I.Y Lords Investments v Kleytman Investments &

[2009] VCC 1561

IN THE COUNTY COURT OF VICTORIA Revised

Not Restricted

AT MELBOURNE

CIVIL DIVISION

Case No. CI-09-01065

I.Y. LORDS INVESTMENTS	Plaintiff
v
KLEYTMAN INVESTMENTS & ANOR	Defendants

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JUDGE:	HIS HONOUR JUDGE LACAVA
WHERE HELD:	Melbourne
DATE OF HEARING:
DATE OF JUDGMENT EX TEMPORE:	13 November 2009
CASE MAY BE CITED AS:	I.Y. Lords Investments v Kleytman Investments & Anor
MEDIUM NEUTRAL CITATION:	[2009] VCC 1561

REASONS FOR JUDGMENT EX TEMPORE

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Catchwords: Loans secured by personal guarantee – calculation of interest according to agreement – no appearance by defendants – counterclaim served and filed by first named defendant – whether counterclaim can be dismissed.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr r. Greenberger	Robert Jones Lawyers
For the Defendant  HIS HONOUR:

1          This proceeding was commenced by the plaintiffs by Writ issued on 18 March 2009. The firstnamed plaintiff is a corporation incorporated pursuant to the provisions of the Corporations Act (2001) and the second and thirdnamed plaintiffs are each directors of the firstnamed plaintiff and responsible for the conduct of its affairs. The firstnamed defendant is also a corporation and the secondnamed defendant is at all material times a director of the firstnamed defendant.

2          The plaintiffs claim from the defendants by Writ moneys owing pursuant to various transactions between the plaintiff of the one part and the defendants of the other, from about 2005 to around January of 2009 and the dealings were extensive.

3          On 6 September of this year the firstnamed defendant was placed into voluntary liquidation. That step was taken by the directors of the firstnamed defendant after it was served with a statutory demand for payment by the Australian Taxation Office. The proceeding was called on for trial yesterday, having been fixed for hearing some months ago.

4 On 5 November the defendants applied before His Honour Judge Anderson in this court for an order vacating the trial date. His Honour, after giving the matter a great deal of thought in detailed reasons recorded at (2009) V.C.C. 1352 rejected the application by the defendants to have the matter taken out of the list for hearing and ordered that the matter proceed yesterday, 12 November 2009. It is unnecessary to revisit those reasons which are detailed in the reasons for judgment.

5          When the matter was called on for hearing again yesterday, 12 November, being the listed trial date, both defendants were represented by Mr Tatarka of counsel, instructed by Rudstein Kron Lawyers. Mr Tatarka again made application to have the matter adjourned and he relied upon three affidavits. One sworn by the secondnamed defendant on 11 November 2009, another sworn by Zelma Rudstein, a legal practitioner on the same date and another sworn by Joseph Loebenstein the liquidator of the firstnamed defendant.

6          I refused the further application for an adjournment. In summary, I did so for the reason that the grounds advanced again revisited the arguments that were made before His Honour Judge Anderson seven days previously and they did not raise any new or proper grounds why the proceeding should not go ahead. Having ruled that the matter would then proceed, Mr Tatarka sought and was granted by me, leave to withdraw. At that point I stood the matter down for ten minutes to enable the plaintiff to collect documents and so forth so the matter could proceed.

7          When I returned to the Bench there was no appearance by Mr Tatarka and the secondnamed defendant, Stephen Kleytman who had previously been in the courtroom seated behind Mr Tatarka. I had my Tipstaff call the matter outside the court and when he returned to the court my Tipstaff advised me that there was no appearance for either defendant and that Mr Tataka had indicated that the matter was proceeding undefended or at least unopposed and that there would be no appearance for either defendant.

8          I should at this point indicate that the firstnamed defendant having been placed into voluntary liquidation, Mr Greenberger of counsel who appears on behalf of the plaintiffs made it clear that leave not having been obtained from the Supreme Court to proceed against the firstnamed defendant in liquidation, the plaintiffs would not be seeking to proceed against the firstnamed defendant but only against the secondnamed defendant.

