Lakaev Pty Limited v Grubisic

[2010] NSWSC 698

CITATION:	Lakaev Pty Limited v Grubisic [2010] NSWSC 698
HEARING DATE(S):	17, 18 June 2010
JUDGMENT DATE :	6 July 2010
JUDGMENT OF:	Gzell J
DECISION:	Loan was interest free and repayable within 14 days. Mortgage to be rectified to secure loan. Plaintiff entitled to interest after 14 days although not mentioned in mortgage. Judgment for plaintiff for balance of loan plus interest to judgment plus outlays. Defendants to pay a fixed sum in lieu of costs. Writ for possession to issue forthwith but to lie in registry for 28 days before execution.
CATCHWORDS:	CONTRACTS - General Contractual Principles - Offer and Acceptance - whether admitted loan by plaintiff to defendants was repayable if and when they obtained refinance, or within 14 days - whether loan was subject to an up-front amount as interest or was interest free - whether mortgage that failed to state its secured the loan should be rectified - whether the mortgage was subject to interest even though not claimed therein - whether a fixed amount should be paid in lieu of costs
LEGISLATION CITED:	Real Property Act 1900 Supreme Court Act 1970 Uniform Civil Procedure Rules Civil Procedure Act 2005
CASES CITED:	Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 Malmesbury v Malmesbury (1862) 31 Beav 407 Issa v Berisha [1981] 1 NSWLR 261 Gray v Gray [2004] NSWCA 408 In re Drax; Savile v Drax [1903] 1 Ch 781 Theodore v Mistford Pty Ltd [2005] HCA 45; (2005) 221 CLR 612
TEXTS CITED:	Carter and Harland, Contract Law in Australia, 4th ed, LexisNexis Butterworths, Australia, 2002 Fisher and Lightwood’s Law of Mortgage, Australian edition, Butterworths, Australia, 1995
PARTIES:	Lakaev Pty Limited (Plaintiff) Duro Grubisic (First Defendant) Vesna Grubisic (Second Defendant) (In Person representing both Defendants)
FILE NUMBER(S):	SC 2009/287960
COUNSEL:	M Sneddon (Plaintiff)
SOLICITORS:	Lathams Lawyers (Plaintiff)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

GZELL J

TUESDAY 6 JULY 2010

2009/287960 LAKAEV PTY LIMITED v DURO GRUBISIC & ANOR

JUDGMENT

1 The plaintiff, Lakaev Pty Limited, sues to recover a loan that the defendants, Duro Grubisic and Vesna Grubisic accept was lent to them. They say it is not due for repayment, at least in full.

2 Mr and Mrs Grubisic were in desperate straits. They did not defend proceedings by a registered mortgagee over their home at 26 Boronia Road, Bossley Park, New South Wales and a factory at 32/1 Cowpasture Road, Wetherill Park, New South Wales. They received an eviction notice in August 2008. They had engaged a broker at Parramatta, Tony Sissine, but he had been unable to raise finance for them.

3 Ilija Lakaev, a director of the plaintiff, had lent Mr and Mrs Grubisic money in the past. They contacted him. He suggested they speak with Milorad Arcaba, the principal of the Commonwealth Bank’s mortgage innovation centre in Liverpool. He issued what he called a conditional approval stating that, on the information provided by Mladen Grubisic, the son of Mr and Mrs Grubisic, he met the Commonwealth Bank’s requirements for approval of a line of credit with a limit of $800,000.

4 The letter did not prevent the eviction of Mr and Mrs Grubisic from their Bossley Park home. They returned to see Mr Arcaba.

5 Mr Arcaba said the loan to Mladen Grubisic did not proceed because he could not raise a 20% deposit and approaches to relatives to provide security failed.

6 It was put to Mr Arcaba that he was only working on a loan for Mladen Grubisic and not for Mr and Mrs Grubisic. This he denied. He said he took details of their licences and council rate notices and began working on raising a loan for them.

7 Mr and Mrs Grubisic and Dragin Marjanovic visited Mr Lakaev at his home. Mr Lakaev said they drank quite a lot that night and he has little recollection of their discussion.

8 He said he went with Mr and Mrs Grubisic to Mr Arcaba’s office after this meeting and it was there that he agreed to lend them sufficient funds to pay out the mortgagee on the basis that he obtained a mortgage over their Bossley Park house and their Wetherill Park factory. He said the loan was to be repaid within two weeks and on that basis he did not ask for interest.

9 Mr Lakaev obtained from the Commonwealth Bank a bank cheque for $801,059.80 and on 1 September 2008 he flew to Coolangatta, paid out the mortgage, obtained the title deeds and returned to Sydney.

10 On 2 September 2008, Mr and Mrs Grubisic executed a mortgage over their Bossley Park house and their Wetherill Park factory prepared by Mr Arcaba which they knew related to the loan. They were also content for Mr Lakaev to retain possession of the title deeds to the house and factory until repayment of the loan.

