NK NSW Recoveries Pty Ltd v First Debenture Project No. 5 Pty Ltd

[2017] NSWDC 163

District Court

New South Wales

Medium Neutral Citation:	NK NSW Recoveries Pty Ltd v First Debenture Project No. 5 Pty Ltd [2017] NSWDC 163
Hearing dates:	11 and 12 May 2017; 20 June 2017
Date of orders:	04 July 2017
Decision date:	04 July 2017
Jurisdiction:	Civil
Before:	Gibson DCJ
Decision:	(1) First plaintiff’s claim against the defendants dismissed. (2) Judgment for the second plaintiff against the second defendant for the sum of $75,000 plus interest calculated from 1 March 2013 pursuant to s 100 Civil Procedure Act 2005 (NSW). (3) The parties are to bring in Short Minutes of Order reflecting the mathematically agreed calculation of interest. (4) The second defendant is to pay 80% of both the plaintiffs’ costs of the proceedings. (5) All previous costs orders vacated. (6) Second defendant’s application for a stay refused. (7) Liberty to restore in relation to interest and costs. (8) Exhibits retained until further order.
Catchwords:	GUARANTEE – director of company in financial difficulties obtains urgent company loan on condition he provides a guarantee – terms of loan are a two-week interest-free period followed by 48% compound interest – borrower company never makes any payments and goes into liquidation – proceedings commenced by the lender against the guarantor seeking payment of the principal and interest, the latter either under the terms of the contract or pursuant to s 100 Civil Procedure Act 2005 (NSW) - defence under s 7 Contracts Review Act 1980 (NSW) pleaded – whether the interest provision amounts to a penalty – whether, if the 48% compound interest amounts to a penalty, interest may alternatively be awarded under s 100 Civil Procedure Act 2005 (NSW) as sought in the statement of claim – whether lender or guarantor the successful party – “broad axe” costs order of 80% made in favour of the lender
Legislation Cited:	Civil Procedure Act 2005 (NSW), ss 56 – 62 and 100 Commercial Agents and Private Inquiry Agents Act 2004 (NSW), s 4 Contracts Review Act 1980 (NSW), ss 6 and 7 Conveyancing Act 1919 (NSW), s 12 Uniform Civil Procedure Rules 2005 (NSW), r 42.1
Cases Cited:	Clydebank Engineering and Shipbuilding Co Ltd v Don Jose Ramos Yzquierdo y Castaneda [1905] AC 6 Delaware North Marine Experience Pty Ltd v The Ship “eye-spy” [2017] FCA 708 Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79 Esanda Finance Corporation Ltd v Plessing (1989) 166 CLR 131 Heath v Goodwin (1986) 8 NSWLR 478 Jones v Dunkel (1959) 101 CLR 298 King Mortgages v Satchithanantham; Cash King v Satchithanantham [2006] NSWSC 1303 Kowalczuk v Accom Finance Pty Ltd (2008) 77 NSWLR 205 Metlife Insurance Ltd v Visy Board Pty Ltd and 25 Ors (Costs) [2008] NSWSC 111 Multiplex Constructions Pty Ltd v Abgarus Pty Ltd (1992) 33 NSWLR 504 Paciocco v Australia and New Zealand Banking Group Limited [2016] HCA 28 Re Chapman’s Ltd (No 3) [2015] NSWSC 2082 Re Elsmore Resources [2016] NSWSC 856 Reid v Brett [2005] VSC 18 Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656 Riz v Perpetual Trustee Australia Ltd [2007] NSWSC 1153 Roache v News Group Newspapers [1998] EMLR 161 Saler v Danell [2017] FAMCA 161 Smith v New South Wales Bar Association (1992) 176 CLR 256 Toscano v Holland Securities Pty Ltd (1985) 1 NSWLR 145
Texts Cited:	R. Parkes QC, A. Mullis, G. Busuttil, A. Speker & A. Scot, Gatley on Libel and Slander (Sweet & Maxwell, United Kingdom, 12th ed.) Spigelman CJ, “Truth and the Law” (The 2011 Sir Maurice Byers Lecture, 26 May 2011)
Category:	Principal judgment
Parties:	First Plaintiff: NK NSW Recoveries Pty Ltd Second Plaintiff: Ghassan Dib First Defendant: First Debenture Project No. 5 Pty Ltd Second Defendant: James Photios
Representation:	Counsel: Plaintiff: Mr D Allen Defendant: Mr A Friedlander   Solicitors: Plaintiff: Kekatos Lawyers Defendant: O'Neill Partners
File Number(s):	2015/121813
Publication restriction:	None