9          I should also add that the defendants have filed and delivered a defence to the statement of claim and counterclaimed.

10        The plaintiffs had a number of dealings with the defendants. In broad terms those dealings may be categorised into three separate categories. First there were a number of loan arrangements which I shall globally describe as the concerned property transactions between about November 2004 and proceeding through to approximately 29 January 2009.

11        The second category transactions relate to a proposed development of a casino and other facilities in Fiji. Those dealings took place by and large between 2005 and about 2008.

12        The third category relates to the development of online interactive gaming and casino transactions in Vanuatu. Each of these categories of transactions needs some explanation. Before me Mr Yoav Ida, one of the plaintiffs and a director of the firstnamed plaintiff gave detailed evidence before me. He explained to me that he was a company director and that his companies had interests in property development and agricultural ventures.

13        In about August 2004 he having been acquainted with the secondnamed defendant (whom I shall hereafter refer to as “Kleytman”), he met Kleytman at the auction of a development site in Bruce Street Toorak.

14        After some discussion Kleytman invited the secondnamed plaintiff Mr Yoav Ida to participate with him in property development by lending him, Kleytman, money which could be used by Kleytman to contribute his 50 per cent interest in joint venture developments with another company controlled by a builder. The secondnamed plaintiff agreed to participate.

15        On 25 November 2004 the firstnamed plaintiff loaned the sum of $255,000 to the firstnamed defendant and that loan was secured in part by a deed of guarantee and indemnity and a mortgage of shares. The loan agreement sets out the terms of the loan and is found in the court book at pp.25-53 inclusive. Those pages include the loan agreement and the attachments incorporated by reference in it, being the deed of guarantee and indemnity and other documents. I accepted those documents into evidence and marked them as Exhibit C.

16        At the time that the first loan was entered into on 25 November 2004 the amount of indebtedness, leaving aside interest and other matters, was $255,000 principle.

17        About two months later a second loan followed. That loan was for the sum of $200,000 and was induced by the representation that the loan would be repaid from the proceeds of a development in which the defendants were involved at Poath Road Chadstone. The second loan agreement was dated the 11th day of January 2005 and it was also secured in part by the deed of guarantee given by the secondnamed defendant Kleytman and a mortgage of shares.

18        I admitted into evidence the second loan agreement and the security documents which are found in the court book at pp.54-78 inclusive as Exhibit D. The loan agreement provided for interest to be paid at 10 per cent compound plus a share of profit.

19        There were a number of projects which the second defendant, Kleytman claimed to have an interest in and which were discussed with the secondnamed plaintiff. A spreadsheet sets out these proposals and this was not admitted into evidence but was referred to by the witness Mr Ida in his evidence. The spreadsheet is found in the court book at p.79. I accept the evidence given by Mr Ida on these matters.

20        The third loan was entered into between the parties on or about 23 March 2005. It was a loan by the plaintiffs to the firstnamed defendant secured by guarantee from the secondnamed defendant for $340,000. That agreement was also secured by mortgage of shares and a deed of indemnity and guarantee in writing given by the secondnamed defendant, Kleytman. It is unnecessary to go into the basis of that agreement which as well as promising return of the principal also offered profit share.

21        The third loan agreement which I admitted into evidence as Exhibit D is found in the court book at pp.80-106 inclusive. As at 6 December 2006, as a result of the first three loan agreements and the provision of them, there was a sum in excess of $1,725,000 owing by the firstnamed defendant and guaranteed by the secondnamed defendant to the plaintiffs.

22        In December of 2005, Mr Ida had discussions with Kleytman and told him that he wanted his money back plus the profit entitlement which he was owed and interest as he was promised. Kleytman made a proposal at that point to combine all of the loans into one loan, repayable thereafter together with interest at the rate of 40 per cent.

23        By the following year nothing had been repaid. Kleytman then offered to Mr Ida to sell to Mr Ida off the plan, four units valued at $300,000 each of which he asked to be deducted from the loan. In other words, the units would be transferred for a consideration paid in full, totalling $1.2m. The units concerned were to be built at 2-4 Newton Street in Chadstone. The parties agreed to the proposal put by Kleytman to Mr Ida and in fact contracts were entered into for the transfer following a contract of sale of units 2, 5, 12 and 14 off the plan to the firstnamed plaintiff.

