress of Dancol were to remain available for the administrator to extinguish costs, employee entitlements and a dividend for unsecured creditors.
14 McDermott also referred in his letter to the property at 25 Golden Elm Court Kilmore (“the Elm Court property”) which Coulson and his wife owned. Coulson mortgaged this property in December 2011 to obtain funding for Dancol to cover the Christmas period. Coulson advised McDermott that he was prepared to sell the Elm Court property to assist with the DOCA.
15 On or about 22 March 2012 two significant events took place. First, Dancol varied the DOCA entered into in December the year before. Second, the Coulsons made an agreement with Helms (“the March Agreement”).[1]
[1]While there was some disputed evidence about exactly when the written part of the agreement was signed, there was no disagreement that all relevant parties did sign it. I do not need to make a finding about the precise date of execution by the respective parties.
16 The DOCA variation dealt with several matters. First, McDermott as the Deed Administrator agreed to consent to the sale of the business and assets of Dancol for the best price reasonably obtainable, subject to the payment of $100,000 by 22 March 2012. Such payment was a condition of the Deed Administrator’s consent. Secondly, Mr and Mrs Coulson who were the registered proprietors of the Elm Court property, agreed to put it on the market for sale with a reserve price of no less than $70,000. They granted a charge over the Elm Court property in favour of McDermott as the Deed Administrator and agreed that the proceeds of sale would be paid to him. If the property did not sell, they agreed to pay McDermott an amount which he assessed as the value of their equity in the property.
17 The March Agreement also dealt with a number of matters:
· the Coulsons guaranteed and agreed to pay Helms the sum of $63,308 which Dancol owed to the company as a trade creditor at the time it went into administration (clause 1.1).
· Coulson agreed to cause Dancol to sell its entire business to Helms or a nominee for $172,000, free of encumbrances, and on the basis that Coulson would be employed to manage the business and that the Coulsons would own 50% of the business through having 50% of the shares in the business. The existing water authority accreditations would be transferred to the new company (clause 1.2).
· the Coulsons would forthwith obtain and provide to Helms a discharge of mortgage R450184W to National Mutual Royal Savings Bank Ltd over their property at 9 Dover Court, Diamond Creek, being the land more particularly described in Certificate of Title Volume 9741 Folio 830 (“the Dover Court property”); formal consent for Australia and New Zealand Banking Group Ltd (“the ANZ”) as mortgagee over the house title including a priority agreement to Helms’ satisfaction to enable Helms to register a second mortgage over the house title; and a withdrawal of caveat lodged by Coates Hire Operations Pty Ltd over the house title (clause 1.3).
· the Coulsons would execute a mortgage over the house title in favour of Helms to secure payment to it of $285,000 (clause 1.4).
· the Coulsons would obtain the Deed Administrator’s written consent and confirmation that, upon receipt of $186,500, the Deed Administrator would deem that Dancol and/or the Coulsons had satisfactorily complied with any agreements pertaining to the administration of Dancol and would forthwith terminate the administration and return control of Dancol to its directors (clause 1.5).
· upon the Coulsons complying with the obligations set out above, Helms was to advance and pay on behalf of the Coulsons amounts totalling approximately $220,500 (clause 2).
18 In order to give effect to the respective obligations of the parties under the March Agreement, the parties agreed to sign all documents and papers and take all steps necessary to give effect to their respective obligations. Further, they agreed that if the Coulsons defaulted in performing any part of their obligations under the March Agreement, the Coulsons jointly and severally granted to Helms (and each of its directors personally) an irrevocable power of attorney to do all things necessary or conducive to carrying out the Coulsons’ obligations in their name and at their cost.
19 To facilitate the payments contemplated in the March Agreement, Adams arranged a loan $200,000 from the ANZ. On 22 March 2012, $114,183.50 was advanced to McDermott and on 22 June 2012, a further $70,000 was advanced to McDermott.
20 The Coulsons contended that the purpose of the March Agreement was to transfer Dancol’s assets into a new joint venture company called Adco Pty Ltd (“Adco”) which was to be owned equally by Messrs Adams and Coulson. In order to do this, the Deed Administrator required payments of substantial funds. The Coulsons contended the objective of the March Agreement was to get Dancol out of administration and for Helms to acquire the Dancol assets for $172,000. By having Helms make the necessary payments to the Deed Administrator, the Coulsons effectively borrowed from Helms. However, this was contended by the defendants to be a matter of small concern because Coulson was to receive $172,000 from Helms for his share of the new company. The Coulsons argued that the March Agreement was a sale of business agreement rather than a loan agreement.
21 Helms submitted that the March Agreement was primarily a loan agreement between itself and the Coulsons. Helms said that, while it remained ready, willing and able to buy Dancol’s business assets, the document imposed no specific obligation upon it to do so.
The Dover Court mortgage
22 On 25 July 2012, Mr and Mrs Coulson granted a mortgage in favour of Helms over the Dover Court property. The mortgage was given in consideration of, and to better secure, the principal sum lent or agreed to be lent by Helms to Coulson. The principal sum set out on the face of the mortgage document was $285,000The interest rate was 8% per annum. The principal sum was to be repaid in accordance with covenant 4 of the mortgage which provided that “all moneys secured by this mortgage shall be payable by the mortgagor to the mortgagee within 120 days of receipt of written demand which the mortgagee may serve at any time”. Other covenants in the mortgage provided that:
· the Coulsons would pay the principal sum in the manner and at the times specified
· the Coulsons would pay Helms interest, so long as the principal sum or any part shall remain unpaid, at the rate, in the manner and at the time specified
· the mortgage was collateral to the March Agreement made between the parties.
The mortgage incorporated the provisions in the Memorandum of Common Provisions Number AA690 retained by the Registrar or Titles.
The August Charge
23 On 28 August 2012, Mr and Mrs Coulson granted a charge in favour of Helms (“the August Charge”). The recitals to the charge referred to the March Agreement and that, pursuant to that agreement, Helms had advanced funds to the Coulsons, waived financial entitlements and incurred substantial costs. The Coulsons acknowledged that they had not carried out all their obligations pursuant to the March Agreement and that, if that position continued, Helms would suffer substantial loss and damage. They noted that although they executed a mortgage over their home on 25 July 2012 as part performance of the March Agreement, the mortgage could not presently be registered as a second mortgage. They had requested that Helms not take steps to immediately enforce the March Agreement against them.
24 The August Charge provided that, in consideration for Helms forbearing from taking immediate action against Mr and Mrs Coulson and refraining from doing so without having first given 120 days written notice, and in order to better secure to Helms the performance of their obligations under the March Agreement, the Coulsons charged all their estate and interest, legal and equitable, in all real estate in which they had an interest “with the payment of all moneys advanced by the Lender [Helms] and also otherwise payable by us pursuant to or in respect of the [March] Agreement and this Deed which are presently estimated at $350,000 or thereabouts.” The Coulsons further undertook at their cost, when called upon, to execute such mortgages and other assurances and instruments in respect of their said estate or in respect of the said land as Helms might require.
25 On 4 September 2012, Mr and Mrs Coulson signed an authority to the National Australia Bank advising the bank that they had agreed to grant a second mortgage over the freehold of their property. They authorised and directed the bank to accept from, respond to and disclose information regarding their existing mortgage and loan accounts to Helms.
26 On about 3 December 2012, Coulson purported to vary the August Charge granted in favour of Helms. A copy of the charge was amended by hand to include an acknowledgment that, as at 3 December 2012, Mr and Mrs Coulson owed Helms $436,955.98, which amount increased on the 21st day of each month by $681.56. This was the amount of interest which Helms had to pay the ANZ bank from whom Adams, as the director of Helms, had borrowed $200,000 in order to assist Coulson and Dancol. The effect of the newly amended charge (“the December Charge”) was to otherwise confirm the terms of the August Charge but to alter the amount recognised as owing to Helms. Only Coulson signed this document. Mrs Coulson did not.
27 By letter dated 7 December 2012, the solicitors for Helms, Dellios West & Co, wrote on behalf of Helms to Coulson. The letter referred to documents regarding the financial accommodation provided by Helms and said that, based on their instructions, it appeared that Coulson was in breach of the agreed terms of the financial accommodation and had failed to comply with various aspects of the agreement between the parties. The letter stated that Coulson presently owed the sum of $436,955.98 exclusive of interest which continued to accrue. The letter demanded that, in accordance with covenant 4 in the mortgage dated 25 July 2012, all moneys secured by the mortgage be paid to Helms within 120 days of receipt of the letter of demand.
28 By letter dated 7 December 2012, Dellios West & Co made demand upon Mrs Coulson in identical terms.
29 On about 12 February 2013, Coulson granted a mortgage in favour of Helms over the properties at 12 and 14 St Rafael Place, Whittlesea, Victoria being the land more particularly described in Certificate of Title Volume 10554 Folio 853 and Certificate of Title Volume 10554 Folio 852 respectively. The mortgage was given in consideration of, and to better secure, the principal sum lent or agreed to be lent by Helms to Coulson. The principal sum set out on the face of the mortgage document was $200,000. The interest rate was 8% per annum. The principal sum was to be repaid in accordance with covenant 4 of the mortgage which provided that all moneys secured by the mortgage were to be payable by Coulson within 120 days of receipt of written demand. Helms was entitled to a serve demand at any time. I note that Helms did not advance any specific further sum of $200,000 either to the Coulsons, or at their request, around or after the time Coulson provided this mortgage.
