Ikosidekas v MWL Finance Pty Ltd
[2022] VCC 633
•13 May 2022
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-19-01998
| Peter Ikosidekas | Plaintiff |
| v | |
| MWL Finance Pty Ltd (ACN 154 571 356) & Ors | Defendants |
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JUDGE: | Her Honour Judge Burchell | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 4 May 2022 and 5 May 2022 | |
DATE OF JUDGMENT: | 13 May 2022 | |
CASE MAY BE CITED AS: | Ikosidekas v MWL Finance Pty Ltd & Ors | |
MEDIUM NEUTRAL CITATION: | [2022] VCC 633 | |
REASONS FOR JUDGMENT
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Subject: CONTRACTS – LOAN – REPRESENTATIONS
Catchwords: loan documents – whether conduct in connection with loan misleading – deceit – fraud – compensatory damages – contractual interest – exemplary damages – money had and received
Legislation Cited: Australian Securities and Investments Commission Act 2010 (Cth) ss12BAB, 12DB, 12DA, 12CB, 12BB and 12GF
Cases Cited:Gemmell v Le Roi Homestyle Cookies Pty Ltd (in liq) (2014) 46 VR 583; Devaynes v Noble (1816) 35 ER 781; XL Petroleum (NSW) Pty Ltd v Caltex Oil (Australia) Pty Ltd (1985) 155 CLR 448; Cachia v Denis Mockler & Rowley (Stewart) Cuddy t/as Stewart Cuddy & Mockler [2007] NSWSC 433; Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494; Addenbrooke Pty Ltd v Duncan (No 2) [2013] FCA 820; Munchies Management Pty Ltd v Belperio (1988) 58 FCR 274; Livingstone v Rawyards Coal Co (1880) 5 AC 25; Gates v The City Mutual Life Assurance Company Limited (1986) 160 CLR 1; Whitfield v De Lauret & Co Ltd (1920) 29 CLR 71; Fatimi Pty Ltd v Bryant [2004] NSWCA 140; Hungerfords v Walker (1989) 171 CLR 125; Gray v Motor Accident Commission (1998) 196 CLR 1; Hill v James [2004] NSWSC 55
Texts Cited:Barnett K and Harder S, Remedies in Australian Private Law (2nd ed, Cambridge University Press); Doecke, A, “Exemplary Damages: Retribution and Condemnation – The Purpose Controlling the Scope of the Exemplary Damages Award” (2017) 38(1) Adelaide Law Review 87
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M Lapirow | Klonis Kirby & Co |
| For the Second Defendant | Mr J Lipinski | Stenta Legal |
HER HONOUR:
Introduction
1In this proceeding, the plaintiff (“Ikosidekas”) applies for judgment against the second defendant (“Glenis”) alleging that he committed a fraud on Ikosidekas by making false representations and warranties regarding a loan agreement for the sum of $160,000.00. Ikosidekas claims that he advanced the funds based on a signed loan agreement and has suffered loss and damage in the amount of $742,250.00 (plus interest), alternatively, exemplary damages.
2Glenis opposes the claim. He denies the representations, does not admit the warranties, claims that he paid $190,000.00 in payment or discharge of the loan and says any amount owing by him to Ikosidekas ought to be reduced by the $160,000.00 contribution made by the first defendant (“MWL Finance”) and the third defendant (“White”) and interest that does not constitute a penalty. Glenis further contends that Ikosidekas cannot prove causation in tort or misrepresentation in relation to the pleaded loss for contractual interest under the loan agreement or as expectation loss. Ikosidekas has recovered the loss and damage in relation to the principal advanced and, as such, is not entitled to compensatory damages. Therefore, Ikosidekas is not entitled to exemplary damages.
3It was common ground between the parties that the proceeding settled as between MWL Finance and White pursuant to confidential terms of settlement and orders were made on 18 May 2020 that the proceeding against MWL Finance and White be dismissed. Ikosidekas pleaded that the dispute between him and MWL Finance and White has been resolved on confidential terms and that he would give an allowance in his claim against Glenis for the contribution received from them. In his prayer for relief, Ikosidekas claimed against Glenis the loss and damage being the sum owed pursuant to the $160,000.00 principal advanced (“Advance”) less the contribution. Ikosidekas disclosed in the chronology filed with the Court on 29 April 2022, and during opening submissions at the hearing on 4 May 2022, that the contribution was the sum of $160,000.00 (“Contribution”).
4For the reasons outlined below, I find that Glenis’ ground has been made out. Ikosidekas has recovered his loss and damage in relation to the $160,000.00 principal advanced and is not entitled to contractual interest. Therefore, Ikosidekas is not entitled to compensatory damages and, as a consequence, no exemplary damages may be awarded.
5Accordingly, I order the proceeding be dismissed. I order that Ikosidekas pay Glenis’ costs of and incidental to the proceeding on the standard basis, in default of agreement (unless either party has a basis for a different costs order). I invite the parties to prepare draft orders to give effect to these reasons. I will determine any issue concerning costs on the papers.
The issues
6Did Glenis make any, and if so which, of the First Representations alleged in paragraph 8 of the amended statement of claim?
7Did Glenis make the Second Representation alleged in paragraph 9 of the amended statement of claim?
8Did Glenis send the Letter of Offer purportedly signed by Jon White to Ikosidekas on 15 May 2013 as alleged in paragraph 15 of the amended statement of claim?
9Did Glenis direct Ikosidekas to pay the funds to be advanced purported to White on 15 May 2013 as alleged in paragraph 18 of the amended statement of claim?
