Joka Textiles Pty Ltd and Anor. v Georgia Morgan Designs; Australia Pty Ltd and Anor
[2010] VCC 150
•18 March 2010
| IN THE COUNTY COURT OF VICTORIA | Revised |
| AT MELBOURNE | Not Restricted |
| COMMERCIAL LIST GENERAL DIVISION |
Case no. CI-08-04390
| JOKA TEXTILES PTY LTD and ANOR. | Plaintiffs |
| v. | |
| GEORGIA MORGAN DESIGNS AUST PTY LTD and ANOR. | Defendants |
Case no. CI-09-03680
| RICK ANTHONY DALLA ROSA | Plaintiff |
| v. | |
| GEORGIA MORGAN DESIGNS AUST PTY LTD and ANOR. | Defendants |
| JUDGE: | HIS HONOUR JUDGE ANDERSON |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 12-15 October, 23-25 November 2009 |
| DATE OF JUDGMENT: | 18 March 2010 |
| CASE MAY BE CITED AS: | Joka Textiles Pty Ltd & Anor. v Georgia Morgan Designs Australia Pty Ltd & Anor. |
| MEDIUM NEUTRAL CITATION: | [2010] VCC 0150 |
REASONS FOR JUDGMENT
| Catchwords: | Contract – Personal and business relationship between 46 year old successful businessman and 25 year old jewellery designer – Second plaintiff offered to guarantee an advance to the second defendant’s company upon condition she execute a deed agreeing to be personally liable to indemnify him – Whether defences of undue influence or unconscionable dealing available – Deed of indemnity – Whether right of equal contribution between co-sureties affected. |
| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr S. Smith | MCP Commercial Lawyers |
| For the Defendants | Mr P. Barton | Prosperity Legal |
| HIS HONOUR: |
1 A close personal relationship between Rick Dalla Rosa and Georgia Morgan commenced soon after they met in late 2003. Mr Dalla Rosa was a successful businessman from Melbourne. He was 46 and married and had an interest in a resort development at Cable Beach near Broome. Ms Morgan was 25 and single. She lived in Broome where she conducted a shop selling pearl jewellery of her own designs. Her father was a wealthy man; he had extensive interests in the pearl industry and financially supported his daughter’s business. Ms Morgan was apparently a capable designer but lacked business skills and her shop was not a financial success.
2 On 30 March 2004, Ms Morgan’s father died. The funeral was held in Perth. Georgia Rosa was introduced by Ms Morgan as her “new boyfriend”. After the funeral, they went for a holiday to Margaret River. Ms Dudney gave evidence that when the couple returned a few days later, Ms Morgan and Mr Dalla Rosa announced that they intended to go into business together. They were very excited and said that with Rick’s “business experience” and Georgia’s “fabulous designs” it was a “recipe for success”. Ms Morgan announced that she had had enough of Broome and was moving to Melbourne where she would open a shop.
3 Ms Morgan followed through with this plan, selling up in Broome and transferring to Melbourne where she bought an apartment in Fitzroy. Mr Dalla Rosa lived with her as often as his own domestic relations permitted. Over the next two years, Mr Dalla Rosa and Ms Morgan made plans and preparations for Ms Morgan’s jewellery
business. They investigated the possibility of opening a shop in the area of Little Factory premises were rented at Notting Hill, two jewellers were employed and expensive jewellery making machinery was purchased. Mr Dalla Rosa introduced Ms Morgan to important business contacts; Ms Romina Vaz, a lending manager at the National Australia Bank, Mr Campbell Lord, his solicitor, and Mr Hilary Wijeratne, his accountant. Ms Morgan said that Mr Dalla Rosa frequently assured her he would support her and use his business experience to help her develop a successful enterprise. He told her that she should concentrate on her jewellery design and he would accept responsibility for business matters.
4 A company, Georgia Morgan Designs Australia Pty Ltd (“Georgia Morgan Designs Australia”) was established in November 2004 as the vehicle for Ms Morgan’s business. Later, it was decided that retail premises would be rented at the Rendezvous Resort at Cable Beach (in which Mr Dalla Rosa had a financial interest). The shop opened in August 2006 and initially traded until November 2006.
5 In 2006, the relationship between Mr Dalla Rosa and Ms Morgan became increasingly strained and both their personal and their business relationship was terminated in October 2006. At that stage, Georgia Morgan Designs Australia had extensive debts. In early 2007, the company transferred its stock to a new company, Georgia Morgan Pty Ltd. The shop at Cable Beach reopened in March 2007 but closed finally in November 2007. During this period, Ms Morgan also sold some jewellery through stockists in Western Australia.
6 Georgia Morgan Designs Australia went into liquidation on 28 May 2008 with liabilities exceeding assets by at least $1m. Ms Morgan now lives at Byron Bay in New South Wales and trades through a new company Georgia Morgan Designs Pty Ltd which was established in January 2009.
7 The relationship between Mr Dalla Rosa and Ms Morgan continued from late in 2003 until October 2006. During this period a number of written agreements were entered into by the parties, which essentially documented the critical stages of the business
relationship between Ms Morgan and Mr Dalla Rosa. These included:
a. on 1 November 2005, a consultancy agreement between Joka Textiles and Georgia Morgan Designs Australia; b. in about February 2006, a lease between PTY Investments Pty Ltd (a company of which Ms Morgan was a director and shareholder) as lessee and Metroprop Pty Ltd and Joka Textiles as lessors, of a shop at the Rendezvous Resort, Broome; c. on 16 June 2006, a guarantee by Ms Morgan, Mr Dalla Rosa and his wife, Ms Kathryn Martin, of a loan from the National Australia Bank Ltd to Georgia Morgan Designs Australia of $200,000 and a deed of indemnity and agreement between Georgia Morgan Designs Australia, Ms Morgan and Mr Dalla Rosa. 8 The claims made by the plaintiffs, Mr Dalla Rosa and his company, Joka Textiles Pty Ltd (“Joka Textiles”), in the proceedings against Georgia Morgan are:
a.
a claim of $126,792.68 against Ms Morgan pursuant to the deed of indemnity and agreement entered into on 16 June 2006 in respect of the advance of $200,000 made by the ANZ Bank to Georgia Morgan Designs Australia in June 2006 and the costs of defending the bank’s recovery proceedings;
b.
claims pursuant to the deed of indemnity and agreement to recover certain monies due under a consultancy agreement in favour of Joka Textiles, for consultancy services provided to Georgia Morgan Designs Australia between
June and October 2006, being five months at $10,000 per month plus GST, a total of $55,000 and a further $1,791.99 for expenses;
c. a claim by Mr Dalla Rosa for $12,600 for the cost of accommodation provided by him for the occupation of his personal apartment at the Rendezvous Resort at Cable Beach. Mr Dalla Rosa claimed that Ms Morgan had agreed to be personally liable for this matter; d. a claim by Mr Dalla Rosa for the recovery of $10,000 advanced by him to Ms Morgan in July 2006. 9 Ms Morgan raised four significant matters in her defence and counterclaim. She alleged that:
a. the deed of indemnity and agreement, executed in June 2006, was unenforceable because she was induced to enter the agreement by undue influence, duress or by the unconscionable dealings of Mr Dalla Rosa; b. liability pursuant to the guarantee to the ANZ Bank should be shared equally between the co-guarantors, Ms Morgan, Mr Dalla Rosa and Ms Martin; c. Ms Morgan had no personal liability for: i. the claim by Joka Textiles pursuant to the consulting agreement for consulting fees and expenses;
ii. the accommodation costs for Mr Dalla Rosa’s Cable Beach apartment;
iii. the advance of $10,000;
d.
claims for negligent advice, misleading and deceptive conduct, breach of the fiduciary relationship and contribution arising from Mr Dalla Rosa’s involvement in her business affairs.
Issues of credibility
10 Mr Dalla Rosa and his company, Joka Textiles, essentially rely upon the formal arrangements reached between the parties. On the other hand, Ms Morgan asserts that the personal relationship between her and Mr Dalla Rosa affected the enforceability of the rights defined by the written agreements. In her defence and counterclaim in proceeding no. CI-08-04390, Ms Morgan referred to the following matters:
a. the relative ages and business experience of herself and Mr Dalla Rosa; b.
the nature of their personal relationship including Ms Morgan’s move from Broome to Melbourne to be with Mr Dalla Rosa;
c.
Ms Morgan’s emotional dependence upon Mr Dalla Rosa and her reliance upon him in business matters.
11 It is necessary therefore to examine these matters in some detail and to make an assessment of the evidence of Mr Dalla Rosa and Ms Morgan to determine the conclusions which should be drawn.