Judgment

Introduction

1. These are proceedings for recovery of the sum of $75,000 plus interest, being the sum loaned to the first defendant, guaranteed by the second defendant, as set out in paragraphs 1 to 6 of the Second Further Amended Statement of Claim filed on 14 February 2017. The sum in question was to be interest free for the first month and thereafter interest calculated at 48% per annum, compounded monthly.

2. The first plaintiff is a loan recovery company. The second plaintiff (hereafter referred to as “Mr Dib”), who loaned the money in question, by deeds of assignment dated 21 April 2015 and then 22 July 2016, purported to assign all of his rights, title and interest in the debt to the first plaintiff. As is set out in more detail below, both these assignments were invalid and the claim is now brought by Mr Dib as the sole plaintiff.

3. The Second Further Amended Statement of Claim (hereafter referred to as “the current statement of claim”) filed on 14 February 2017 seeks the repayment of the sum loaned to the first defendant from the guarantor, the second defendant (hereafter referred to as “Mr Photios”), with the following two alternative methods of calculation of interest:

1. Interest calculated from 1 March 2013 at 48% per annum compounding monthly, with the amount owing as at 14 February 2017 being $473,836.17. By the date of the hearing, this sum had increased to a figure well over half a million dollars, but the offer was made to “cap” the interest at $500,000.

2. In the alternative, interest calculated from 1 March 2013 pursuant to s 100 Civil Procedure Act 2005 (NSW), with the amount owing as at 14 February 2017 being $95,230.20. I note that this sum is approximately $10,000 more than the compound interest rate for the first year of the loan at the rate of 48%.

4. The Defence to the Second Further Amended Statement of Claim filed on 19 April 2017 pleads that the whole or part of the contract is void for uncertainty or, in the alternative, is harsh and unconscionable and, therefore, unenforceable pursuant to the Contracts Review Act 1980 (NSW). In the alternative, the second defendant claims (paragraph 8) that the $75,000 was not a loan to the first defendant but a repayment of monies previously advanced.

5. In response to a challenge to the adequacy of the deeds of assignment, the second plaintiff was joined to the litigation and effectively became the moving party. This was a significant amendment, as other pleaded defences include a claim that the first plaintiff was not a debt collection agent as defined in s 4 Commercial Agents and Private Inquiry Agents Act 2004 (NSW) and that the plaintiffs were obliged to interplead pursuant to s 12 Conveyancing Act 1919 (NSW). These should no longer have applied as the plaintiffs informed the court that the case would be run on the basis that only the second plaintiff’s claim is pressed. However, the defendant still asserted that the pleadings should be stayed until the parties (whose interests are asserted to conflict) interplead, and the first plaintiff’s entitlements as agent are provided.

The issues in the proceedings

6. The degree to which the parties were at odds with each other is reflected in their respective statements of issues. The plaintiff identified the issues as follows:

1. Did the Second Plaintiff lend $75,000 to the First Defendant?

2. Is the provision relating to interest void for uncertainty?

3. Is the entire Guarantee given by the Second Defendant unenforceable because of the operation of the Contracts Review Act 1980 (NSW)?

7. The second defendant provided the following list of issues:

1. Was the $75,000, provided in cash by the second plaintiff, a loan or the repayment of money previously advanced to the second plaintiff by or on behalf of the first defendant?