10Did Ikosidekas pay $160,000.00 in the manner set out in paragraph 18 of the amended statement of claim on 16 May 2013?
11Did Glenis pay $190,000.00 as alleged in paragraph 20 of the amended defence in payment or discharge of the loan to White?
12Were any, and if so which, of the First Representations false or untrue? And, if so, were they so to the knowledge of Glenis?
13Was the Second Representation false or untrue and if so, was it known to be so to Glenis?
14Did the false representations and false warranties as pleaded cause loss or damage to the plaintiff for the purposes of the cause of action in deceit?
15In the alternative to the claim for deceit, did the conduct of the second defendant breach the provisions of ss12BAB, 12DB, 12DA, 12CB and 12BB of the Australian Securities and Investments Commissions Act 2001 (Cth) (“ASIC Act”)?
16Did any such breach cause loss or damage pursuant to s12GF of the ASIC Act?
17Did Glenis’ conduct amount to a conscious wrongdoing in contumelious disregard of Ikosidekas’ rights?
18Upon what basis is Ikosidekas’ loss and damage to be calculated for deceit, fraud and/or misrepresentation?
19In the alternative, upon what basis is Ikosidekas’ loss and damage to be calculated under the ASIC Act?
20Is a loss of an expectation of alleged contractual interest provided under the 14 May 2013 loan agreement “loss or damage” for the purposes of:
(a) Ikosidekas’ cause of action in deceit; and
(b) Ikosidekas’ cause of action under s12GF of the ASIC Act?
21To what extent, if at all, has the plaintiff recovered any loss or damage suffered, by reason of:
(a) the Contribution received by the plaintiff from the first and third defendants, as defined at paragraph 2 of the amended statement of claim; and
(b) the $190,000.00 payment alleged to have been made by the second defendant?
Liability
22This proceeding arises out of an alleged loan agreement for $160,000.00 made on or about 15 May 2013 (“Contract”). Oral evidence was given at the hearing by Ikosidekas and White on behalf of the plaintiff. Glenis was not called to testify at the trial.
23In light of Ikosidekas’ oral evidence and the email dated 9 May 2013, I accept that on or about 9 May 2013, Glenis represented to Ikosidekas by email that (“First Representation”):
(a) if Ikosidekas agreed to lend an amount of $100,000.00 to White to be repaid on or before 31 August 2013 then White would pay interest on the loan amount of $4,000.00 per month to be paid in full at the expiry date of 31 August 2013, resulting in a return to Ikosidekas of $114,000.00 at the end of the term of the loan.
(b) Or, if Ikosidekas agreed to lend an amount of $160,000.00 to White to be repaid on or before 31 August 2013 then White would pay interest on the loan amount of $6,000.00 per month to be paid in full at the expiry date of 31 August 2013, resulting in a return to Ikosidekas of $180,000.00 at the end of the term of the loan.
(c) White would give security by way of a caveat over his home in Brighton.
(d) White had sold his home in Brighton and purchased another in the same area.
(e) The loan to be made was a short-term funding requirement by White.
(f) White was a “straight down the line businessman” and that there would be no issues in funds coming back to Ikosidekas.
(g) Given that Glenis was arranging the finance for the sale and purchase, he did not see any issue, as he would be in control of the process from start to finish.
(h) Funds would come back to Ikosidekas from the settlement of the sale.
(i) Glenis could assure Ikosidekas that the loan would proceed smoothly, and he saw no risk in not receiving the funds plus interest at the end of the term.
24The Court notes that, although Glenis’ defence set out alternative representations, these were not put to Ikosidekas in cross examination and Glenis was not called to give evidence at the hearing. I, therefore, take Glenis’ alternative version of events to be not pressed and accept that Glenis made the First Representations to Ikosidekas as alleged by the plaintiff.
25On or about 14 May 2013, Ikosidekas says that Glenis further represented to Ikosidekas through a telephone conversation that if Ikosidekas agreed to lend to White the sum of $160,000.00 for a term expiring on 31 August 2013, secured by way of a caveat over the property located at 5 Tovell Street, Brighton, Victoria, owned by White (“Property”), then White would pay interest on the loan amount of $160,000.00 of $7,500.00 per month (“Second Representation”). Ikosidekas was not cross examined on this telephone conversation and I accept his evidence.
26Ikosidekas claims that Glenis agreed to accept the revised terms of the loan and prepared a letter of offer dated 14 May 2013 with Peter Dekas (as Ikosidekas is also known) as the lender and White as the borrower (“Letter of Offer”). In his defence, Glenis admitted that he prepared the letter of offer dated 14 May 2013. The interest was $6,000.00 per month for 3.5 months. Ikosidekas says that he was told that White was to be the borrower (which is admitted by Glenis). White is now retired from MWL Finance, he was an ex Victorian police officer and says he had nothing to do with this transaction. White gave evidence that the signature on the letter dated 14 May 2013 is not his. I accept White’s evidence.
27As a result of the First Representation, Second Representation and/or Letter of Offer, Ikosidekas contends that Glenis warranted to Ikosidekas that White was the borrower (“First Warranty”). Further, or alternatively, Glenis warranted to Ikosidekas that he had authority from White to negotiate the terms of the Letter of Offer (“Second Warranty”). In his defence, Glenis did not plead to the allegations that Ikosidekas received from Glenis a copy of the Letter of Offer purporting to be signed by White “by reason that such a plea may expose him to increased jeopardy of criminal prosecution or subject him to increased jeopardy of exposure to a penalty.”
