Katelis v Adalia Pty Ltd
[2002] VSC 497
•20 November 2002
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 7121 of 1998
| DIMITRIOS KATELIS and LEMONIA KATELIS | Plaintiff |
| v | |
| ADALIA PTY LTD (ACN 050 237 888) | |
| JOHN MATSAKAS and ANNA MATSAKAS | Defendant |
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JUDGE: | NETTLE J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 15, 16, 17, 18, 28, 29, 30 and 31 October, 2002 | |
DATE OF JUDGMENT: | 20 November 2002 | |
CASE MAY BE CITED AS: | KATELIS v ADALIA PTY LTD | |
MEDIUM NEUTRAL CITATION: | [2002] VSC 497 | |
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Contract – constructions of contract – primacy to be accorded to manuscript amendment of typed deed – reasonable business construction.
Contract – waiver – effect of waiver of stipulation as to time.
Account stated – whether presentation of an account amounted to account stated.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr J. P. Brett | Rudstein Kron Lawyers |
| For the Defendants | Mr. R. E. Cook | A. Agrotis & Associates |
TABLE [L1]OF CONTENTS
The facts............................................................................................................................................... 1
Questions for decision..................................................................................................................... 14
Authority to sell................................................................................................................................ 14
Loss suffered by the Katelis’.......................................................................................................... 19
Moneys claimed by the Matsakas’................................................................................................ 23
The National Australia Bank payments.................................................................................. 23
Ray White and Talk Finance payments.................................................................................... 25
Kyriacou & Kyriacou.................................................................................................................. 26
John Mingos payments............................................................................................................... 27
Shatin & Bernstein payments................................................................................................... 28
Agrotis payment.......................................................................................................................... 29
Rennick & Gaynor payment of $5,800...................................................................................... 30
Theo Petropoulos payment:...................................................................................................... 31
Australian Securities Commission payment:......................................................................... 32
Summary of counterclaim.......................................................................................................... 32
Conclusion......................................................................................................................................... 32
HIS HONOUR:
Up until December 1991 Dimitrios and Lemonia Katelis were the registered proprietors of their home at 39 Murray Road, Ormond and also of a pizza shop and coffee lounge at 301 Clayton Road, Clayton, which was their business and their livelihood. Henceforth, I shall call those properties the Ormond property and the Clayton property, respectively.
John and Anna Matsakas, whom I shall call the Matsakas’, became involved with the Katelis’ in 1991 when they attempted to help the Katelis’ out of grave financial difficulties which the Katelis’ were then facing.
This proceeding stems from the sale of the Clayton property by the Matsakas’ in 1996. The Katelis’ claim that the sale was unauthorised and in breach of trust and that it was made at an undervalue. They seek damages or equitable compensation in an amount of approximately $60,000, and associated relief. The Matsakas’ say that the sale was authorised, and that it was made at the best price reasonably obtainable in the circumstances and, moreover, they counterclaim that the Katelis’ are indebted to the Matsakas’ in a sum of approximately $67,000 for moneys which the Matsakas’ say that they have spent on behalf of the Katelis’.
That description of the matter does nothing to describe the emotional intensity of the dispute. But I can perhaps convey something of the depth of feelings at stake by recording that while, in round terms, there is only about $100,000 to $120,000 between the parties, and despite a number of suggestions that a proceeding over that sort of money should undoubtedly be settled, the Katelis’ and the Matsakas’ continued to conduct the trial of the proceeding before me, for eight sitting days, until its conclusion.
The facts
For some time prior to 1991 both properties were subject to registered mortgages in favour of PICOL Credit Co Operative Limited and Peter Lewis, a principal of PICOL, and the Katelis’ were in default of their obligations to PICOL and Lewis, and were being pressed for payment.
Difficulties arose in 1991 when PICOL and Lewis served notices of demand and ultimately had the Sheriff seize possession of the properties in readiness for a sale of the properties as mortgagees in possession. The Katelis’ were put out of their home and out of their business. They were destitute.
The Katelis’ daughter was engaged to be married and the family of her fiancee were good friends of the Matsakas’. Unlike the Katelis’, the Matsakas’ had been successful in business and they were relatively well to do. They were, however, sympathetic to the plight of the Katelis’ and they were keen to help them out of their predicament. They suggested an arrangement whereby the Matsakas’ would borrow sufficient moneys by way of personal loan to fund the deposit for the purchase of the properties at the mortgagee auction and lend that money to the Katelis’.
In accordance with that plan, John Matsakas borrowed $40,000 by way of personal loan from the National Australia Bank and contributed a further $5,000 of his own moneys, and he put all of that amount towards the deposit and associated expenses. But the plan failed. The Katelis’ were unable to obtain finance for the balance of the purchase price, which they had originally estimated at around $260,000, but which proved to be in the order of $400,000, and the contracts of sale were rescinded by the mortgagee and the deposit was forfeited.
Undeterred, however, a new arrangement was conceived whereby the Matsakas’ would use their good credit standing and the security of some of their own property, to borrow all of the funds necessary to buy the properties from the mortgagee and hold the properties on trust for sufficient time for the Katelis’ to get back on their financial feet. The essence of the plan was that the Matsakas’ should borrow the funds using the Ormond and Clayton properties as security and also their own home at 1 Churchill Avenue, Chadstone as further security, and a shelf company controlled by the Matsakas, Adalia Pty Ltd, would use those moneys to buy the Ormond and Clayton properties from the mortgagees. Thereafter, Adalia Pty Ltd would hold the Ormond and Clayton properties on trust for a time for the Katelis’ and, during that period of time, the Katelis’ were to service the borrowings and to endeavour to repay them. If, however, the Katelis’ were unable after a time to discharge or take over the borrowings on their own, the properties would vest in Adalia Pty Ltd beneficially.
The arrangement was reduced to writing in the form of a deed which was drawn up by the solicitors acting for both parties, Kyriacou & Kyriacou, and executed on 18 November 1991. It recited that the Katelis’ had been in default of their obligations to PICOL and Lewis, and that the Matsakas’ and Adalia Pty Ltd had agreed to buy the properties from PICOL and Lewis as mortgagee and then hold the properties on trust for the Katelis’, on the following terms and conditions:
“(a)Upon the discharge of a mortgage and all monies advanced to Dimitrios Katelis and Lemonia Katelis required to complete the purchase of 301 Clayton Road, Clayton and 39 Murray Road Ormond.
(b)The said Dimitrios Katelis and Lemonia Katelis shall and during the term of this Agreement have possession of both 301 Clayton road, Clayton and 39 Murray Road Ormond, and shall be responsible for the interest payable under the mortgages advanced to ADALIA PTY LTD.
(c)The amount required to discharge the mortgages to the said mortgagors is approximately $365,000.00.
(d)That in order to raise the funds required to discharge the said mortgages the Directors of ADALIA PTY LTD have paid the sum of $350,000.000 plus Stamp Duties and costs, by using additional securities namely at 1 Churchill Avenue Chadstone.