30 Also on 12 February 2013, Coulson granted a mortgage in favour of Helms over the property at 22 St Rafael Place, Whittlesea, Victoria being the land more particularly described in Certificate of Title Volume 10554 Folio 848. Again, the mortgage was given in consideration of, and to better secure, the principal sum lent or agreed to be lent by Helms to Coulson. The principal sum described on the face of the mortgage was $50,000 which was to be repaid in accordance with covenant 4 of the mortgage. This covenant was in identical terms to the other mortgage. Coulson also agreed to pay interest on the outstanding principal at a rate of 8% per annum. Again, at the time Coulson provided this mortgage, Helms did not advance a further amount of $50,000 to, or at the request of, Coulson.
31 Under cover of letters dated 5 September 2013 Helms made demand on both Mr and Mrs Coulson. The letters served notices of default pursuant to the mortgages dated 25 July 2012 and 12 February 2013 and section 76 of the Transfer of Land Act 1958 (Vic) (“TLA”). The notices of default referred in their recitals to various securities granted in the form of mortgages and charges over various properties and alleged that Mr and Mrs Coulson had defaulted under those securities and were indebted to Helms pursuant to the March Agreement and the securities. Accordingly, the notice demanded payment in the sum of $462,990.02 and alleged that interest continued to accrue monthly at the rate of $681.56 on the 21st day of each month. The notice advised that unless the total outstanding was paid within 7 days after deemed service of the notice on the Coulsons, Helms would exercise its power of sale against various properties the subject of security pursuant to the mortgages and section 77 of the TLA.
Statement of plaintiff’s position
32 Helms claims that it is owed money arising from the failure of the civil works business conducted by Dancol. Coulson owned and operated Dancol as a family business and employed two of his sons in the business. By the second half of 2011 Dancol was insolvent and unable to pay all its creditors the monies owed to them.
33 During the period from late 2011 to early 2013, Coulson and his wife took various steps, the purpose of which was to enable Coulson to maintain control of Dancol’s business and assets. In particular, Coulson was astute to maintain control over the special accreditations which Dancol had with various Melbourne water authorities pursuant to which Dancol was authorised to undertake civil construction works. The actions taken by Coulson (with, from time to time, the assent and co-operation of Mrs Coulson) included placing Dancol in voluntary administration; executing a DOCA to provide an opportunity to regain control of Dancol’s business and assets rather than have the company liquidated; funding the ongoing trading of Dancol while it was subject to the DOCA by borrowing funds against the Elm Court property and/or selling that property which was jointly owned by Mr and Mrs Coulson; negotiating with potential purchasers of the Dancol business; and making an agreement with McDermott as the Deed Administrator requiring the Coulsons to sell the Elm Court property and pay the proceeds of sale to the Deed Administrator.
34 Helms conducted a plumbing business and had performed various tasks as a subcontractor to Dancol at the time it entered voluntary administration. As a result, Helms was a trade creditor of Dancol when the administration commenced. As part of Coulson’s plan to maintain or retain control of Dancol’s assets, Coulson (and his wife) borrowed funds from Helms. The Coulsons acknowledged, by executing various documents in 2012 and 2013, that they owed money to Helms, partly as guarantors of the trade debts incurred by Dancol before administration, and partly as borrowers in their own right. This indebtedness was secured by the provision of mortgages over various properties owned by one or both of Mr and Mrs Coulson. Except for a payment of approximately $1,100 made by Mr Coulson in early 2013, the money owing to Helms remains unpaid. Helms submits it is entitled to orders for payment of the full amount owing by the Coulsons together with orders for possession of the mortgaged properties.
35 Helms claims that it is entitled to judgment for possession and debt. It alleges that it has satisfied the statutory criteria referred to in National Australia Bank Ltd v Wehbeh & Anor,[2] entitling it to the orders sought. From Helms perspective, the only task to be performed by the court is to confirm the total amount owed by the Coulsons to Helms Plumbing and to determine whether there is any reason why judgment should not be given having regard to the matters raised in the defence and counterclaim.
[2][2014] VSC 431 at [10].
36 Helms ran its case as a simple case where there were two agreements and two sets of mortgages. The agreements were the March Agreement and the August Charge. There was a mortgage over the Coulsons’ jointly owned property. In addition, Coulson gave a mortgage over three properties at Whittlesea. Helms argued that where a mortgagee such as the plaintiff brings a claim, the matters it must prove are:
· the execution of the mortgage;
· the advance made to the mortgagor;
· default under the mortgage; and
· the mortgagor is in possession of the mortgaged property
Hence, Helms contended its claim was straightforward. This remained its position throughout the trial.
37 From the outset, the defendants held Helms to the simple manner in which it articulated its case. For example, in opening the case for Helms, counsel made reference to a certificate he was proposing to tender which set out the amount allegedly owed to Helms. The certificate was permissible under the terms of the MCP. But when the possibility of using a certificate was first mentioned, the Coulsons’ counsel immediately objected. He submitted that the claim was based exclusively on the breach of the mortgages and the statement of claim did not plead any provisions which authorised Helms to use a certificate to prove the amount of indebtedness. Ultimately, Helms did not attempt to use a certificate.
38 Helms did not allege breach of contract or repudiation by Coulson in relation to the March Agreement. Nor did Helms allege any other cause of action against the defendants apart from the possession and debt claim.
Statement of the defendants’ position
39 The Coulsons contended that the Dover Court mortgage and the mortgages over the Whittlesea properties only secured debt due pursuant to the March Agreement. The Coulsons said that only $208,000 was paid under that agreement, namely the payments of $114,183.50 and $70,000 to McDermott and $32,500 to the National Australia Bank.[3] No further amounts were lent under the Whittlesea mortgages. The defendants submitted that Helms was impermissibly adding to the amounts properly owing under the March Agreement. The defendants submitted that, as a matter of construction, Helms cannot do this. The various mortgages given by the Coulsons are collateral to the March Agreement, August Charge, and the December Charge, all of which were said to confine the amounts owing by the defendants to amounts owed pursuant to the March Agreement. The defendants contended that the March Agreement was a contract for the sale of the business rather than a loan agreement. The gist of the agreement was that Helms was to pay $172,000 for the Dancol business which was then to be transferred to a new entity which was to be owned equally by Adams and Coulson. The defendants contended that in breach of the March Agreement, Helms failed to include Coulson as a director and shareholder of the new entity and failed to pay $172,000 for the purchase of its interest in the new business. The defendants said that, if they were liable to repay loans to Helms (which they deny), the loan amounts owing should be set-off against the $172,000 owed to Coulson. At its highest, they said that Helms was entitled to $36,000 being the difference between the $208,000 paid out by Helms less the $172,000 owing by Helms. Further, in their counterclaim, the defendants alleged that Helms owed $87,506.49 pursuant to various profit share jobs conducted by Dancol and Helms in 2011- 2012.
[3]They also said that, consistent with the terms of the March Agreement, any recovery permitted for money paid to the National Australia Bank should be limited $24,000 – any amount in excess should be treated as a voluntary payment not covered by the March Agreement.
Credit
40 The two primary witnesses in the case were Adams for Helms and Coulson on behalf of the defendants. Their evidence differed in some material respects. Generally, I preferred the evidence of Adams where it conflicted with Coulson.
41 Coulson’s evidence was unimpressive to the extent that matters arose in cross-examination which compromised his creditworthiness. For example, in seeking to obtain finance from Permanent Custodians Ltd, Coulson made false statements to that company regarding the existence of tenancy arrangements at 12 St Rafael Place, Whittlesea. Coulson signed a warranty addressed to Permanent Custodians Ltd which said that the property was subject to a standard residential tenancy, the tenant was paying fair market rent and the term of the tenancy did not exceed 12 months. Those statements were apparently false because Coulson said in evidence that his mother was living at the property, having made a significant financial contribution to the purchase of the land and construction of the dwelling. The mother was not paying Coulson any rental to live at the property. Coulson admitted that he gave false answers to Permanent Custodians Ltd in a context where he was aware that the potential lender would be relying upon his answers in deciding whether or not to grant the loan.
42 Also, when Dancol was failing, Coulson took active steps to divert moneys owing to the company or its administrator to another company which Coulson owned and controlled – namely, Dancol Plumbing and Drainage Pty Ltd (“DPD”). This had the effect of reducing the amount which the administrator would receive in relation to payment for work which Dancol had already performed. Coulson went so far as to reissue invoices for work already performed (in some cases substantially by Helms) with a request that payment be made immediately to a nominated bank account at the Commonwealth Bank of Australia. The significance of this account was that it was different from the usual Dancol bank account maintained at the ANZ and was a new account set up in the name of DPD. I note that the invoices issued by DPD (which Coulson arranged) had a very similar appearance and layout to the standard Dancol invoice and even included the emblem of the Civil Contractors’ Federation. Coulson acknowledged that DPD was not entitled to use the emblem.
43 Coulson said that he set up DPD because one of his sons was intending to be a plumber. A company search disclosed that Coulson was the sole director and shareholder of DPD. This company was never accredited with the water authorities and at no time did Dancol transfer to DPD its accreditation with the relevant authorities.
44 In his cross-examination, Coulson stated that aspects of this conduct looked “particularly bad”. That was a fair description in circumstances where:
(a) Dancol at all relevant times was still governed by, and subject to a DOCA; and
(b) on the defendants’ own case, Coulson was subject to fiduciary obligations to Helms through a joint venture in which both he and Helms were interested.
45 Coulson said in his evidence that he paid approximately $250,000 worth of Dancol’s liabilities from his own resources. This was in a context where Coulson was seeking to establish his bona fides in assisting Dancol and its creditors by clearing debts incurred by the company. What emerged later was that the Dancol debts which Coulson paid were those for which he had a prospective personal liability as guarantor. This qualification suggested that Coulson’s conduct was driven more by legal reality and self-preservation rather than altruism.
