Molinara v Perre Bros Lock 4 Pty Ltd - [2014] SASCFC 115

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court: Civil)
MOLINARA v PERRE BROS LOCK 4 PTY LTD
[2014] SASCFC 115
Judgment of The Full Court
(The Honourable Chief Justice Kourakis, The Honourable Justice Nicholson and The Honourable Justice Parker)
30 October 2014
APPEAL AND NEW TRIAL - APPEAL - GENERAL PRINCIPLES - INTERFERENCE WITH JUDGE'S FINDINGS OF FACT - PROOF AND EVIDENCE
APPEAL AND NEW TRIAL - NEW TRIAL - IN GENERAL AND PARTICULAR GROUNDS - PARTICULAR GROUNDS - EXCESSIVE OR INADEQUATE DAMAGES - EXCESSIVE DAMAGES
TRADE AND COMMERCE - COMPETITION, FAIR TRADING AND CONSUMER PROTECTION LEGISLATION - CONSUMER PROTECTION - MISLEADING OR DECEPTIVE CONDUCT OR FALSE REPRESENTATIONS - CHARACTER OR ATTRIBUTES OF CONDUCT OR REPRESENTATION - SILENCE AND NON-DISCLOSURE
TRADE AND COMMERCE - COMPETITION, FAIR TRADING AND CONSUMER PROTECTION LEGISLATION - ENFORCEMENT AND REMEDIES - ACTIONS FOR DAMAGES - ASSESSMENT OR AVAILABILITY OF DAMAGES - BASIS UPON WHICH DAMAGES ASSESSED
In 2003 the respondent entered into an agreement to lend money to First Pacific Capital Pty Ltd (First Pacific Capital) providing finance in the amount of $125,000 for a term of one year. The appellant was a principal of First Pacific Capital. The loan continued to roll over each year, and in 2006 the appellant negotiated a further extension of the loan. In 2007, First Pacific Capital defaulted on the loan and within three months the company was deregistered. The respondent brought proceedings in the District Court claiming damages, pursuant to ss 12CA(1) and 12DA(1) of the Australian Securities and Investment Commission Act 2001 (Cth) (the ASIC Act), for misrepresentations made by the appellant. It was found by the Judge that the appellant misrepresented the financial position of First Pacific Capital in the course of negotiating the loan extension in 2006, and that but for those misrepresentations the loan capital would have been successfully recovered by the respondent taking legal proceedings against First Pacific Capital. Judgment was given in the sum of $112,500 being the whole of the unpaid principal of the loan.
The appellant appeals against the Judge’s finding that the respondent would have successfully recovered its loan capital but for the misrepresentations on the following grounds; that the failure of the respondent to commence legal proceedings against First Pacific Capital after its default in 2007 show that it would not have brought legal proceedings even if the misrepresentations had not been made, and that the respondent failed to prove that First Pacific Capital had a capacity to meet any demand or judgment which the respondent might have obtained had it brought proceedings.
Held by Nicholson J (Parker J agreeing) allowing the appeal in part:
The Judge’s finding that the respondent would have recovered the loan principal in full had it sought recovery in November 2006 in lieu of entering into a further extension of the loan agreement was not supported by the evidence before the Court.
Taking the evidence as a whole and after considering all relevant contingencies, the value of the respondent’s lost opportunity to recover the…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2014] SASCFC 115
Decision Date: 30 October 2014

CaseChat Overview and Summary

This case involved an appeal by Mr Molinara against an award of $112,500 in damages granted to Perre Bros Lock 4 Pty Ltd (the respondent). The respondent had lent $125,000 to First Pacific Capital Pty Ltd (First Pacific Capital), a finance company, in 2003. The loan was renewed annually. By late 2006, the respondent became concerned as First Pacific Capital had ceased making interest payments. Following a meeting in November 2006 with a director of First Pacific Capital and Mr Molinara, who had recently resigned as a director, the respondent agreed to extend the loan for a further 12 months. First Pacific Capital subsequently failed to repay the loan and was deregistered in December 2007. The respondent did not take legal action against First Pacific Capital before its deregistration and instead commenced proceedings against Mr Molinara, alleging breaches of sections 12CA(1) and 12DA(1) of the Australian Securities and Investment Commission Act 2001 (Cth) due to misleading or deceptive conduct at the November 2006 meeting.

The central legal issues before the court were whether Mr Molinara's conduct at the November 2006 meeting constituted misleading or deceptive conduct, and if so, whether this conduct caused the respondent to suffer loss. Specifically, the court had to determine if Mr Molinara misrepresented First Pacific Capital's financial position by providing incorrect information about its investments and by remaining silent on critical issues, thereby inducing the respondent to roll over the loan. The respondent contended that had it known the true financial state of First Pacific Capital, it would have sought repayment and taken legal action, thus avoiding the loss of its principal.

The court considered the evidence presented by Mr Molinara regarding the financial difficulties of First Pacific Capital, including defaults by major borrowers which had severely impacted its liquidity. It also noted Mr Molinara's testimony about an agreement to use profits from a related company, FPP Development, to repay First Pacific Capital's creditors. The court found that Mr Molinara's factual findings were not demonstrably wrong. In assessing causation, the court indicated that even if it were satisfied that First Pacific Capital would have made only partial repayment, it would have weighed the competing contingencies heavily in favour of the respondent, potentially awarding compensation close to the entire unpaid principal.