28Ikosidekas sought to urge the Court to accept that the plaintiff’s case was largely admitted by either express admission or by the device of “not pleading” to issues. I do not accept that the reliance on privilege on the basis of self-incrimination gives rise to any such admission.[1] Rather, the plaintiff carries the onus of proof as to these matters.
[1]Gemmell v Le Roi Homestyle Cookies Pty Ltd (in liq) (2014) 46 VR 583 at [112] (Ashley JA with Neave JJA and Almond AJA agreeing).
29However, given Ikosidekas’ uncontested evidence in relation to the warranties, I accept that Glenis made the warranties as alleged by the plaintiff.
30I further accept Ikosidekas’ uncontested evidence that, in reliance on the First Representation, Second Representation, First Warranty and Second Warranty, Ikosidekas signed the Letter of Offer on or about 14 May 2013.
31It was common ground that the terms of the Contract, as set out in the Letter of Offer, included:
(a) the loan amount was $160,000.00;
(b) the term expired on 31 August 2013;
(c) the interest rate applicable to the loan was $7,500.00 per month (capitalised) or pro rata thereof to be paid in full at expiry date of 31 August 2013;
(d) repayment was at the expiry date of 31 August 2013 plus any outstanding capitalised interest;
(e) a caveat was to be prepared and lodged over the property;
(f) the default interest applicable was $2,000.00 per week.
32Pursuant to the Contract, Ikosidekas advanced the sum of $160,000.00 on or about 16 May 2013 (“Advance”). It was common ground that $70,000.00 was paid into the “MW Planning Pty Ltd” account and $90,000.00 was paid into Glenis’ joint account (with his wife).
33It was common ground that by written notice dated 9 April 2014, Ikosidekas demanded repayment of the Advance together with interest. In his defence, Glenis claimed that he had made a payment in satisfaction of any liability in the sum of $190,000.00 on or around 19 June 2017. Ikosidekas applied this money to a 2011 loan agreement between the parties. He said there was no direction from Glenis as to how the $190,000.00 ought to be applied. Ikosidekas was not challenged on the appropriateness of the application of the funds. Glenis did not press this payment at the trial. Nor were submissions advanced on the ground that the default interest rate was a penalty clause and thus void.
34Ikosidekas is a builder and had a relationship with the defendants since early 2005. Glenis was involved in the finance industry in Rescom, a loan broker firm, which became MWL Finance in 2011. He became a director of MWL Finance upon its incorporation.
35Glenis approached Ikosidekas from time to time on behalf of MWL Finance clients for short term funding at substantial interest rates. The deals were remarkably profitable. In 2011, Glenis and his wife obtained a loan from Ikosidekas in the amount of $250,000.00 on a more friendly interest rate of 15%. The other loans introduced and prepared by Glenis for Ikosidekas were at very high interest rates.
36It was common ground between the parties that Glenis had arranged previous loans for Ikosidekas, such as the Kovco loan which had a 200% annualised interest rate and the Karamzalis, Romanidis and Kontogonis loans, which all had an interest rate of 60%. I accept Ikosidekas’ submission that these dealings put Glenis in a position of trust with regard to advising Ikosidekas.
37Taking into account the contemporaneous documents and Ikosidekas’ and White’s uncontested evidence, I accept that:
(a) the First Representation and Second Representation were false;
(b) the purported signature on the Letter of Offer was not that of White;
(c) White did not receive the benefit of any part of the Advance;
(d) the Advance was paid to or for the benefit of Glenis;
(e) Glenis breached the First Warranty and Second Warranty;
(f) Glenis acknowledged the existence of the loan that is the subject of the Advance on several occasions via emails and letters drafted and sent by Glenis to Ikosidekas dated from 5 June 2014 to 10 May 2016;
(g) Ikosidekas would not have lent the money to Glenis in 2013;
(h) Glenis deceived Ikosidekas by falsely representing the borrower was White;
(i) the First Representation, Second Representation, First Warranty and Second Warranty (“False Representations and False Warranties”) were made by Glenis with the knowledge that they were false;
(j) the False Representations and False Warranties were made with the intention that Ikosidekas would rely on them;
(k) Ikosidekas acted in reliance on the False Representations and False Warranties;
(l) Ikosidekas suffered loss and damage which was caused by reliance on the False Representations and False Warranties;
(m) Glenis is liable to compensate Ikosidekas for the loss or damage flowing from the False Representations and the False Warranties less the Contribution;
(n) Further and in the alternative, Glenis was engaged in trade or commerce in connection with the supply or possible supply of financial services within the meaning of s12BAB of the ASIC Act;
(o) Glenis made false or misleading representations in connection with the supply or possible supply of financial services within the meaning of s12DB of the ASIC Act;
(p) Alternatively, Glenis engaged in conduct that was misleading or deceptive within the meaning of s12DA of the ASIC Act;
(q) Alternatively, Glenis engaged in unconscionable conduct in connection with the supply or possible supply of financial services within the meaning of s12CB of the ASIC Act;
(r) Alternatively, Glenis made a representation with respect to a future matter without having reasonable grounds for making it within the meaning of s 12BB of the ASIC Act;
(s) By reason of the breach by Glenis of s12DB, alternatively ss12CB, 12DA and/or 12BB of the ASIC Act, Ikosidekas has suffered loss or damage;
(t) Ikosidekas suffered loss or damage pursuant to s12GF of the ASIC Act;
(u) Further, and in the further alternative, Ikosidekas has restitution from Glenis for the sum of $160,000.00, less the Contribution, being money had and received by Glenis for the use of Ikosidekas.
38In addition, Ikosidekas claims that Glenis is also liable to pay to Ikosidekas exemplary damages for deceit.