46 Coulson made out, based on the claims in his defence and counterclaim, that in December 2012, he paid $150,000 to McDermott, Dancol’s administrator. He later modified this evidence in two ways. First, he said that the date was wrong and he assumed it should have been 2011 because it was around the time that Dancol’s administration commenced. Secondly, the payments made as Deed contributions to the administration by, or on behalf of, Coulson were $35,000 and $14,183.50 both made on the same day.
47 Coulson also gave inconsistent evidence about whether, and on what basis, the water authorities would transfer the Dancol accreditation to another company. He both affirmed and denied the proposition that the authorities would transfer the accreditations to a company based upon whether or not he was a shareholder. The correct answer seemed to be that the decisive factor was the presence of key personnel – if those key people moved from, for example, Dancol to a new entity, then that transfer of knowledgeable staff was more important and relevant than who owned shares in the new entity.
48 Another instance of inconsistency was Coulson’s evidence about the use of the name “DKM Dancol”. Coulson agreed that a company called DKM Dancol Civil and Pipe Pty Ltd was incorporated in December 2012. He said that he had no role in the incorporation of the company. But he and his assistant Carlene Gough (“Gough”) had moved out of their offices within Helms’ premises and had moved, in the latter part of 2012, into offices owned by DKM. Coulson was doing some work for DKM as a consultant and was potentially to become an employee of that business. DKM was a recognised business in the field of deep construction work. DKM apparently saw it as an advantage to be able to promote their own business in association with Dancol, a specialist water main contractor. Coulson said during the time he was associated with DKM, it never used the name DKM Dancol.
49 However, when in cross-examination Coulson saw the “Contractor Accreditation Categories” document produced by City West Water including DKM Dancol Civil and Pipe as an approved company, he said he was aware of the accreditation. He also said that he had not seen DKM Dancol perform any civil works other than water main construction. These latter statements by Coulson do not sit comfortably with his assertion that DKM failed to use the name DKM Dancol.
50 The defendants did not in their written or oral final submissions deal directly with the issue of credibility. When invited by the court to make submissions on the issue of credit as between Adams and Coulson, counsel for the Coulsons made several points:
· Adams’ evidence about the dating of the March Agreement was unsatisfactory;
· the plaintiff did not explain adequately how Adams’ brother, Ziad Adams, witnessed the defendants signatures on an agreement when the defendants’ evidence was that he was not present;
· Adams’ evidence about the jobs undertaken using Dancol’s accreditation was unsatisfactory when he agreed that he used the accreditation to obtain the work but refused to share any payments received from those jobs with the defendants;
· at the Tarneit job, Adams had understated the amount of work which Dancol and its employees had contributed to the job.
The defendants’ submissions on the point were limited and were something of an afterthought.
51 The criticisms made of Adams’ evidence had some merit. There was a degree of uncertainty about the dating of the March Agreement. While it is not a central point because the defendants agreed that they signed it and later signed other documents which referred to the March Agreement having been made on 22 March, I am inclined to accept the evidence of the defendants that they signed the agreement after 22 March. Also, I accept that there was no adequate explanation of how Adams’ brother witnessed the defendants’ signature on a document when, in all likelihood, he was not physically present to see them sign.
The March Agreement
52 The parties agreed that the interpretation or construction of the written document dated 22 March 2012 was significant in this case.
53 The applicable principles when dealing with a contractual document have been addressed by the High Court on a number of occasions as follows:
(a) The meaning of the terms of a commercial contract is to be determined by what a reasonable business person would have understood those terms to mean.[4]
[4]McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579, 589 at [22] per Gleeson CJ; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, 462 at [22] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151, 160 at [8] per Gleeson CJ; see further Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181, 188 at [11] per Gleeson CJ, Gummow and Hayne JJ, citing Investors Compensation Scheme Ltd v West Bromwich Building Society [No 1] [1998] 1 WLR 896 at 912; [1998] 1 All ER 98 at 114. See also Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2004] 1 AC 715 at 737 [10] per Lord Bingham of Cornhill. See also Hydarnes Steamship Co v Indemnity Mutual Marine Assurance Co [1895] 1 QB 500 at 504 per Lord Esher MR; Bergl (Australia) Ltd v Moxon Lighterage Co Ltd (1920) 28 CLR 194 at 199 per Knox CJ, Isaacs and Gavan Duffy JJ.
(b) In giving a commercial contract a business-like interpretation, it is necessary to consider the language used by the parties, the circumstances addressed by the contract and the commercial purpose or objects which it is intended to secure.[5]
(c) An appreciation of the commercial purpose or objects is facilitated by an understanding of the genesis of the transaction, the background, the context and the market in which the parties are operating.[6]
[5]McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579, 589 t [22]; Lake v Simmons [1927] AC 487 at 509 per Viscount Sumner. See generally Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37 at [46] – [52], [108] – [112], [118] – [119].
[6]Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, 461-462 at [22] per Gleeson CJ, Gummow, Hayne and Callinan and Heydon JJ; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, 179 [4] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151, 160 at [8] per Gleeson CJ; 174 at [53] per Gummow, Hayne, Heydon, Crennan and Kiefel JJ; Byrnes v Kendle (2011) 243 CLR 253, 284 at [98] per Heydon and Crennan JJ. See also Charter Reinsurance Co Ltd v Fagan [1997] AC 313 at 326, 350; Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900, 2906-2907 at [14]; [2012] 1 All ER 1137 at 1144 and Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, 656-7 at [35].
54 The first issue concerns the meaning and scope of the March Agreement. As noted, the Coulsons submitted it was a sale of business agreement while Helms said it was a loan agreement. It is not necessarily only one or the other. In this case, I consider that the March Agreement at least includes a loan agreement between the parties. The terms of the agreement contemplate that:
· there is a lender and borrowers;
· the lender has agreed to provide financial assistance to the borrowers;
· some details of the contemplated financial assistance are explicitly set out;
· there are ancillary provisions in the agreement which would give comfort to a lender and are entirely consistent with the existence of a borrower/lender relationship.
55 Further, Coulson himself accepted that the agreement created, or its implementation gave rise to, a debtor/creditor relationship to the extent that:
· after execution of the March Agreement, he referred in correspondence to the transaction as “a loan”;
· when making a payment to Helms in January 2013, Coulson referred to it as a “loan repayment”;
56 This was hardly surprising when:
(a) Coulson had attended a meeting in early March 2012 at the office of Helm’s solicitors at which Adams said that they needed funds to get the Dancol business out of administration and that he had to borrow those funds from the ANZ against the security of his home; and
(b) Dellios West & Co sent Coulson a letter dated 15 March 2012 in which they referred to the plaintiff’s preparedness to provide funding to support Coulson’s business (subject to provision of a second mortgage secured over the defendants’ home and to execution of the formal documentation by both the borrower and the ANZ).
Having regard to the broader context it would have been odd in my view for the defendants to regard the finance provided in and after March 2012 as anything other than a loan.
57 In relation to the issue of the extent of the indebtedness between Helms and the defendants, the defendants make several points. They say first that the moneys paid to McDermott and the National Australia Bank were not advanced by Helms but by Adams personally, and therefore, there was no indebtedness created with Helms. Secondly, the moneys were advanced to McDermott and the National Australia Bank, even though at the time McDermott had not provided his written agreement that Dancol could come out of administration upon payment of the money and be returned to its directors. Accordingly, it was said to be inappropriate for the defendants to be liable for monies advanced in these circumstances because there was no benefit to the defendants if Dancol remained in administration – there was no point in the Coulsons borrowing from Helms and entering the March Agreement if McDermott was not going to end Dancol’s administration and allow its assets and business to be sold unencumbered. Thirdly, there was no obligation on Helms to pay any monies regarding Dancol until the defendants had complied with clauses 1.3, 1.4 and 1.5 of the March Agreement. Fourthly, the defendants contended that they should not be liable to Helms because the March Agreement made no written provision for the repayment of the debt nor specified when it was to be repaid. Indeed, if it were the case that the amounts paid to McDermott were to be repaid from the future profits derived from the profit share agreement between Adams and Coulson (as the defendants contended), then the defendants were never in breach of any obligation to repay and Helms had sued them prematurely.
58 Adams said that he borrowed $200,000 in order to assist Coulson. He borrowed the money against the security of his home. In his emails with the bank, Adams, as a director of Helms, explained that he needed the money because he was planning to buy the business which had accreditations with Yarra Valley Water, City West Water, South East Water and other country water authorities. He explained to the bank that these accreditations were very difficult to obtain and the business provided an opportunity to be very profitable if managed correctly. Adams could not recall which account the money came from, but at one point he said in his evidence that the money came from his home loan account. When it was put to him in cross-examination that he, and not Helms, borrowed the money to pay the initial $114,183.50 to McDermott, he said that he was the director of Helms. Adams did not know whether there was a document in the case book which indicated that Helms owed Adams money for the payments made from the funds borrowed from the ANZ. Adams agreed that there was no written agreement between himself and Helms regarding the repayment of any money to him by Helms. It was clear from his evidence that Adams was not legally sophisticated and he appeared to draw no distinction between himself and the company which he controlled.
59 While there is some confusion in the evidence, I am satisfied that Adams in his capacity as a director of Helms, procured finance from the ANZ bank which was then used to satisfy the payments set out in clause 2 of the March Agreement. The largest payment of $114,183.50 was made by bank cheque drawn on the ANZ bank. The payment was made by, or on behalf of, Helms. The same applies to the other payments of $32,593.44 and $70,000. Even if reference to the payments is not found in Helms’ accounts, I am satisfied on the balance of probability that Helms, and not Adams in a purely personal capacity, made the payments.
60 It is correct that, at the time Helms made the payments contemplated by clause 2 of the March Agreement, Coulson had not performed all his obligations under clauses 1.3 to 1.5 of that agreement, and McDermott had not agreed in writing to the termination of Dancol’s administration upon receipt of monies from Helms.