(e)In the event of the said Dimitrios Katelis and Lemonia Katelis not being able to discharge their obligations under this Agreement during
the term herein created[1] 12 months from the date hereof then the properties now held on trust for them shall be reverted (sic) to the Trustee absolutely.(f)The said Dimitrios Katelis and Lemonia Katelis shall have the right to discharge the amount advanced to them by Adalia Pty Ltd at any time during the term created herein[2]. (Emphasis added)
(g)That upon the principal and interest being discharged ADALIA PTY LTD and its Directors and guarantors shall immediately resign as Directors of ADALIA PTY LTD as this Trust shall be at an end.”
[1]These words, although part of the deed as drawn, were struck out in the executed draft and replaced in hand with the words “12 months from the date hereof ”, which follow.
[2]It is common ground that, by reason of the change which was made in hand to paragraph (e), the italicised words should be read as meaning: the period of 12 months from the date hereof.
By deed dated 19 November 1991, also drawn by the solicitors Kyriacou & Kyriacou, Adalia Pty Ltd was constituted as the trustee of the Katelis Discretionary Trust, of which the primary beneficiaries were the Katelis’ and the Guardian and the Appointor was John Matsakas. But that trust seems never to have taken effect. It may have been the intention of the solicitors that Adalia Pty Ltd hold the properties in accordance with the terms of that deed, but both parties say that that was never done and that the deed is to be ignored.
In accordance with the agreement, Adalia Pty Ltd borrowed $365,000 from Rengay Nominees Pty Ltd[3], on an interest only basis repayable on 1 September 1994, and secured as follows:
(i)the sum of $91,000 was secured against the Ormond property and by guarantee of the Matsakas’;
(ii)the sum of $170,000 was secured against the Clayton property and by guarantee of the Matsakas’;
(iii)the sum of $104,000 was secured against the Matsakas’ Chadstone property and by guarantee of the Matsakas’.
[3]A mortgage register company associated with Rennick & Gaynor.
The net advance after costs and disbursements was $341,606.57, to which the Katelis’ added $10,000 which they had managed to raise with the help of family and friends, and to which Mr Matsakas added a further amount of $18,000 of his own moneys. That made for a total payable to PICOL and Lewis of $362,500 and a further $7,000 of fees payable to Kyriacou & Kyriacou.
Following completion of the purchase, the Katelis’ had the use and occupation of the Ormond property and the Clayton property in accordance with the agreement and, for the duration of the terms of the mortgages to Rengay Nominees, the Katelis’ paid most of the interest payments due under the mortgages: to begin with by making payments into the bank account of Adalia Pty Ltd, from which moneys were drawn to make payments to Rengay Nominees when due, and later, after about the first year, by making payments directly to Rengay. The Katelis’ also paid most of the rates and outgoings on the Clayton property and the Ormond property. But the Katelis’ did not repay the mortgage debt due to Rengay Nominees either within 12 months of the date of the agreement or at all.
The Deed is not well drawn, not least for the reason that it contains operative provisions in the form of recitals and a number of provisions which are apparently inconsistent with each other. As has been seen, one of the provisions was also amended in hand before execution of the Deed and that amendment appears to be inconsistent with other typed provisions of the Deed. On one possible construction of the Deed, upon the Katelis’ failing within 12 months to pay off or take over the mortgage debt, the properties were to vest in Adalia Pty Ltd beneficially. On another possible construction, the Katelis’ were to have until the expiration of the Rengay facility to repay or take over the facility. A third possibility, suggested on behalf of the Katelis’, is that the trust should continue indefinitely, provided that the Katelis’ demonstrated within the first 12 months that they were able to service the borrowings (meaning thereby, meet the interest only obligations).
As it happened, the Katelis’ were not able to pay off or take over the Rengay and National Australia Bank obligations within 12 months and the Matsakas’ did not object to the Katelis’ continuing in occupation of the Ormond and Clayton properties, or seek to vest the properties in Adalia Pty Ltd beneficially. The reason, as Mr Matsakas said in evidence, was that although he considered that he was entitled to take the properties at the end of the 12 month period, he could see that the Katelis’ were short of money and he was prepared to help them for a further period to re-establish themselves. Matters thus continued until close to the time when the Rengay loan became due for repayment towards the end of 1994.
By and large the Katelis’ were conscientious in making mortgage interest payments during the remainder of the term of the Rengay facility. But they were not always on time. During 1994, the Katelis missed the due date for payment of at least one and possibly more than one interest payment to Rengay, with the result that penalty interest in a significant amount was imposed. Rengay also issued notice of default and notice to pay and, although the Katelis’ were supposed to have taken over responsibility for the National Australia Bank loan, they were more than once sufficiently behind in making payments that Mr Matsakas was caused some financial embarrassment with his bank.
More significantly, however, even by the end of the three year term of the Rengay facility, the Katelis’ were little better placed to repay the Rengay or National Australia Bank facilities, or to get by without the support of the security provided by the Matsakas, than they had been at the beginning of the term. Additionally, although it seems that Rengay may have been prepared to extend the Rengay facility for a further term, it was only prepared to do so on terms that were stricter than before. In the lead up to a possible roll-over of the facility for a further term, Rengay said that they had had the Clayton property revalued in the amount of $200.000, thus permitting for a mortgage advance of only $130,000 as against the outstanding advance of $170,000, and required a reduction of the loan balance of $40,000 or the provision of further security. Given the impecuniosity of the Katelis’, neither of those courses was practicable.
But yet again Mr Matsakas was prepared to provide assistance. He sought out other possible sources of finance and obtained an introduction through one of his more distant relatives to George Tandos, also a distant relative and an estate agent associated with Doherty’s, who had access to finance from the Bank of South Australia Ltd[4] at more acceptable rates. In the interim, Mr Matsakas arranged for the Rengay facility to be rolled over once on a short term basis until December 1994, and then for a second short term to March 1995, on condition of payment of penalty interest in respect of the period from December 1994 to March 1995.
[4]At various times relevant to the proceeding, known also as Advance Bank and St George bank.
Unfortunately, while all that was occurring the Katelis’ managed to miss the due date for payment of an interest payment due to Rengay; thus incurring a further interest penalty. That meant a double instalment of $5,800 had to be paid in December 1994 and one of the disputes in the proceeding is as to whether it was in fact paid by the Katelis’ or by Mr Matsakas’.
In order to improve the chances of obtaining the re-financing, George Tandos recommended that leases be entered into between Adalia Pty Ltd and the Katelis’ for the ground and first floors of the Clayton property. The rent payable was to be the amount of the interest payments which the Katelis’ were paying to Rengay. That was done and had the effect of providing for an effective rate of return to the lessor of in the order of 13% on the assumed value of the property. But the result of that was not as good as might at first appear. The valuer who valued the properties for mortgage purposes on behalf of the Bank of South Australia Ltd reduced the amount for rent allowed in his calculations, I infer on the basis that the mortgagee could not realistically expect to obtain rent in those amounts if the need to re-let arose. The value at which he arrived was $320,000, and it was on that basis that the Bank of South Australia Ltd agreed to the re-financing.
In the result, in or about May 1995 Adalia Pty Ltd obtained from the Bank South of Australia Ltd a loan of $391,000 on the security of first registered mortgages over the Ormond, Clayton and Chadstone properties, and guarantees by both the Katelis’ and the Matsakas,’ and various fixed and floating securities over the undertaking of Adalia Pty Ltd. Of that amount Adalia Pty Ltd used $375,901.44 to repay Rengay Nominees and the remaining $10,173.06 as part repayment of the moneys owing by the Katelis’ to the Matsakas’.