24        I admitted into evidence as Exhibit F copies of the contracts found at court book pp.107-118. As a result of that transaction there was a credit to the amount outstanding for the first three loan transactions of $1.2m so that by about 6 December 2006, the firstnamed defendant guaranteed by the secondnamed defendant owed to the first and second plaintiff the sum of $525,117.

25        Between 21 September 2007 and 20 November 2007 there were discussions between the parties whereby Mr Ida, the secondnamed plaintiff on behalf of himself and the firstnamed plaintiff agreed to give three credits to reduce the entitlement of the plaintiff to repayment. The credits were $70,000 on 21 September 2007, followed by a credit of $120,000 on 1 October 2007 and a further $100,000 on 20 November 2007. The credits having been given, by the time that the third credit was given, the total amount of indebtedness pursuant to the loan transactions, was $235,117 or thereabouts.

26        In early December 2007, Mr Ida conferred with Kleytman, who asked what balance was then outstanding. Mr Ida did a calculation which he wrote in his notebook and showed to Kleytman. Kleytman asked for the pages from the notebook and said that he wanted to pay the balance and it would be paid from the settlement of a development in Poath Road. Mr Ida said to Kleytman that if he was going to repay all of the loan, there and then or soon thereafter, he would round off the amount outstanding to $250,000.

27        Kleytman took the pages from Mr Ida's notebook away with him to discuss with his lawyer and an accountant. At that point, Mr Ida regarded the amount then outstanding by the first defendant, guaranteed by the second defendant, Kleytman, as having been compromised in the sum of $250,000. However, it wasn't long before Kleytman was again asking Mr Ida and the firstnamed plaintiff for money, by way of loan.

28        After Kleytman took the notes from the meeting with Mr Ida and the two had agreed to compromise the debt owing at $250,000, Kleytman provided to Mr Ida an undated cheque drawn on the account of Arovieve Pty Ltd, in the sum of $250,000. Mr Ida accepted the cheque, a copy of which I admitted into evidence as Exhibit G and a copy of which is found at the court book p.254.

29        The photocopy reflects that the date on the cheque is 2 March 2009. At the time that the cheque was provided to Mr Ida, it was completely undated and the date has been inserted by Mr Ida earlier this year.

30        In December 2007, Mr Ida travelled overseas and whilst he was abroad, he received a phone call from Kleytman who said that he needs a loan urgently in the sum of $490,000, which he said would be for a period of six weeks only and that he would repay it with interest and in order to in part secure the arrangement, the two exchanged cheques. Mr Ida provided the cheque in the sum of $490,000, payable to Lorne Bay. A copy of that cheque is found at court book p.255 and I admitted into evidence as Exhibit H.

31        At the time that that cheque was provided by way of loan, Kleytman provided a further cheque payable to the secondnamed plaintiff in the sum of $496,000 with the intention that it not be banked until sometime in the future and the difference of $6,000 would represent interest. The latter cheque for $496,000 I admitted into evidence as Exhibit J and it's found in the court book at p.254. That was the fourth loan transaction effectively, between the parties.

32        After that loan was completed and the compromised amount of $250,000 not having been repaid, the principal outstanding as at 21 December 2007, was $746,000. Soon after, Kleytman requested further money by way of loan and this was advanced by the second plaintiff in the sum of $258,000 on 26 December 2007. I admitted into evidence an acknowledgement of the loan as Exhibit K and the cheque as Exhibit L. At that point the amount outstanding had risen to $1,004,000.

33        In January 2008, Mr Ida returned to Melbourne from his travels abroad. He met with Kleytman and asked him about progress with the settlement of a development that Kleytman claimed to have been interested in, in Poath Road, Chadstone or thereabouts.

34        In early to mid 2008, Kleytman claimed to Mr Ida that there was a dispute with his joint venture partners in Poath Road and that the dispute was in the hands of lawyers. He proposed to Mr Ida and Mr Ida agreed to accept that the amount outstanding be broken up into three separate loans.