61 I note that it seems the first time the Coulsons raised the argument that, because clause 1.5 was not satisfied, the payments Helms made were not made pursuant to the March Agreement and therefore, were not secured by the mortgages given, was in the opening at the trial. The issue was not readily discernible from the defence and counterclaim. Hence, there was no responsive plea made by Helms.
62 Even if the defendants are permitted to raise the argument (which for the purposes of the case I accept), it seems to me that Helms has an answer. Where there is a term of a contract designed primarily for the protection of one party to the contract, that party can waive any non-compliance with the term and proceed with the contract. Here, I consider that the qualification in clause 2 of the March Agreement is intended to protect Helms from having to make substantial payments until other matters have been attended to. In the circumstances, Helms is at liberty to ignore the qualification and make the payments contemplated by the agreement pursuant to its terms.
63 In saying this, I accept that there is substance in the Coulsons’ submission that unless Dancol can be extricated from administration, there is no benefit to the Coulsons in incurring obligations to Helms in respect of these payments. That would constitute a strong argument against finding an entitlement in Helms to waive the qualification. However, it is very important to recognise in this case that, on or about the same day that Helms and Coulson made the March Agreement, Dancol varied the DOCA to include a provision to the effect that upon payment of $100,000 to the Deed Administrator, Coulson was free to sell the assets and business of Dancol for the best price reasonably obtainable. It would also ignore commercial reality in the context to insist both that Helms not take effective action to remove Dancol from administration and the imminent risk of liquidation (which McDermott had threatened would take place if he did not receive the initial payment by 22 March 2012) and not trust the defendants to perform their obligations under the March Agreement. Commercially, there was an element of necessity about the payment. Coulson and Adams both wanted Dancol to avoid liquidation.
64 Adams and Coulson both gave evidence to the effect that the moneys which Helms lent to Coulson (by paying McDermott and National Australia Bank) were to be repaid from profits made by the new business, Adco, which was to be set up by them once Dancol was out of administration. In his cross-examination, Adams was asked about a series of conversations which he had with Coulson before entering into the March Agreement and the matters which they discussed. Adams agreed that:
· Coulson told him Dancol had a secure client base relating to its drainage business;
· he told Coulson he wanted to expand his business by going into civil drainage work;
· they discussed how Dancol owned various civil drainage works licences which were valuable – and Adams and Helms did not have such licences;
· Coulson told him that he worked for a water company for approximately 20 years’ and that he then established Dancol with a colleague;
· they discussed Adams paying the administrator of Dancol an agreed sum to get Dancol out of administration;
· the amount paid by Helms to the administrator would be paid back from the profits to be derived from a new business which was to be set up;
· he told Coulson he was keen to acquire the Dancol business;
· they discussed that, once Dancol came out of administration, Coulson as the sole director and shareholder of Dancol would ensure that the entire Dancol business was sold as a going concern to Adams or his nominee for $172,000;
· Coulson would have 50% of the equity and shares in the new company – Adco – to be incorporated to operate the business acquired from Dancol;
· the new company would be called Adco;
· he would own the other 50% of the shares in Adco;
· Coulson would receive 50% of the profits made by Adco after paying costs and overheads;
· Adco would employ Coulson as a manager on a salary together with a vehicle and phone;
· before Dancol came out of administration, Helms and Coulson would continue to trade using the vehicle of Dancol and continue to serve Dancol’s clients.
65 For present purposes, the critical aspect of the evidence set out is Adams’ acknowledgment about the repayment of advances from Adco’s profits.
66 Although he did not give evidence regarding the issue in his evidence-in-chief, Coulson said in his cross-examination that repayments for the loan which Helms made were to come from Adco’s funds. Hence, though Helms served a demand on Coulson to repay the moneys allegedly owed and Coulson lacked the resources to pay, Coulson expressed his layman’s view that Helms ought not to have served such demand because it was not consistent with the agreement between the parties.
67 It is clear from authorities of longstanding that even if limited recourse loans are a little unusual, they are nonetheless agreements which are enforceable in accordance with their terms. As Sackville and Finn JJ said in Commissioner of Taxation v Firth:[7]
“It is well established that it is possible to have a contract of loan in which the parties agree that the lender is limited to recourse to particular funds or assets for repayment of the loan: Mathew v Blackmore (1857) 1 H & N 762 at 771-772; 156 ER 1409 at 1417, per curiam; R v New Queensland Copper Co Ltd (1917) 23 CLR 495 at 501-502, per Isaacs J; De Vigier v Inland Revenue Commissioners [1964] 1 WLR 1073; [1964] 2 All ER 907, especially at 1084; 914-915 per Lord Upjohn; NZI Capital Corporation Pty Ltd v Child (1991) 23 NSWLR 481. In De Vigier, a case where moneys were advanced to trustees on terms that they should be repaid out of the trust fund, Lord Upjohn said (at 1084; 914-915) that: ‘The mere fact, however, that under the forms of pleading, in the circumstances of this case, an action of debt for return of a loan would not lie, does not prevent the transaction being properly described as a loan’. Where the lender’s recourse is limited to particular funds or assets, the possibility that the funds or assets will be insufficient to recoup the advance in full is a risk incurred by the lender. That risk will ordinarily be reflected in the rate of interest charged on the moneys borrowed. Nonetheless, the limited recourse feature of the transaction does not alter its character as a loan.”
[7](2002) 120 FCR 450 at [74].
68 The law will generally imply into a loan agreement an obligation on the part of the borrower to repay the loan.[8]This implication may be displaced by an agreement in which the obligation to repay is dependent upon an outcome relating to the purpose of the loan. For example, the parties may restrict the lender to a particular source of repayment. In NZI Capital Corporation Pty Ltd v Child,[9] Rogers CJ CommD applied the principles referred to by the High Court of Australia in R v New Queensland Copper Co Ltd[10] to a contract in which there was no express term inconsistent with the ordinarily implied obligation. The evidence disclosed that the parties had refused to include as a term of the agreement a clause which would have given effect to the normal presumption. In those circumstances, the court held that the intentional omission of such a term displaced the term which would usually be implied. In effect, the contract in its context displayed an objective intention to rebut the normal presumption.
[8]NZI Capital Corporation Pty Ltd v Child (1991) 23 NSWLR 481; Agushi v Spiteri (2008) VSCA 89, at [30].
[9](1991) 23 NSWLR 481.
[10](1917) 23 CLR 495.
69 While the agreed position of the parties in this case was that the amounts lent by Helms pursuant to the March Agreement were to be repaid from profits made by Adco, that does not appear as a written term of the agreement. Where an agreement is wholly in writing, evidence is generally not admissible to subtract from, add to, vary or contradict the language of the written agreement. However, as the learned authors of The Interpretation of Contracts in Australia note, there are many exceptions to this rule.[11] Indeed, there are so many exceptions to the rule that some scholars have asserted the rule no longer exists.[12] However the High Court reaffirmed the existence of the rule in Equuscorp Pty Ltd v Glengallan Investments Pty Ltd.[13]
[11]Sir Kim Lewison and D Hughes, The Interpretation of Contracts in Australia (Thomson Reuters Australia, 2012) at [3.10].
[12]Ibid, footnote 212 referring to G McMeel, The Construction of Contracts (Oxford University Press, 2007) at [5.61], also N C Seddon and M P Ellinghaus, Chesire & Fifoot’s Law of Contract (9th Aust ed, LexisNexis/Butterworths, 2008) at [10.14].
[13](2004) 218 CLR 471, at [33-35] per Gleeson CJ, McHugh, Kirby, Hayne and Callanan JJ.
70 Helms pleads that the March Agreement is wholly written but the Coulsons do not agree. They accept that they signed the document but plead conversations which Mr Coulson had with Adams beforehand and otherwise deny they entered into a loan agreement which was wholly written. Further, the Coulsons deny paragraph 6 of the statement of claim in which Helms alleged that it was a term of the Dover Court mortgage that the defendants’ covenanted to pay Helms the principal sum of $285,000 together with interest within 120 days’ of receipt of a written demand which Helms could serve at any time. In addition to the denial, the Coulsons alleged that there was a collateral agreement between the parties whereby, in consideration of the Coulsons signing the March Agreement, Helms gave various warranties. In its reply, Helms denied that it warranted any matters to the Coulsons such as could give rise to an agreement or with the intent that the Coulsons would rely on them.
71 Unless a contract contains an entire agreement clause, evidence is admissible to show that the written agreement was not intended to be the whole agreement between the parties.[14] McHugh JA held in State Rail Authority of New South Wales v Heath Outdoor Pty Ltd[15] that:
“[T]he correct rule is that existence of writing which appears to represent a written contract between the parties is no more than an evidentiary foundation for a conclusion that their agreement is wholly in writing.”[16]
[14]Sir Kim Lewison and D Hughes, The Interpretation of Contracts in Australia (Thomson Reuters Australia, 2012) at [3.10].
[15](1986) 7 NSWLR 170, at 191.
[16]State Rail Authority of New South Wales v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170, at 191.
72 In Masterton Homes Pty Ltd v Palm Assets Pty Ltd,[17] Campbell JA restated the relevant principles as follows:
[17](2009) 261 ALR 382, at [90].
“The principles that are applicable in deciding whether an agreement that parties have entered is one that is wholly in writing, or partly written and partly oral, include the following:
(1) When there is a document that on its face appears to be a complete contract, that provides an evidentiary basis for inferring that the document contains the whole of the express contractual terms that bind the parties;
(2) It is open to a party to prove that, even though there is a document that on its face appears to be a complete contract, the parties have agreed orally on terms additional to those contained in the writing. Conversely, it is open to a party to prove that the parties have orally agreed that a document should contain the whole of the terms agreed between them.