Some two months after the re-financing had been put in place, Mr John Matsakas told the Katelis’ that he wanted to bring the arrangement to an end. His son was to marry shortly, or at least was contemplating marriage, and for that reason and in any event he wanted the title to his Chadstone home cleared of the mortgage which secured the Katelis’ borrowings. Mr Matsakas’ gave evidence that he spoke to Mrs Katelis about it, and I accept his evidence. He told her that he wanted the Clayton property sold in order to discharge the mortgage over his Chadstone property. She replied that she would be willing to have the Clayton property sold, because she was tired of the work which it entailed but, I think, only if the amount reached upon sale were sufficient to clear all amounts owing in respect of the Clayton property and each of the other properties.
Either as a result of that conversation or in anticipation of it, Mr Matsakas consulted George Tandos about the possibility of sale. Tandos’ firm, E.J. Doherty (Northcote) Pty Ltd, valued the property at $320,000, although they did not undertake a formal valuation, and recommended that it be sold by auction to be preceded by an intensive marketing campaign and some repairs to cracks and paint work. On 5 February 1996, Adalia Pty Ltd executed an authority for Doherty’s to auction the property at a reserve price of $350,000 with a marketing allocation of $5,000.
Mr Matsakas told the Katelis’ of what was proposed and it is not disputed that they agreed that the property might be put up for sale at a price of $350,000. But there is a dispute as to what if anything they had to say about the possibility of sale by auction. According to Mr Matsakas and to Mr Tandos, Tandos strongly recommended that the property be sold by auction in order to achieve the best price possible, but the Katelis’ were so much opposed to the idea of another auction and to an advertising board being placed outside the property, that it was necessary to proceed by way of private sale without the use of a board. On the other hand, the Katelis’ say that they were never advised that the property should be sold by auction and that they would not have objected to an auction if one had been recommended or to the erection of an advertising board. Their evidence was that they did exactly as Tandos advised.
It is difficult to be clear about all that happened and the order in which it happened. The passage of time and the lack of documentary records give rise to doubt about a number of events and the sequence in which they occurred. But I accept the evidence of Mr Tandos and Mr Matsakas that Tandos did recommend sale by auction with an intensive marketing campaign, for that evidence is corroborated by the existence of the authority to auction, and I accept the evidence of Mr Matsakas that he was prevailed upon by the Katelis’ not to sell by auction, or to have an advertising board placed outside the property, because that evidence is corroborated by evidence given by Mr Tandos. Mr Tandos swore that Mr Katelis telephoned Doherty’s at the time and demanded that an advertising board which had been placed outside the property be removed forthwith.
Counsel for the Katelis’ criticised Mr Tandos’ evidence on the point. It was said that Tandos had an interest to protect, which I take to be a suggestion that he felt himself to be exposed in failing to insist upon a sale by auction, and that it was remarkable that there was no documentary evidence in the Doherty’s file of any advertising board having been ordered or installed, or of the telephone conversation in which Mr Katelis’ is said to have asked for the board to be removed. It was also pointed out that information which Mr Tandos had provided to the solicitors for the Katelis’ in advance of the trial made no mention of any resistance by the Katelis’ to a sale by auction or any insistence on their part upon the removal of the advertising board.
These criticisms are substantial. They do create some doubt about exactly what occurred. But in the end there is little reason to doubt that Mr Tandos recommended sale by auction, and there is every reason to conclude that Mr Matsakas ‘ would have wanted the property sold as soon as possible (and hence by auction), in order to have the mortgage cleared from his Chadstone property. A suggestion that he sought to avoid the advertising costs of auction, makes little sense. He was bound to get those costs back out of the auction proceeds. Mr Katelis’ evidence was so vague and his recollection was so poor that I do not place any store upon it. And there are a number of reasons why there could be documents missing from the file, including the time which has elapsed since the events in issue, the fact that responsibility for the sale was divided between the Northcote and city offices of Doherty’s and the fact that the Doherty’s city office is no longer part of the Doherty’s organisation.
I find that the Katelis’ knew that the property was to be offered for sale by Doherty’s at a price of $350,000; that they were advised that it would be desirable to sell by auction; that they rejected that advice in favour of a sale by private treaty; and that they were agreeable to the property being sold by private treaty, at a price of not less than $350,000. They did not, however, agree to the property being sold at a price of less than $350,000.
Mr Tandos arranged for the multiple listing of the property through a number of Doherty’s offices, and also through the Spencer Street city office which specialised in commercial properties, and he advertised the property on a number of occasions over a period of months in the commercial property section of the Age. He also received a number of enquires and conducted a few interested persons through inspections of the property. But despite those initial enquires, the property did not attract any worthwhile offers. It seems that it was not particularly attractive as an investment property for a number of reasons. It was not prime real estate, because it was situated on the fringe area of a suburban strip shopping centre. The tenants were not regarded as particularly satisfactory, because pizza shops and Greek coffee lounges are not favoured by investors. And the rents payable under the leases were suspect inasmuch as they were above what could realistically be expected on an arms length basis.
Over the following months Mr Tandos continued to advertise the property in the Doherty’s column in the commercial property section of the Age, but with little success. After nine months of such exposure and the publication of some 30 advertisements, only two genuine offers had been received: one at $260,000 and the other at $280,000.
Mr Tandos tried to talk up the offerors, but the best that he could achieve was an increase in the $280,000 offer to an amount of $290,000. Therefore, he said in his evidence, despite his initial assessment of the value of the property at $320,000, he came ultimately to the view that $290,000 was really about the fair price of the property.
Mr Matsakas knew or at least believed that the Katelis’ would not agree to the sale of the Clayton property at a price of $290,000, and he feared that if they found out that he intended to sell at that price they would take steps to stop him. But he was by that stage keen that the property be sold. The point was long past when he had asked for his Chadstone property to be cleared of mortgage, and what had started as short term assistance to the Katelis’ had become a seemingly indefinite commitment. Effectively, there was no end in sight unless the Clayton property were sold. Hence, Mr Matsakas determined to accept the $290,000 offer without informing the Katelis’.
The Katelis’ found out about the sale on the day of completion. They sought immediately to stop the settlement occurring. They attempted to have a caveat lodged on title to prevent the transfer to the purchaser. But it was by then too late for the caveat to be effective. Completion of the sale proceeded at the price of $290,000, realising net proceeds of $277,941.00. Most of that was paid to the Bank of South Australia Ltd to discharge the mortgage over the Chadstone property. The balance of $10,173 was applied by Mr Matsakas in part-payment of other amounts which Mr Matsakas’ calculated he had spent on behalf of the Katelis’ but had not had refunded.
The Katelis’ were disappointed about the price for which the Clayton property was sold and about what they perceived to be the clandestine way in which it had been sold. They recognised the generosity of Mr Matsakas in providing the security of his home and his credit to help them out of their financial predicament. But they thought that he had sold them out cheaply. I am not sure, however, that their disappointment was always as great as they now claim, or that they would necessarily have done anything about their disappointment if Mr Matsakas had not sought later to recover from them further moneys which he claims to have spent on their behalf. The chronology of events, particularly the fact that the Katelis’ did not make any claim for compensation in respect of the sale until this proceeding had been on foot for three years, suggests to me that the claim for compensation may have more to do with resistance to Mr Matsakas’ claim for payment than with disappointment about the price achieved on sale.
