Lombardi & Anor v Yarra Junction Auto Repairs Pty Ltd & Anor

[2018] VCC 502

THE COUNTY COURT OF VICTORIA

AT MELBOURNE

COMMERCIAL DIVISION - GENERAL LIST

Revised
Not Restricted
 Suitable for Publication

Case No. CI-17-03938

SANDRA LOMBARDI	First Plaintiff
and
GIANNI LOMBARDI	Second Plaintiff
v
YARRA JUNCTION AUTO REPAIRS PTY LTD	First Defendant
and
DOMINIC PEZZIMENTI	Second Defendant

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JUDGE:HIS HONOUR JUDGE COSGRAVE

WHERE HELD:  Melbourne

DATE OF HEARING:  18 April 2018

DATE OF JUDGMENT:                  19 April 2018

CASE MAY BE CITED AS:             Lombardi & Anor v Yarra Junction Auto Repairs Pty Ltd & Anor

MEDIUM NEUTRAL CITATION:      [2018] VCC 502

REASONS FOR JUDGMENT
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Subject:CONTRACT

Catchwords:               CONTRACT – loan agreement – amount owing to plaintiffs

Legislation cited:       Penalty Interest Rates Act 1993 (Vic)

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr D McAloon	RNG Lawyers
For the Defendants	No appearance

HIS HONOUR:

Summary

1       The primary issue in this case is whether the plaintiffs are entitled to recover from the defendants funds allegedly lent.

Background

2       In May 2011, the first plaintiff (“Sandra”) became registered proprietor of the property in Certificate of Title Volume 09516 Folio 841 being the property at 1810 Warburton Highway, Woori Yallock (“the property”).  The Commonwealth Bank of Australia (“CBA”) had a registered first mortgage over the property.

3       In February 2013, Sandra’s then husband Gianni, the second plaintiff (“Gianni”), began work for companies associated with the second defendant (“Pezzimenti”).  Gianni had a Bachelor of Business qualification from Swinburne University.  Pezzimenti conducted an auto repair and panel shop business through the first defendant, Yarra Junction Auto Repairs Pty Ltd (“YJ Auto Repairs”) and other entities.

4       In about August or September 2013, Gianni and Pezzimenti had a discussion in which Pezzimenti spoke about needing a loan of $200,000.  At the time, Pezzimenti or his companies owed money to two individuals, John Bishop and Pat Lamanna.  Gianni said that, subject to speaking to Sandra, they might be able to borrow money against the security of the property and lend it to him to discharge those debts and use the balance to assist cash flow in the YJ Auto Repairs business. 

5       After Gianni obtained his wife’s agreement, there was a meeting at Bishop’s house attended by Bishop, Pezzimenti, Gianni and Pezzimenti’s lawyer, John Voitin.  Gianni and Pezzimenti agreed that Gianni and Sandra would lend him $200,000 and Pezzimenti would repay the loan money in two years.  It was further agreed that Pezzimenti would pay interest at 20% per annum and make weekly payments in order to cover the additional interest payments which the plaintiffs incurred by reason of obtaining the loan.

6       Bishop obtained the finance for Sandra and Gianni.  Bishop was able to obtain a loan for $182,000 and not $200,000.  Bishop obtained the loan by arranging the refinancing of Sandra’s property with AFSH Nominees Pty Ltd (“AFSH”) which conducted business under the name First Mortgage Services FASTLend.  Sandra and Gianni refinanced the borrowings with the CBA and AFSH became the registered proprietor of the only mortgage over the property.

7       On about 13 December 2013, Gianni used the loan funds to obtain bank cheques to pay Bishop $41,711.22 and Lamanna $17,000.  Gianni obtained a third bank cheque in the sum of $100,788.78 payable to YJ Auto Repairs.  Between 14 December 2013 and 9 January 2014 the balance of the loan funds was applied for purposes associated with YJ Auto Repairs including the reimbursement of expenses and some cash expenditure.

8       At the time of the initial loan, there was no loan documentation prepared or signed by any of the parties.  Gianni said that, at the time, he had known Pezzimenti for over 20 years due to his friendship with Pezzimenti’s son Rick.  Gianni and Rick had been best friends since they were 13 years old.  Gianni did not think that paperwork was necessary because he trusted Pezzimenti.