(3) The parol evidence rule applies only to contracts that are wholly in writing, and thus has no scope to operate until it has first been ascertained that the contract is wholly in writing.
(4) Where a contract is partly written and partly oral, the terms of the contract are to be ascertained from the whole of the circumstances as a matter of fact. Similarly, finding the terms of a wholly oral contract is a question of fact.
(5) In determining what are the terms of a contract that is partly written and partly oral, surrounding circumstances may be used as an aid to finding what the terms of the contract are. If it is possible to make a finding about what were the words the parties said to each other, the meaning of those words is ascertained in the light of the surrounding circumstances. If it is not possible to make a finding about the particular words that were used (as sometimes happens when a contract is partly written, partly oral and partly inferred from conduct) the surrounding circumstances can be looked at to find what in substance the parties agreed.
(6) A quite separate type of contractual arrangement to a contract that is partly written and partly oral is where there is a contract wholly in writing and an oral collateral contract”.[18]
[18]Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261 ALR 382, at [90].
73 It seems to me in this case that the pleadings made reference to the incorporation, structure and ownership of Adco and the parties’ evidence on these matters was in substance the same. This reflected an underlying agreement by the parties about the basis of their future relations once Dancol was released from administration.
74 Although the Dover Court mortgage referred to the need for Mr and/or Mrs Coulson to meet any demand for payment by Helms within 120 days of service of such demand, I do not regard this provision as inconsistent with the agreed position reached by the parties regarding the repayment of the moneys advanced from Adco’s profits. In my view, if and when Adco made profits, it lay within the power of Helms to make demand of the Coulsons for repayment of the moneys advanced under the March Agreement from their share of the profit distribution. Coulson had 120 days to satisfy the demand.
75 The Coulsons contend that Helms should fail in its claims because the only amount which Coulson could owe to Helms was an amount owing under the March Agreement. This did not include any other amounts allegedly owed to Helms under the Adco profit share or any other alleged debt which arose after the agreement was made.
76 In its statement of claim Helms did not allege a claim for contractual damages for breach of the March Agreement or any other agreement between the parties. Rather, its claim was confined to one for possession and debt.
77 The Coulsons submitted that the terms of the March Agreement and later mortgages should be read in such a way that Helms was unable to prove its entitlement to the relief claimed. The March Agreement did not provide expressly for the repayment of any amounts said to be owing to Helms. There was no explicit reference to a time at which, or the circumstances or terms upon which, any outstanding debt was to be repaid. As noted previously, the parties discussed and adopted as their agreed position that any amount owing by the Coulsons to Helms under the March Agreement arising from payments to McDermott and the National Australia Bank would be repaid from the future profits of Adco.
78 The Coulsons referred to clause 6.1 of the Memorandum of Common Provisions to the Dover Court mortgage which provided that “the mortgagor must pay to the mortgagee the secured money at the time and in the way set out in the agreement that creates the mortgagor’s obligation to pay the mortgagee the secured money”. They contended that this provision assumed the existence of another agreement which was the source of the financial obligations between the borrower, who was giving security, and the lender who was providing funding. Here they said there was no such separate agreement which set out the details of the loan and where, when and how it was to be repaid. Alternatively, to the extent that the agreed position specified the repayment of moneys owed from future Adco profits, the Coulsons contended that Helms or Adams never included Coulson as a director or shareholder in Adco and, in any case, Adco never began business operations and made a profit.
79 Also, the Coulsons argued that at the time Helms served the two notices of default in December 2012 and September 2013, the March Agreement was still on foot – Helms did not contend that the March Agreement had been repudiated or was otherwise terminated.
80 The Coulsons advanced a complex construction argument that the Dover Court mortgage and the March Agreement were not effectively linked. To that extent, they relied upon cases including Vouzas v Sibonna Nominees Pty Ltd,[19] Perpetual Trustees Victoria Ltd v Tsai,[20] and Provident Capital Ltd v Printy[21] to argue that there was no breach of section 76 of theTLA which entitled Helms to seek the relief it did.
[19](2011) VSC 261.
[20](2004) NSWSC 745.
[21](2008) NSWCA 131.
81 In Vouzas v Sibonna, Evangelos and Christina Vouzas signed a mortgage over two of their properties and later, a variation of a mortgage in favour of Sibonna. They signed no other documents. They gave security for loans advanced not to them but to their son Steven. Steven failed to repay the loans and Sibonna sold the mortgaged properties.
82 The form of mortgage signed by Mr and Mrs Vouzas comprised a cover sheet and separate Memorandum of Common Provisions (“MCP”). The MCP in Vouzas was in identical terms to the MCP expressly incorporated in the Dover Court and Whittelsea mortgages. The MCP provided that the mortgage secured all money owing by Mr and Mrs Vouzas under a credit contract or related guarantee. The cover sheet stated that the mortgage was given for valuable consideration and for the purposes of securing the payment of the amount owing to Sibonna by Mr and Mrs Vouzas. The cover sheet also said in that part of the document which was reserved for “stamp duty use only” that the amount advanced was $500,000. The variation of mortgage document referred to Sibonna’s agreement to increase the principal sum from $500,000 to $1,300,000. It recorded that Mr and Mrs Vouzas would “repay the sum of $1,300,000 on or before 1 October 2009 however they would use their best endeavours to reduce this sum substantially beforehand”. Mr and Mrs Vouzas relied on the terms of the MCP to contend that no money was secured by the mortgage because there was no underlying loan agreement or guarantee. Mr and Mrs Vouzas claimed that the proceeds of the sale held on trust for their benefit and should be paid to them.
83 The trial judge, Justice Ferguson as she then was, concluded that properly construed, the mortgage required either an underlying credit contract or guarantee before Mr and Mrs Vouzas had any liability under the mortgage to pay Sibonna. No such underlying agreement existed. Further, there was no acknowledgment of debt and no estoppel operated against the mortgagors. Because the mortgage secured no debt, Sibonna was not entitled to serve a notice to pay and had no right to sell the property. Accordingly Mr and Mrs Vouzas were entitled to the relief they sought.
84 In reaching her decision, Her Honour identified three central questions for determination:
(a) Was any amount secured by the mortgage without a separate loan agreement or guarantee?
(b) If not, was there an underlying agreement or had Mr and Mrs Vouzas acknowledged the debt?
(c) If not, were Mr and Mrs Vouzas estopped from denying that they were indebted to Sibonna so that it was entitled to sell the properties?
Her Honour answered each question in the negative. She found that the mortgage and variation secured no money since there was no credit contract. She held that the variation was not an agreement under which Sibonna provided Mr and Mrs Vouzas with credit. Nor did the variation constitute a guarantee. Accordingly, as there was no credit contract or related guarantee which could give rise to liability on the part of Mr and Mrs Vouzas, there was no default and Sibonna was not entitled to serve notice pursuant to section 76(1) of the TLA.
85 The mortgage on its face included the following words:
“This mortgage is given for valuable consideration and for the purpose of securing the payment of the amount owing by the mortgagor to the mortgagee … The provisions contained … in the Memorandum of Common Provisions retained by the Registrar of Titles in No. AA690 … are incorporated in this mortgage.”
86 On the second page of the mortgage cover sheet, under the heading “Covenants”, it provided that if there were an inconsistency between this cover sheet and the MCP, the cover sheet prevailed.
87 The MCP included the following clauses:
“5.1 The secured money is all money that, for any reason, you owe us now or in the future:
(a) under a credit contract;
(b) under a related guarantee
…
6.1 You must pay us the secured money at the time and in the way set out in the agreement that creates your obligation to pay us the secured money.”
88 There was no credit contract with, or guarantee given by, Mr and Mrs Vouzas. They contended that the provisions in the MCP, and in particular clause 5.1, required there to be an underlying credit contract or guarantee with clause 6.1 only requiring payment in accordance with that underlying agreement. Because there was no underlying loan agreement or guarantee binding Mr and Mrs Vouzas, it was contended the mortgage was void because it secured no underlying debt or facility provided by Sibonna to Mr and Mrs Vouzas. The court accepted the mortgage incurred no debt.
89 The Court of Appeal dismissed Sibonna’s appeal.[22]
[22]Sibonna Nominees Pty Ltd v Vouzas [2013] VSCA 369.
90 In support of their contentions, Mr and Mrs Vouzas relied upon Tsai’s case. That case involved a two page mortgage document which incorporated a Memorandum of Provisions filed with the Registrar General. There was a separate loan agreement for a drawdown facility. The mortgagor denied signing the mortgage and loan agreement. It was virtually conceded that the mortgage was forged. A clause in the memorandum provided:
“The Mortgage is security for payment to you of the Secured Money and for the performance of all my obligations under the Mortgage. I agree to pay the Secured Money as and when the Secured Money becomes due and payable in accordance with the provisions of each Secured Agreement or the Mortgage”.
91 The mortgage defined “Secured Money” as “all amounts which are payable at any time or are contingently owing or payable to you under a Secured Agreement and Enforcement Expenses”.
92 In delivering judgment, Young CJ in Eq said:
“Under the old fashioned form of mortgage there was a statement of the principal sum lent and an acknowledgment that the money had been lent. The authorities show that the present type of problem was rarely likely to arise with that type of mortgage because the production of the security document was prima facie evidence of the existence of the debt (Piccock v Brown (1734) 3 P Wms 288; 24 ER 1069) and that, unless the fact was put in issue by the pleadings, the security itself was sufficient evidence of the payment (Minot v Eaton (1826) 4 LJ (OS) Ch 134, but see Wansworth Norton Solicitors Nominee Company Limited v Edmonds [1992] 1 NZLR 596). This is set out in the Australian edition of Fisher and Lightwood on Mortgages at par [16.45] and [39.8]. The modern clause, however, does not go that far especially in a facility mortgage requiring drawn downs to be made later. It would thus not seem that any of the traditional protections to mortgagees apply to mortgagees who use this form of loan agreement and mortgage.