35        The first, for the compromised amount of $250,000, would be regarded between the two as a loan extending from 1 December 2007 at 25 per cent interest, compounded daily. The second, would be recognition of a loan of $490,000 from 21 December 2007 at 25 per cent compound interest on a daily basis. The third loan would be recognition of the $250,000 loan from 26 December 2007 at 25 per cent compound interest, calculated on a daily basis.

36        At that point, Kleytman told Mr Ida to hang on to any cheques that he had given him and not to bank them. By April 2008, Kleytman had not repaid any of the agreed loans and with interest accruing by 1 April 2008, the amount of indebtedness from the first defendant and Kleytman to the first and secondnamed plaintiff totalled $1,110,000 or thereabouts.

37        In April 2008 Kleytman proposed to repay the debt then outstanding in part by transferring to the first and second plaintiffs or one of them or other of them two shops being developed in North Road Caulfield South. Each would be valued at $250,000. A contract would be entered into and the proceeds deemed as having been fully paid thereby providing a credit for the loan arrangement to the loan arrangement reducing the amount of indebtedness by $500,000.

38        At that point the secondnamed plaintiff had a debt of his own of some $500,000 to a legal practitioner one Goldie Kelmann. That loan had been taken out approximately one month earlier.

39        In order to provide a credit to the indebtedness by the first and second defendant to the first and second plaintiffs it was agreed and carried out that the second defendant would procure the transfer to Goldie Kelmann of the two shops valued at $500,000 thereby creating a credit to the total loan arrangement. The two shops were transferred to Goldie Kelmann as agreed.

40        At that point the parties did a calculation of the amount owing and it was agreed that that sum owing by the first defendant secured by guarantees of the second defendant was $610,000.

41        At that point Kleytman said that he would secure the amount outstanding by transferring to Mr Ida or his interest a shop in order to cover the amount outstanding in the loan. Mr Ida accepted this arrangement but no contracts of sale ever materialised. Instead on or about 1 April 2008 the parties entered into a memorandum of understanding whereby Kleytman agreed to transfer to the plaintiff two shops in Poath Road being developed by a joint venture vehicle, K2K Pty Limited.

42        I admitted the memorandum of understanding into evidence as Exhibit M, a copy of which is found in the court book at p.257-258.

43        The transfer did not proceed. On or about 5 January 2009 Kleytman again approached the secondnamed plaintiff and asked for the sum of $65,000 by way of loan which he said that he would repay in five to six weeks time. Again the secondnamed plaintiff obliged but provided a cheque drawn on the account of the thirdnamed plaintiff in the sum of $65,000 a copy of which I admitted into evidence as Exhibit M. It is found in the court book at p.293.

44        In late January of this year Mr Ida became aware of the fact that the two shops which Mr Kleytman had agreed to transfer to the plaintiffs or one or other of them pursuant to the Memorandum of Understanding admitted into evidence as Exhibit M had in fact been transferred elsewhere. In other words, Kleytman had reneged on the deal set out in the Memorandum of Understanding. Mr Ida approached Kleytman on 29 January 2009 and discussed the matter with him without alerting Kleytman to the fact that he (Ida) knew that the shops had been transferred.

45        Mr Ida discussed the matters of indebtedness with Kleytman and Kleytman acknowledged that after the payment of the $65,000 and together with interest the total indebtedness had grown, as at 29 January 2009 pursuant to the loan transactions, to the sum of $710,000. Kleytman signed an acknowledgement, a copy of which is found at p.296 of the court book which I admitted into evidence as Exhibit O. It reads as follows: "We, Stephen Kleytman and Kleytman Investments Pty Ltd hereby acknowledge as at 29 January 2009 that we owe to you the principal sum of $710,000 and that interest will accrue from today at the rate of 10 per cent per annum and that the principal sum and accrued interest is due and payable and repaid upon the transfer by us of the properties being two shops known as Lot 37 and Lot 38 at 50 Poath Road, Hughesdale."

46        The moneys referred to in the acknowledgement have never been repaid. That is the completion of a long and turgid history of the loan transactions between the parties. As at 29 January of this year the agreed sum was $710,000 which was accruing interest, according to agreement, at the rate of 10 per cent per annum compound.