2. Was the $75,000 handed to the second defendant and, if not, was cash handed to Greg Huxley and in what amount?

3. Was the loan documentation adequately explained to the second defendant before he signed that documentation?

4. Is the provision for interest in the loan documentation void for uncertainty?

5. Is the interest rate of 48% per annum, compounding monthly, an onerous penalty rate?

6. Is the interest rate of 48% per annum, compounding monthly, unenforceable pursuant to the Contracts Review Act 1980 (NSW)?

7. Did the second plaintiff on 21 April 2015, or alternatively on 22 July 2016, assign to the first plaintiff the debt claimed in these proceedings?

8. If so, does the second plaintiff have any cause of action against the defendants?

9. Insofar as both plaintiffs claim the same debt, is the second defendant entitled to require the plaintiffs to interplead concerning their respective claims?

10. If so, should the proceedings be stayed until the interpleader is determined?

11. Has the first plaintiff, in seeking payment from the defendants, acted as a commercial agent?

12. If so, is the first plaintiff prevented by the Commercial Agents and Private Inquiry Agents Act 2004 (NSW) from seeking payment from the defendants?

13. Can interest be claimed in the period between the filing of the Statement of Claim on 24 April 2015 and the filing of the Amended Statement of Claim on 17 November 2016?

The second plaintiff’s evidence

8. The second plaintiff, Mr Ghassan Dib (sometimes referred to as “Gus Dib”), a solicitor of many years standing, is actively involved in the lending and borrowing of money. He had met the second defendant before, in the company of his friend Mr Huxley and also in the company of his solicitors, who practised in Leichhardt (T 25).

9. Mr Dib was asked to deal with the transaction the subject of these proceedings in circumstances of some urgency. Mr Photios, the second defendant, needed a cash loan of $75,000 that same day, and came to Mr Dib’s office very early that morning for this purpose:

“Q. Why did you provide cash?

A. He wanted the money immediately that morning and wasn't prepared to wait for any clearances so I got it for him in cash.” (T 40)

10. Mr Dib said that, prior to Mr Photios coming to the office on 15 February 2013 to collect the cash and sign the documentation, the terms on which the money would be lent, including the guarantee, and the conditions, including the interest rate and the requirement for cash, had been the subject of discussion between the relevant parties:

“Q. By whom and on what basis was the 48% interest rate calculated, do you know?

A. I think it was calculated by Mr Photios and Greg Huxley and Turnley(?) as per that ledger that I was questions about, the $75,000 payment. They kept updating it and sending it and that's what appears to be in there, referred to as overheads, Dib law 75,000.” (T 54)

11. Mr Dib sets out a description of what happened in his office in his affidavit of 13 February 2017 as follows:

“7. I recall that I have only seen Mr Photios in my office on three occasions and each occasion was on 15 February 2013.

8. The first occasion was on the morning of 15 February 2013. I gave Mr Photios the loan documents, being the unexecuted documents at Tabs 1 to 12 of the Tender Bundle, and I said, “Come back after you have taken the documents to your lawyer and executed them with him. He has to certify that he has advised you on the obligations you are undertaking by accepting the loan, including the obligation to compounding interest.”

9. Mr Photios left. Underneath my office is a café. During the morning I went to the café and I observed Mr Photios. When I observed him he had some documents with him and I saw that they were the documents I had given him that morning. I saw that he had the documents were open on the table at which he was sitting. I saw him looking at the documents as if he was reading them. I saw that he periodically turned the pages.

10. Later in the morning Mr Photios returned to my office. We had a conversation to the following effect occurred:

Photios I'll sign now.

Me No you have to get your lawyer to advise you on the documents and he has to certify that he has given you legal advice on the loan.

Photios I've read it, I understand it.

Me Mate, you have to get legal advice. No advice no loan.

Photios I've done these loans before, you know I know what I am doing.

Me I know you know what you are doing but you don't get any money until you have had the loan explained to you by a lawyer. I don't want you saying later that you didn't know what you were doing.

11. Mr Photios left. He took the documents I had given him that morning with him.

12. Later in the day Mr Photios returned to my office and I saw him in my office for the third time on the 15th of February 2013. We had a conversation to the following effect:

Photios Here are the signed documents.