12 Mr Dalla Rosa and Ms Morgan have moved on from their previous close personal relationship. There were significant discrepancies in their evidence. In addition to the issues in dispute in the proceeding, there were matters arising from the personal
relationship between them which were raised as credit issues. I will need to canvas
some of these matters in determining the case. Where there was disputed evidence I
have had regard to which party bore the onus of proof on a particular issue and have
looked for support from objective facts rather than simply relying on the account of
the witnesses (particularly the parties themselves) in reaching my conclusions.13 In important respects, I found the evidence of Mr Dalla Rosa unsatisfactory. In Mr Dalla Rosa’s evidence of what he saw as his role in Ms Morgan’s business, he appeared to distance himself from any real responsibility:
a. Mr Dalla Rosa admitted in evidence that he thought Ms Morgan would be successful in business, but not by herself as she needed assistance in areas of management and communications. He agreed that it was accurate to say that Ms Morgan needed “someone reliable to manage her business affairs”. Mr Dalla Rosa conceded that he was “to do the day-to-day running of the business as Georgia Morgan wanted to concentrate solely on design”. b. In the business plan he prepared for submission to the NAB in early 2006, he described his position as “general manager” of the business and noted that he had “joined the team last month to run GMD [Georgia Morgan Design Australia]”. In the consultancy agreement, it was recorded that the services to be provided by Joka Textiles would include “the general day to day running of the company”.
c.
Mr Dalla Rosa introduced Ms Morgan to his professional advisors. He engaged key administrative staff and helped in the preparation of financial documents to obtain finance and to develop a marketing strategy. He was involved in the purchase of major equipment and the choice of Cable Beach as the retail outlet.
d.
However, the plaintiff’s case was run, and he gave evidence, as though he was a mere functionary with little responsibility for decisions and minimal influence in the decision-making process and was someone who did not act independently of Ms Morgan. He also suggested that before November 2005 his involvement in the business had been limited and “the only work I had done was to put jewellery out on consignment”.
e.
At a critical meeting in October 2006, when he did state that he accepted responsibility for the financial position of the company, he disavowed the statement in evidence saying that he made it simply to placate Ms Morgan
because she was “becoming emotional”.
14. The financial management of the business by Mr Dalla Rosa is difficult to equate with his experience and previous success. The suggestion by plaintiff’s counsel that in fact it was Ms Morgan rather than Mr Dalla Rosa who had the relevant business experience (in making and selling jewellery) was unsustainable. I note the following matters:
a.
Under Mr Dalla Rosa’s guidance, and with him performing the role of general manager, the company incurred significant liabilities.
b.
Anticipated cash flows were calculated on the basis of what would be needed to meet the company’s commitments (“what we needed to pay back the bank loan”) rather than being a realistic estimate of the income the business was
likely to generate.
c. Mr Dalla Rosa said in evidence that he was responsible for the management of the business “under the direction of Georgia Morgan”. d. There is no evidence, apart from Mr Dalla Rosa’s, to support his statement that “a number of times I advised Georgia Morgan not to incur such large debts without income”. e. I do not accept Mr Dalla Rosa’s assertion in evidence that “all sales and expenditure figures in the budgets were based on information supplied by
Georgia Morgan”.
f.
In the documents given to the National Australia Bank, Mr Dalla Rosa described himself as having a “diploma” in marketing. In fact he had a “certificate” qualification.
15. Ms Morgan gave her evidence over more than three days. Her delivery was flat and at times she appeared disengaged. Her recollection of events was imprecise. In evidence, she stated that since her father’s death she had suffered from depression. Although there was no medical evidence presented in the case, and I am wary of drawing conclusions about her psychological state without such evidence, it seemed to be accepted by all witnesses that Ms Morgan had been seriously affected by the death of her father. It is likely in these circumstances that she was particularly reliant on Mr Dalla Rosa for support and advice.
16. Generally, I considered her evidence more reliable than Mr Dalla Rosa’s. However, it was in my view, necessary to look for independent verification where there was a dispute between the evidence of these witnesses on critical issues.
Conclusions about the relationship between Mr Dalla Rosa and Ms Morgan
17. In the circumstances, I consider that the evidence establishes the following matters concerning the relationship between Mr Dalla Rosa and Ms Morgan:
a. in her father’s pearling business. He helped his daughter establish a
business in Broome. He gave her large quantities of pearls, direct financial
assistance and access to bookkeeping, accounting and other help. The shop
Ms Morgan is a gifted jewellery designer. She left school in Year 11 to work The business had employees who worked in the shop. The business was not, however, financially successful.
b. Mr Dalla Rosa has successful business interests primarily in the textile industry. He was the part-owner of the company developing a resort near Broome. He had the trappings of financial success; frequent travel, expensive accommodation and entertainment and he owned what was described as “a luxury yacht”. c. relationship. Mr Dalla Rosa was married and, it appears, intended to remain
so. Ms Morgan said that they talked about a permanent relationship.
Mr Dalla Rosa and Ms Morgan quickly established a close and intimate marriage, but did not say that he intended to leave his wife to marry her”. They each had at least one other intimate or romantic attachment during the period of their association. They lived together, it seemed, as often as Mr Dalla Rosa was free of his marital obligations; his wife frequently working overseas.
d.
Ms Morgan’s jewellery business appears to have been a very significant feature of their relationship. Ms Morgan was talented and Mr Dalla Rosa had the experience and contacts to assist her. From soon after they met, they spent much time and energy discussing ideas for the business. Ms Morgan was happy to move from the small community in Broome to Melbourne.
e.
Ms Morgan came from a wealthy background. Her father was a successful businessman with interests not only in the pearling industry but also in other areas. He had indulged his daughter by financially supporting an otherwise unsuccessful business. When he died, it appeared that Ms Morgan and her brother would receive a significant inheritance. This was later complicated by
litigation involving Mr Morgan’s widow (his second wife). Ms Morgan became
a director of her late father’s company and a loan of $400,000 was given to
her by the company, apparently as an advance against her anticipated
inheritance. Ms Morgan also invested in apartments at the Cable Beach
Resort at a time when her business was incurring significant liabilities.f.
In the circumstances of this anticipated wealth, it is perhaps understandable that the planning for Ms Morgan’s business had the appearance of being protracted and ambitious. The Broome shop closed down in early 2004. The new shop at the resort did not open until August 2006. In the meantime, a good deal happened – the jewellery and pearl stock was transported to Melbourne, business premises were established at Notting Hill, two jewellers and administrative and marketing staff were employed, sophisticated pearl shell engraving machinery was purchased in 2005 and finance was put in place. However, although some jewellery was placed on consignment, there was little income from the business for about two years.
g.
Mr Dalla Rosa appeared to have developed a proprietal interest in the business. Whilst Ms Morgan was pursuing the aesthetic success of the designs of the jewellery (including winning prizes), Mr Dalla Rosa was having
a significant influence on the directions of the business, particularly in
decisions to set up the business premises, to acquire expensive equipment,
to employ staff, to establish a new shop at the Cable Beach Resort and, later
spending a lot of time personally serving at the shop in an effort to make the
business succeed.h.
In some matters, Mr Dalla Rosa appears to have been uncompromising. He conducted the relationship on his terms, coming and going to suit his other commitments. In regard to his responsibilities in the jewellery business, he gave the job of office manager to a former lover, although it distressed Ms Morgan and meant she spent more time working from her home. According to Ms Morgan, Mr Dalla Rosa threatened to himself leave the business if his friend’s employment was terminated.
i. With critical issues, where Mr Dalla Rosa’s financial interests were or might have been affected, he ensured that his solicitor drew up documents (the consultancy agreement and the deed of indemnity and agreement) to protect his interests. Mr Dalla Rosa’s protestations that the solicitors Campbell Lord were acting as Ms Morgan’s solicitor in these transactions were unpersuasive.
j. Whilst Mr Dalla Rosa appeared to accept responsibility for the business dealings of the company, Ms Morgan was clearly involved in all the decisions. She arranged a loan from her family company of $400,000. She participated in setting up the Notting Hill operations and the acquisition of machinery. She single-mindedly pursued her vision for the design standards of her jewellery. She agreed to lease the shop at the Cable Beach Resort and she understood in June 2006 the need for further finance. k. Mr Dalla Rosa oversaw the spending of significant sums of money and the assumption of large levels of debt by the company. It should have been obvious to someone of his experience that this was untenable in the long-term unless the business had immediate and spectacular success through the Cable Beach shop or Ms Morgan was able to sustain the commitments by the sale of pearl stock or further advances from the Morgan family company. l. had a significant effect on Mr Dalla Rosa. His relations with Ms Morgan
appeared to also have been affected. By the time the shop opened in August
their relationship was not as close. The shop had only moderate success. In
September, Ms Morgan sought other financial advice and at a meeting on
In April 2006, the office manager committed suicide. Ms Morgan said that this relationship with Mr Dalla Rosa.