The arguments
39The critical issues in this case are the capital amount outstanding and the appropriate rate of interest, noting the present loan has a default interest rate of 60%. Ikosidekas must make out an award of compensatory damages in order to be entitled to exemplary damages.
40Ikosidekas received $160,000.00 on 30 May 2020 as part of the settlement with the MWL Finance and White. The $160,000.00 sum has been applied by Ikosidekas to the outstanding amount as calculated by him in accordance with the contractual terms.
41It is common ground that the sum of $160,000.00 was paid on or about 16 May 2013 and applied in the amount of $70,000.00 to MW Planning Pty Ltd and $90,000.00 to Mr and Mrs Glenis’ joint bank account. Glenis owed monies to MW Planning Pty Ltd. Ikosidekas contends that Glenis used the $70,000.00 to pay off his debts owing to MW Planning Pty Ltd.
42It was common ground that on 9 April 2014, Ikosidekas sent a letter of demand to White for repayment of the loan together with interest. White did not receive the letter of demand as it was addressed to 5 Tovell Street, Brighton, per the loan documents. In fact, White lived at 10 Tovell Street, Brighton, at the time. White says that the first time he knew of the loan was when he was served with the writ.
43On the same day, Ikosidekas sent an email to Glenis seeking confirmation of Glenis having forwarded the Letter of Offer of 14 May 2013 to White.
44By email dated 5 June 2014, from Glenis to Ikosidekas, there was a purported proposal from White enclosed for repayment of the money due under the agreement of 15 May 2013. I accept White’s evidence that the first time he saw this document was after the initiation of this proceeding.
45By an unsigned letter dated 19 June 2014, Glenis sent to Ikosidekas, purportedly on behalf of White addressed to Ikosidekas, an acknowledgement of debt due on the loan of 13 May 2013 and referring to the sale of their residence in Brighton (5 Tovell Street, Brighton) (sic). I accept White’s evidence that he did not write the letter dated 19 June 2014, nor did he authorise anyone else to do so.
46By email dated 22 August 2014, Glenis sent an email to Ikosidekas purportedly providing an acknowledgement of the loan made by Ikosidekas to White, by White’s wife. White said that the signature on the letter was not that of his wife.
47I accept Ikosidekas’ evidence that in about late July 2016, Glenis called him and said words to the effect “It’s me. I did this”. Ikosidekas understood this to mean that Glenis admitted that the loan to White was “all him”. Ikosidekas said that he was shocked, distraught and he felt betrayed by Glenis.
48Ikosidekas accepts that the sum of $190,000.00 was paid by Mr and Mrs Glenis, but there was no direction as to where the sum ought to be paid. Ikosidekas applied the sum to Mr and Mrs Glenis’ previous loan in 2011, the subject of separate proceedings in this Court. There is no evidence of any direction to Ikosidekas as to where the monies should be applied. Ikosidekas relies on Clayton’s Case[2] in paying the sum towards the first debt first. Although the payment of $190,000.00 was included in the defence, it was not pressed at trial by Glenis.
[2]Devaynes v Noble (1816) 35 ER 781 (“Clayton’s Case”).
49Glenis submits that even if Ikosidekas can show liability, he is not entitled to any loss. Ikosidekas has now recovered the sum of $160,000.00 from MWL Finance and White. However, Ikosidekas seeks to be compensated under the interest clauses under the Contract. Glenis is not contractually liable for the contractual interest as he is not a party to the Contract. Ikosidekas does not advance contractual claims against Glenis.
50Rather, Ikosidekas relies on the cause of action of deceit and the ASIC Act for misleading and deceptive and unconscionable conduct. The authorities say there is compensation for reliance on the impugned conduct. The test is whether, had Ikosidekas known the true facts, he would not have entered into the Contract. Therefore, there is no causation regarding loss and damage under contractual interest.
51Ikosidekas faces a hurdle in claiming the contractual interest under the Contract. The authorities state that for a cause of action for deceit under the Trade Practices Act 1974 (Cth) (“TPA”), replaced by the Competition and Consumer Act 2010 (Cth) with analogous provisions to s12GF ASIC Act), the appropriate method to calculate damages for breach of tort is reliance loss, and not expectation loss.
52In relation to the exemplary damages claim, Glenis argues that because Ikosidekas cannot recover the loss and damages pleaded, he, therefore, cannot be liable to exemplary damages.[3] Glenis relied on the authority of Cachia v Denis Mockler & Rowley (Stewart) Cuddy t/as Stewart Cuddy & Mockler[4] relying on Justice Brennan in XL Petroleum (NSW) Pty Ltd v Caltex Oil (Australia) Pty Ltd (“XL Petroleum”):[5]
“… exemplary damages are parasitic on compensatory damages. The defendants submitted that without an entitlement to compensatory damages there can be no entitlement to exemplary damages. In these proceedings no basis has been established by the plaintiff for the award of compensatory damages. It follows that no basis for the awarding of exemplary damages has been made out.”
[3] (1985) 155 CLR 448 at 468–469.
[4] [2007] NSWSC 433.
[5] (1985) 155 CLR 448 at 468–469.
53Glenis contended that Ikosidekas has recovered from MWL Finance and White the sum of $160,000.00. Therefore, deducting that sum from the amount which the plaintiff alleges was advanced but not returned (also $160,000.00), there is no basis for the Court to award loss or damage in relation to that fully recovered sum. The plaintiff's claim for compensatory damages has been satisfied in full.