I looked at the documents. The documents I took from him were the documents at Tabs 1 and 3 to 12 of the Tender Bundle. They were the documents I had given him that morning.

Me All seems okay. I am going to give you cash, and I you won't mind if I record you while you count the amount.

Photios fine.

13. I them gave Mr Photios $75,000 in $100 notes. That morning I had counted out $75,000 while I was at home and I had put the money I had counted into a back and brought the bag to my office.

14. I filmed on my phone and observed Mr Photios count the cash out.

15. I then saw Mr Photios replace the cash into the bag. We had a conversation to the following effect:

Photios That's $75,000

Me Perfect count. You need to sign for the money.

I then took from the bundle of documents Mr Photios had returned to me the document behind Tab 2 of the Tender Bundle. This document had not been signed at that stage and is the "Acknowledge" or receipt for the loan money.

Mr Photios took the document in his hand. I saw him look at the page in a manner consistent with him reading the document. He took a pen into his hand and I then saw him sign the document. After he had signed the document he handed the document to me. He then said. "Thanks. I'll see you later." He left, with the bag into which he had place the money he had just counted.

16. After he left I took the documents he had handed to me at the meeting. I put them on my file for the loan.

17. I have only given cash to Mr Photios once and that was on 15 February 2013.

18. When I saw Mr Photios on the 3 occasions in my office on 15 February 2013 I did not see Greg Huxley. When I saw Mr Photios in my office he was alone. When I saw him at the café on 15 February 2013, he was alone. He was not with Greg Huxley.”

12. The reason that these documents were accepted the second time was that, in the interim, Mr Photios had obtained independent legal advice. Mr Dib’s said Mr Photios had, according to the documentation, seen a Mr X (whose name I have anonymised by reason of allegations made about him), a solicitor with his own practice separate from that of Mr Dib in another building about two blocks away, and who had signed the relevant statement containing a disclosure of giving independent legal advice.

13. Mr Photios agreed that Mr Dib told him he needed this advice, but claimed that Mr Dib had taken him there:

“23. Gus Dib then said to me words to the following effect:

“You also need to sign in front an independent witness. I will take you next door to see [Mr X].””

(Affidavit of James Photios, 29 July 2016, paragraph 23)

14. Mr Dib denied going with Mr Photios and that Mr Photios was not alone but accompanied by Mr Huxley (T 91). He said that Mr Photios in fact had his own lawyers and could have seen them if he had wished.

15. Mr Dib’s evidence was supported by stills from his mobile phone showing Mr Photios counting the money. In the background are photographs which Mr Dib identified, in his affidavit, as being photographs of his family. He also identified this location as being his office.

16. Mr Dib’s evidence is that Mr Photios, who was unaccompanied, left his office as soon as he received the $75,000 cash. Two weeks later, the interest-free period had expired but the first defendant did not repay the money.

Was the money borrowed?

17. It was put to Mr Dib that the money was not borrowed at all, and that despite the terms of the loan agreement and guarantee, Mr Dib in fact owed this $75,000 and was repaying it, apparently to a Mr Huxley:

“Q. I want it put to you, Mr Dib, that you received all these moneys that are referred to on page 16 of that affidavit, including the $75,000?

A. Absolutely not. Sir, your client here says that "including a payment of $75,000 on 13 October 2012". You've told me it's before the loan was issued. Why would your client go and consent and confirm that he is actually receiving the loan some time later with this belief. It doesn't make sense.” (T 33)

18. The photographs of Mr Photios counting the money in Mr Dib’s office were challenged and Mr Dib’s mobile phone was called for (T 37).