18. Against the background of the relationship between Mr Dalla Rosa and Ms Morgan it is necessary to examine each of the claims and counterclaims pursued in the proceeding.
The consultancy agreement
19. Pursuant to the consultancy agreement dated 1 November 2005, consultancy services were to be performed by “Rick Dalla Rosa or such other person nominated” by Joka Textiles. The agreement unless terminated was to commence in November 2005, run for a term of 12 months and the consultant was to be paid $10,000 per month plus GST. The consultancy agreement also provided, in Clause 7, that Georgia Morgan Designs Australia must reimburse Joka Textiles “the amount of all
expenses reasonably and properly incurred … in the performance of the consultant’s
duties under the agreement”.
20. jewellery to be put out for sale on consignment in Melbourne and Sydney. Mr Dalla
Rosa received a ten per cent commission on sales. In November 2005, Mr Dalla
Rosa said that Ms Morgan had asked him if he could set up a jewellery manufacturing
Mr Dalla Rosa said that in 2004 and 2005 he had arranged for some of Ms Morgan’s for her and said that for three days work a week he would require to be paid $15,000 plus GST each month. They agreed on $10,000 plus GST. Mr Dalla Rosa said he was “to be engaged in a managerial position” with responsibility for the “day to day running of the business”. Ms Morgan said that Mr Dalla Rosa had wanted her to agree to him having a 30 per cent share of the business at the end of the first year. Ms Morgan said that she was not prepared to do that but agreed she would consider the possibility.
21. Pursuant to the agreement, the consultant was to perform the following services: “…
• responsible for the general day to day running of the company; • setting up all sales and expenditure budgets; • hiring of all staff as well as the sales and staff training and setting of incentive schemes; • setting the sales direction and marketing agenda of the company”. 22. Georgia Morgan Designs Australia paid the consultancy fees to Joka Textiles from November 2005 through to May 2006. On 16 June 2006, Georgia Morgan Designs Australia, Georgia Morgan and Rick Dalla Rosa executed a Deed of Indemnity and Agreement. Mr Dalla Rosa said that Clause 4 of the document reflected an
agreement he had earlier reached with Ms Morgan.
23. Clause 4 provided as follows:
“4. Wages owing to Dalla Rosa.
4.1 Morgan and Designs acknowledges and reaffirms that Dalla Rosa is entitled to a monthly consultancy fee of $10,000 plus GST. 4.2 Dalla Rosa has agreed to accept a deferral of the consultancy
fee for the months of June and July 2006 only;4.3 Morgan and Designs agree that the deferred fee of $20,000 will be paid to Dalla Rosa in addition to the regular monthly consulting fee over the months of August, September and October. For the avoidance of doubt the effect of this clause is that Dalla Rosa will be paid $16,666 plus GST in each of the months of August, September and October”.
24. Joka Textiles (and Mr Dalla Rosa personally) claim in the proceeding that this provision, reflecting the earlier conversations between Mr Dalla Rosa and Ms Morgan, entitle each of the plaintiffs to claim, not only from Georgia Morgan Designs
Australia, but also from Ms Morgan personally:
a. the deferred consultancy fees for June and July; b.
the consulting fees for August, September and October until the expiry of the 12 month term of the agreement;
c. unpaid travel expenses of Mr Dalla Rosa totalling $1,791.99.
Personal liability of Ms Morgan for consultancy fees and expenses
25. by Joka Textiles of the consultancy agreement, there is little doubt that monies were
owing by Georgia Morgan Designs Australia to Joka Textiles pursuant to the
consultancy agreement, both for consulting fees and expenses incurred. Mr Dalla
Rosa’s services were effectively terminated at or soon after the meeting in Broome on
Subject to any argument about the set-off of damages as a result of alleged breaches Morgan Design Australia for the consulting fees for June, July, August, September and October, the remaining five months of the 12 month term, even though Mr Dalla Rosa did not perform services for part of the month of October 2006.
26. The position in relation to the personal liability of Ms Morgan is far less clear. It was submitted by the plaintiffs that Clause 4 of the Deed of Indemnity and Agreement created an independent obligation on the part of Ms Morgan to pay both the deferred consulting fees for June and July and the fees due for August, September and October. Clause 4.1 contained an “acknowledgement” and “reaffirmation” that “Dalla Rosa is entitled to a monthly consulting fee of $10,000 plus GST”. In fact it was Joka Textiles which had the entitlement. The words “acknowledges” and “reaffirms” in the clause suggest that no further rights were to be created by the Deed of Indemnity and Agreement.
27. agreement
company that the deferred fees for June and July and the regular fees for August,
September and October “will be paid to Dalla Rosa”. The fees were payable under
the consultancy agreement to Joka Textiles. The point of more significance,Clause 3 is expressed in terms of an “” by both Ms Morgan and the was no clear statement to indicate that it was intended that Ms Morgan was assuming a personal liability in addition to that of her company.
28. Additional words were added to Clause 4.3 “for the avoidance of doubt”. These words appear to confirm or “reaffirm” that the consultancy agreement was continuing and Mr Dalla Rosa (Joka Textiles) would continue to be paid the consulting fees until the term of the agreement expired and that the fees for June and July, although deferred, would be paid in the following months. There is nothing, however which unequivocally suggests that a personal liability on the part of Ms Morgan would be created. I consider that, if there is any ambiguity in the Deed of Indemnity and Agreement, the fact, as I am satisfied, that the agreement was drawn up by solicitors upon the instructions of Mr Dalla Rosa should not encourage the Court to adopt a meaning of the clause less favourable to Ms Morgan. In the circumstances, I consider that Ms Morgan has no personal liability to Joka Textiles or to Mr Dalla Rosa for consultancy fees.
29. The claim for travel expenses related to trips made by Mr Dalla Rosa to Broome in July and August 2006. In his evidence Mr Dalla Rosa stated that “expenses were always paid to me by Georgia Morgan…she was personally liable for them”. This assertion ignores the fact that:
(a)
in the Amended Statement of Claim the claim for expenses is made by Joka Textiles against the company Georgia Morgan Designs Australia pursuant to the consultancy agreement as varied by the Deed of Indemnity and
Agreement;
(b)
the claim for expenses was made by Joka Textiles to the company. All previous claims had been made in a similar way and had been paid for by the company.
30. Ms Sophia Twirdy worked as a bookkeeper for Mr Dalla Rosa’s company. Later, she performed a similar role for Georgia Morgan Designs Australia. On 24 October 2007, Ms Twirdy swore a statutory declaration at the request of Mr Dalla Rosa’s solicitors.
In the statutory declaration, Ms Twirdy stated, “I was the bookkeeper for Georgia
Morgan Designs in 2006. At the time I was given a number of receipt documents by
Mr Rick Dalla Rosa which were to be reimbursed to him by Georgia Morgan Designs.To my knowledge they were not paid” [emphasis added]. Ms Twirdy did not refer to any personal liability on the part of Ms Morgan.
31. In the circumstances, Georgia Morgan Design Australia was, and remained, responsible for the payment of the expenses to Mr Dalla Rosa and no personal liability attached to Ms Morgan.
Accommodation at the Broome resort
32. By their Amended Statement of Claim, the plaintiffs alleged that in conversations during February 2006 between Mr Dalla Rosa and Ms Morgan, Mr Dalla Rosa
“agreed that Joka Textiles and himself would rent to [Ms] Morgan and/or GMD
[George Morgan Designs Australia]” Mr Dalla Rosa’s apartment at the Rendezvous Sanctuary Resort at Cable Beach. The particulars to the pleading record that in the conversations, “Morgan explained that the purpose of the accommodation was to
arrange the fit-out, set-up and operation of GMD’s retail outlet (i.e. shop) at the
resort”.
33. The apartment (number 47) was a “two bedroom self-contained apartment owned by Dalla Rosa and his wife”. In his evidence, Mr Dalla Rosa said that Robert Beiziters was looking for accommodation in Broome for the shopfitters and for staff of the shop. Mr Dalla Rosa said that “Georgia Morgan asked if I would rent out my apartment” and he agreed to “take it out of the rental pool and rent it for $300 per night”. There were three or four periods of residence by various persons including Ms Morgan, Mr Dalla Rosa, shop staff and the shopfitters. Mr Dalla Rosa was paid for the first two periods but not for the later periods in August and September 2006 totalling 42 nights.