Analysis
54As set out above, I accept that Glenis made the False Representations and the False Warranties and that these constitute:
(a) false or misleading representations in connection with the supply or possible supply of financial services within the meaning of s12DB of ASIC Act; and/or
(b) misleading or deceptive conduct in relation to financial services within the meaning of s12DA of the ASIC Act; and/or
(c) unconscionable conduct in connection with the supply or possible supply of financial services within the meaning of s12CB of the ASIC Act; and/or
(d) deceit (collectively, “the Impugned Conduct”).
55Ikosidekas contended that Glenis seeks to take advantage of his Impugned Conduct by arguing that the:
(a) sum paid by or on behalf of White to settle this case when originally brought should be taken into account to his benefit.
(b) sum paid extinguishes the debt, so that no money (it seems for interest or damages) can be awarded by the Court.
(c) statutory remedies under the ASIC Act do not permit the Court to do more than restore the plaintiff to the position he would have had (in 2013) if the money was not lent — and has been otherwise silent on the plaintiff’s position as of 2022.
56Glenis contends that:
(a) it is Ikosidekas’ pleaded case that alleges that the plaintiff will give an allowance in his claim against Glenis for any contribution received by MWL Finance and White;
(b) Prayer for Relief A seeks loss or damage “less the Contribution” and when the legal principles are applied, that amount is satisfied such that there is no award by the Court.
(c) drawing analogies from s82 of the TPA authorities, the High Court has held that a misrepresentation inducing entry into a contract does not justify compensation for expectation loss under that contract:
“Neither the fact that the representation induces entry into a contract nor the fact that it is a statement of the benefits to which the Plaintiff will be entitled under that contract is enough to justify compensation for expectation loss.”[6]
[6]Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 at [39] referring to the majority in Gates v The City Mutual Life Assurance Society Limited (1986) 160 CLR 1 at [14]-[15].
57These arguments are dealt with below.
ASIC Act
58Section 12DA of the ASIC Act contains a statutory prohibition upon a person, in trade or commerce, engaging in conduct, in relation to financial services, that is misleading or deceptive or likely to mislead or deceive.
59Section 12DB contains a statutory prohibition upon a person, in trade or commerce, in connection with the supply or possible supply of financial services, or in connection with the promotion, by any means, of the supply or use of financial services; making a false or misleading representation that services are of a particular standard, quality, value or grade; or making a false or misleading representation that services have sponsorship, approval, performance characteristics, uses or benefits; or making a false or misleading representation that the person making the representation has a sponsorship approval or affiliation.
60Section 12CB prevents a person engaging in conduct in trade or commerce in connection with the supply of financial services that is, in all the circumstances, unconscionable.
61For the reasons set out above, I have found that Glenis breached ss12CB, 12DA and 12DB of the ASIC Act.
62As a consequence, under the ASIC Act, Ikosidekas seeks loss or damage pursuant to s12GF. Ikosidekas claims that he advanced the $160,000.00 in reliance on the False Representations and Warranties, and the sum has not been repaid, and that he is entitled to interest pursuant to the loan agreement which he was misled into entering, and the contractual interest on that loan agreement.
63I accept Glenis’ position that, on Ikosidekas’ own case, the Impugned Conduct could not give rise to the loss alleged, being a contractual loss of expectation of receiving the interest under the loan agreement. Ikosidekas’ case was that he entered into the loan agreement induced by misleading and deceptive conduct.
64It was conceded by Ikosidekas in closing submissions that he was not advancing a claim for opportunity loss arising from the loss of the use of the funds advanced to Glenis. No application to amend the claim was sought. However, Ikosidekas submitted in closing that the Court is empowered to make an order for compensation and that the loss of bargain is something for which compensation ought to be awarded. In making these observations, I note that trial counsel for Ikosidekas was only briefed two weeks before the hearing date and he did not draft the pleadings in this matter. Counsel for Glenis also directed no comment at Ikosidekas’ trial counsel.
65Under s12GF of the ASIC Act, Ikosidekas must show that he suffered loss or damage “by” the contravention. Glenis relied on s82 TPA cases as an “analogue” to the consideration of s12GF.[7] Therefore, the loss or damages must be by reason of the Impugned Conduct.[8]
[7]Addenbrooke Pty Ltd v Duncan (No 2) [2013] FCA 820 at [497]– [498].
[8]Munchies Management Pty Ltd v Belperio (1988) 58 FCR 274 at [286].
66I accept Ikosidekas’ case that had Glenis not made the False Representations and False Warranties, he would not have entered into the loan agreement. As a consequence, Ikosidekas would not be entitled to the benefit of the contractual interest under the loan agreement. Therefore, Ikosidekas has not suffered loss in the amount of the contractual interest under s12GF of the ASIC Act.
67Further, by seeking the contractual interest, Ikosidekas is seeking loss of expectation damages through s12GF of the ASIC Act. The analogous s82 TPA cases stand for the proposition that misleading and deceptive conduct inducing a claimant into entering into a contract does not give rise to compensation for expectation loss under that contract.[9]
[9]Marks v GIO Australia Holdings (1998) 196 CLR 494 at [17] (Gaudron J), [38] – [40] (McHugh, Hayne and Callinan JJ).
68On the pleaded case, Ikosidekas did not claim for any consequential loss other than the contractual interest. No claim was made on the basis that, but for Glenis’ misrepresentation, Ikosidekas might have entered into another transaction. Such an alternative transaction would have been a known head of damage under this section.
Tort of deceit
69It is trite law that the general principle in assessing damages in tort is that the plaintiff should as near as possible receive a sum of money which, as far as money can, place them in the same position as if the wrong had not been sustained.[10]
[10]Livingstone v Rawyards Coal Co (1880) 5 AC 25 at [39] (Lord Blackburn).