It is clear that if no monies are lent under a mortgage then the mortgage is just completely void: see Re GM Industries Pty Ltd and the Companies Act (1980) ACLC 40-665 per Needham J. His Honour was there dealing with a company charge rather than a registered mortgage so that the GM decision has to be read subject to the effect of indefeasibility of a registered mortgage. However, as Mr Walsh, who appeared for the Registrar General, so eloquently put it, there may be a registered mortgage, but it may be a registered mortgage which secures nothing.
I have already set out the principal part of clause 2.2.
It is, to my mind, a rather ambiguous clause. Mr Donaldson SC said as sweetly as he could that any sensible commercial lawyer looking at it would know what it meant but unfortunately I do not appear to be in that category. However, whatever it means, it refers back to whatever is owing under the secured agreement. As the secured agreement itself does not bring with it any concept of indefeasibility and as there is an issue between the parties as to whether or not it was ever signed by the appellant or merely signed by a person impersonating the appellant, there is not the material to demonstrate to the required standard that there was a loan to the appellant.
If there was no loan to the appellant he could not be in default not repaying the loan and, therefore, the mortgagee was not entitled to possession.”[23]
[23]Perpetual Trustees Victoria Ltd v Tsai [2004] NSWSC 745, at [20]-[24].
93 Finally, Mr and Mrs Vouzas relied upon Printy’s case. That case concerned a forged mortgage and a forged deed of loan which set out the amount of the loan and the repayments to be made. The New South Wales Court of Appeal considered whether the statutory power of sale had been properly invoked. Section 57(2)(a) of the Real Property Act 1900 (NSW) provided that a mortgagee may exercise a power of sale if default had been made in the observance of any covenant, agreement or condition expressed or implied in the mortgage or in the payment, in accordance with the terms of the mortgage, of the principal, interest or other money the payment of which was secured by the mortgage. The Court held that the section required “default” in one of two cases – either in the observance of any covenant in the mortgage or in the payment of money in accordance with the terms of the mortgage where the payment was secured by the mortgage.
94 The Court found that the relevant covenant in the mortgage required the mortgagor to pay the secured money to the mortgagee as provided in any related agreement. The only relevant default could be in relation to the separate deed of loan. The terms of that deed were not incorporated into the mortgage and therefore, were not covenants, agreements or conditions “expressed in the mortgage”. Hence, the first limb of the test had no application.
95 In relation to the second limb, the Court held that when the mortgage did not contain terms specifying the amount of, and time for, making payment, there could be no default in making payment “in accordance with the terms of the mortgage”.
96 The equivalent Victorian provision is in slightly different language omitting the words “in accordance with the terms of the mortgage” which were significant in the context of the Printy decision.
97 Sibonna sought to distinguish the above cases and other similar decisions involving forged mortgages. It contended that in such cases, there was no agreement between the parties so all that could be secured was what was protected by the indefeasibility which resulted from registration of the mortgage.
98 Her Honour found that, whether or not forgery was involved, the principle in Tsai applied if, properly construed, the mortgage required the existence of a separate agreement to establish an obligation on the mortgagor to pay and there was no such separate agreement. In that case, there was no loan secured by the mortgage. Her Honour also said the principles in Printy would apply if the prerequisites in section 76(1) of the TLA for the exercise of the power of sale have not been fulfilled.
99 What does this mean in the present case? While I accept that the written document dated 22 March 2012 did not contain any terms expressly addressing when and how the moneys advanced to, or at the request or direction of the defendants would be repaid, the cases referred to are distinguishable from the present case. In Vouzas, there was no loan agreement or guarantee between the mortgagor and mortgagee and hence, no underlying debt. Again, in Tsai the mortgagor’s signature on the loan agreement was forged so there was no loan agreement with the party against whom the debt was sought to be enforced. Printy’s case also involved a forged loan and mortgage and there was no loan agreement with the registered proprietor of the security property. Here, there is no dispute that Coulson executed the relevant documents: the March Agreement, August and December Charges, Dover Court mortgage and Whittlesea mortgages. Given that there is a signed document and some acknowledgement of the debt by the defendants (a matter which Justice Ferguson regarded as significant)[24], the question then becomes the amount of the indebtedness, the extent to which it is secured and whether the provisions of section 76 of the TLA have been enlivened.
[24]See the reference implicitly recognising its importance in Vouzas v Sibonna Nominees Pty Ltd [2011] VSC 261, at [117].
100 My primary finding is that in circumstances where the parties agreed that the moneys the subject of the March Agreement were not repayable until the Adco business generated profits, there was no breach of this agreement or any securities supporting it. Hence, there was no default or proper basis entitling Helms to issue the particular notice of breach[25]and to claim the valid of exercise of mortgagee’s rights under section 76 of the TLA.
[25]Where the breach relied upon was breach of the March Agreement.
The August Charge and the December Charge
101 Helms also relied upon the August Charge and the December Charge. They were in substantially similar terms except for the handwritten changes to the latter and the fact that Coulson alone signed it. As a result the December Charge cannot have any direct relevance to Mrs Coulson. At best, it is enforceable against Coulson or relevant to the admissions he makes in the document.
102 The August Charge was granted in consideration of Helms forbearing from taking immediate action against the Coulsons and refraining from doing so without first giving 120 days’ written notice.
103 Pursuant to the August Charge, the Coulsons charged all their legal and equitable interest in all real estate in which they had an interest with “the payment of all moneys advanced by the Lender and also otherwise payable by us pursuant to or in respect of the [March] Agreement and this Deed which are presently estimated at $350,000 or thereabouts”. This charging provision thus incorporates the following:
· the guarantee of $63,308 which the defendants agreed to in the March Agreement;
· the amounts of $114,183.50 and $70,000 payable to McDermott;
· the amount of $24,000 (or alternatively $32,593.44) payable to National Australia Bank.
104 Accordingly, in my opinion, under the terms of the August Charge, the Coulsons acknowledged their indebtedness to Helms for the amounts paid to McDermott and the National Australia Bank and the sum guaranteed. They also acknowledged an obligation to pay after receiving 120 days’ notice in writing of the requirement to repay. This obligation was reinforced by covenant 4 of the Dover Court mortgage and the subsequent mortgages given over the three Whittlesea properties.
Expert Evidence Regarding Damages
105 There were two experts engaged to give reports and oral evidence in the case, Mr Howell for the defendants and Mr Blashki for the plaintiff. Their evidence related to the amounts which each claimed, mainly in relation to entitlements said to arise on certain joint or profit share projects which generated work in 2012. The Coulsons made a claim for approximately $87,000 arising from these so-called joint venture jobs. In so doing, they relied on the evidence of Howell.
106 Howell had over 24 years’ experience as an insolvency practitioner and corporate regulator. He is a public practice accountant and has been a registered liquidator and official liquidator of the Supreme Court of Victoria and Federal Court of Australia since March 2009. He said that he was active in formal appointments as a liquidator, receiver and manager, voluntary administrator and deed administrator. He provided an initial report dated 15 May 2015 and then a second report dated 29 July 2015. That second report set out his opinions as to the liabilities claimed by Helms for various works completed by Dancol and Helms under the joint venture agreement and sub-contractor jobs. His findings are summarised as follows:
Table 1
Job
Howell
(First report)
$Howell
(Sup report)
$Annexure
Bonview – Joint Venture (5,830.40) 3,675.96 A Jobs – Various – Joint Venture (170,468.79) 10,087.54 B Tarneit – Joint Venture (11,607.64) (26,433.64) C Jobs – Various – Sub-contractor 45,918.00 45,918.00 D Total owed to Helms for Joint Venture and Sub-contractor jobs (141,988.83) 33,247.86 Less:
Total unallocated payments to Helms(71,500.00) (120,754.35) Total owed to Dancol by Helms 213,488.83 87,506.49
107 Howell stated that the books and records made available by both parties were not adequate to permit a full verification of receipts and expenses on each of the individual jobs. Unless an amount claimed was previously verified, Howell would not take the amount into account. He said his findings would change if further information became available such as MYOB files for Helms and Dancol, BAS statements for Helms and Dancol and evidence to verify the expenses claimed. Based on the information available to him, Howell concluded that $33,247.86 was owed to Helms on the joint venture and sub-contract jobs. He found there were unallocated payments to Helms of $120,754.35 and concluded that Helms owed Dancol $87,506.49.
(d) though the amount on the 16 January invoice was $1,798.50 the amount claimed was $1,300. Adams gave no explanation for the difference between the two amounts.
(e) though the amount on the 20 July invoice was $1,425.38, the amount claimed was $2,000. Adams gave no explanation for the difference between the two amounts.
(f) although the amount on the 3 August invoice was $1,840.08, the amount claimed was $2,000. Again, Adams gave no explanation for the difference between the two amounts.
143 In circumstances where:
· the evidence regarding the claims made by Helms is confusing;
· Helms has failed to explain various discrepancies including:
o why, even though Helms alleged that it paid all these invoices, it claimed for only some;
o the discrepancies between the invoiced amounts and the amounts claimed; and
o the differences between invoices bearing the same date,
I am not satisfied that Helms has properly proved its loss to recover anything for the payments allegedly made to Slattery.
144 Further on this point, I am more inclined to accept Coulson’s evidence that he did not authorise Helms to make such payments. In doing this, I note that Coulson did not dispute receipt of the advances of $20,000 and $5,000 from Helms to assist in paying Dancol employees. Given he acknowledged these advances, it would seem odd that he should deny another similar payment unless there was substance to his denial.