34. Mr Dalla Rosa said in evidence that Ms Morgan “was to be responsible for payment”. He invoiced Ms Morgan personally because he “wasn’t too comfortable at the time about the company”, George Morgan Designs Australia. He said that he believed the Deed of Indemnity and Agreement covered the consultancy fees and expenses and that “Georgia Morgan had said she would be personally liable”. Mr Beiziters gave evidence that he had unsuccessfully tried to arrange accommodation in Broome prior to the opening of the shop. He said that Georgia Morgan had asked Dalla Rosa whether she could use his apartment. Georgia Morgan agreed to pay $300 per night rental.
35. In the statutory declaration Ms Sofia Twirdy made on 24 October 2007, she stated, “I
was also aware of rents that were to be paid to Mr Dalla Rosa by Georgia Morgan
Designs in regard to accommodation for contractors working in Broome on MsMorgan’s retail outlet” [emphasis added]. Mr Twirdy did not refer to any personal liability on the part of Ms Morgan.
36. Mr Beiziters also made a statutory declaration on 23 October 2007. He described the difficulty he had being able to “procure suitable rental accommodation in Broome for staff and workers” and stated, “To alleviate this difficulty, Mr Dalla Rosa offered to
rent his apartment within the Rendezvous Sanctuary complex (unit 47) to Ms
Morgan’s company to house the workers to complete the fit-out” [emphasis added].
37. In response to a request by Mr Graham Addison, on behalf of Georgia Morgan, in October 2006, for him to provide details of his claims against Ms Morgan and her company, Mr Dalla Rosa sent Mr Addison a letter which read in part as follows, “GMD
and myself agreed until GMD finds a suitable house to rent for her and staff I would
take my apartment off line. We agreed on $300 per night to help compensate my lostincome that normally would generate between $380 to $420 per night” [emphasis
added].38. In her evidence in chief, Ms Morgan was asked whether she had personally agreed to pay each of the amounts claimed by Joka Textiles and Mr Dalla Rosa. In relation to the claim for the cost of accommodation, Ms Morgan responded, “I may have agreed to pay that”. In cross-examination, when Ms Morgan was taken to her evidence that she may have agreed to pay for the accommodation, she said that, “It was definitely for the business”.
39. Notwithstanding Ms Morgan’s evidence that she “may have agreed” to pay for the accommodation, I consider that the agreement was reached on behalf of Georgia Morgan Design Australia and that she had no personal liability. This conclusion is consistent with the previous statements of Mr Dalla Rosa, Ms Twirdy and Mr
Beiziters.
Loan of $10,000 in July 2006
40. The plaintiffs claim that in July 2006 Joka Textiles lent to “GMD and/or Morgan the sum of $10,000 to assist GMD and/or Morgan with short-term business funding”. It was alleged that the agreement to loan money was comprised by a conversation on about 14 July 2006 “between Dalla Rosa (for Joka) and Morgan (for GMD)”. In the
conversation, “Morgan explained that GMD required the loan funds on a short-term
basis to acquire business stock and pay staff wages. Dalla Rosa (for Joka) agreed to
make the loan to GMD repayable on demand upon reasonable notice”. The sum of $10,000 was transferred from Joka Textile’s bank account to the company’s account on that day.
41. In his evidence, Mr Dalla Rosa said that on 14 July 2006 at Notting Hill “Georgia Morgan asked me to lend her $10,000”. Mr Dalla Rosa said that he agreed on the basis that it would be “a personal loan from me to you” and “only for one week”. He said that, “The following week I asked her to transfer the money back but she always had an excuse”. Mr Dalla Rosa said that although the money had been paid into the account of Georgia Morgan Designs Australia this was because he had told his
“bookkeeper that it was up to Georgia Morgan which account the money was to be
paid into”.
42. In re-examination, Mr Dalla Rosa said that when Ms Morgan requested the loan she said “I just want to pay some personal things”. He said that he told Ms Morgan he would loan the money “if you promise and guarantee to pay me back”. Mr Dalla Rosa disavowed the further particulars supplied by his solicitors. He said that “business stock and staff wages were not mentioned by Georgia Morgan”.
43. for the loan of $10,000 stating that she “needed money for the company’s cash-flow”,
that she would “pay it back next week” and that Mr Dalla Rosa had said he would
In cross-examination of Ms Morgan, it was put to her that she asked Mr Dalla Rosa concerned, “the loan was to the company” and the arrangement was that it would be repaid “when the company could”.
44. In the circumstances, the claim against Ms Morgan has not been substantiated. There was no agreement that she was to be the party responsible for payment and, if the claim were made pursuant to the terms of the Deed of Indemnity and Agreement, there would be no basis for personal liability on the part of Ms Morgan.
The National Australia Bank loan
45. On 16 June 2006, agreements were executed as follows:
a.
the National Australia Bank agreed to advance the sum of $200,000 to Georgia Morgan Designs Australia;
b.
the National Australia Bank loan was guaranteed by Ms Morgan, Mr Dalla Rosa and his wife, Ms Martin, by a Deed of Guarantee and Indemnity. Pursuant to this deed, Mr Dalla Rosa provided a security deposit to the bank;
c.
a separate Deed of Indemnity and Agreement was entered into by Georgia Morgan Design Pty Ltd (sic), Georgia Morgan and Rick Dalla Rosa whereby Georgia Morgan agreed to indemnify Rick Dalla Rosa “with respect to all
48. Morgan’s solicitor in the preparation of the Deed of Indemnity and Agreement.
obligations and liabilities which may be incurred by Dalla Rosa as a
consequence of providing the guarantee and security deposit” to the bank.
46. Mr Dalla Rosa gave evidence that in late May/early June 2006, in a conversation with Ms Morgan at Notting Hill, she asked him to lend her $200,000 until certain parcels of shares were sold. When Mr Dalla Rosa refused, Ms Morgan then asked him to go
guarantor for a line of credit of $200,000 from the National Australia Bank. Mr Dalla company on that basis. Mr Dalla Rosa said he agreed to Ms Morgan’s request but said that he wanted an indemnity from her. He said Ms Morgan also wanted him to agree for Joka Textiles to defer the consultancy fees for the months of June and July.
47. Mr Dalla Rosa said that the Deed of Indemnity was drawn up by Ms Morgan’s solicitors and was signed at Notting Hill. Mr Dalla Rosa said that he asked Robert Beiziters if he would witness the signatures on the deed. Mr Dalla Rosa explained to Ms Morgan that the effect of the deed was that she would be personally liable for the money and costs. Ms Morgan told him that he would not have to pay the money back as the money was for her company. Mr Dalla Rosa said that, on the same day, he received a telephone call from Romina Vaz asking him to come to the bank with his wife to sign the guarantee. He said he was surprised and contacted Ms Morgan and asked her whether she realised the bank wanted his wife to be a guarantor. He said that Ms Morgan assured him that she would be solely responsible as she was taking the money on behalf of her company. Mr Dalla Rosa said he agreed on the basis that his wife would not be liable. Ms Morgan said that there was nothing to worry about because she would always be able to sell her collection of pearls. Mr Dalla Rosa said he spoke to his wife that night and she later went to the bank and signed the necessary documents.
In cross-examination, Mr Dalla Rosa said that Campbell Lord was acting as Georgia upon the instructions of Ms Morgan. He said it was part of his job to get agreements drawn up. Mr Dalla Rosa was referred to a fax from the solicitors to both himself and Ms Morgan at 11.23am on 15 June 2006 attaching the deed. The fax included the following statement: “As I act for both of you, it could be said that Georgia is not
getting independent advice on the effect of this Deed. If you want to get another
lawyer to review the document and advise you, please let me know and I will arrangefor somebody to do this on your behalf”. Mr Dalla Rosa said he drew the email to Ms
Morgan’s attention “at the time it came through”.49. March/April 2006 to oversee the establishment of the Cable Beach shop. He was a
long term friend of Mr Dalla Rosa, who had arranged Mr Beiziters’ employment. Mr
Beiziters said in evidence that in June 2006 Mr Dalla Rosa asked him to witness a
deed. Mr Beiziters said he asked what the document was and Mr Dalla Rosa
explained that Georgia Morgan wished to borrow $200,000 from the bank and wanted
Mr Robert Beiziters was employed by Georgia Morgan Designs Australia from to be personally liable and Dalla Rosa said to Beiziters, “Without this I cannot go guarantor”.