9       In about November 2015, Gianni and Pezzimenti had another discussion in which Pezzimenti said that he was short of money and needed another loan of $50,000.  After further discussion, the plaintiffs agreed to ask Bishop to arrange borrowing $60,000 on the security of the property.  Gianni explained to Pezzimenti that $50,000 was the limit which they could lend him because the plaintiffs were unable to borrow any more against the property.  Pezzimenti agreed that when he sold his property at Hoddles Creek, he would repay the $50,000 immediately from that sale. 

10      The plaintiffs received a $60,000 advance (less bank fees) from AFSH in their CBA bank account on 10 December 2015.  Sandra and Gianni used $10,000 for their own purposes and transferred the sum of $50,000 to the defendants or at their direction.  In their defence filed in the proceeding, the defendants admitted the receipt of $30,254.40 as the second advance in December 2015.

11      At this time, Pezzimenti and/or YJ Auto Repairs ought to have repaid the first loan of $182,000.  However, that debt was not repaid.  Gianni raised this matter with Pezzimenti and they discussed selling the business of YJ Auto Repairs to repay the loans. 

12      On 29 July 2016 YJ Auto Repairs paid the sum of $214.15 into the plaintiffs’ CBA account.  This amount represented the additional weekly interest which Sandra and Gianni had to pay AFSH due to the combined loan amount of $232,000, the burden of which the plaintiffs had assumed to assist Pezzimenti.  Further, weekly payments of this amount were made until 10 February 2017.

13      In around September 2016, Sandra asked Gianni for a copy of the loan agreement with Pezzimenti.  Gianni made enquiries with Voitin’s office.  The solicitor’s office advised that there was no file for the loans.  When Gianni then spoke to Bishop, he said the same thing.  As a result, Gianni prepared loan agreements for the two loans after searching for a precedent on the internet (but not consulting a lawyer).  Gianni then completed the details on the pro forma documents he printed off and presented those documents to Pezzimenti at YJ Auto Repairs’ office.  Pezzimenti went through the loan documents and then signed them in Gianni’s presence.

14      The documents for the initial loan provided for a principal amount of $182,000 with a basic interest rate of 10% and a default rate of 15%.  Interest was to be paid upon the expiry of the loan on 13 December 2015.  Pursuant to the terms, the amount owing under the agreement meant the total amount owed by the borrower at any time, including any unpaid part of the principal amount, the accrued interest and any other amounts owed to the plaintiffs.  Interest was payable on the amount owing.  Interest was calculated daily on the basis of the actual number of days elapsed (and a year of 365 days) and at the basic rate of 10% per annum or, if the borrower were in default, at the default interest rate of 15% per annum.  If the borrower were in default then the amount owing was immediately due and payable upon the lender’s written demand.  The borrower was in default if, for example, it failed to pay an amount due in accordance with the agreement.

15      Both of the loan agreements provided that Pezzimenti was the guarantor of the obligations of YJ Auto Repairs.  The agreements provided that, in consideration for the plaintiffs entering into the loan agreement, Pezzimenti agreed to:

·    punctually perform and observe each of YJ Auto Repairs’ obligations under the agreement;

·    pay the plaintiffs all amounts owing as they became due and payable under the agreement;

·    indemnify the plaintiffs against any loss arising from YJ Auto Repairs’ failure to perform and observe its obligations under the agreement.

The terms of the agreement also provided that if a party consisted of one or more persons or an obligation applied to one or more persons, the agreement bound them jointly and each of them severally.

16      By their pleading, Sandra and Gianni relied and sued upon the terms of the written agreements entered into with YJ Auto Repairs and Pezzimenti and not any agreement reached orally at an earlier time.

17      By letter dated 21 July 2017, the plaintiffs’ solicitors wrote to the defendants reciting the history of the loan advances made by the plaintiffs.  The letter stated that:

·    on 10 December 2017 when the second loan was due for repayment, the defendants would owe $287,307.32.  This amount represented the outstanding principal, less payments to date, plus interest;

·    as at 21 July 2017 the outstanding amount less payments but including interest calculated to that date was $277,146.01;

·    the plaintiffs offered to accept by 28 July 2017 $277,000 in full and final payment and in discharge of the defendants’ obligations.