19. A series of diffuse allegations were put to Mr Dib by Mr Friedlander, such as that he was giving cash to Mr Photios for the purpose of laundering it (T 41), whether the loan agreement had been stamped (T 45 – 46), a challenge to the authenticity of a signature from a solicitor from Mr Dib’s office (T 55), a claim of “substitution of pages” and forged signatures in the court pleadings (T 72 – 80), including a request to cross-examine three solicitors acting for the plaintiff (T 82 – 86). A great deal of time was spent on whether the bringing of the case on the part of Mr Dib still required an interpleader instead of an order that the claim by the first defendant be dismissed (which is in fact the order I have made). Many of these allegations were abandoned in the course of final submissions and I propose, with one exception, merely to note them as matters which were not pressed.

20. That exception relates to whether Mr Photios had come to his office by himself or in the company of a Mr Huxley.

The evidence of Mr Photios

21. Mr Photios gave a very different version of events. First, he denied not only that the subject of the guarantee was raised with him by Mr Dib but that he even had a telephone call with Mr Dib:

“Q. Before you got to his office, in early February, you telephoned Mr Dib and said to him this, "Gus, I need for you to lend $75,000 to First Debentures. I'm happy to personally guarantee this amount which will only be a short‑term loan which I can pay back in about two weeks."  Do you agree that you made that telephone call?

A. I never made that phone call.

Q. And Mr Dib‑‑

A. I never spoke to Mr Dib on the phone.

Q. Have you never spoken to Mr Dib on the telephone prior‑‑

A. Never.

Q. Mr Dib says you did and he says that he responded to you by saying‑‑

A. He said this. My case is‑‑

Q. "Okay, I will not‑‑

HER HONOUR: Sir, will you please let, counsel is obliged to put this conversation to you, yes, please go on.

ALLEN

Q. "Okay, I will not charge you interest if you pay it back in two weeks. If First Debenture doesn't repay the loan in two weeks, I will charge 48% per annum until the loan is repaid. You will have to personally guarantee that."  Mr Dib had that conversation with you over the telephone didn't he?

A. No.” (T 140)

22. Next, he said he was given loan documents but without the opportunity or time to read them:

“20. I refer to paragraphs 6 and 8 of the Dib affidavit. The first time I saw these documents and other related documents was after I arrived at Gus Dib’s office on 15 February 2013. I did not have time to read them but I noticed that one of the documents was a deed of guarantee to be signed by me.”

(Affidavit of James Photios, 29 July 2016, paragraph 20)

23. Third, he said he was still in too much of a hurry even when he received advice from Mr X:

“Q. When you saw Mr X [name deleted], you agree, do you not, that you had the opportunity of asking questions about the loan documents?

A. I did have the opportunity if I wanted to.

Q. And it's the case that you didn't want to ask‑‑

A. We were in a hurry‑‑

Q. It's the case, is it not, that you decided not to ask him any questions about the loan documents?

A. Mr Allen, we were in a hurry to get to the city to pay down certain fees that needed to be paid and that's all that I can say to you, and I had to get back by public transport ‑ without the money ‑ back to the city.” (T 165)

24. Eventually, and grudgingly, Mr Photios admitted in cross-examination that he had known the documents he was given contained a clause with a personal guarantee:

“Q. After seeing Mr X [name deleted], you were happy to go ahead with the guarantee you were going to give for the obligations of First Debenture No 5, that's correct isn't it?

A. I had no choice.

Q. You'd agree that Mr‑‑

A. I wasn't happy with the, sorry.

Q. No, please answer the question.

A. I wasn't happy‑‑

FRIEDLANDER: What was the question?

WITNESS: ‑‑at the time I was told to sign it but I was told that I would not, the company would not get the money and we would not be able to make the payments to the NSC and make payments for the securing of further funding.

ALLEN

Q. Do you agree now, as you sit in the witness box, that Mr Dib made a loan of $75,000 to First Debenture No 5 Pty Ltd?

A. Yes, he did.

Q. Do you agree that you guaranteed repayment of that loan?

A. Under duress.

Q. Do you agree that you guaranteed repayment of that loan?

HER HONOUR

Q. How about this, do you agree that you signed the guarantee?

A. I signed the guarantee.

ALLEN

Q. You'd agree that it was always the intention of First Debenture No 5 Pty Ltd to repay the $75,000 to Mr Dib?

A. Of course it was.

Q. You agree that it was always First Debenture No 5's intention to pay the $75,000 plus interest in a short period of time back to Mr Dib?