50. Mr Beiziters said that, in his presence, Mr Dalla Rosa had said to Ms Morgan, “Now, Georgia, you realise that you are personally responsible for the loan and my salary”. Mr Beiziters said that Ms Morgan was quite agitated and Mr Dalla Rosa repeated
Yes, yes, manager of Joka Textiles. In April 2006, he had an accident in Perth and was in a coma for a number of weeks. During this period he was dismissed by Georgia Morgan Designs Australia. Later he brought an unfair dismissal application. My assessment of Mr Beiziters’ evidence was that his recollection of conversations some years ago was surprisingly detailed in respect of matters supportive of Mr Dalla Rosa’s case, and therefore unlikely, particularly in view of his relationship with Mr Dalla Rosa. I do not consider that I should take much account of his evidence.
what he had said about the loan and his salary. Ms Morgan had then said, “
51. into the company. In June 2006, she had a discussion with Mr Dalla Rosa about
concerns she had about the company’s finances. Mr Dalla Rosa assured her that
Ms Morgan said in evidence that Mr Dalla Rosa had agreed he would put $200,000 $200,000. Ms Morgan said that she had expected Mr Dalla Rosa to personally provide the funds and said to him, “You promised me money up front”. Ms Morgan said that she had no contact with the bank to obtain the money although she signed a personal guarantee with the bank for the loan to the company. Before she did this she had signed the Deed of Indemnity and Agreement.
52. “slammed” a document on her desk. She asked him what it was and he explained.
She said, “I don’t want to sign”. Mr Dalla Rosa said, “If you don’t sign you won’t get
the money, you’ll lose everything, I’ll walk and you will be stuffed”. She said she
considered whether there was any other way she could open her shop and concluded
She said that she was in her office one afternoon. Mr Dalla Rosa came in and anyone else being present. She did not see the fax from the solicitor at the time. She was not aware that Ms Martin was a party to the bank guarantee until she saw Ms Martin’s name on the document when she signed it herself.
53. walked
over her” in relation to the Deed of Indemnity and Agreement. He had said thatIn cross-examination, Ms Morgan said that she felt that Mr Dalla Rosa had “would have “no future”. She said that she and Mr Dalla Rosa had had “several conversations” about Mr Dalla Rosa putting up $200,000 as “a loan to the company”. In June 2006 she said to him, “Now we need the $200,000” and for two weeks “he tried to back out”. Mr Dalla Rosa had come back with the loan from the bank and she did not have “any idea until the loan was presented to me”. She had read in the Deed of Indemnity that the company was entering a loan with the bank.
54. The Deed of Indemnity and Agreement is dated 16 June 2006 and was executed by Ms Morgan on behalf of the company and was also signed personally by her and Mr Dalla Rosa in the presence of Mr Beiziters. The document recited that, “Dalla Rosa
has agreed to provide a guarantee and indemnity secured by a bank deposit in
support of a loan of $200,000 to be made to Designs by the National Australia BankLtd” and that, “Morgan has agreed to indemnify Dalla Rosa with respect to all
obligations and liabilities which may be incurred by Dalla Rosa as a consequence of
providing the guarantee and security deposit”. Pursuant to the document, “Morgan
agrees to ensure that Designs pays all monies due and payable pursuant to the terms
of the loan”, and “Morgan hereby indemnifies Dalla Rosa for any loss or liability
incurred by him as a consequence of or in connection with any breach of any of the
terms or conditions of the loan and/or Clause 1 of this deed”.
55. The guarantee and indemnity provided to the National Australia Bank recorded that an advance would be made to Georgia Morgan Design Australia of $200,000 and that each of the guarantors, Ms Morgan, Mr Dalla Rosa and Ms Martin, guaranteed that sum together with, accrued interest, bank fees, costs and charges. The signature of each guarantor was witnessed by Ms Romina Vaz. Ms Vaz noted the date of witnessing Ms Morgan and Mr Dalla Rosa’s signatures as “16/6/06”. The witnessing of Ms Martin’s signature is undated.
56. The company defaulted in respect of the advance of $200,000 and on 29 November 2007 the bank served notices on the company and the guarantors demanding payment of $202,819.26. The bank issued proceeding no.CI-08-02775 on 10 July 2008 in this Court seeking recovery of $202,819.26 and interest from the three guarantors and a further sum in respect of an earlier advance for a credit card with a limit of $10,000.
57. The proceeding was resolved by Terms of Settlement dated 22 December 2008 by
which:
a. Ms Morgan agreed to pay the bank $160,000; b.
Mr Dalla Rosa and Ms Martin agreed to pay the bank the total sum of $110,000;
c. these payments were not to prejudice the rights of the guarantors “against each other whether for contribution, indemnity or otherwise in respect of the
amounts”.
58. I have determined that the deed of indemnity and agreement may be enforced by Mr Dalla Rosa against Ms Morgan. Mr Dalla Rosa gave evidence that the sum of $110,000, together with legal costs totalling $16,792.68, which he paid to his
solicitors, had been paid from the bank account of Joka Textiles. This included the
contribution of Ms Martin pursuant to her obligation as a guarantor.
Defences arising from the parties’ relationship
59. Ms Morgan admitted she executed the consultancy agreement and the Deed of Indemnity and Agreement. In her Defence, she alleged that the consultancy agreement “did not amount to a contract because there was no intention to create legal relations” because at the time she was “in a romantic affair” with Dalla Rosa. This matter was not argued in final submissions and is an argument of little substance.
60. Ms Morgan also alleged that by reason of the circumstances of her personal relationship with Dalla Rosa and the fact that she had “received no legal or independent advice on whether to execute the consultancy agreement,” the agreement “should be set aside and all monies paid thereunder refunded”. This pleading is no longer relevant in relation to Georgia Morgan Designs Australia because of the liquidation of the company.
61. It is, however, a relevant and significant pleading by Ms Morgan as the argument is relied upon by her to defeat the claims made by Joka Textiles and Mr Dalla Rosa in respect of her alleged obligations:
63. unconscionability, undue influence or duress, Ms Morgan relied upon matters
basically relating to the personal relationship between herself and Mr Dalla Rosa.
Her counsel, Mr Barton submitted that by reason of the fact that Ms Morgan was
a.
pursuant to the consultancy agreement, as enlivened against her personally by reason of Clause 4 of the Deed of Indemnity and Agreement;
b.
pursuant to the Deed of Indemnity and Agreement in respect of the indemnity given by Ms Morgan to Mr Dalla Rosa in respect of the liability he may have to the National Australia Bank as guarantor of the loan to the company of
$200,000;
62. The issue of the National Australia Bank loan is raised by the parties in the pleadings as follows:
a. paid by him to the National Australia Bank (on behalf of himself and
In proceeding no. CI-09-03680, Mr Dalla Rosa claims the sum of $110,000 bank, and the further sum of $16,792.68 which he incurred as the costs of defending the proceeding by the bank.
b.
In proceeding no. CI-09-03680, Ms Morgan alleged that the sum of $202,819.26 claimed by the bank in its proceeding and the bank’s costs of those proceedings should have been shared by equal contributions from the three guarantors, Mr Dalla Rosa, Ms Morgan and Ms Martin. The issue of Ms Martin’s liability in this regard was deferred, by my order dated 8 October 2009, until a later time.
c.
In proceeding no. CI-08-04390, Ms Morgan counterclaimed for “an order that the Deed of Indemnity or Agreement be set aside” on the basis that:
i.
it amounted to an “unconscionable bargain” and that Mr Dalla Rosa had acted “unconscionably” contrary to s.7 of the Fair Trading Act; and/or
ii.
the agreement “was procured by undue influence and duress exercised” by Mr Dalla Rosa.
In regard to the counterclaim that the deed should be set aside because of occupied a position in relation to Ms Morgan “whereby there was a special relationship of confidence, control, domination or influence”, that:
a.
it was to be presumed as a matter of law that the signing of the Deed of Indemnity and Agreement by Ms Morgan was procured by Mr Dalla Rosa “through some unconscientious use of his power and domination” over Ms Morgan; and
b.
the onus of proof was on Mr Dalla Rosa “to show that such signing was not the product of improper influence exerted” by him.
64. In assessing whether the law will intervene to overturn a transaction entered into by apparently consenting parties with capacity, regard is had to:
a. whether the will of the innocent party has been overborne and the consent to the transaction is therefore not independent and voluntary; b. whether the other party has abused a dominant position in a way which is regarded as unacceptable. 65. In certain cases, generally because of the nature of the relationship and the benefit obtained from the innocent party, the law assumes that the voluntariness of the transaction requires explanation and casts the onus upon the parties seeking to maintain the transaction. Otherwise, however, the attack on the voluntariness of a transaction is a matter of defence casting the onus upon the party raising it.
66. In the present case, the relationship between Ms Morgan and Mr Dalla Rosa was not of a class which the law would ordinarily examine with particular care. It was suggested that there were elements of the relationship which might be analogous to established categories, to be implied from evidence of the alleged assumption by Mr Dalla Rosa of a “father figure” role after the death of Mr Morgan, combined with an alleged acceptance of responsibility for guiding Ms Morgan’s business affairs. In my view, the facts fall short of establishing the necessary relationship between Mr Dalla Rosa and Ms Morgan which would cast the burden of justifying the relevant transactions upon Mr Dalla Rosa.