70Ikosidekas must show that he suffered loss or damage because he altered his position in reliance on the False Representations and False Warranties. Where deceit causes a plaintiff to enter into a transaction, the question is how much the plaintiff is worse off as a result of entering into that transaction which the representations induced them to enter than they would have been had the transaction not taken place.[11]
[11]Gates v The City Mutual Life Assurance Company Limited (1986) 160 CLR 1 at [12].
71Similar to the analysis in relation to the claims under the ASIC Act, I find that Ikosidekas cannot claim that he suffered loss in the sum of the contractual interest because he altered his position in reliance on the misrepresentations. Had Glenis not made the representations, Ikosidekas says that he would not have entered the loan agreement and, therefore, he would not be entitled to the contractual interest.
72Further, damages for the tort of deceit are reliance based damages and do not encompass expectation loss damages.[12]
[12] Ibid at [15].
73For the reasons set out above, in accordance with the pleaded case, the Court must deduct from the established loss of $160,000.00, the recovered amount of $160,000.00 received from the first and third defendants. Ikosidekas’ loss has been satisfied and, therefore, there is no further entitlement to compensatory damages.
Restitution
74Ikosidekas further advances a cause of action seeking the return of the $160,000.00 for monies had and received. He claims that the amount remains unpaid because the Contribution was applied to contractual interest and costs. The only evidence before the Court was that the amount of $160,000.00 was paid by MWL Finance and White to settle the proceeding as issued against them. White gave evidence that the professional indemnity company entered into terms of settlement on their behalf and the insurer had a different set of lawyers retained at the mediation. On payment of the $160,000.00, MWL Finance and White were released as defendants to the case on all aspects of the claim.
75There was no discovery of the written terms of settlement and an application for its production was dismissed by a Judicial Registrar on 6 July 2021. It was said at the time that the amount recovered by the plaintiff from the first and third defendants was relevant to the ultimate amount payable by the second defendant (if the plaintiff was successful), however, the Judicial Registrar viewed that it was difficult to see how that amount is relevant between the plaintiff and the second defendant prior to that point and how the content of the terms would be relevant to a fact in issue between Ikosidekas and Glenis.
76The Judicial Registrar’s orders were not the subject of any application to vary or set aside. The application of the funds recovered by Ikosidekas became relevant during the course of the trial as the plaintiff asserted through an aid memoire and in submissions that he attributed the $160,000.00 to reducing the contractual interest that had accrued to 20 May 2020 and the legal costs of the proceeding incurred at that point in time. Ikosidekas contended that the settlement sum could not be arbitrarily apportioned to the principal alone. He submitted that MWL Finance and White had been sued in contract in addition to the misleading and deceptive conduct claims under the Australian Consumer Law and/or the ASIC Act.
77The difficulty with this argument is that the terms of settlement had not been produced, Ikosidekas is not entitled to contractual interest as part of a restitution claim, therefore, the application to any contractual interest is not permitted, there was insufficient proof before the Court to attribute legal costs to White alone, the pleading did not seek an allocation of the $160,000.00 to interest and costs of the proceeding up to 30 May 2020 and the pleading itself alleged further and in the alternative that Ikosidekas claims from Glenis the sum of $160,000.00, less the Contribution, being money had and received by Glenis for the use of Ikosidekas.
78In the circumstances, Ikosidekas has recovered $160,000.00 from MWL Finance and White. In claims for money had and received, the measure of restitution is the amount of money paid to or received by the defendant. In this present case, this sum is $160,000.00. It follows on the pleaded case, and on the evidence before the Court, that deducting the Contribution from the money had and received, there is no basis for the Court to award restitution in relation to that fully recovered sum.
Exemplary Damages
79Exemplary damages are available for the tort of deceit.[13]
[13] Barnett K and Harder S, Remedies in Australian Private Law (2nd ed, Cambridge University Press) page 396.
80It is well-established law that exemplary damages are a separate category of award that does not compensate for loss. It seeks to punish and deter the defendant from wrongdoing.[14] An award of exemplary damages will be made only where the defendant has undertaken conscious wrongdoing in contumelious disregard of the plaintiff’s rights.[15]
[14]Whitfield v De Lauret & Co Ltd (1920) 29 CLR 71 at [77].
[15] Ibid.
81Justice Brennan in XL Petroleum[16] stated as follows:
“Exemplary damages are parasitic on compensatory damages …. A single cause of action provides the foundation of a judgment awarding, in an appropriate case, exemplary damages as well as compensatory damages. When a plaintiff's claim for compensatory damages has been satisfied in full, however, he no longer has a cause of action that can support an award of compensatory damages to which an award of exemplary damages can attach. He cannot thereafter recover a further judgment for compensatory or for exemplary damages. Nor, for that matter, could he then enforce any judgment that he has recovered so as to obtain more than full compensation.” [Emphasis added]
[16] (1985) 155 CLR 448 at [468] – [469].
82As such, exemplary damages are “parasitic” on compensatory damages when proof of loss is an ingredient of the plaintiff’s cause of action.[17]
[17] [2004] NSWCA 140 at [72].
83Justice Brennan’s observations were relied on by Justice Giles in the New South Wales Court of Appeal in FatimiPty Ltd v Bryant (“Fatimi”) as follows:[18]
“If exemplary damages cannot be obtained when a plaintiff’s claim for compensatory damages has been satisfied in full, despite the single cause of action under which exemplary damages could also be awarded, they equally cannot be obtained when the plaintiff’s claim for compensatory damages has failed. If there is no host, there cannot be a parasite.” [Emphasis added]
[18] Ibid at [73].