11 I note that Mrs Grubisic was declared bankrupt on 25 February 2010. Her trustees in bankruptcy wrote on 22 April 2010 noting a debt due to the plaintiff in the then amount of $654,150.67 and raising no opposition to the plaintiff seeking an order to enforce its mortgage over the Bossley Park house subject to them being kept informed of the marketing and sale of the property including provision with a full accounting of the sale proceeds in due course.

12 Mrs Grubisic said the agreement was reached at Mr Lakaev’s home that he would lend $800,000 until Mr and Mrs Grubisic obtained refinance. But as Mr Lakaev would have to pull funds out of shares and different banks he said it would cost them $42,000 in cash for interest.

13 Because he was not fluent in English, Mr Grubisic left it to his wife to deal with financial matters. He said, however, that he recalled Mr Lakaev saying he could lend $800,000 but would charge $42,000 in cash for interest and the principal would only be repaid when he and Mrs Grubisic could get the loan refinanced. He said Mr Lakaev agreed to his paying the $42,000 gradually when he was paid for his job on Hamilton Island.

14 Mr Marjanovic recalled Mr Lakaev being asked whether he could lend $800,000 to which he agreed. In his affidavit he said he did not hear Mr Lakaev say that the loan was to be repaid within 14 days. But in cross-examination when asked what he recalled being said about the $800,000 Mr Marjanovic said, more than once, that the money was to be repaid within two weeks.

15 Mr Arcaba was not at the meeting at Mr Lakaev’s house. He said that Mr Lakaev and Mr and Mrs Grubisic came to his office before Mr Lakaev went to Queensland to pay out the mortgage.

16 Mrs Grubisic said there was only one occasion on which she and her husband were with Mr Lakaev in Mr Arbaca’s office and that was on 2 September 2008 after Mr Lakaev had paid out the mortgage.

17 While he did not depose to the earlier meeting in his office in his affidavit, Mr Arbaca was insistent during a long cross-examination by Mrs Grubisic that they had met prior to his discharging the mortgage. And while he had not heard their original agreement he explained to Mr Lakaev in the presence of Mr and Mrs Grubisic that if there was clear title to both properties, Mr and Mrs Grubisic would have sufficient security to borrow the funds and within a maximum of two to three weeks. He said it was then that he obtained a payout figure and arranged for the mortgage to be discharged on 1 September 2008 and obtained a bank cheque for Mr Lakaev who then left to go to Coolangatta.

18 Mr Arcaba was pressed on this matter but was not shaken in his testimony. He was a careful witness and an impressive one. His answers to questions remained consistent throughout. I prefer his evidence where it diverges from that of Mr and Mrs Grubisic.

19 Mr Arcaba said after the mortgage was signed on 2 September 2008 he entered the material in the Commonwealth Bank computer to raise a loan for Mr and Mrs Grubisic to pay out the plaintiff. The application was rejected by the computer because of a bad credit rating of Mr and Mrs Grubisic. He informed Mr Lakaev that there was a difficulty in raising the loan.

20 Mr Arcaba said he had not been told by Mr and Mrs Grubisic that they had a poor credit rating. Mrs Grubisic denied this. She said she told Mr Arcaba when she first met him that she had a poor credit rating and she told Mr Lakaev that they had a poor credit rating before his company lent the money.

21 Mr Lakaev’s evidence on this aspect is confused. Sometimes he referred to Mrs Grubisic’s poor credit rating and on other occasions he denied she told him this before his company lent the moneys. But the burden of his evidence, in my view, supports that of Mr Arcaba that Mrs Grubisic did not tell either of them before the plaintiff lent the funds that she had a poor credit rating.

22 While Mr Lakaev’s recollection of his evening meeting with Mr and Mrs Grubisic and Mr Marjanovic may be wanting and he had agreed to make the loan then, I reject the evidence of Mr and Mrs Grubisic that the loan was only to be repaid if and when they obtained refinance with an up-front payment of interest of $42,000.

23 Mr Lakaev was categorical that the agreement was that the moneys would be repaid in two weeks. Mr Marjanovic said that was agreed at Mr Lakaev’s home. Mr Lakaev said it was agreed in Mr Arcaba’s office. Mr Arcaba said that while he was not present when the agreement was reached, Mr and Mrs Grubisic acknowledged that they were to repay the loan within two weeks. That was the period within which Mr Arcaba said he could arrange a loan for Mr and Mrs Grubisic if their properties were unencumbered.

24 Both independent witnesses, Mr Arcaba and Mr Marjanovic confirmed this term of the agreement. It is highly unlikely that Mr Arcaba would have commenced preparation of a loan for Mr and Mrs Grubisic if he had been told that they had a poor credit rating. I accept his evidence that he was unaware of this fact until the computer rejection of the application for a loan for them on 2 September 2008. An open-ended arrangement with no definite period for repayment with the knowledge of a poor credit rating of the borrowers is unlikely.