67. Similarly, the transactions themselves are not such that the law would require an explanation from Mr Dalla Rosa as to why Ms Morgan (or her company) would have executed the document recording the agreement. The consultancy agreement entitled Joka Textiles to a fee of $10,000 per month plus GST for the 12 month term of the agreement and the reimbursement of certain expenses. The agreement could be terminated upon three months notice and involved the performance of significant duties for at least three days each week. The remuneration was negotiated down from an asking rate of $15,000 per month and did not include the automatic granting of a 30 per cent interest in the business at the end of the 12 month term, which Mr Dalla Rosa had apparently wanted. There is no proper basis to conclude that the benefits to Mr Dalla Rosa from the consultancy would be sufficient by themselves to create a presumption that the arrangement would be unfavourable for Ms Morgan or her company to such a degree that Mr Dalla Rosa would need to explain and justify the transaction.
68. The Deed of Indemnity and Agreement principally involved Ms Morgan indemnifying Mr Dalla Rosa if Georgia Morgan Designs Australia were to default under the loan agreement with the National Australia Bank and the bank were to call up Mr Dalla Rosa’s personal guarantee. As a result of Mr Dalla Rosa (and Ms Morgan and Ms Martin) guaranteeing the proposed loan, Ms Morgan’s company obtained an advance of $200,000 from the bank. The bank would not have loaned the money if personal guarantees had not been given by Mr Dalla Rosa, Ms Morgan and Ms Martin. The principal benefit to Mr Dalla Rosa of the Deed of Indemnity and Agreement was that Ms Morgan agreed to indemnify him against any losses resulting from a default by the company.
69. The bank advance allowed the company to continue trading. Mr Dalla Rosa, by virtue position of Georgia Morgan Design Australia. Directly, he only stood to benefit through the consultancy fees which would be payable to Joka Textiles until October 2006. Possibly, it may be that Mr Dalla Rosa had a greater interest in the company’s future, if Ms Morgan were to later give him a 30 per cent interest in the company, although whether that would happen, and the basis upon which it might happen, was by no means certain. As a co-guarantor with Ms Morgan, Mr Dalla Rosa would, in any event, have been entitled to contribution from the other guarantors to equalise the burden.
70. Without any presumption of unfavourability to Ms Morgan of the consultancy agreement, it is difficult to see that there is any sufficient evidentiary basis to establish duress, undue influence or the unconscionabilty of the dealing. The transaction was negotiated between Ms Morgan and Mr Dalla Rosa and appears to reflect an arrangement for their mutual benefit, and certainly for the benefit of Ms Morgan’s business. Mr Dalla Rosa appears to have insisted that the terms of the arrangement be reflected in a formal document. The agreement was, however, between two companies and the proper recording of the transaction should not be a reason for criticism, even though the individuals involved in the dealing were in an intimate relationship.
73.
$270,000. If each of the guarantors had contributed equally, each share would be
$90,000. The question arises as to whether Ms Morgan’s liability to Mr Dalla Rosa,
pursuant to the deed of guarantee and indemnity, should be limited to $90,000,
together with the costs that Mr Dalla Rosa incurred in defending the bank
proceedings. In the bank proceeding, Ms Martin raised certain defences relating to
the circumstances in which she executed the guarantee. Whilst it is likely that there
may have been some additional costs involved in the separate presentation of
The total sum paid to the bank by Ms Morgan, Mr Dalla Rosa and Ms Martin totalled costs would have been incurred by Mr Dalla Rosa in any event.
74.
Ms Morgan claims that she is entitled to a contribution from Mr Dalla Rosa because she paid the bank $160,000, being $70,000 more than the one-third contribution it would be expected that the guarantors would ordinarily have been responsible for. Recently, the High Court has considered the nature of equitable contribution in the decision of Friend v. Booker [2009] HCA 21. At para 39, French CJ, Gummow, Hayne and Bell JJ reaffirmed that “contribution is an attempt by equity to distribute equally, among those having a common obligation, the burden of performing it”. I consider, however, that in the circumstances of this case Ms Morgan should not be entitled to recover from Mr Dalla Rosa an amount to equalise their contributions as co-guarantors of the bank loan.
75.
I consider that Ms Morgan is not entitled to contribution from her co-guarantors for the following reasons:
a.
Ms Morgan granted Mr Dalla Rosa an indemnity in respect of his liability as a guarantor pursuant to the Deed of Indemnity and Agreement. This would, in my view, provide him with an appropriate basis to resist the claim for
71. The formal agreement was drawn up by solicitors. There is a conflict of evidence as to whether it was Ms Morgan or Mr Dalla Rosa who required this. It is more likely, in my view, that it was Mr Dalla Rosa, who instructed Campbell Lord Solicitors to draw up the Deed of Indemnity and Agreement and the letter from the solicitors
accompanying the document seems to confirm that. These are, however, matters which might easily have been clarified if Mr Lord had been called as a witness. No explanation was given by either party for his absence. Mr Dalla Rosa had employed
Campbell Lord as his solicitors for many years. He introduced the solicitors to Ms Morgan as one of his professional advisors. Ms Morgan separately engaged the solicitors to assist her in negotiations with Morgan & Co Pty Ltd for the loan of $400,000 and Mr Lord accompanied Ms Morgan to Perth (without Mr Dalla Rosa) in 2005 for that purpose. Mr Lord was not in any party’s “camp” in the sense that he could not have been called to give evidence by either party. However, I do not consider that I can draw any useful inference from the absence of Mr Lord as a witness in the proceeding.
72. At the trial, Mr Barton in his opening foreshadowed that Mr Hillary Wijarante, the accountant (of Mr Dalla Rosa and later of Georgia Morgan Design Australia) would be called as part of the defendants’ case. When Mr Barton failed to call him, plaintiffs’ counsel, Mr Smith, successfully applied to reopen the plaintiff’s case to call Mr Wijarante as a witness. I do not consider that the evidence of Ms Morgan’s failure to obtain independent advice on the consultancy agreement or the Deed of Indemnity and Agreement has any significant effect on the conclusions I have reached concerning the voluntariness of her assent to these transactions or the nature of any advantage Mr Dalla Rosa obtained or the circumstances in which he obtained it.
Equalising the contributions by the guarantors of the National Australia Bank loan
The Modern Contract of
contribution by Ms Morgan. O’Donovan and Phillips, follows: “Where the plaintiff guarantor has granted the defendant guarantor an
indemnity in respect of her or his liability as a guarantor, the defendant
guarantor can resist a contribution suit instituted by the plaintiff guarantor. cited as authority by O’Donovan and Phillips for this proposition, although in that decision, the issue of the obligation to contribute was conceded, and not decided by the Court (see p. 594). Nevertheless, the principle that co- sureties, contracting as between themselves, may exclude or modify rights of contribution is generally accepted. Halsbury’s Laws of Australia at para 185- 545 states the principle as follows, “If the right of contribution is modified or
”
excluded by contract, the terms of the contract will govern the question. The right of contribution may be varied or extinguished … by a contract between
the potential contributors”;
b. Ms Morgan (through Georgia Morgan Designs Australia) essentially enjoyed
the whole benefit of the guarantee to the exclusion of her co-sureties.
O’Donovan and Phillips suggests that it may be inequitable to require a surety
Another basis upon which contribution might be excluded is because in another capacity to the exclusion of the co-surety”. However, it might be considered in the present case, that as Mr Dalla Rosa’s company (Joka Textiles) had a contractual arrangement whereby it received consultancy fees from Georgia Morgan Design Australia and, although Georgia Morgan was the sole director and shareholder of the company, Mr Dalla Rosa was a potential investor or shareholder. In my view, there is a stronger basis on the evidence for the conclusion that, essentially, it was Ms Morgan (through her company) who was to derive the benefit of the guarantees offered by the three sureties.
c. Friend v. Booker
Wales Court of Appeal, which had determined that an allegation of unjust
enrichment supplied sufficient foundation for the application of the equitable
doctrine of contribution in favour of the respondent to the appeal. In any
event, there would be little basis, in the present case, for suggesting that
Ms Morgan should succeed on her claim, on the ground that otherwiseIn , the High Court rejected the approach of the New South founded on principles of equity and natural justice and a similar result would seem to inevitably follow from an application of those principles.
76. In the circumstances, the claim by Ms Morgan for contribution against Mr Dalla Rosa must fail, and it would seem inevitable that a similar conclusion would be reached in relation to the claim against Ms Martin, although this was not part of the present
hearing.