Within a few weeks of completion of the sale of the Clayton property, Mr Matsakas presented the Katelis’ with a bill for a further $67,000 for moneys which he claimed to have spent on their behalf and for which he had not been repaid. In effect, it was that which started the chain of events, lasting some two years, that led finally to this proceeding.
The form of the bill is contentious. It is no longer in existence, and different witnesses had differing recollections of what it looked like. But it is clear that Mr Matsakas did present the Katelis’ with some form of account and that there was some discussion about its contents. According to the Matsakas’ recollection of events, the Katelis’ undertook to pay the amount of the account if the Matsakas’ would first hand back the certificate of title to the Ormond property, so that Katelis’ could raise finance upon it. According to the Katelis’ recollection of events, they disputed the account and disputed that there was any amount which was payable, and they made their position plain.
A good deal of the trial was spent of behalf of the Matsakas’ in endeavouring to establish that the Katelis’ had at least once acknowledged as payable the amount stated in the account. That was done because the Katelis’ have taken a limitations defence to some of the Matsakas’ claim and so the Matsakas’ sought to establish that the limitations period began to run again as a result of an account stated. I suspect that there may have been some acknowledgment, because of some of the subsequent events. But I am not able on the evidence before me to conclude that it was so.
The initial presentation of the account, and whatever initial discussion may have been had about it, was followed on 14 May 1996 with a letter of demand sent by Mr Matsakas’ solicitor to the Katelis’. It demanded payment of the sum of $67,574.78 within 30 days and threatened sale of the Ormond property if payment were not forthcoming. According to the Matsakas’ evidence the letter was answered by the Katelis’ with an oral request for further time to consider the matter (which was granted). According to the Katelis’ evidence, the Katelis’ answered the letter with an oral refusal to pay and they say that they obtained from Mr Matsakas’ an oral acknowledgment that the letter had been sent in error. In the end it may not matter which version is correct, because I consider that neither version is sufficient to establish the existence of an account stated[5]. But in case it matters, I prefer the Matsakas’ account. It seems to me to be most unlikely that Mr Matsakas’ would give up his claim to payment, or say that his solicitor’s letter had been sent in error, for no apparent reason better than a bare denial of liability on the part of the Katelis’.
[5]See Day v William Hill (Park Lane) [1949] 1 KB 632 at 641; cf Lewis v Wilson (1997) 42 NSWLR 228, which is to be doubted, and see also Lewis v Wilson: Account Stated Rears its Ugly Head (1997) 12 JCL 160.
What happened in the ensuing two years is equally problematic. According to the Matsakas’, they were given to believe from time to time that the Katelis’ were getting the money together; but finally got tired of waiting. According to the Katelis’, they thought that the matter had been resolved by the acknowledgment which they say they had extracted from Mr Matsakas that the solicitor’s letter had been sent in error. But again, I prefer the Matsakas’ version. I think that they were waiting for payment and that finally they got tired of waiting after two years had elapsed. On 7 August 1998 Mr Matsakas’ solicitor sent a further letter of demand to the Katelis’. It noted that previous requests for payment had been ignored and it asked that access to the Ormond property be given for the purposes of sale.
Hence, now, the allegations in the proceeding. The Katelis’ contend that the Clayton property was sold without authority at some $60,000 under value, for which loss they are entitled to be compensated. The Matsakas’ say that it was not and there is nothing due on that account. The Matsakas’ say that they have incurred expenses of some $67,000 on behalf of the Katelis’, for which they have not been repaid and which they are now entitled to be compensated. The Katelis’ contend to the contrary that they have paid every thing which is due.
Questions for decision
In view of the facts as I have found them to be above, and the way in which the trial was conducted (after a number of amendments were made to the pleadings in the course of running), the questions which I have to decide are as follows:
(a)whether the Matsakas’ had authority to sell the Clayton property at $290,000 when they did;
(b)if the Matsakas’ did not have authority to sell at $290,000, what, if any, loss has been suffered by the Katelis’ by reason of the sale; and
(c)do the Katelis’ owe the Matsakas’ any amount on account of moneys advanced or paid by the Matsakas’ on behalf of the Katelis’ and not yet repaid or recovered?
Authority to sell
By their further amended statement of claim, the Katelis’ allege that the agreement between them and the Matsakas’ was that Adalia Pty Ltd would continue to hold the properties on trust for the Katelis’ until such time as the Katelis’ were able to repay the facilities in full, or at least able to repay the facilities to such an extent as to procure the release of the Chadstone property from the securities; there being no limit on how long that might take. According to the Matsakas’, the agreement at the outset was that the Katelis’ were to have only 12 months in which to assume responsibility for all obligations and, if they did not, the properties were to vest in the Adalia Pty Ltd beneficially. The Matsakas’ also say that, while they agree that the agreement was subsequently varied, with the result that the properties did not vest in Adalia Pty Ltd beneficially at the end of 12 months, the effect of the variation was that, after the first 12 months, Adalia Pty Ltd held the properties on trust as security for repayment of the facilities and amounts advanced by the Matsakas’ on behalf of the Katelis’, on terms that Adalia Pty Ltd was free to realise the security by sale of the properties at a reasonable price at any time on reasonable notice to the plaintiffs.
In my view, the original agreement was as the Matsakas’ contend. I consider that the correct construction of the Deed is that the Katelis’ had 12 months in which to repay the facilities and, if they did not, that the properties were to vest in Adalia Pty Ltd beneficially. Despite the difficulties inherent in the drafting of the Deed, I see nothing in any of the documents or conversations or surrounding circumstances to which reference has been made to suggest that the Deed should be construed otherwise. The inconsistencies as between the provisions are capable of resolution[6] and should be resolved in favour of the meaning which it is to be supposed that ordinary reasonable business people in the position of the parties would have intended the provisions to bear[7]. Reading the Deed as a whole, and bearing in mind the circumstances in which it came into existence, including especially the fact that the Matsakas’ were acting without reward, there is good reason to give primacy to the handwritten provision[8] and thus to the conclusion that the Katelis’ were intended to discharge the Matsakas’ within the period of 12 months to which it refers.
[6]cf. Narich v Commissioner of Pay Roll Tax (1983) 58 ALJR 30, 83 ATC 4035 at 4043; Suncorp Insurance and Finance v Commissioner of Stamp Duties [1998] 2 Qd R 285, 97 ATC 4826 at 4835.
[7]Cohen & Co v Ockerby & Co Ltd (1917) 24 CLR 288 at 300; Schenker & Co(Aust) Pty Ltd v Maplas Equipment [1990] VR 834 at 840-5; Di Dio Nominees v Brian Mark Real Estate [1992] 2 VR 732 at 741-2; Murray Goulburn Co-Operative Co Ltd v Cobram Laundry Services Pty Ltd (2001) Aust Contract R 90-137 [18].