A. If it had exceed [sic] the time period, the free time period, yes.

Q. You'd agree that in February 2013, you did not envisage the $75,000 plus interest not being repaid‑‑

A. Within two weeks, no.

Q. You didn't, certainly didn't envisage the money not being repaid by 1 July 2013 did you?

A. I can't remember what I thought on 1 July 2013.

Q. No, when you go back in your mind to 15 February 2013‑‑

A. Correct.

Q. ‑‑you were under no apprehension or doubt that the $75,000 plus interest would have been repaid to Mr Dib by 1 July 2013?

A. I don't remember that.

Q. You'd agree that you are under no doubt or apprehension that the money was going to be repaid to Mr Dib within a period of about two weeks?

A. Correct.

Q. There's some confusion I think about a question you asked. I think the question I got you were happy to give the guarantee and you said, you gave two answers, I think you said, no choice and you were not happy?

A. That's right.” (T 156 – 157)

25. Mr Photios also claimed that Mr Huxley had accompanied him and that Mr Huxley told him that if he did not sign the agreement and the guarantee there would be no money. I note that this is inconsistent with the hearsay conversation he sets out between himself and Mr Huxley in his affidavit, where Mr Huxley is asserted to have said he only noticed this requirement later (Affidavit of James Photios, 29 July 2016, paragraphs 21 and 22).

26. While Mr Dib said that Mr Huxley was not present, whether he was there or not is irrelevant, in that if he had been there and made these statements, that would have confirmed Mr Photios’ understanding that without the guarantee there would be no loan.

27. Mr Photios claimed that Mr Huxley was with him and that they both counted the money:

“Q. Now let's please be certain. When you say you counted your part, do you see that you did not count out the entire 75‑‑

A. I didn't count out the full 75,000 no.

Q. That's not true at all is it?

A. Of course it is.

Q. How much did you say you counted out then?

A. I don't know, I mean there was two of us counting at the time.

Q. Do you agree that the pictures who form part of the Court book‑‑

A. Only show me, yes.

Q. ‑‑only show you counting money?

A. Yes.”

Q. The reason they only show you counting money is because you were the only person who in fact counted money?

A. No.” (T 142)

28. I note that it is indeed the fact that only Mr Photios is shown counting the money. Allegations of these photographs and/or the mobile phone footage used to film Mr Photios were in some way altered formed part of the interlocutory applications and again at the hearing (in the form of a call for the full film on the USB drive) but were not pursued in closing submissions.

29. Mr Photios eventually conceded having seen the interest clause (T 145 – 146), although he went on to claim, inconsistently, that he only found out the interest rate “after” these events (T 147 and again at T 148). He said that he was under duress at all times during these meetings with Mr Dib and the independent solicitor and that Mr Huxley told him that he had to sign the documents.

30. The relevance of Mr Huxley’s presence is that he, and not Mr Huxley, is asserted to have received the cash from Mr Dib. In his affidavit, Mr Photios claimed he returned the signed documents to Mr Dib and left without the money or left without even counting the money:

“26. I returned to Gus Dib’s office with the signed documents and Greg Huxley then said to me words to the following effect:

“Go back to the city. I will collect the money and bring it to you.””

(Affidavit of James Photios, 29 July 2016, paragraph 26)

31. Mr Friedlander submits that I should draw a Jones v Dunkel inference (Jones v Dunkel (1959) 101 CLR 298) from Mr Dib’s failure to call Mr Huxley. However, given the long association between Mr Photios and Mr Huxley as stated by Mr Dib (whom I regard as a witness of credit), if I were to draw any such inference, it would be against Mr Photios, and not Mr Dib.

32. The stills from Mr Dib’s phone show Mr Photios counting bundles of $50 and $100 notes. Mr Photios had initially claimed that the photographs of him counting the money were the result of photoshopping and were not of him:

“Q. Do you accept that's a picture of you on the first page of tab 13?