47        That brings me to the second category of transactions. Mr Ida gave evidence of being approached in 2005 by Kleytman who had an idea to build and develop in Fiji a casino and a tourist resort. Mr Ida agreed to join with Kleytman in a joint venture, the joint venture vehicle being Horizons 2005 Pty Ltd was incorporated, controlled as to 50 per cent by Kleytman and Mr Ida. The agreement between the two was that as it was Kleytman's idea and conceived by him, but as he did not have the money to contribute to the joint venture, Mr Ida would contribute Kleytman's 50 per cent by way of loan repayable with interest at the rate of 10 per cent compounding on a daily basis. Pursuant to the arrangement Mr Ida loaned to Kleytman his 50 per cent. There were a number of trips to Fiji and various discussions and so forth but the proposal did not proceed and the last steps in relation to it were taken in early 2008.

48        During the course of evidence today I took evidence from Mr Eustace Anthony Senese, a company director with tertiary qualifications including a master of business administration majoring in international finance. Mr Senese calculated various calculations which produced figures for the total indebtedness owing by the defendants for each of the three categories of transactions. This was done by him using an Excel spreadsheet facility. The amount of indebtedness as at 12 November 2009 for the property loan transactions is $407,061.88 being a principal of $250,000 together with interest calculated at 25 per cent compounding and a total interest due of $157,061.88.

49        Attachment B deals with the further loans of $490,000 and $258,000 for a total indebtedness including interest of $450,759.21. Attachment C is the Excel spreadsheet which meticulously traces the amounts loaned by the plaintiffs to Kleytman for the Fiji project. It records in chart form each expense, the source of information for each expense is a voucher or document recorded as a document number and the number aligning with each expense represents a document discovered in the proceedings and the number equates with the document number recorded in the affidavit of documents.

50        I am satisfied that the attachment, being C, to the document which I marked as Exhibit B, accurately records the amount loaned pursuant to the Fiji arrangement. It shows that the total amount loaned was $185,840.48 which together with interest of $65,645.06 equates in total to $251,485.54 for the Fiji proposal.

51        Attachment D to Exhibit B is a similar document but it relates to the third category of expenditure. This category of expenditure was yet another joint venture proposal to set up an interactive online gaming and casino facility in Vanuatu. Mr Ida gave evidence that the arrangements for this venture were the same as those for Fiji, that is a joint venture vehicle was set up whereby Mr Ida agreed to fund the 50 per cent contribution to be made by Kleytman. In total the sum of $134,516.18 was paid which together with interest of $17,331.39 produces a total amount outstanding pursuant to this transaction of $151,847.47.

52        That completes the history of the transactions between the parties. I should add that in respect of the cheque for the $65,000 loaned in January 2009 there was no agreement with respect to that cheque as to interest. Mr Greenberger submitted, and I accept, that the thirdnamed plaintiff is entitled to recover interest on that sum pursuant to the provisions of the Penalty and Interest Rates Act which calculates to the sum of $4,838.49 up until today's date. As I have said the plaintiff does not in this proceeding seek to proceed to obtain any orders against the firstnamed defendant which is a company in voluntary liquidation. That company does have on foot a counterclaim as does the secondnamed defendant.

53        The matter having been properly called on and the defendants not having appeared and as a result of the matters that I have set out earlier in my judgment relating to Mr Tatarka at first appearing for both defendants and then absenting himself as well as the secondnamed defendant absenting himself from this proceeding. In my judgment it was appropriate to proceed with the trial pursuant to Rule 49.02(1)(b). I have accepted the evidence of Mr Ida and I act on the documentary evidence which I have detailed in this judgment ex tempore for the purposes of making the orders that I shall shortly announce.

54        Finally, the defendants not having appeared and the matter having proceeded in their absence, it is in my view appropriate that I make an order dismissing the counterclaim of each defendant. In so doing I act on the authority of the decision of the Court of Appeal in New South Wales in Linprint Pty Ltd v Hexham Textiles Pty Ltd (1991) 23 N.S.W.L.R at p.508.

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