(d) Komatsu excess
145 The Komatsu excavator was a piece of equipment used by Dancol in its civil drainage works. The machine was being repaired under insurance and, it appears, neither Dancol nor Coulson had the $500 needed to obtain the release of the excavator. In any event, Helms paid $500 to pick up the machine and use it. The Coulsons did not contest this. This money was expended for Dancol equipment and ought to have been recoverable from Dancol, not the defendants. Helms did not allege that Coulson or his wife guaranteed repayment of this sum.
(e) Interest on ANZ loan
146 I understood Adams’ evidence to be that the ANZ charged monthly interest of $681.56 on the loan for $200,000 which was taken out in 2012. Helms claimed that Coulson should be liable for the payment of interest. Further, Helms contended that, by virtue of the amendments made to the December Charge, Coulson bound himself and possibly his wife to make those interest payments. Given that he signed the December Charge and agreed to its hand-written changes, I accept that Coulson acknowledged an obligation to pay a monthly sum of $681.56 representing the interest which Helms incurred to provide funding for Dancol and/or Coulson. However, I consider that Mrs Coulson assumed no such obligation and is not bound by the December Charge.
147 Hence, regarding this category of alleged loss, I find that:
· Coulson was indebted to Helms in the sum of $5,000 for the loan;
· Coulson was indebted to Helms in the sum of $5,452.48 for interest;
· Dancol was indebted to Helms for the sum of $20,000 for the loan and $500 for the Komatsu excavator.
· neither Coulson nor Dancol was obliged to pay Helms regarding the Slattery invoices.[29]
[29]And if either were obliged, it was more likely Dancol and therefore not recoverable.
When is the debt owed to Helms repayable?
148 The answer to the question of when the debt to Helms is repayable varies depending on the debtor and the component of the debt. Unless they were guaranteed or the Coulsons otherwise expressly agreed to repay the debt, the debts of Dancol to Helms are not recoverable. Dancol is now in liquidation and, in any case, is not a party to this action. The March Agreement was made on the basis that the Coulsons would repay moneys advanced by Helms from the profits made in the future by Adco. Because Adco never began operations and made profits in the way that the parties had hoped and intended, the moneys advanced under or pursuant to the March Agreement have not, and will not, become payable under that agreement. This means that Helms cannot recover under the March Agreement the sum of $216,776.94 comprising the moneys paid to McDermott totalling $184,183.50 and the $32,593.44 paid to the National Australia Bank.
149 Given the context, as a matter of construction, I consider that the objective intent of the parties as evidenced in their agreement was that the defendants were not obliged to pay the guaranteed amount of $63,308 in respect of the debt owed to Helms by Dancol before administration until Adco made profits.
150 As noted earlier in the August Charge, the Coulsons acknowledged an obligation to pay Helms the amount owing after receiving 120 days’ notice in writing of the requirement to pay. Hence, Helms could make a demand for payment and the Coulsons were obliged to pay 120 days later. This would apply however only to those moneys that were properly owing under the charge.
151 Under the August Charge, the Coulsons charged all their legal and equitable interest in all real estate in which they had an interest with “the payment of all moneys advanced by the Lender and also otherwise payable by us pursuant to or in respect of the [March] Agreement and this Deed”. The moneys advanced for or on behalf of the Coulsons were:
· $216,776.94 paid to McDermott and the National Australia Bank;
· $5,000 lent to Coulson in about February 2012 to help keep Dancol out of liquidation.
An amount otherwise payable by the Coulsons was the guaranteed amount of $63,308 representing the Dancol debt.
152 Under the December Charge, Coulson agreed to be liable for the interest charged on the $200,000 loan from the ANZ. From around late 2011 or early 2012 to August 2012, the loan incurred interest at a rate of $681.56 per month. Thereafter, there is no evidence about the monthly repayment amount due. However, as Judge in Charge of the Banking and Finance List, I take judicial notice of the fact that, for some time, interest rates have been lower than they have been for very many years. In his report Blashki calculated the interest owing as $5,452.48.
153 These elements of indebtedness, namely the amounts set out in paragraphs 151 and 152, were repayable by the Coulsons under the August Charge on 120 days’ notice.
Is the debt owed to Helms or any part of it secured?
154 The March Agreement contains an acknowledgment by the defendants that:
· Helms will advance about $220,000 for the benefit of the defendants;
· the Coulsons are liable under a guarantee to pay Helms $63,308; and
· the Coulsons will mortgage their house in favour of Helms to secure payment of $285,000.
155 The Coulsons executed a mortgage over their home on 25 July 2012. The mortgage referred to a “Principal Sum” of $285,000 and an interest rate of 8% per annum. The Principal Sum was to be repaid in accordance with covenant 4 of the mortgage. The provisions of the MCP No. AA690 were incorporated in the mortgage. There were only four covenants appearing on the face of the mortgage as follows:
“The mortgagor covenants with the mortgagee as follows:
1) To pay the principal sum in the manner and at the times specified
2) To pay the mortgagee so long as the principal sum or any part shall remain unpaid interest on the sum or on so much as for the time being remains unpaid at the rate and in the manner and at the specified time. However, where no interest is payable on the moneys secured the covenants relating to interest implied by section 75(a) of the Transfer of Land Act 1958 are expressly excluded.
3) This mortgage is collateral to an agreement dated 22nd day of March 2012 made between the parties herein.
4) All moneys secured by this mortgage shall be payable by the mortgagor to the mortgagee within 120 days of receipt of written demand which the mortgagee may serve at any time.”
156 The relevant provisions of the MCP are as follows:
1.1 As the owner of the property, you mortgage the property as security for payment of the secured money (the secured money is defined in clause 5).
5.1 The secured money is all money that, for any reason, you owe us now or in the future:
(a) under a credit contract;
(b) under a related guarantee; and
(c) under clause 39 (you must pay reasonable enforcement expenses)
6.1 You must pay us the secured money at the time and in the way set out in the agreement that creates your obligation to pay us the secured money.
50.1 “Credit contract” means any agreement (whether entered into now or in the future) in which we provide you with credit (as defined in the Consumer Credit Code).
“Default” means any default specified in clause 37.
“Related guarantee” means a guarantee or guarantee or indemnity (entered into now or in the future) in which you agree to guarantee or guarantee and indemnify us concerning a debtor’s liability under a credit contract.
157 Pursuant to clause 3 of the National Consumer Credit Code:[30]
[30] Schedule 1, National Consumer Credit Protection Act 2009 (Cth)
“For the purposes of this Code, credit is provided if under a contract:
(a) payment of a debt owed by one person (the debtor) to another (the credit provider) is deferred; or
(b) one person (the debtor) incurs a deferred debt to another (the credit provider)”
158 The August Charge could constitute a credit contract insofar as it contains an acknowledgement of debt and a reference to Helms not taking action without first giving 120 days’ notice. This means that there is a debt, the repayment of which can be demanded at any time. Once Helms makes demand, the Coulsons have a grace period of 120 days in which to meet the demand. Because the debt is not immediately repayable on demand, but repayable only after the notice period expires, the payment of the debt is deferred.
159 The August Charge expressly contemplated giving Helms security for the performance of the Coulsons’ obligations under both the March Agreement and/or the August charge. The Coulsons agreed to execute mortgages or other assurances as required by Helms. As a result, in addition to the mortgage over the Dover Court Property, Helms took mortgages over the three Whittlesea properties in February 2013. The covenants in those further Whittlesea mortgages were the same as in the Dover Court Mortgage save that the Whittlesea mortgages were said to be:
“collateral to an agreement dated 22nd day of March 2012 and a deed of charge dated 28th day of August 2012 as varied on the 3rd day of December 2012 made between the parties herein”. (emphasis added)
160 It seems to me a reasonable construction of the August Charge and the Whittlesea mortgages to find that the parties intended that the Whittlesea properties be security for the performance of the defendants’ obligations in the March Agreement, the August Charge and for Coulson only, the December Charge. As a result, I consider that Helms was entitled to make demand on the Coulsons for all monies advanced by Helms and all monies otherwise payable by the Coulsons pursuant to or in respect of the March Agreement and the August Charge. This would comprise:
· the monies advanced to McDermott by the payments of $114,183.50 and $70,000;
· the $32,593.44 paid to National Australia Bank;
· the $63,308 guaranteed by the Coulsons. This would be an amount otherwise payable by the defendants pursuant to or in respect of the March Agreement.
· the sum of $5,000 lent to Coulson in February 2012.
161 The December Charge is, for practical purposes, in the same terms as the August Charge. There are two main differences between the Deeds. First, only Coulson and not his wife signed the December Charge. Secondly, Coulson acknowledged a liability to pay $681.56 per month which was the interest payable in relation to the $200,000 loan which Adams obtained for Helms from the ANZ. In his report Blashki claimed an amount of $5,452.48 for the interest due. Helms was entitled to demand this amount from Coulson under the December Charge and Coulson then had 120 days in which to pay.
What is the nett position?
162 Helms is entitled to demand repayment from Coulson of the sum of $290,537.42.[31]In addition, the Coulsons owe Helms a further sum of $30,000 in relation to work done. However, I am not satisfied that Helms is entitled to recover this component of debt in the present proceeding because Helms made no relevant claim such as an alleged breach of contract or quantum meruit.
[31]This is the total of the amounts in paragraph 153.
163 Against this, I have found that Helms owes Coulson $80,000. In my view, this should be set-off against the amount payable to Helms, giving a nett indebtedness of $210,537.42.
Defence to claim
164 In the defence, the Coulsons raised a variety of matters including duress, breach of collateral agreement, fraud, misleading and deceptive conduct and unconscionable conduct in contravention of the Australian Consumer Law. Notwithstanding the pleadings made these allegations, the Coulsons did not rely on most of them at trial. Their attention was focussed on the absence of a breach of obligation and a claimed disconnect between the loan advances and the security taken. Apart from duress, the other matters referred to appeared to be abandoned in final address because no, or no significant, weight was attached to them.