18      In response, by letter dated 25 July 2017, the defendants’ solicitors denied that the defendants had any liability to repay the loans described by the plaintiffs as agreement 1 and agreement 2.  In addition, the defendants alleged that Gianni had misappropriated funds from Pezzimenti’s business. The total amount said to have been taken was approximately $297,492 in excess of the amounts advanced to the defendants of approximately $128,788 on 13 December 2013 and $35,377 on 12 December 2015.  The letter indicated that if the plaintiffs sued, the defendants would defend the proceedings and a counterclaim was likely.

19      In 2016, Gianni was diagnosed with a rare bone cancer affecting his jaw.  He was operated upon that month.  He remained in hospital for two weeks and had a swollen face for three months.  His medical certificate extended until December 2017.

20      On about 20 February 2017 Gianni received a letter from Pezzimenti terminating his employment with YJ Auto Repairs with effect from 17 February 2017. 

21      Although this proceeding was contested through the interlocutory stages, including correspondence between the parties in March this year, the defendants were not represented at the trial and there was no appearance by or on behalf of either defendant.

Consideration

22      In summary, I am satisfied from the evidence of Gianni and the documents tendered that:

·    Sandra and Gianni made two loan advances to YJ Auto Repairs being $182,000 and $50,000 respectively;

·    Pezzimenti guaranteed the obligations of YJ Auto Repairs under those loan agreements;

·    the defendants paid $29,876.70 to Sandra and Gianni as weekly payments intended to relieve the plaintiffs of the burden of the interest payments on the loans which they took out with AFSH;

·    apart from those payments, YJ Auto Repairs and Pezzimenti did not repay the principal and denied they were obliged to repay any loans of $182,000 and $50,000 respectively.

23      I find that the defendants are jointly and severally liable to the plaintiffs.  The amount owing as at 10 December 2017 is calculated as follows:

13/12/13	Loan advanced	$182,000.00
14/12/13 – 13/12/14	Payments made	($8,904.00)
13/12/14	Principal sum reduced	$173,096.00
13/12/14	Interest of 10% p.a.	$17,309.60
13/12/14	Principal sum plus interest	$190,405.60
14/12/14 – 9/12/15	Payments made	($10,568.00)
10/12/15	Principal sum reduced	$179,837.60
10/12/15	Interest of 10% p.a. (362 days)	$17,835.95
10/12/15	Principal sum plus interest	$197,673.55
10/12/15	Loan advanced	$50,000.00
10/12/15	Principal sum plus interest	$247,673.55
11/12/15 – 10/12/16	Payments made	($8,477.35)
10/12/16	Principal sum reduced	$239,196.20
10/12/16	Interest of 10% p.a.	$23,919.62
10/12/16	Principal sum plus interest	$263,115.82
11/12/16 – 10/12/17	Payments made	($1,927.35)
10/12/17	Principal sum reduced	$261,188.47
10/12/17	Interest of 10% p.a.	$26,118.85
10/12/17	Principal sum plus interest	$287,307.32

24      I further find that the plaintiffs are entitled to interest in accordance with the loan agreements from December 2017 until judgment.  Whether on this basis or on the interest rate applied under section 2 of the Penalty Interest Rates Act 1993 (Vic), the plaintiffs should receive interest on the outstanding amount at the rate of 10% per annum.  Thus, the amount owing at 19 April 2018 is $297,540.17.

25      I reject the plaintiffs’ claim to interest from 10 December 2017 at the default rate of 15% per annum.  In my view, where a lender claims interest at a set rate and then claims a higher rate when the borrower is in default, that in all likelihood constitutes a penalty and is unenforceable.[1]  Accordingly, I will allow interest from 10 December 2017 only at the lower, non-default rate.

[1]Meagher, Gummow and Lehane, Equity: Doctrines and Remedies (LexisNexis Butterworths, 4th ed, 2002) at [18-080].

26      Subject to hearing from the parties, I propose to make the following orders:

(a)      the plaintiffs have judgment against the defendants in the amount of $297,540.17;

(b)      the defendants pay the plaintiffs’ costs of the proceeding to be taxed on a standard basis in default of agreement.