25 As to the $42,000, Mr Lakaev recalled some mention of it as a lost dividend if he sold the shares. But he said he went to the bank for a line of credit. It was put to Mrs Grubisic that, while $42,000 was mentioned, Mr Lakaev did not require a payment of that amount by way of interest. She denied this proposition. It was put that she and her husband did not repay $42,000. She agreed but said she paid Mr Lakaev $20,000 in cash.

26 I accept the evidence of Mr Lakaev that he did not require payment of $42,000 and that the plaintiff lent Mr and Mrs Grubisic $801,059.80 interest-free for two weeks.

27 The plaintiff allowed the mortgage to be partially redeemed to enable the Wetherill Park factory to be sold to Mr and Mrs Grubisic’s daughter. The contract price was in excess of $300,000 borrowed by the daughter, but the balance was forgiven by Mr and Mrs Grubisic and the $300,000 was paid to the plaintiff in partial reduction of their debt. The plaintiff maintained its security over the Bossley Park house of Mr and Mrs Grubisic.

28 Mrs Grubisic claimed $320,000 was paid. The bank record shows only $300,000 received. Mrs Grubisic said she paid Mr Lakaev $20,000 in cash. She said she gave him $10,000 in cash at the office of Global Finance. She gave him $1,950 in cash at the premises of the Serbian National Defence and she gave him $8,000 in cash at her home. She received no receipts for these amounts.

29 If Mrs Grubisic paid $20,000 in cash in reduction of the $42,000 she alleges was up-front interest on the loan, it does not enter the calculation of the outstanding principal amount of the loan. The plaintiff does not claim $42,000 or $22,000 as outstanding principal or interest.

30 Mr Lakaev denied receipt of the cash and I accept his denial. Where the evidence of Mrs Grubisic differs from that of Mr Lakaev I prefer his evidence. I have already said that the evidence of Mr Arcaba and Mr Marjanovic support the evidence of Mr Lakaev. I have already pointed to the air of unreality about her testimony with respect to the terms of the loan.

31 Mrs Grubisic offered the plaintiff a further part payment of the loan which was rejected. She complained about this rejection. She said that in November 2009 Westpac approved a loan of $440,000 to Mladen Grubisic and that was available to be paid to the plaintiff so soon as Mr Lakaev was ready to settle.

32 Mrs Grubisic seems to think that a borrower has an option to repay portions of a loan as and when the borrower wishes to do so and the lender is obliged to accept part payments.

33 The mortgage executed by Mr and Mrs Grubisic and by Mr Lakaev on behalf of the plaintiff was not expressed to secure the loan. But it was given for no other purpose and Mr and Mrs Grubisic acknowledged that it was signed in relation to the loan.

34 In Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329, Sheller JA, with whom the other members of the court agreed, analysed the authorities with respect to rectification. His Honour concluded that a deed poll should be rectified. McLelland A-JA at 345 added the following:

“In general, the remedy of rectification of an instrument is available where it is established by clear and convincing proof that at the time of execution of the instrument the relevant party or parties as the case may be had an actual intention (if more than one party, a common intention) as to the effect which the instrument would have which was inconsistent with the effect which the instrument as executed did have in some clearly identified way. In this context "effect" means the legal and factual operation of the instrument according to its true construction, but does not include legal or factual consequences of the operation of the instrument of a more remote, or collateral, kind (for example, its liability to stamp duty).”

35 In this case the clear and common intention of Mr and Mrs Grubisic and Mr Lakaev on behalf of the plaintiff was that the mortgage should secure repayment of the loan of $801,059.80. That intention persisted up to the execution of the document. There is a disconformity between the common intention and the effect of the mortgage document. The instrument should have had the effect of securing repayment of the loan. The document was inconsistent with that effect. The disconformity can be identified clearly. The plaintiff is entitled to an order for rectification of the mortgage so that it incorporates the terms of the loan and secures the loan.

36 On 7 March 2009, the plaintiff’s solicitors issued a notice purportedly under the Real Property Act 1900, s 57(2)(b) demanding the payment of $801,000 with notice that a failure to comply within 31 days would lead the plaintiff to exercise its power of sale pursuant to s 58 of the Act.

37 The former solicitor for Mr and Mrs Grubisic raised a number of objections to the default notice and the mortgage. It was argued that the mortgage and the notice were defective because the mortgage did not refer to the principal amount that it secured and did not refer to any agreed term of the loan.