165 As part of the duress defence, Coulson relied upon his alleged depression and called an expert psychologist, Vesela Poposki (“Poposki”). She commenced practice in July 2008 and worked part-time between then and July 2010. She had three consultations with Coulson in June/July 2010. To the extent that she formed any view about Coulson, Ms Poposki acknowledged that the consultations were insufficient for Coulson to achieve his counselling goals and he refused to complete some of the testing. Ms Poposki acknowledged that with the right treatment and medication, a person in Coulson’s position could manage their symptoms and experience considerable improvement in their condition.
166 Because Helms did not object to Ms Poposki’s evidence, I did not have to rule on the admissibility of this expert evidence. But having regard to judgments such as that of the High Court in Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588 and that of Heydon JA in Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705, as reviewed in the context of the Evidence Act 2008 (Vic) by Dixon J in Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd [2012] VSC 99 at [98], it is likely that I would have rejected the evidence as inadmissible.
167 In any event, even if the evidence were admissible, I did not find it helpful or persuasive because it significantly predated the time relevant to the issues in the case. Because the last consultation was in July 2010, Ms Poposki could provide no useful evidence about Coulson and his psychological condition in 2011 and 2012 (assuming she had the requisite expertise and sufficient factual basis to form an opinion). Accordingly, I do not have any regard to the evidence of Ms Poposki relating to the issue of Coulson’s psychological condition and mental state in and after 2011.
168 Both Mr and Mrs Coulson gave evidence intended to suggest that Coulson was depressed during the period of his dealings with Helms. While Coulson maintained that he was suffering badly from depression, there was no specific evidence from doctors or pharmacists called on his behalf – the doctors to explain the details of his medical condition and the pharmacists to explain the medications, if any, which Coulson was taking and their potential impact on his behaviour.
169 I have already explained my reservations about Coulson’s credibility. Mrs Coulson appeared in court as a loyal wife who did her best to support her husband through the business difficulties he experienced with Dancol. She had no day to day involvement in the business. She gave some evidence designed to support the position taken by Coulson. Even if I were to accept uncritically all that she said (which I do not), there was no sufficient basis on the evidence to find that Helms knew Coulson was severely depressed and took inappropriate advantage of Coulson’s illness to obtain a benefit to which it was not properly entitled. Adams was aware in 2012 that Coulson had twitching in his leg and what Coulson described as “health issues” but denied that Coulson ever told him he was afflicted with depression. Coulson said he told Adams of his mental health issues in 2011 but could not recall if he told him that he was on medication. Coulson said that because of his long experience in the industry, he was still able to function properly with the majority of work duties. I prefer the evidence of Adams on this point based on his greater credibility.
170 Also, even if Coulson were depressed to some extent, he nonetheless remained clear sighted and determined in his endeavours to save Dancol from liquidation and to maintain control over the accreditations which Dancol held. In other words, his decision-making appeared to remain focused and calculating irrespective of any alleged health issues. To the extent that Coulson made deals or accepted arrangements which involved compromise or were less than ideal from Dancol’s or his perspective, he was compelled to so act due to the weakness of Dancol’s bargaining position rather than any feebleness or illness affecting him.
The alleged trust property
171 The defendants submitted that no order for possession could be made in relation to the property at 12 St Rafael Place, Whittlesea because Coulson held the property on trust for his mother, Evelyn Coulson. I do not accept this submission for several reasons. First, the title search of the property disclosed no reference to any interest held by Evelyn Coulson. There was no caveat lodged on the title referring to any equitable interest held by her.
172 Secondly, the principles of real property law regarding land governed by the TLA also constitutes a major obstacle. Unless there is fraud, a person who is the registered proprietor of the legal title to the property holds an indefeasible interest in the land and cannot have that interest impugned by any alleged trust. As put by Tadgell JA in Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd:[32]
“It is to be distinctly understood that, until a forged instrument of mortgage is registered, the mortgagee receives nothing: before registration the instrument is a nullity. As Street J pointed out in Mayer v Coe at 754, the proprietary rights of a registered mortgage of Torrens title land derive “from the fact of registration and not from an event antecedent thereto”. In truth, I think it is not possible, consistently with the received principle of indefeasibility as it has been understood since Frazer v Walker and Breskvar v Wall, to treat the holder of a registered mortgage over property that is subject to a trust, registration having been honestly obtained, as having received trust property.”[33]
[32][1988] 3 VR 133.
[33]Ibid, at 157. Winneke P concurred with the judgment and it was later approved and applied by the High Court in Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, at [193-196].
173 Thirdly, the evidence, such as it is, does not support the existence of the trust. In court, Coulson claimed the trust existed. However, when he sought to borrow against the property at an earlier time, the documentary evidence showed that:
· he did not state that anyone other than himself had an interest in the property; and
· he told the potential financier that the resident at the property (who apparently was his mother) was paying rental at a market rate – this was false.
These statements are inconsistent with Coulson’s mother being the owner of this property. In short, I am not satisfied that Coulson’s mother owns this property. Accordingly, her alleged ownership provides no basis to prevent the court making a possession order regarding 12 St Rafael Place, Whittlesea.
Counterclaim by the Coulsons
174 In their counterclaim, the Coulsons alleged that Helms and Coulson made a joint venture agreement. The joint venture agreement was express and implied, including the March Agreement, conversations between Adams and Coulson and implications. As a result, they said that the two venturers owed fiduciary duties to one another. Helms allegedly breached its duties to Coulson by:
(a) failing from about April 2012 to account fully to Coulson and provide him with information about the financial and other business affairs of the joint venture;
(b) from about April 2012, excluding Coulson from participation in the full and proper management of the joint venture business;
(c) conducting transactions unrelated to the joint venture business;
(d) conducting the joint venture business other than for the benefit of both venturers and depriving Coulson from profits which would otherwise be paid to him.
As a result, Coulson claimed he suffered loss and damage. This took several forms including the failure to receive the $172,000 contemplated by the March Agreement, loss of profit share and loss of opportunity to establish other joint ventures. In final address, the defendants’ focus was on the need to set-off against any amount payable to Helms the sum of $172,000 to which Coulson claimed an entitlement.
175 I find that Helms never paid the $172,000 to Coulson. However, I am not satisfied that Helms was ever obliged to pay the money in circumstances where Coulson did not uphold his part of the agreement. It was clear from the evidence and I find that:
· Coulson did not procure Dancol’s emergence from administration so that its assets could be sold to Helms or its nominee; and
· Coulson never transferred or arranged the transfer of the water accreditations from to Dancol to Adco.
Further, according to the evidence of Coulson, the joint venture was never consummated. Coulson agreed that, at a time when Dancol was subject to the DOCA and Coulson himself was subject to obligations under the joint venture agreement, he decided in about August 2012 to conduct a civil drainage business through a new company, DPD . Dancol employees such as Damien Cusack, Gary Dundon, Carlene Gough and Coulson simply moved across to the new entity. The new entity performed work which was won through and reliant upon, the accreditations held by Dancol.
176 If the joint venture relied upon were never in fact consummated, then such an agreement could not have been breached. As noted, Coulson’s primary object at trial in this context seemed to be the setting off of the alleged debt for $172,000 against any amount found owing to Helms. The defendants appeared to accept it was likely that they would be found to owe some amount to Helms.
177 The agreement relied upon by the Coulsons was one whereby in consideration of doing various things pursuant to the March Agreement, Helms was to establish Adco. Coulson was to arrange for Dancol to sell all its business to the new company, and Coulson was to own 50% of the new company. The March Agreement did not specify any particular date by which Adco was to be incorporated or the transfer of business was to take place. Nor was there an particular time specified for the procuration of the sale of the Dancol business. Because Helms did not establish Adco with Coulson appearing as a shareholder, or otherwise enter a formal agreement granting him a 50% share of the profits in the business, and also failed to pay $172,000 for the transfer of the accreditations, the defendants claimed that Helms’ non-performance should be recognised in a practical manner – by reducing any debt owed by the Coulsons to Helms by $172,000.
178 In this case, each party was to perform certain work in order to implement the business structure agreed for their future business. Neither Helms nor Coulson fully discharged their obligations under the agreement they made. In an action for breach of contract, a plaintiff’s readiness and willingness to perform his obligations under the contract is a condition precedent to the right to recover.[34]It is clear that in cases both of actual breach and repudiatory conduct before the due date for performance, a plaintiff as part of his or her cause of action must show readiness and willingness to perform the agreement.[35]
[34]Foran v Whight (1989) 168 CLR 385, 451 referring to Hensley v Reschke (1914) 18 CLR 452.
[35]D.T.R Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423, 433.
179 In proving readiness and willingness, the plaintiff only has to satisfy a relatively low threshold. Dixon CJ in Rawson v Hobbs[36] noted that one must be careful to see that nothing but a substantial incapacity or definitive resolve or decision against doing in the future what the contract requires is counted as an absence of readiness and willingness. It is enough that the party seeking to sue for breach is not presently incapacitated from future performance and is not indisposed when the time for performance comes to do what the contract requires.[37] In this case Coulson was not relevantly ready and willing to perform. Accordingly, I will not set-off against Helms’ claims the amount of $172,000.
[36]Rawson v Hobbs (1961) 107 CLR 466, 480-81.
[37]Psaltis v Schultz (1948) 76 CLR 547, 530
Conclusion
180 This was a difficult case due to the complexities of the material and the manner in which the case was pleaded and presented. I direct that the parties confer and produce orders giving effect to these reasons. If required, I will hear the parties further on the final form of orders and costs.
0
35
0