The appeal was dismissed. The court affirmed the trial judge's findings of fact and concluded that Mr Molinara's conduct had caused the respondent's loss. The award of $112,500 in damages was upheld.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

I would dismiss the appeal. I am not persuaded that the Judge’s factual findings were wrong. My reasons follow.The Evidence Mr Molinara gave evidence that the business of First Pacific Capital was to make secured loans to property developers. He explained that the security included first and second mortgages and caveats. According to Mr Molinara, as at the beginning of 2006 First Pacific Capital had borrowed about $3 million from private individuals and entities, like Lock 4, which it then on-lent to property developers. Amongst lenders to First Pacific Capital were members of Mr Molinara’s extended family who, together, had loaned First Pacific Capital $500,000. Mr Molinara claimed that many of the loans made by First Pacific Capital were successful, but that in late 2005 two substantial borrowers, a developer in Queensland and another in Melbourne, defaulted. Even though First Pacific Capital took recovery action against them Mr Molinara testified that the defaults “completely dried up our liquidity”. Mr Molinara explained that First Pacific Capital attempted to meet its obligations to its creditors with little or no income coming into the company: We did our very best to pay the interest on the outstanding loans. Many of those loans – or those interest payments were made. Many were paid. Many we had entered into arrangements to suspend payments for a period of time to allow us time to try to recover the debt. We were also trying to fund our legal costs in the recovery action. So our liquidity was critical at that time. Mr Molinara testified that one of the developers which borrowed from First Pacific Capital was a related company, First Pacific Property Development Pty Ltd (FPP Development). First Pacific Capital had loaned FPP Development $200,000 as “seed capital”. FPP Development undertook three property developments in the greater Adelaide metropolitan area. Mr Sandercock was a director of FPP Development and both Mr Molinara and Mr Sandercock were shareholders of that company. Even though Mr Molinara was not certain, he testified that the loan to FPP Development had been repaid before the Lock 4 loan was extended in 2006. Mr Molinara testified that he and Mr Sandercock came to a private agreement in 2006 to use the profits of FPP Development to pay First Pacific Capital’s creditors:We had agreed that we would use the profits and the funds from First Pacific Property Development to repay monies back into First Pacific Capital. We would personally forego any profits or we would – and our own particular loans to that company in an effort to satisfy any outstanding liabilities of First Pacific Capital. It is implicit in that answer and given that Mr Molinara was a shareholder of FPP Development that he held an interest of some kind in the profits it was hoped it would generate. The 2006 extension of the Lock 4 loan agreement was negotiated in an office in Franklin Street. The Judge found, in accordance with Mr Molinara’s evidence, that on 18 September 2006 First Pacific Capital was evicted from offices which it had leased in Hutt Street and that it commenced to operate from the office in Franklin Street on 1 November 2006 shortly before the meeting (the November meeting).

Decision

Reasons for decision

KOURAKIS CJ (dissent) NICHOLSON J (dissent)

If, on this issue of causation, I were satisfied only that First Pacific Capital would have made some repayment but remained unable to say how much, I would have weighed the competing contingencies heavily in favour of Lock 4, and would have awarded it compensation approximating the whole of the unpaid principal.Conclusion I would dismiss the appeal. Introduction This is an appeal against an award of $112,500 made in favour of the respondent company by way of damages for the appellant’s misleading or deceptive conduct. I have had the advantage of reading the reasons of the Chief Justice. I agree with much of the Chief Justice’s reasoning. However, I have reached a different conclusion. On 12 June 2003, the respondent company lent $125,000 to a finance company, First Pacific Capital Pty Ltd (First Pacific Capital). The loan agreement was renewed (“rolled over”) annually. By late 2006, representatives of the respondent Mr Guiseppe Perre, Mrs Giuseppina Perre and their son Mr Frank Perre (the Perres) had become disconcerted by the fact that First Pacific Capital had stopped meeting the monthly interest payments on the loan. In or about November 2006, they met with a director of First Pacific Capital (a Mr Sandercock) and the appellant, who had recently resigned as a director, to discuss their concerns. As a result of what occurred at the meeting, the Perres, on behalf of the respondent agreed to roll over the loan for a further 12 month period, backdated to 16 June 2006. First Pacific Capital failed to repay the loan and its accumulated interest obligation when it fell due in June 2007. The company was deregistered in December 2007. It is common ground that it failed financially. After quite some delay, the respondent brought proceedings against the appellant seeking recovery of the loan principal. The respondent did not take any conventional legal step[23] to attempt to recover the loan directly from First Pacific Capital at any time prior to its deregistration. [23] Such as issuing a statutory demand or initiating court proceedings. These proceedings against the appellant were brought on the basis that his conduct at the November 2006 meeting gave rise to breaches of ss 12CA(1) and 12DA(1) of the Australian Securities and Investment Commission Act 2001 (Cth). The respondent alleged that the appellant had misrepresented First Pacific Capital’s financial position during the meeting, by providing incorrect information regarding its investments and by remaining silent on certain critical issues, so as to procure a fourth roll over of the loan. The respondent contended that had it (through the Perres) been made aware of the true financial situation of First Pacific Capital, it would not have renewed the loan in November 2006 but would have sought repayment by First Pacific Capital and, if necessary, taken legal action. The effect of the evidence of Frank and Giuseppina Perre was that the appellant misled them as to the secure nature of the loan money. The appellant represented that First Pacific Capital had no capacity to repay the loan in November 2006 but that there was no problem. It just needed time for the benefits of some unfinished projects to materialise and the respondent would not lose its money. Frank and Giuseppina Perre both said that if they had been aware that First Pacific Capital was then in financial difficulty they would not have agreed to roll over the loan but would have sought repayment of the loan.

Ratio Decidendi

Legal Principle Established

Established by:

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