Mercedez-Benz Financial Services Australia Pty Ltd v Zercas Developments Pty Ltd

[2014] VCC 576

IN THE COUNTY COURT OF VICTORIA Revised
Not Restricted
Suitable for Publication

AT MELBOURNE

CIVIL DIVISION
COMMERCIAL LIST
GENERAL CASES DIVISION

Case No. CI-11-06061

Mercedes-Benz Financial Services Australia Pty Ltd

Plaintiff

v

Zercas Developments Pty Ltd

and

Steven Tzountzourkas

First Defendant

Second Defendant

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JUDGE:	His Honour Judge Cosgrave
WHERE HELD:	Melbourne
DATE OF HEARING:	30 April 2014
DATE OF RULING:	30 April 2014
CASE MAY BE CITED AS:	Mercedez-Benz Financial Services Australia Pty Ltd v Zercas Developments Pty Ltd & Anor
MEDIUM NEUTRAL CITATION:	[2014] VCC 576

REASONS FOR JUDGMENT
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Subject:  GUARANTEE

Catchwords:             Loan agreement for finance -- guarantee and indemnity on behalf of defendant company

Legislation Cited:     Civil Procedure Act 2010 (Vic)

Judgment:Judgment for the Plaintiff against the Second Defendant for amount sought. Second Defendant to pay the Plaintiff’s costs of the proceeding on an indemnity basis.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr A Strauch	AIL Legal
For the Defendants	No appearance

HIS HONOUR:

1       This case concerns the plaintiff’s attempt to recover from the second defendant as guarantor loan moneys provided to the first defendant in order to enable the first defendant to purchase a truck together with a dog tipper trailer. I note that the plaintiff does not seek to proceed against the first defendant as that company was de-registered, apparently in April 2012.

2       The asset loan agreement (“the loan agreement”) between the plaintiff and the first defendant to provide finance was made in March 2007. At the same time, the second defendant entered into a guarantee and indemnity (“the guarantee”) in respect of the obligations of the first defendant to the plaintiff pursuant to the loan agreement. The guarantee provided for the second defendant to guarantee, among other things, the payment of all monies owed by the first defendant to the plaintiff pursuant to the agreement between them.

3       The second defendant admits signing the guarantee and further admits there were terms of the guarantee that:

·he would guarantee all monies owed by the first defendant under the loan agreement to the plaintiff in respect of the purchase, lease or hire of the truck and the dog tipper trailer;

·if the first defendant failed to pay monies owing, he would pay it;

·he would indemnify the plaintiff against any loss it suffered if the first defendant failed to pay monies due.

I note for the sake of clarity that, insofar as the second defendant made admissions in his defence, he confused the plaintiff with another related company. He used the correct name of the plaintiff company but had the wrong ACN. This error appeared to stem from a misunderstanding of part of a reference in the loan agreement.

4       The second defendant further admits that monies were advanced to the first defendant in order to acquire the truck and the dog tipper trailer.  It appears from the plaintiff’s financial records that over the course of the arrangement, the first defendant paid to the plaintiff approximately $160,248.

5       However, it seems that by February 2009, the first defendant was in default of its obligations under the loan agreement.  On 5 February 2009,  the plaintiff sent to both the first and second defendants separate letters advising that the first defendant was in default under the agreement and the amount overdue was $9,186. The second defendant admitted receipt of that default notice from the plaintiff. The notice gave the second defendant a period of 14 days in which to make good the amount owing and outstanding. The plaintiff says that no other payments were received by or on behalf of either defendant in respect of the overdue amount.

6       On about 11 January 2011, the plaintiff sent a letter to the first defendant advising that the truck and trailer the subject of the contract between the plaintiff and the first defendant had been repossessed due to the continuing default in payment. The plaintiff’s letter said that unless all monies outstanding under the contract were repaid within 21 days, it was the plaintiff’s intention to sell the truck and trailer at public auction. By letter of the same date, the plaintiff advised the second defendant of the same matters and notified the second defendant that, to the extent that there was any deficiency following sale, the plaintiff would seek to recover such deficiency from the second defendant pursuant to the terms of the guarantee.

7       Having taken possession of the truck and trailer, the plaintiff had both items of equipment valued by Pickles Auctions (“Pickles”). In a Condition and Valuation Report prepared in January 2011, Pickles advised the plaintiff that it estimated the value of the truck at $25,000. In a similar report also prepared in January 2011, Pickles advised the plaintiff that it valued the trailer at approximately $15,000.

8       The plaintiff duly proceeded with the sale of the two items of equipment. The truck realised a gross sale price of $36,000 and after deduction of various charges including commission, detailing and inspection fee, realised a net sum of $34,405. The trailer realised a gross sale price of $15,000 and after deductions for charges including commission and inspection fee, realised a net amount of $14,385.50.

9       By letter dated 15 March 2011, the plaintiff wrote to the first defendant advising that the balance owing under the agreement was $155,274.10.  A letter of the same date and to the same effect was sent to the second defendant as the guarantor. Both these letters gave the defendants credit only in respect of the sale proceeds received for the truck. There was no credit given for the sale of the trailer. Accordingly, when the plaintiff realised its error, it sent a  further letter to each defendant dated 5 April 2011 revising the amount sought to $140,274.10. The letter asked that the amount be paid within 14 days.