[8]Robertson v French (1803) 4 East 130, 136; Glynn v Margetson & Co [1893] AC 351 at 358; Ryan v Fergerson (1909) 8 CLR 731 at 735; Indus Realty Pty Ltd v Phillipson [2002] VSC 129 [75].
The suggested variation is more complex because, as pleaded by the Matsakas’, the variation is alleged to have been partly oral and, to that extent, to have been constituted of conversations in 1994 (to the effect that “the mortgage over the Ormond, Clayton and Chadstone properties could be extended for a further three years”). It seems to me, however, that if there were a “variation” (using that term in a loose sense) it must have occurred or at least begun a lot earlier than 1994.
In the period between the end of the first 12 months after the Deed was executed and the expiration of the Rengay facility in 1994, the parties acted towards each other on a basis which was fundamentally inconsistent with the properties having vested in Adalia Pty Ltd beneficially. Adalia Pty Ltd acted as if it continued to hold on trust for the Katelis’, and they continued to service the borrowings as they had done under the agreement as originally constituted. It follows that there must have been some change in the contractual relationship once the first 12 months had passed.
That it is not to say that the agreement was varied as a matter of contract. I think it would take a good deal more than what occurred to create a contractual variation by conduct[9]. Even then there may still be no contractual variation as such, because of a lack of consideration[10]. But, however that may be, the agreement was to some extent altered or affected so as to operate in a manner different to the way in which it had operated before the end of the first 12 months period. And I think that counsel for the Katelis’ was right when he suggested that the nature of that change may properly be characterised as the result of waiver; in the sense which is sometimes also described as estoppel.[11]
[9]see Vroon v Fosters Brewing [1994] VR 70 at 83 per Ormiston J
[10]see Verwayen v The Commonwealth (1990) 170 CLR 394 at 406, per Mason CJ
[11]see Verwayen, ibid at 407; Chitty on Contract 25th Ed at [1500]
Then there is the question of the precise effect of the waiver. Was it, as the Katelis’ contend, that Adalia should continue to hold on trust for the Katelis’ alone for as long as it took them to be able to repay; however long that might take? Or was it, as the Matsakas’ contend, such as to change the nature of the trust, from one for the benefit of the Katelis’ alone, to one by way of security with power of sale capable of being exercised by the Matsakas’ whenever they chose (subject only to reasonable notice)? Or was it of some other effect, not suggested by any of the parties, such as, for example, that if the Katelis’ did not repay the Rengay debt, the time of vesting in Adalia Pty Ltd beneficially was simply postponed from the end of the first 12 months to the end of the Rengay facility.
These possibilities are in turn affected by the events of late 1994, for whatever had happened up to that point was in a sense superseded or at least altered by the re-financing with the Bank of South Australia Ltd. Up until that point it would be difficult to conclude that the arrangement was to last any longer than the Rengay facility. But the fact that the Bank of South Australia Ltd re-financing was put in place opens up the possibility that the arrangement could continue for the life of that facility or at least for a significant part of it.
In my view, the Matsakas’ are correct in their contention that the events surrounding the 1994 re-financing gave rise to a variation of agreement (at least in the loose sense of “variation” which I have used above). But I am not persuaded that the variation altered the agreement to one for a trust by way of security with power of sale, rather than a trust of the kind provided for in the original agreement but with the time for repayment extended (beyond the first 12 months and possibly to the end of the term of the Bank of South Australia Ltd facility).
I reject the Katelis’ analysis of a trust of indefinite duration as improbable. In the way in which I have construed the Deed, at the outset the Katelis’ had only 12 months in which to repay or take over responsibility for the facilities, and by the time it came to re-financing not only the original 12 months but also a further 24 months of indulgence had been allowed to go by. In my opinion, it is not reasonably to be inferred that, by failing to insist upon strict compliance with the Deed as originally drafted, or even by arranging for the Bank of South Australia Ltd re-financing, the Matsakas’ bound themselves to an indefinite and indeterminable obligation to maintain the trust for the Katelis’ so long as the Katelis’ chose.
I also reject the idea that the effect of the Bank of South Australia Ltd re-financing was to extend the trust to the end of the period of the Bank’s facility. While there is some logic in the idea that the extension should last as long as the re‑financing which the Matsakas’ had assisted in obtaining, it is incapable of withstanding the effect of the circumstances in which the re-financing came about. Having regard to those circumstances, I regard as untenable the idea that, by giving assistance in connection with the re-financing, for no personal return to themselves, the Matsakas’ should be taken to have bound themselves to an exposure for a further period of three years, and thus to a total exposure of six years.
I reject too the Matsakas’ analysis because, for the reasons already expressed, I do not consider that there was a contractual variation of the agreement and, in the absence of a contractual variation of the agreement, I am unable to discern how a trust for the benefit of the Katelis’ alone could have changed as fundamentally as is suggested, into a trust by way of security with power of sale. If the correct analysis of what occurred is one of waiver, as I think to be the case, the result was that the Matsakas’ lost the right to contend that the property vested beneficially at the end of the first 12 months, but they retained the right upon giving reasonable notice to insist that it vest beneficially unless the facilities were paid or discharged[12]. That means that until and unless such notice was given, and the property did vest in Adalia Pty Ltd beneficially, there was no power of sale without the consent of the Katelis’.
[12]Hartley v Hymans [1920] 3 KB 475 at 495; Charles Rickards Ltd v Oppenhaim [1950] 1 KB 616 at 623; Chitty on Contract, supra at [1498]
As matters transpired, the Matsakas did not give notice of intention that the property should vest in Adalia Pty Ltd beneficially. The only notice which they gave was of the intention to sell at a price of $350,000; for which they obtained consent. That cannot be treated as the equivalent of notice that the properties would vest in Adalia Pty Ltd beneficially unless the facilities were repaid or discharged within a reasonable time. Nor can it be thought that by consenting to a sale at not less than $350,000 the Katelis’ gave consent to a sale at a lesser price. The Matsakas’ deliberately kept secret their intention to sell at a price of less than $350,000 lest the Katelis’ attempt to arrest the sale. In my opinion, the Matsakas’ did not have power to sell the Clayton property at the price which was obtained.
Perhaps it might be said that there would have been no difference in effect between giving notice of intention that the trust should vest and what in fact occurred. But in point of principle there was a difference. Granted that the Katelis’ were prepared to see the property sold at $350,000, it cannot be gainsaid that if they had known that the property was going to vest in Adalia Pty Ltd beneficially or that the property was to be disposed of for much less than $350,000, they might have sought means to pay out the Matsakas’ without the need for sale. They may have had very little money and they may have had very little chance of raising any more. But they were entitled to have the opportunity to try.
I conclude that the Matsakas’ sale of the Clayton property at the price which was obtained constituted a breach of agreement, and a breach of the trust for which the agreement provided.
Loss suffered by the Katelis’
I turn to the second question of whether the Katelis’ suffered any loss by reason of that breach.
The loss which is claimed to have been suffered by reason of the sale of the property at $290,000 is the difference between the price of $290,000 and what is said to have been the true value of the land, namely, $320,000 for land alone plus the value of chattels on the property, said to have been worth some additional $70,000, which were owned by the Katelis’ but which passed to the purchasers at the time of the sale.