38 Those arguments must fail because rectification is retrospective in effect with the consequence that the mortgage is to be read as if originally executed in its rectified form (Carter and Harland, Contract Law in Australia, 4^th ed, LexisNexis Butterworths, Australia, 2002 at [1256]; Malmesburyv Malmesbury (1862) 31 Beav 407 at 418, 54 ER 1196 at 1200; Issa v Berisha [1981] 1 NSWLR 261 at 265). As rectified the mortgage referred to the principal amount that it secured and the agreed term of the loan.

39 It was submitted that the mortgage did not contain a power of sale. But it did incorporate memorandum No Q860000 and that memorandum included a power of sale in cl 6.

40 The plaintiff seeks interest from 15 September 2008, 14 days after the loan was made.

41 In Gray v Gray [2004] NSWCA 408 an inquiry determined that a number of payments were by way of loan. The primary judge ordered that the loans plus interest at the rate prescribed under the Supreme Court Act 1970, s 94 be paid.

42 It was submitted that interest was not payable because the mortgage did not refer to any agreed interest rate or interest payment. In Gray, Young CJ in Eq with whom the other members of the Court of Appeal agreed, pointed out at [76] that Fisher and Lightwood’s Law of Mortgage, Australian edition, Butterworths, Australia, 1995 at [39.39] stated that interest was payable upon mortgage debts even though it was not expressly reserved and that this applied although the mortgage was only equitable including a charge by mere deposit of title deeds and generally where the principal sum is a charge on specified property.

43 In In re Drax; Savile v Drax [1903] 1 Ch 781 at 793, Collins MR said:

“It seems to me to be well established on the authorities …that a Court of Equity has power to give interest, and in point of fact does so where a charge is created on land, although there are no words allowing interest in the instrument creating the charge.”

44 The title deeds were, with the consent of Mr and Mrs Grubisic, lodged with Mr Lakaev on behalf of the plaintiff. That constituted an equitable mortgage (Theodore v Mistford Pty Ltd [2005] HCA 45; (2005) 221 CLR 612 at 620-621 [22]). Under it, or under the mortgage as rectified, interest was payable notwithstanding its non-mention from the expiration of the interest-free period.

45 In Gray, Young CJ in Eq went on to point out that interest was not limited to traditional rates and could be at market rates and perhaps somewhat more.

46 The Uniform Civil Procedure Rules, Pt 6 r 6.12(7)(b), however, provides that in a liquidated claim, a claim for an order for interest up to judgment must specify the rate or rates at which interest is claimed. If no rate of interest is specified, the rate at which interest is claimed is taken to be the relevant rate in Sch 5 for the purposes of s 101 of the Civil Procedure Act 2005 in terms of Pt 6 r 6.12(8). It is at those rates that the plaintiff claims interest.

47 I gave leave to the plaintiff to lodge a schedule calculating interest on this basis together with its claim to legal and other costs backed by invoices supporting its claims with liberty to Mrs Grubisic to challenge its contents. Her challenges relate to the amounts of cash she said she paid in reduction of the $42,000. The calculation of interest to the conclusion of the trial amounted to $101,056.49. There is a further $2,223.88 for the 18 days to judgment giving a total of $103,280.37.

48 Under the Civil Procedure Act, s 98(4)(c) the court may make an order for payment of a specified gross sum instead of assessed costs. The plaintiff claims that its costs up to the conclusion of the hearing on 18 June 2010 amounted to the modest sum of $76,115.78 and it was liable for outlays of $5,423.74. In my view this matter must be brought to a conclusion. There should not be a further hearing to award costs nor an assessment of costs. From the history of this matter both may be protracted and emotional events.

49 The claim for costs is on the ordinary basis and not on an indemnity basis. There should, in my view, be some discount of the claim. But in light of its modest nature, I propose to discount the costs by approximately 20% and make an order for payment of $60,000.00 in lieu of assessed costs.

50 I enter judgment for the plaintiff against Mr and Mrs Grubisic in the amount of $609,763.91. I order Mr and Mrs Grubisic to pay the plaintiff $60,000 in lieu of assessed costs. I order that the undated mortgage executed by the parties on 2 September 2008 stand rectified by adding to the end of memorandum No Q860000 the following:

“14 This mortgage secures repayment of the amount of eight hundred and one thousand and fifty nine dollars eighty cents ($801,059.80) lent by Lakaev Pty Limited to Duro Grubisic and Vesna Grubisic on 1 September 2008, the receipt whereof they acknowledge, to be repaid by them on 15 September 2008.”

51 Mrs Grubisic said that in two months she and her husband could raise the balance of the principal of the loan of $501,059.80 but not the interest. Nevertheless, I am prepared to give them some time to discharge the mortgage or find alternative accommodation and move out of the Bossley Park house.

52 I order that a writ of possession issue forthwith for the land situated at 26 Boronia Road, Bossley Park in the State of New South Wales being the whole of the property contained in Folio Identifier 35/746445 but that it lie in the Registry for 28 days before its execution.

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