Ms Morgan’s counterclaim
77. In her counterclaim, Ms Morgan makes a number of allegations concerning the conduct of Mr Dalla Rosa which she asserts entitled her to:
(a) claim damages from Mr Dalla Rosa and Joka Textiles; (b) set off the damages against the claims made by Mr Dalla Rosa and Joka Textiles; (c) set aside the consultancy agreement and the Deed of Indemnity and Agreement; and (d) other relief. 78. The conduct of Mr Dalla Rosa relied upon by Ms Morgan included:
(a)
Statements which induced Ms Morgan to incorporate Georgia Morgan Designs Australia and to move to Melbourne.
(e) financial state of Georgia Morgan Design Australia in breach of the fiduciary
duty and duty of care owed by Mr Dalla Rosa.
It is unnecessary to examine the statements in any detail. No relief of any
significance would appear to flow from the actions alleged. The statements
relied upon would seem to have occurred before the move to Melbourne in
mid-2004 and the incorporation of the company in November 2004. No
losses or other consequences follow from this induced behaviour.
(b) Statements which induced Georgia Morgan’s company PTY Investments Pty Ltd to enter into a lease of the shop at the Rendezvous Resort at Cable Beach and for Georgia Morgan to guarantee the company’s obligations under the lease. This matter will be considered in more detail below.
(c) The circumstances of the personal relationship between Mr Dalla Rosa and Ms Morgan, which meant that Ms Morgan was “emotionally dependent on Dalla Rosa, trusted him and he dominated her will”, and as a consequence thereof, and the fact that Ms Morgan “received no legal or independent advice on whether to execute the consultancy agreement” made it appropriate that “the consultancy agreement should be set aside and all monies paid
thereunder refunded” to Georgia Morgan Designs Australia.
This is a claim by the company which does did not proceed following the
company’s liquidation. Insofar as the matters raised impact upon the
personal liability of Ms Morgan, they have been dealt with elsewhere in these
reasons for judgment.(d) Mr Dalla Rosa’s failure, in breach of the consultancy agreement, to run Georgia Morgan Designs Australia competently. These are matters raised to justify the determination of the services of Joka Textiles on 4 October 2006 and to entitle Ms Morgan to set off any damages to which she would be entitled against any liability she may have under the
consultancy agreement. As I have concluded that Ms Morgan does not have any personal liability to Joka Textiles pursuant to the consultancy agreement, no relevant issues remain for determination.
The failure to provide Georgia Morgan with accurate information about the statements made by Mr Dalla Rosa about the financial position of the company.
(f)
The circumstances in which the Deed of Indemnity and Agreement were executed.
These matters were raised to justify the setting aside of the deed and have
been dealt with elsewhere in these reasons for judgment.(g)
The conduct of Mr Dalla Rosa in providing advice relating to, and managing the business affairs of, Georgia Morgan Designs Australia including specifically:
(i)
assurances given that the company “was in a satisfactory financial position or would in the future be a successful business”;
(ii)
statements that Ms Morgan could rely upon Mr Dalla Rosa’s judgment as “he was a successful and experienced businessman” and “was knowledgeable or experienced in relation to” the business affairs of the company.
This matter is dealt with in more detail below.
(h)
Refund of $1,200 rent paid by Ms Morgan to Mr Dalla Rosa in respect of his apartment at the Rendezvous Resort.
The basis for the claim appears to be a failure of consideration because no
concluded agreement was reached as “there was no intention to create legal
relations” and the fact that accommodation was shared with other persons.
There is no substance to this counterclaim.
Statements by Mr Dalla Rosa as to the likely success of the business
79. The statements relied upon were essentially to the effect that a jewellery shop at the resort “would be successful” and “would do quite well”. The statements were as to future matters and ordinarily Mr Dalla Rosa would have the onus of establishing that he had reasonable grounds for making the statements. It is important however to examine the statements in their factual context including the following matters:
(a)
Ms Morgan’s jewellery designs were generally expensive, luxury items priced at thousands of dollars per item;
(b)
Ms Morgan was concerned that her business project an appropriate image of her jewellery as unique, luxury items;
(c)
after she left Broome and moved to Melbourne, Ms Morgan relentlessly pursued the objective of re-establishing her business in accordance with her vision;
(d)
Ms Morgan’s business was established after preparations over a lengthy period with a substantial capital investment and little apparent regard for the significant indebtedness the business was incurring;
(e) initially from Mr Dalla Rosa. I accept his evidence that there was some level
it is likely that the suggestion for establishing a shop at the resort came reasons personal to Mr Dalla Rosa, it would be convenient for Ms Morgan’s business to be located at the resort;
(f) the decision to establish the shop at the resort was one made for many reasons. The option of a shop in central Melbourne had been explored. Ms Morgan had experience with a business in Broome. Other alternatives may have been considered but were not the subject of significant evidence; (g) the decision to establish a shop at the resort had a logical basis. The guests at the resort provided a steady, ever-changing pool of potential customers who were holidaying at luxury accommodation. The resort restaurant provided a further source of clientele; (h) little marketing research was undertaken. However, Ms Morgan had about three years experience of selling jewellery in Broome and an awareness of the demographics of the tourist population which would have enabled her to make her own assessment of the business potential of establishing a shop at
the resort;(i) the shop was fitted out to Ms Morgan’s very exacting standards. There was no compromise in making the retail environment as attractive as possible;
(j) the shop achieved a significant level of trade within a relatively short period. The shop opened mid-season (in August) and its operation was disrupted by Mr Dalla Rosa’s dismissal in early October, and by the temporary closure of the shop at the end of the tourist season in November and the circumstances in which it reopened in 2007. It is very difficult to make any definitive
statement as to the factors which affected its lack of success.73. Ms Morgan’s counterclaim based upon the statements relating to the success of the resort shop must fail, essentially because I am not satisfied that:
(a) statements were made by Mr Dalla Rosa in the precise terms alleged; (b)
there was reliance by Ms Morgan upon any statements made by Mr Dalla Rosa as to the likely success of the shop or that she would not have made a decision to proceed with the shop without such statements by Mr Dalla Rosa;
(c)
the failure of the shop was a result of the statements (or that the statements were “a cause” of the failure) as there were other significant factors (such as the unsustainable level of indebtedness of Georgia Morgan Designs Australia)
which led to the failure of the business and losses arising from the entry by Ms
Morgan’s company into the lease of the resort shop;
(d)
the statements were necessarily made in circumstances where Mr Dalla Rosa would owe a duty of care to Ms Morgan.
The statements by Mr Dalla Rosa relating to the likely success of the business based upon his
success and experience as a businessman
74. There is no doubt that Ms Morgan’s business, conducted through the company Georgia Morgan Designs Australia, was not competently managed and that Mr Dalla Rosa must bear significant responsibility for the company’s failure. The company incurred substantial liabilities which would have required almost immediate and an unlikely level of successful sales in order to meet the commitments. The evidence establishes that during the period during which Mr Dalla Rosa was personally involved with Ms Morgan, and later when his business relationship was formalised by the consultancy agreement, that the company Georgia Morgan Designs Australia incurred substantial liabilities.
75. These liabilities arose from the following transactions:
11 October 2005 $400,000 loan from Morgan & Co
$50,000 received from the Estate of Ms Morgan’s father29 November 2005 $250,000 redraw of home loan and payment of proceeds
into the business after sale of Fitzroy apartment1 December 2005 $10,000 from the National Australia Bank bankcard November 2005 $80,000 for the purchase of the first machine 16 December 2005 $33,000 per annum lease of the factory at Notting Hill January 2006 $251,000 for the purchase of the second machine Early 2006 $240,000 for the fit-out of the shop June 2006 $200,000 from the National Australia Bank 14 July 2006 $10,000 loan from Mr Dalla Rosa 21 September 2006 $70,000 from Morgan & Co.
76. From at least March 2004, Mr Dalla Rosa assumed the position of “business adviser” to Ms Morgan. The position was formalised by the consultancy agreement dated 1 November 2005. Mr Dalla Rosa was aware of the reliance Ms Morgan placed upon her father’s advice and assistance until his death. Mr Dalla Rosa assumed a role in her life in circumstances where it was readily apparent she would place similar reliance upon him as she had with her father. Mr Dalla Rosa was substantially older than Ms Morgan. He was an experienced and successful businessman and right from the early days of their relationship he involved himself very heavily in her business affairs.
77. It is very difficult to separate the personal and the business relationship of Ms Morgan and Mr Dalla Rosa. In the relationship between Ms Morgan and her father, the assistance offered by Mr Morgan provided his daughter with the opportunity to produce and sell her jewellery. It was not a “commercial” operation although it gave Ms Morgan the chance to develop her design skills and to gain valuable experience in running a small business.