A. Yes.

Q. And do you agree that it shows you counting money?

A. Yes.

Q. And do you agree that it shows you counting money in Mr Dib's office?

A. Yes.

Q. And do you agree that you initially did not accept that this was a photo of you at all?

A. I wasn't sure if that was a photo of me at the time.

Q. Can you explain to me how you‑‑

A. I didn't get‑‑

Q. Sorry, will you let me finish?  Can you explain to me how you cannot be sure that that page did not show a photograph of me?

A. I had my reservations. I wanted to see ‑ I wanted to see proof that it was me.

Q. Will you please look at the photo?  Can you explain to me how you could not recognise yourself in that photo?

A. Mr Allen, could I explain to you?  In this day and age of Photoshopping and doing things, I wanted to ensure that it was a true photograph of myself. At that point in time I could not remember whether or not I had counted the money. There was someone else there with me at the time ‑ a Mr Huxley was in that office with me at the time. I know that Mr Dib has said that Mr Huxley was not in that office but he was definitely in that office because I came by train and I met Mr Huxley at Bankstown. I didn't come out there by car‑‑

Q. Will you please answer my question‑‑

A. ‑‑so, I wouldn't‑‑

HER HONOUR: Sir, please ‑ you're talking over each other ‑ do you think you could confine your answers to the questions?  I appreciate you want to tell us all what's happened but the thing is, if you could just answer the question, that would be really helpful because that's the purpose of you being cross examined. So, just put the question again and ‑ just try and answer the question ‑ you don't have to explain it. We'll sort all the issues out later.

ALLEN

Q. If you go to tab 13, on the first page behind tab 13, you agree, don't you, that that picture shows you counting money?

A. Yes.” (T 135-136)

33. A notice to produce for the phone and the metadata for the recording was made. The following cross-examination occurred at T 136-137:

“Q. How could you have ever been in any doubt that that document is a photograph of yourself?

A. I never said I was in doubt. I just said that I wanted to be ‑ I wanted to ensure that it was a photograph of me that hadn't been Photoshopped. We only ever produced originally these photos. We didn't see the video at that point in time.

Q. Do you say that you were concerned that this document showed a picture that had been Photoshopped. Is that what you're telling me?

A. I said I was concerned about it, yes.

Q. And when you say that you were concerned about that photo being the result of the Photoshop application, you're just being totally disingenuous, aren't you?

A. No.

Q. Could I show you this document ‑ just the top document at the moment ‑ do you see that document is a notice to produce?

A. True.

Q. And you agree that you addressed that notice to Mr Ghassan Dib?

A. Yes.

Q. And do you agree that you issued that notice to produce because you did not initially accept that the photographs behind tab 13 showed pictures of you counting money in Mr Dib's office on the 13th‑‑

A. I don't think it says that here.

Q. ‑‑on 15 February 2007?

A. I don't think it says that here. It just asks for a copy of the video and the metadata.

Q. It's true, is it not, that you required Mr Dib to produce the metadata that produced the photographs behind tab 13?

A. Correct.

Q. And you required Mr Dib to produce that metadata despite the fact there was no doubt that the photographs depicted you?

A. No.” (T 136-137)

34. Mr Photios’ explanation was that he had somehow been forced into this transaction:

“Q. Do you agree that your signature appears on that document?

A. Under duress yes.

Q. Mr Photios, when you add gratuitously the words, "under duress," you have been totally and utterly dishonest on your oath aren't you?

A. I don't need to be told whether I'm being honest or not. I'm here, I've sworn under oath and it is 100% honest, I signed all those documents under duress. I have never met Mr X [name deleted] before, I have never spoken to him, I have never met him. Gus did took me to his office with Mr Huxley and then Gus did left and left me and Mr Huxley there. I was actually under duress to sign them because the funds were required in order to secure further funding.

Q. Do you agree that in your defence you do not plead any case of duress do you?

HER HONOUR: No, just say, "I want you to assume."

ALLEN: Okay.