10      In response, the plaintiff received no monies from the first or second defendant. The plaintiff then wrote a letter to each defendant on 27 October 2011 confirming that no adequate response had been received from the defendants and stating that each continued to remain indebted to the plaintiff in the outstanding amount. The letter then continued in the following terms:

“Regrettably (in light of above), we have no alternative than to commence legal proceedings for recovery of the Outstanding Amount. Prior to doing so however, we are required under the Civil Procedure Act 2010 (Vic) (“Act””), to attempt to resolve this matter with you by genuine negotiations and/or appropriate dispute resolution.

To that end, in an attempt to resolve this matter by genuine negotiation and/or appropriate dispute resolution, we propose one (1) of the following options:

1.Resolving the matter by Mediation before an independent accredited mediator (the costs of the mediator and the venue to be shared equally between us); or

2.Resolving the matter by Settlement Conference either in person or by telephone (each of us will agree to pay own costs incurred)

(“Options”)

If you elect to resolve this matter by one (1) of the Options detailed above, we request that you kindly:

1. Notify us in writing with which Option you wish to proceed (within fourteen (14) days of today’s date); and

2.Agree to undertake with us, an exchange of all appropriate correspondence, information and documents relevant to the dispute – this must occur within seven (7) days prior to the Mediation/Settlement Conference date.

If there in (sic) another dispute resolution process or method of genuine negotiation permitted under the Act that you wish to undertake, we request that you notify us within fourteen (14) days of today’s date.

Alternatively, if you do not dispute the Outstanding Amount however do require further time to make payment, we invite you (within seven (7) days of today’s date) to contact our Customer Support Centre on 1300 730 200 and request to speak with a member of the Legal Recoveries Team.

If you do not:

(a)  Notify us of your preferred Option;

(b)Suggest another dispute resolution process or method of genuine negotiation;

(c)Enter into a suitable payment arrangement with our Melbourne office;

(d)  Make payment of the Outstanding Amount; or

(e)  Request further time to make payment;

recovery action for the Outstanding Amount will be instigated without further notice. We reserve the right to tender this letter on the question of costs should the future need arise.

Should you wish to discuss your account please contact the undersigned on 03 8554 3020.”

11      When, having sent this letter, there was no response from the defendants, the plaintiff issued proceedings in this court on 14 December 2011.  There followed a period in which the matter did not progress to any extent due to problems with service. It was not until March 2013 that an order was made for substituted service. Thereafter, the matter has proceeded in the usual way and has arrived for trial today. I note that, notwithstanding the plaintiff’s best efforts to arrange a mediation, it was frustrated by the second defendant’s failure to respond to correspondence and ultimately the second defendant’s failure to actually attend the mediation which the plaintiff organised.

12      The second defendant has not appeared at the trial and therefore, there is no evidence to consider other than the evidence given by Ms Mills, the corporate lawyer employed by the plaintiff. Having regard to the evidence given by Ms Mills, and also having regard to the documentary evidence to which she referred, including the loan agreement and business records setting out the statements of account, I am satisfied that the plaintiff has established the debt owing to it by the second defendant.  Accordingly, subject to hearing from the plaintiff as to the final form of order, I propose to order that:

1)there be judgment for the plaintiff against the second defendant in the sum of $140,274.10.

2)The second defendant pay the plaintiff interest on that amount in a sum to be calculated and provided to me by the plaintiff.

3)The second defendant pay the plaintiff’s costs of the proceeding, including reserved costs, on an indemnity basis, such costs to be taxed in default of agreement.

13      With respect to the issue of costs, I make the order because of the letter which the plaintiff sent to the defendants dated 27 October 2011 (before the proceeding was issued),  the defendant’s conduct in the course of the litigation, and the obligations of the defendant referred to in the Civil Procedure Act. In short, the plaintiff gave the defendants every opportunity before proceedings began to reach a negotiated conclusion to the dispute without the need for litigation. Rather than respond appropriately to such an offer, the defendants spurned such an approach. Their conduct resulted in the plaintiff issuing proceedings. The defendants, after service was effected, caused the parties to engage in various interlocutory steps. Also, they filed a defence which raised various factual and legal matters which the plaintiff had to address. Then, as the trial date approached, the second defendant failed to attend the mediation and did not appear at trial. It seems to me that such conduct is contrary to the party’s obligations under the Civil Procedure Act. This conduct delayed the final resolution of the case and caused the court and the plaintiff to deal with a case in which no defence on the merits was raised at trial. As a result of the second defendant’s conduct, the plaintiff has undoubtedly incurred substantial unnecessary costs and has been delayed in obtaining judgment. In those circumstances, I regard it as appropriate to exercise my discretion to award costs on the basis referred to.

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Certificate

I certify that these 6 pages are a true copy of the reasons for decision of His Honour Judge Cosgrave delivered on  30 April 2014.

Dated:  2 May 2014

Monika Paszkiewicz

Associate to His Honour Judge Cosgrave