The evidence as to the true value of the land is less than compelling. A number of valuations have been tendered and two valuers have been called. One called by the Katelis’ valued the property on a land alone basis at $320,000 but accepted that such a valuation can only be regarded as accurate to within plus or minus 10% of the valued figure. Another called on behalf of the Matsakas’ regarded as appropriate the methodology employed by the Katelis’ valuer but was of the opinion that such a valuation should not be thought necessarily to be accurate to within a range of any less than plus or minus 20 to 30%. In favour of the Katelis’ is the fact that Doherty’s valued the property at $320,000 (assuming a full marketing campaign). As against the Katelis’, there is some indication of a valuation of $295,000 which was obtained in 1996, although the valuation was not received into evidence as such, and there is the fact that the best offer that could be achieved after nine months of marketing by Doherty’s was only $290,000.
It is said by the Katelis’ that all of the valuation evidence to which I have referred is evidence of the realty alone and that what was sold was not just the realty but also the tenants fittings and equipment, the going concern value of which was said to be in the order of $70,000. These fittings and the equipment were originally owned by the Katelis’ but were described as being owned by Adalia Pty Ltd in the leases which were brought into existence before the re-financing with the Bank of South Australia Ltd. Hence, when the property was sold, it was represented to the purchaser and the purchaser bought the property on the basis that it included the fittings and equipment. The Katelis’ say that those leases were shams, because it was never intended that they take effect in accordance with their terms, and thus the fittings and equipment remained the property of the Katelis’ at the time of the sale by Adalia Pty Ltd. They say that when the Clayton property was sold by Adalia Pty Ltd in 1996, the Katelis’ were not only deprived of the property at an undervalue, but also deprived of the fittings and equipment in effect without compensation.
One answer to that contention may be that, if the leases really were shams, the Katelis’ were entitled to take their fittings and equipment and go. Instead of doing that, they chose to stay and treat the fittings and equipment as having passed to the purchaser of the Clayton property. If that is right, they cannot now blame the Matsakas’ for the consequences of what the Katelis’ chose to do. But the response which was given by counsel on behalf of the Katelis’ was that there was nothing which the Katelis’ could do about the fittings and equipment as against the purchaser. He submitted that by entering into the sham leases and allowing those to be used for the purposes of sale, the Katelis’ were estopped as against the purchaser from claiming back those things.
Much of this complexity may be avoided once it is recalled that the value of $70,000 which was ascribed to the fittings and equipment was calculated on a going concern basis (which is to say, the value of the assets to the business, on the basis of the continuation of their existing use within that continuing business, regardless of whether or not the existing use represents the assets’ highest and best use; the business being in this instance that of a pizza shop and coffee lounge). There is no evidence as to what the fittings and equipment would have fetched on a disposal basis, and there is no claim made for the loss of the disposal value as such. All that is said is that, because the valuation evidence establishes that the value of the land alone was at least as much as the $290,000 for which both the land and fittings and equipment were sold, and because there is evidence that the fittings and equipment alone had a going concern value of $70,000, it should be apparent that the property including the fittings and equipment was sold at a price of up to $70,000 less than its true value.
The evidence that the fittings an equipment had a going concern value of $70,000 was not seriously challenged, and it appeared to me to be credible. I accept that the going concern value was in the order of $70,000. But in my view it does not follow that the price of $ 290,000 was therefore $70,000 less than the true value of the land and fittings and equipment combined, or indeed any amount less than the true value of that combination. For all I know, a purchaser of the land and chattels would not have been prepared to ascribe any additional value to the land for the fact that it came with the fittings and equipment and, to the extent that $290,000 was the best offer obtained after nine months of advertising, there is some evidence to the contrary. None of the expert land valuers who were called was asked or ventured an opinion as to how much the fittings and equipment should be thought to add to the value of the land if sold in combination with the land. And the expert valuer of the fittings and equipment had no expertise in the valuation of land and expressed no opinion on the subject.
Finally, it was said on behalf of the Katelis’ that the weight of the expert evidence was that the best price for the property could most likely not have been achieved unless the property were sold by auction after an intensive marketing campaign, of a kind that was never conducted and that, whatever misgivings I might have about the valuation evidence as such, at least the evidence as to the advantages of an extensive marketing campaign, taken together with the valuation evidence as to the land and the fittings and equipment on a going concern basis, should satisfy me that the price of $290,000 was significantly less than the true value of the land and chattels package.
I accept the possibility that a more extensive marketing campaign and perhaps an auction could have produced a greater price. The weight of expert evidence was that the probability of obtaining the best possible price for the property was likely to have been enhanced if the property had been subjected to an intensive advertising campaign, costing in the order of between $3,000 and $5,000, and sold by auction rather than by private treaty. But despite that possibility, the price which such a campaign would have achieved may have been no greater than $290,000 and perhaps it may have been less. As Mr Tandos said in evidence, after nine months of advertising, it was distinctly possible that a further extensive advertising campaign and auction would not have produced even the $290,000 which the private purchaser was then willing to pay.
Moreover, even if an intensive advertising campaign had brought forth a better price, there is very little in the evidence to support a conclusion that the increase in price would have exceeded the $3,000 to $5,000 costs of the additional campaign. The strong impression I derive from all of the evidence, particularly the evidence as to the plus or minus nature of the valuations which were tendered and the desultory response to nine months of classified advertising, is that the property was never likely to achieve more than about $300,000, no matter how much promotion and marketing. And that is not to say that $10,000 of additional value would have been obtained with additional marketing.
Given the uncertainties of the valuation evidence, and the vicissitudes which the evidence showed to attend the sale of commercial property at the time, I do not think it to have been shown to be more likely than not that additional net value would have been achieved.
In the result, I conclude that it has not been demonstrated that the Katelis’ suffered any loss of the kind which they have claimed they suffered as a result of the sale of the Clayton property.
Moneys claimed by the Matsakas’
That leaves the third question of the moneys claimed by the Matsakas’. The Matsakas’ claim that they made the following payments in connection with the properties on account of the Katelis’ for which they have not yet been refunded:
(a)to National Australia Bank, 12 payments in respect of the personal loan of $40,000, totalling $12,645.36 and one payment of $12,636.42;
(b)to Ray White, three payments totalling $ 45,000 less the personal loan of $40,000 making for a total of $5,000;
(c)to Talk Finance, one payment of $7,000;
(d)to John Mingos, solicitor, two payments totalling $4,233;
(e)to Shatin & Bernstein, solicitors, two payments totalling $6,250;
(f) to A. Agrotis, solicitor, one payment of $2,919.40;
(g)to Rennick & Gaynor, one payment of $5,800;
(h) to Theo Petropoulos, one payment of $1,600; and
(i)to the ASC, three payments totalling $720 by way of lodging fees for the annual returns of Adalia Pty Ltd,
making a total of $46,167.76.
The National Australia Bank payments
The claim made in respect of the payments made to National Australia Bank falls into two parts:
(a)the first, in an amount of $12,645.36, is made up of 11 repayments of $972.72 made by Mr Matsakas to the National Australia Bank between 5 August 1991 and 1 December 1992 and one payment of $1,945.44 (being a double payment);
(b)the second, in an amount of $12,636.42 is the amount of the payment made by Mr Matsakas to discharge the balance of the loan on 17 July 1995 (which is now admitted).