84Given my anterior findings, I accept that but for the deceit, Ikosidekas would not have lent the sum of $160,000.00 in 2013. Ikosidekas suffered loss, being the advance of the sum of $160,000.00 on 16 May 2013, until MWL Finance and White paid that amount to Ikosidekas pursuant to the confidential terms of settlement on 30 May 2020. Ikosidekas has made out the main cause of action and an entitlement to compensatory damages as a result of Glenis’ deceit. However, applying the principles of the High Court in XL Petroleum and the Court of Appeal of New South Wales in Fatimi set out above, such compensatory damages (as pleaded and proven) have been satisfied in full by MWL Finance and White on 30 May 2020. Ikosidekas alleges in his statement of claim that he will give an allowance in his claim against Glenis for any contribution received by MWL Finance and White. In Prayer for Relief A, Ikosidekas pleads loss or damages less the Contribution.
85I note that the principles of compensatory damages would allow Ikosidekas to seek relief for reliance loss including any claim for loss of the use of the funds such as an opportunity to enter into other short-term loans or other investment opportunities or seek Hungerfords[19] interest because damages in tort seeks to put the claimant in the position they were in but for the wrongdoing. Unfortunately, this form of relief was not pleaded and proven by the plaintiff in his statement of claim. Glenis argued that if Ikosidekas was allowed to lead evidence on loss of opportunity at the trial, he would suffer prejudice. I accept this submission. There had been no discovery in relation to the loss of the use of the $160,000.00 for the period of August 2013 to May 2020 and loss of opportunity had not been pleaded in the amended statement of claim or set out in further and better particulars of loss and damage prior to the trial. Ikosidekas conceded in closing that there was no claim for loss of opportunity as part of the compensation damages sought.
[19]Hungerfords v Walker (1989) 171 CLR 125.
86Further, Ikosidekas sought to make submissions during the hearing that the Contribution was an amount paid by MWL Finance and White to settle the proceeding as originally issued against all three defendants. The deed of settlement was not discovered by Ikosidekas in this proceeding and only the Contribution sum was disclosed in the trial aids filed the week before the hearing. In opening, Ikosidekas submitted that he applied the funds in reduction of interest that had accrued pursuant to contractual interest and $47,988.70 in the plaintiff’s legal fees incurred in the proceeding to 30 May 2020. He accepted that there could be a special costs order in the proceeding, if successful, limiting the plaintiff’s recovery of costs to those incurred after 1 June 2020.
87Ikosidekas contended that the balance of the funds after deduction for the payment of the plaintiff’s legal fees in the sum of $112,011.30 could be taken into account, but he did not urge the Court to do so as his claim against White was on the basis of contractual interest. He submitted that the Court cannot arbitrarily apportion the Contribution to the principal.
88Glenis submitted that the Court could not apply the Contribution towards the plaintiff’s legal fees as the pleaded relief makes it clear that the Contribution is to be applied only to the loss or damage awarded in the proceeding against him. There is no pleading that alleges that the Contribution would be applied in relation to legal costs as against the first and third defendants or all three defendants.
89Again, Glenis contended that he would suffer prejudice if the Court allocated part of the Contribution towards the plaintiff’s costs of the proceeding as the interim accounts relied on in the plaintiff’s former solicitor’s trust statement had not been discovered and the second defendant had lost the opportunity to issue a subpoena on Ikosidekas’ former legal representatives to give evidence in relation to the legal fees incurred.
90Ikosidekas’ pleaded case on the loss and damage suffered was confined to the Advance sum of $160,000.00 and the contractual interest. As set out above, I agree with Glenis’ submissions that the quantum of damages for the tort of deceit and for misleading and deceptive conduct is different to contractual damages.
91If the pleaded and proven case had been couched on the basis of an opportunity loss or on the ground that the Contribution only comprised $112,011.30 (after deducting the plaintiff’s legal costs of the proceeding as of 30 May 2020), then in those circumstances, the loss and damage suffered by Ikosidekas would be the principal of $160,000.00 less $112,011.30 (and/or any pleaded and proven loss of opportunity, e.g. other investments, loans or Hungerfords[20] interest). This would amount to an award of compensation damages. The penalty interest rate under s60 of the Supreme Court Act 1986 (Vic) (“the SCA”) could then be applied from date of issue to date of judgment. There would then be an award of damages for Ikosidekas against Glenis.
[20]Hungerfords v Walker (1989) 171 CLR 125.
92On this hypothetical, given the conduct of Glenis the subject of this proceeding, it would have been appropriate for the Court make an allowance for exemplary damages. In my view, taking into account the observations of Justice Callinan in Gray v Motor Accident Commission[21] when calculating exemplary damages, a Court must consider the following factors:
(a) deterrent effects;
(b) whether the defendant profited (especially whether it was intentional); and
(c) the defendant’s financial position.
[21](1998) 196 CLR 1 at [143].
93Here, the deterrent effect is high. Glenis was a person engaged in the finance industry who arranged short term loans for his clients with funds provided by Ikosidekas. Glenis obtained the use of Ikosidekas’ $160,000.00 through conduct that shows a conscious and contumelious disregard for Ikosidekas’ rights.
94Glenis profited from the $160,000.00 by paying off a debt owed to MW Planning Pty Ltd and with the transfer of $90,000.00 into his personal bank account jointly held with his wife.
95There is no evidence before the Court as to Glenis’ current financial position. Therefore, no weight can be given to this factor.