78. The National Australia Bank assessed the potential of Ms Morgan’s business on the basis of the financial support of the Morgan family and the business acumen of Mr Dalla Rosa. The bank did not consider the potential of the business on its own merits. It does not appear that Mr Dalla Rosa did either. It is likely that the factors which influenced Mr Dalla Rosa’s actions in relation to the business were:
(a) his desire to please Ms Morgan by facilitating her dream to again run a shop selling high class jewellery of her own design; (b) his knowledge that substantial financial resources were available through the Morgan family company, and potentially by way of inheritance; (c) his belief, based on what he was told by Ms Morgan and his own involvement in transporting the items from Perth to Melbourne, that Ms Morgan held an extensive and valuable stock of pearls and jewellery that she could realise if this were required. 79. In the circumstances, it might be understandable that Mr Dalla Rosa did not apply rigorous standards in the business decisions he made with Ms Morgan. The long- term financial viability of Georgia Morgan Designs Australia was perhaps not the most
important consideration in the advice he offered. However, at the time, most of the
steps taken by Mr Dalla Rosa to involve himself in Ms Morgan’s business he was
careful to ensure that his own financial interests were looked after and his own
potential liability was protected. This included:
(a)
receiving a 10 per cent commission for arranging the sale of jewellery on consignment;
(b)
being paid (through Joka Textiles) $10,000 per month plus GST and the reimbursement of expenses for the provision of the services under the consultancy agreement and defining the obligations of the parties in a formal document drawn up by solicitors;
(c)
having a formal lease executed in respect of the shop at the Rendezvous Resort which lease contained a personal guarantee by Ms Morgan of the lessee’s obligations;
(d)
requiring Ms Morgan to execute a formal Deed of Indemnity and Agreement in respect of the money advanced by the bank to her company;
(e)
requiring the payment of a significant rental when in July and August 2006 his apartment at the Cable Beach Resort was used for purposes associated with the opening of the shop.
80. The these circumstances, it is difficult to assert that any standard should be applied to the performance by Mr Dalla Rosa of obligations to advise or assist Ms Morgan in the business affairs of the company, other than one appropriate to a person of his
should be made for the fact that Mr Dalla Rosa was in a personal relationship with Ms
business experience assuming those responsibilities. Specifically, little allowance in which Mr Dalla Rosa was involved included:
(a)
the establishment of the company Georgia Morgan Designs Australia as the structure to conduct the business and of PTY Investments Pty Ltd to invest in property and ultimately to hold the lease of the shop premises;
(b)
the engagement of professional advisors and the provision of a banking contact;
(c)
obtaining the business premises at Notting Hill from which he conducted part of his own business affairs;
(d) the placement of jewellery items for sale on consignment; (e) investigation of the possibility of a retail outlet in central Melbourne; (f)
the lease of expensive equipment to assist in the manufacture of the jewellery;
(g) the lease of the retail shop at the Rendezvous Resort at Cable Beach; (h)
the sale of Ms Morgan’s Fitzroy apartment and the investment (at Mr Dalla Rosa’s suggestion) of the proceeds in the business;
(i) the design and fit-out of the shop at the Cable Beach Resort; (j)
the employment of staff for the business including a person with whom he had recently conducted an intimate relationship;
(k)
submission to the bank of material including inadequately prepared financial projections;
(l)
for a period of at least 10 months, acting as the general manager of Georgia Morgan Designs Australia;
(m) participating in the opening and running of the resort shop. 81. The decisions that related to Ms Morgan’s business were ultimately, however, made by her. In relation to the period prior to the execution of the consultancy agreement in November 2005, Ms Morgan relies in her counterclaim upon the circumstances of her relationship with Mr Dalla Rosa as creating an obligation on his part for giving advice without negligence or otherwise acting so that his conduct was not misleading or deceptive. After November 2005, the consultancy agreement imposed obligations upon Joka Textiles, both contractual and otherwise, by the assumption of the responsibilities under the agreement. Ms Morgan specifically referred to statements by Mr Dalla Rosa that Georgia Morgan Designs Australia “was in a satisfactory financial position or would in the future be a successful business” which she alleges she relied upon in advancing money to her company from the proceeds of the sale of Moor Street, Fitzroy (in November 2005), from her borrowings from Morgan & Co. (in October 2005 and September 2006) and from the National Australia Bank in June 2006.
82. It is difficult from the pleading to appreciate precisely what statements or other conduct by Mr Dalla Rosa that Ms Morgan relied upon and how she did so. The following appear to be the relevant factors to take account of:
(a)
Ms Morgan had the experience of her earlier business from which she would have understood the costs associated with producing and selling jewellery, the marketing possibilities for her jewellery included the prices the items would command. She was also aware that her father had provided financial support and the supply of pearl shell which had ensured that she could continue with the business although it was not economically viable.
(b)
Ms Morgan knew she had received a limited income from the sale of jewellery after the Broome shop was closed. She said in evidence that this amounted to about $8,000 per month from the sales on consignment for a number of months in 2004. She knew that she would receive no further income until the shop opened at the Cable Beach Resort and that sales from the shop would depend upon the seasonal trade.
(c) that she needed to wait until the resort development reached a sufficient
The date for the opening of the shop was beyond her control, in the sense about 11 August 2006. A significant part of the tourist season was therefore missed. The evidence does not however permit a definitive conclusion as to what might reasonably have been anticipated when the lease was executed in about February 2006. It is unlikely that one, two or three additional months of trade prior to 11 August 2006 would have significantly affected the viability of the business.
(d)
Ms Morgan was fully involved in all decisions to put further money into the business and to incur liabilities for the rental of premises and the acquisition of equipment.
(e)
Whilst it is undoubtedly the case that Ms Morgan and Mr Dalla Rosa would have discussed the financial position and potential of Georgia Morgan Designs Australia from time to time, it is difficult to reach positive conclusions about any specific conversations. The evidence of Mr Dalla Rosa was so unreliable, and the evidence of Ms Morgan so imprecise, to permit any such findings. There were some documents prepared by Mr Dalla Rosa (specifically financial projections in mid-2006). However, these documents were apparently prepared to persuade the bank to advance further funds and it is not possible for me to be satisfied that Ms Morgan relied upon those documents in a way which might have misled her about the general financial position of the business.
(f)
Ms Morgan continually appeared to have regarded the financial position of the company as of little significance because:
(i)
she had a stock of pearl shell and made-up jewellery which would enable her to meet financial demands;
(ii)
the money advanced by the Morgan family company was likely to be off-set by her inheritance entitlements;
(iii)
there was the possibility that Mr Dalla Rosa would take a share in the business to off-set any entitlements he or Joka Textiles may have, or to allow a further injection of funds.
(g)
These matters also appeared to be the “solutions” considered by Mr Addison (the Morgan family company’s chairman and former accountant) when he was consulted by Ms Morgan in September 2006.
83. In these circumstances, I am not satisfied that Ms Morgan has established any the part of Mr Dalla Rosa, have not been made out with sufficient specificity. I am not satisfied that, in the relevant sense, Ms Morgan relied upon any such information imparted by Mr Dalla Rosa in the decisions she made. By October 2006, the company had significant debts and liabilities. Ms Morgan claims as her loss and damage (and as the basis of her set-off against the claims made against her):
(a) the sum of $30,000 she was obliged as guarantor to pay the lessor of the resort shop when the company PTY Investments Pty Ltd defaulted under the lease; (b) the sum of $160,000 she was obliged as guarantor to pay the National Australia Bank to settle the claim in respect of the company’s indebtedness; (c) her loans from Morgan & Company of $520,000 plus interest; (d) the value her shareholding in Georgia Morgan Designs Australia “would have been if the business had been managed properly”. 84. If I were otherwise satisfied that Mr Dalla Rosa was liable to Ms Morgan, it is likely that there would be losses that were directly referrable to the conduct of Mr Dalla Rosa and which could be quantified. I consider that I am unable to reach the point of assessing Ms Morgan’s loss and damage because I cannot be satisfied that she has established a basis for liability, or other contribution, from Mr Dalla Rosa.
Conclusion and orders
83. In the circumstances, the appropriate orders in each action would seem to be as No. CI-08-04390
a. On the claim, judgment for the second defendant. b. On the counterclaim, judgment for the plaintiffs. No. CI-09-03680
a. On the claim, judgment for the plaintiff against the second defendant for $122,594.51 b. on the counterclaim, judgment for the plaintiff. 84. I will hear further submissions from the parties before making final orders.
Certificate
I certify that these 34 pages are a true copy of the reasons for decision of His Honour
Judge Anderson delivered on 18 March 2010.
Dated: 18 March 2010.
Caroline Dawes
Associate to His Honour Judge Anderson
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