The Katelis’ admit that Mr Matsakas made the 12 payments totalling $12,645.36 but they contend that he did so, as to $11,000, with a cheque dated 12 December 1992 in the amount of $11,000 which was drawn on the account of Adalia Pty Ltd which they had funded.
The butt relating to the cheque is in evidence and shows that the cheque was drawn payable to Rennick & Gaynor, and Mr Matsakas says that it was and was drawn in part payment of the instalment of $13,668,75 due to Rengay on 1 December 1992. But the Katelis’ contend that they had by that date taken over responsibility for paying Rengay directly, and that they paid the instalment of $13,668.75 to Rengay, and hence that the $11,000 cheque must have been in payment of the National Australia Bank facility.
In view of the contents of the cheque butt, I see no reason to doubt Mr Matsakas’ evidence. The remainder of the evidence is uncertain. It depends upon recollections of events that occurred 10 years ago, the Katelis’ are unable to produce a receipt and the testimony is otherwise unaided by any documentary record. There is, moreover, no suggestion that Mr Matsakas helped himself to the $11,000 and that means that it has to have been used for an Adalia Pty Ltd liability. Given that there is not any other Adalia Pty Ltd liability to which logically it might be thought to have gone, I am satisfied it is more likely than not that it went in payment of the Rengay instalment.
I conclude that the Matsakas’ are entitled to be repaid the sums of $12,645.36 and $12,636.42. There is no limitation defence asserted against the recovery of that sum, in the way that there is as against recovery of some of the other amounts the subject of the claim.
Ray White and Talk Finance payments
The claims in respect of Ray White and Talk Finance are as follows:
Ray White
30 June 1991 $ 5,000
10 July 1991 $10,000
4 July 1991 $30,000$45,000
Less Bank Loan $40,000 Balance: $ 5,000
Talk Finance
26 June 1991 $ 7,000 $ 7,000
Total: $12,000
The Katelis’ now admit that all of those payments were made by the Matsakas’, but they say that those payments were made out of the Adalia account (which they funded) with cheque no. 000058 dated 1 March 1993 in the amount of $12,2000. If, however, that is not so, they contend that the claim for repayment is now statute barred.
The cheque butt for cheque no 000058 is in evidence, and shows Rennick & Gaynor as payee, and Mr Matsakas‘ evidence is that it was used to fund the instalment payment of $12,668.75 made to Rengay on 1 March 1993. The Katelis contend to the contrary that it cannot have been used for that purpose because they had by that time taken over responsibility for direct payment to Rengay and they hold the receipt for the $12,668.75.
As with the claim for payments made to National Australia Bank, there is some evidence either way, but just as with that claim I see no sufficient reason to reject the evidence of Mr Matsakas. I find that the $12,200 cheque was drawn to pay Rengay and not Ray White and Talk. I accept that the Katelis’ may now believe that they had by the time of the payment taken over responsibility for direct payment, and I think it likely that, after all this time, they may have been encouraged in that conclusion by the fact that the receipt is in their possession. But I do not regard the custody of the receipt as particularly significant. The evidence shows plainly that, for so long as payments were made out of the Adalia Pty Ltd account to Rengay, the procedure which was used was for Mr Matsakas to draw a cash cheque on the Adalia Pty Ltd account and then give it to George Katelis with which to purchase a bank cheque for delivery to Rennick & Gaynor. Given that it was so, it is readily understandable that George Katelis rather than Mr Matsakas would have the receipt in his possession.
Nevertheless, the limitations defence does appear to be effective. The payments were made to Ray White and Talk Finance more than six years before the institution of the counterclaim and, although it was said on behalf of the Matsakas’ that the limitation period began to run again after an account stated in 1997, I do not consider that the evidence which has been adduced is sufficient to establish that there was an account stated at that time. I will come later to my reasons for that conclusion.
I conclude that the $12,000 of payments made by the Matsakas’ to Ray White and Talk Finance are due to be repaid by the Katelis’ to the Matsakas’, but that the claim to recover them is now statute barred.
Kyriacou & Kyriacou
The payments claimed to have been made to Kyriacou & Kyriacou are as follows:
6 June 1991 $ 2,000
9 June 1991 $ 5,000
Cash[13] $11,000 $18,000
[13]Date not specified with any precision
The documentary evidence establishes, and it is now conceded by the Katelis’, that the $2,000 payment and the $5,000 payment were made by the Matsakas’ on the dates alleged, but there is no documentary evidence to support the making of the $11,000 payment and the Katelis’ deny that it was made. They also contend that recovery of each of the claims is now statute barred.
I am not satisfied that the $11,000 payment was made. Leon Matsakas gave evidence that he only saw payments totalling $7,000 made by Mr Matsakas, senior, to Kyriacou & Kyriacou. A note of instructions taken by Shatin & Bernstein from Mr Matsakas makes reference to the payments of $2,000 and $5,000, but no reference to any payment of $11,000. And the evidence which Mr Matsakas gave about the way in which he said he assembled the $11,000, and the times and amounts in which he said he paid it to Kyriacou & Kyriacou, varied significantly during the course of his cross- examination. I do not suggest that Mr Matsakas was not doing his best to tell the truth. I think that he was. But I do think that with the time that has elapsed, the lack of any satisfactory documentary evidence of payment, and the uncertainties which exist as to the alleged times and method of payment, it has not been shown on the balance of probabilities that the $11,000 payment was made.
In the result I consider that the payments of $2,000 and $5,000 would be recoverable if it were not for the limitations defence. But the payments having been made in 1991, the limitations defence appears to be effective. Again it has been contended on behalf of the Matsakas’ that there was an account stated in 1997 and thus that time began again to run from then. But again for the reasons to which I shall come, I do not consider that it has been shown that was a statement of account agreed.
I conclude that the payments of $2,000 and $5,000 made by the Matsakas’ to Kyriacou & Kyriacou are due to be repaid by the Katelis’ to the Matsakas’, but that the Matsakas’ claim to recover them is now statute barred.
John Mingos payments
The claim in respect of the John Mingos payments is as follows:
2 September 1991 $3,114.00
15 September 1994 $1,119.00 $4,233.00
The Katelis’ now admit that Mr Matsakas’ made the payment of $3,114.00 and Mr Matsakas produced a receipt for its payment. But there are defences raised against recovery: that I should accept that the payment was funded out of the Adalia Pty Ltd account rather than from Mr Matsakas’ own resources; and in any event, that the claim to recover the payment is now statute barred.
I see no reason to doubt Mr Matsakas’ evidence that he funded the payment himself. There is nothing in the documentary evidence concerning the Adalia Pty Ltd account which suggests that the payment came from that resource. But, again, I think that the limitations defence is open to be taken.
There is no receipt for the payment of $1,119.00, and there is no cheque butt which might serve to evidence payment. There is only evidence of the memorandum of account. Mr Matsakas gave evidence that he paid the account in cash. But there is also evidence from three members of the Katelis’ that the Katelis’ were asked by Mr Matsakas for the money with which to pay the account and that one of them, Yiotta Katelis, took the money to him when he asked that it be brought. In that state of affairs, and in the absence of any documentary evidence to support one version of events in preference to the other, I am not satisfied that Mr Matsakas paid the account out of his own resources.