96Ikosidekas urged the Court to use the contractual interest as a method of calculation for determining exemplary damages. There are no cases that support the use of default interest rate under contract in calculating exemplary damages. The authorities state that the Court must exercise moderation in fixing an award of exemplary damages.[22] They do not seek to compensate for loss, but rather to deter and punish. In my view, an award of exemplary damages in the range of $2,000.00 per week from 1 September 2013 to 4 January 2019 in the sum of $556,000.00 and continuing to accrue from 5 January 2019 to the date of judgment would not be in accordance with the principles of assessing exemplary damages in moderation.
[22] (1985) 155 CLR at 463 (Gibbs CJ)
97Taking into account the relevant discretionary factors, it would have been appropriate to make an award for exemplary damages in the sum of $96,000.00. This discretion is exercised in moderation in assessing exemplary damages and takes into account Glenis’ deceit, that Glenis is a businessperson in the finance industry,[23] and the need to punish and deter Glenis.[24]
[23]Hill v James [2004] NSWSC 55 at [285]– [286].
[24]Whitfield v De Lauret & Co Ltd (1920) 29 CLR 71 at 77.
98Therefore, taking into account the Contribution so that there is no double dipping, there would have been a total judgment in favour of Ikosidekas in the sum of over $100,000.00 (plus interest on the non-exemplary damages award) plus costs.
99I note that some Australian scholars have argued that exemplary damages should not be part of private law as punishment is not commonly recognised as a central aim in civil cases.[25] However, exemplary damages are said to vindicate the claimant’s feelings arising from the contumelious nature of the defendant’s wrongdoing. Commentators have noted that punishment is more usually the realm of criminal law.[26]
[25] Barnett K and Harder S, Remedies in Australian Private Law (2nd ed, Cambridge University Press) page 389.
[26] Doecke, A, “Exemplary Damages: Retribution and Condemnation – The Purpose Controlling the Scope of the Exemplary Damages Award” (2017) 38(1) Adelaide Law Review 87, 109.
Interest rate
100Glenis submitted that Ikosidekas is not entitled to interest pursuant to statute.
101Ikosidekas relied on s57 of the SCA in relation to the appropriate interest rate to be applied. That section states:
“57 Any interest may be contracted to be paid
(1) Subject to the Consumer Credit (Victoria) Act 1995 and the National Credit Code within the meaning of the National Consumer Credit Protection Act 2009 of the Commonwealth, there is no limit to the interest which a person may lawfully contract to pay.
(2) If interest for the loan of money or on any other contract may be lawfully recovered or allowed in any proceeding in any court but the rate of interest has not been previously agreed between the parties, the party entitled to interest may not recover or be allowed in the proceeding interest above the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983.”
102Glenis contended that s57 of the SCA did not apply as there is no contractual claim made against him by Ikosidekas and the plaintiff’s case is that the loan agreement is void because it was obtained by fraud or by misrepresentations.
103Ikosidekas says that s57 of the SCA does not require a valid contract to be in place, just an agreement to lend money. Ikosidekas submitted that there was a Contract, just not with White.
104In my view, the ordinary meaning of s57 is predicated on the existence of an agreement. The words “or on any other contract” immediately following the word “loan of money” assume that a “loan of money” is a contract for the loan of money. Otherwise, the word “other” has no work to do.
105In addition, the provision is only engaged if interest “on” a contract “may be lawfully recovered or allowed”.
106Further, the heading of the provision reads “any interest may be contracted to be paid” and s57(1) states that “…there is no limit to the interest which a person may lawfully contract to pay” [emphasis added]. The words of the provision themselves point to the need for a valid contract or agreement for interest to be paid.
107Section 57(1) of the SCA makes reference to the Consumer Credit (Victoria) Act1995 (Vic). Section 39(1) of the Consumer Credit (Victoria) Act1995 (Vic) states that “[a] credit contract… is unenforceable where the annual percentage rate in respect of the contract exceeds 48” [emphasis added].
108Section 57(1) of the SCA also makes reference to the National Consumer Credit Protection Act 2009 (Cth), which sets out obligations for responsible lending. Schedule 1 of the National Consumer Credit Protection Act 2009 (Cth) defines “credit” in relation to amounts “under a contract” [emphasis added].
109For the forgoing reasons, s57 of the SCA is not engaged in the present case where the loan agreement is said to be forged, there is no allegation on the pleading that Ikosidekas entered into a contract with Glenis and there is no lawful recovery in circumstances where the loan agreement was procured by deceit.
110Glenis says that s58 of the SCA also has no work to do as the claim made against him is not for a debt or sum certain and therefore, the Penalty Interest Rate does not apply from when the debt or sum was payable. The claim against Glenis is for damages and restitution.
111Section 60 of the SCA arguably could apply if Ikosidekas was able to prove the recovery of an award of damages. The Court could then award damages in the nature of interest not exceeding the Penalty Interest Rate from the date of the commencement of the proceeding to the date of judgment over and above the damages awarded.
112However, on the pleaded case, and having regard to Ikosidekas’ recovery of $160,000.00 from the first and third defendants, the plaintiff is not entitled to any compensatory damages.
113Further, as a consequence of the deduction of the Contribution to the damage suffered by Ikosidekas, there is no debt or damage over and above which interest may be awarded.
Conclusion
114For the foregoing reasons, the proceeding is dismissed.
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Certificate
I certify that these 26 pages are a true copy of the judgment of her Honour Judge Burchell delivered on 13 May 2022.
Dated: 13 May 2022
Andrea Ko
Associate to Her Honour Judge Burchell
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