I conclude the payment of $3,114.00 made by the Matsakas’ to Mingos is due to be repaid by the Katelis’ to the Matsakas’, but that the claim to recover the payment is now statute barred. I hold that the $1,119.00 payment has not been shown to be recoverable.
Shatin & Bernstein payments
The claim in respect of the Shatin & Bernstein payments is as follows:
25 September 1992 $2,500.00
14 June 1993 $3,765.00 $6,265.00
It is now admitted by the Katelis’ that both amounts were paid. It is said, however, that the Katelis’ did not authorise that expenditure to be incurred. The payments relate to work done by Shatin & Bernstein in investigating the default of Kyriacou & Kyriacou and the whereabouts of moneys said to have been paid by both Mr Matsakas and also the Katelis’ to that firm in connection with the Katelis’ financing. But the Katelis’ say that, while they were not opposed to that work being undertaken, they made it clear from the outset that they were not prepared to pay to have it carried out.
The evidence about all this is less than satisfactory. Mr and Mrs Katelis were said to have stipulated that they were not prepared to incur the expense of having Shatin & Bernstein investigate the Kyriacou matter. But Mrs Katelis’ evidence did not establish that she had given any indication of that kind. And the evidence of Mr Katelis was generally so vague as really to show nothing at all. On the other hand there is documentary evidence in the form of an authority to act executed by Mr and Mrs Katelis that suggests that they were prepared to pay for Shatin & Bernstein’s services in that connection. It was said on behalf of the Katelis’ that the existence of the authority to act is not necessarily inconsistent with a stipulation that the Katelis’ would not personally be liable for the costs. And, logically, that is right. But in as much as an authority to act ordinarily implies a preparedness to pay for the services to be provided, and there is no satisfactory evidence to rebut that implication, I do not see why I should accept the Katelis’ contention that they did not authorise the incurrence of the costs.
On balance I am satisfied that the Shatin & Bernstein costs were incurred with the express or implied authority of the Katelis’ and thus that they should be liable to repay those costs Mr Matsakas. There is, however, a limitation defence taken in respect of the first payment of $2,500, which was made just a little more than six years before the counterclaim was filed. And that appears to be effective.
In the result, I conclude that both of the Shatin & Bernstein payments were made by Mr Matsakas on behalf of the Katelis’, and that they are due to be repaid by the Katelis’ to the Matsakas’, but that recovery of the first payment, of $2,500, is now statute barred.
Agrotis payment
The Katelis’ now concede that they are liable to repay to the Matsakas’ the payment of $2,919.40 which was made by the Matsakas’ to A. Agrotis.
Rennick & Gaynor payment of $5,800
The claim for the Rennick & Gaynor payment of $5,800 relates the double instalment which became due to Rennick & Gaynor late in 1994, to which I have already referred. There is no dispute that the liability arose or that it was discharged. The question is whether it was discharged by the Matsakas’ or the Katelis’. Each claims to have made the payment
For the Katelis’, Mrs Katelis has given evidence that she borrowed the money from a friend and she and George Katelis have sworn that it was given to Mr Matsakas in order to discharge the liability. For the Matsakas’, Mr Matsakas’ has sworn that when he asked Mrs Matsakas to provide him with the money to pay the liability, she responded that Mr Katelis had gambled the money away at the Casino, and so he had to borrow the money from a friend and pay the liability himself.
None of this evidence is particularly persuasive. Mrs Katelis changed her evidence about some aspects of what occurred. Worse, she did so after she had conferred with George Katelis during an overnight break in her cross-examination and been told by him that she was mistaken in the recollection of which she had first given evidence. Additionally, although Mrs Katelis identified the friend from whom she said she borrowed the money, he was said to be in Greece, and thus unable to give evidence, and there was no explanation of how that came to occur, or of why there was no application for the taking of video evidence. Mrs Katelis’ evidence as to repayment of the loan to her friend was also vague and unconvincing. And the uncertainties which all that created were made considerably worse by the absence of any documentary evidence, even a cash book, of the loan, its application or repayment.
The evidence given by Mr Matsakas was not much better. He did not identify the friend from whom he said he borrowed the money. He did not proffer any explanation of why the friend was not called . And he too was unable to produce any documentary evidence of the loan which he said he had taken or of if its application or repayment.
That said, it is clear that Mr Matsakas physically paid the account and, in the absence of any other satisfactory evidence as to the source of the payment, that tends to tip the balance in favour of Mr Matsakas. When I add that to the favourable assessment which otherwise I made of the evidence given by Mr Matsakas, and as to his credit generally, I find it is more likely than not that Mr Matsakas was the source of payment.
I add for the sake of completeness that a considerable amount of time was spent during the course of the trial in endeavouring to establish that the Katelis’ were short of funds at the time at which the $5,800 liability arose. Thus it was sought to say on behalf of the Matsakas’ that it was more likely than not that the Katelis’ were unable to fund that liability. In the end, I do not place a great deal of weight upon those matters, because the evidence that things were worse than usual at that time was not completely convincing. It consisted in the main of demands made by Rengay for the payment of penalty interest associated with the 1994 roll-overs, and one letter which showed that one and perhaps two payments had been made late. But it is obvious that the Katelis’ were perennially short of funds and that sometimes they were not able to comply with their obligations. And the very fact that there was an unexpected liability for a double instalment does add some weight to the conclusion that they could not meet it.
I conclude on balance that Mr Matsakas did meet the Rengay $5,800 liability from his own resources, and that the Katelis’ are now liable to repay him for it.
Theo Petropoulos payment:
The claim for $1,600 said to have been paid to Theo Petropoulos is that it was paid for the preparation of annual returns filed by Adalia Pty Ltd. There is, however, no account of fees for that amount, there is no documentary evidence of the work that is said to have been done, there is no documentary evidence of payment, for payment was said to have been made in cash, the accountant was not called to give evidence as to the work which he did and as to whether he did charge $1,600 and was paid it , and no explanation was provided as to his absence from the witness box.
In the result, I am not satisfied that the amount was paid or as to what it was for.
Australian Securities Commission payment:
The Katelis’ now admit that Mr Matsakas did pay $720 for the filing of annual returns of Adalia Pty Ltd with the Australian Securities Commission and that they are liable to repay him that amount.
Summary of counterclaim
It follows from what I have said that I consider that the Matsakas’ are entitled to recover the following:
National Australia Bank payments:
$12,645.36
$12,636.42
Ray White:
nil
Talk Finance:
nil
Kyriacou & Kyriacou:
$2,000.00
$5,000.00
John Mingos:
$1,119.00
Shatin & Bernstein:
nil
A. Agrotis:
$2,919.40
Rennick & Gaynor:
$5,800.00
Theo Petropoulos:
nil
Australian Securities Commission:
$720.00
Total:
$42,840.18
Conclusion
For the reasons given, I consider that the Katelis’ claim for damages and equitable compensation should be dismissed. I hold that the Matsakas’ are entitled to judgment on their counterclaim in the sum of $42,840.18.
I will hear counsel on the form of orders to be made.
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