HER HONOUR

Q. I want you to assume for the purpose of these questions that no plea of duress and no account of these events by way of particulars is set out in your defence. I want you to assume that.

HER HONOUR: All right, what's your question?

ALLEN

Q. You've just made up the allegation of duress in the witness box because you're not telling the Court the truth; that's the case, isn't it?

A. No.

Q. If there was any truth behind an allegation of duress, one would find the allegation set out in your defence; that's correct, isn't it?

A. I think it's pretty clear in my affidavit that I ‑ I'm pretty sure I put it in there” (T 143-144)

35. Mr Photios agreed that he was an experienced businessman who had taken out loans in the past and that it was his experience when looking at loan documents to go to the important clauses in those loan documents (T 140). He agreed that he was told that what was in the loan documents was how much the loan was for, the rate of interest, how that interest was calculated and when the money had to be repaid (T 140).

The credit of Mr Dib and Mr Photios

36. A significant problem for the credit of Mr Photios is that, in his Defence as well as in his evidence, he continued to claim there was no loan. At paragraph 7 of the Defence, he set out that the sum in question was not a loan to the first defendant but repayment of monies previously advanced to Mr Dib by or on behalf of the first defendant. As the statement of issue set out above confirms, this was identified as an issue at the trial.

37. However, in the end, Mr Photios was forced to concede:

“Q. Just so I can recap, do you agree that First Debenture Projects No 5 accepted a loan of $75,000 from Mr Dib on 15 February 2013?

A. Yes.

Q. And do you agree that First Debenture Project No 5 has not paid back that $75,000 to Mr Dib?

A. Yes.

Q. And do you agree, do you not, that the payment made by Mr Dib which was ‑ I withdraw that. Do you agree that a payment of $75,000 was made by Mr Dib to First Debenture Projects No 5 on 15 February 2013?

A. Yes.” (T 134)

38. Mr Dib’s credit had been the subject of challenge by the serious allegations in the affidavit material. Most of those allegations were not pursued at the hearing and still less in the submissions.

Resolution of credit issues

39. It is not necessary for a witness to admit to telling a lie for the court to be satisfied that he was in fact lying: Saler v Danell [2017] FAMCA 161 at [87]. I am satisfied that Mr Photios’ claims of not receiving and of not counting the cash were deliberate lies, and not the result of an error or a forgetful memory. I am also satisfied that he was not under any duress of Mr Dib’s making and that his hurry to get the money was the reason.

40. I am also of the view that the making of serious allegations of forgery and removal of pages from court documents made in relation to Mr Dib and his solicitors are not merely allegations for which there is no support but that these have no relevance to any issue in these proceedings. The circumstances in which these were made are also relevant to findings in relation to a party’s credit, as the making of serious allegations of the kind made here must give rise to questions about the credit and honesty of Mr Photios in relation to this litigation. While it is impractical for me to remove the name of the firm of solicitors acting for Mr Dib, I have anonymised the name of the solicitor who provided independent legal advice and the employees of the firm of solicitors acting for Mr Dib, Kekatos & Associates. The reputation of a solicitor for honesty and integrity should not be challenged lightly and courts should be careful to ensure that a solicitor accused of misconduct in the course of court proceedings should not have those unwarranted allegations made public merely because they are contained in a judgment.

41. In addition, Mr Photios’ pattern of grudgingly making a concession and then attempting to make the same claim (examples of which are set out above) resulted in an unacceptable degree of internal inconsistency in his evidence.

42. I am satisfied that Mr Photios is a witness of so little credit that his evidence should not be accepted without corroboration unless that evidence goes against his own interest.

43. Mr Dib, by contrast, gave straightforward and frank evidence and can be accepted as a witness of credit. As to minor discrepancies, such as whether Mr X’s office is two blocks away or in a building in the adjoining block, these are matters of the kind explained by Spigelman CJ in “Truth and the Law” (The 2011 Sir Maurice Byers Lecture, 26 May 2011) as being due to “the plasticity of memory” that honest witnesses may show.

44. Taking all of the above into account, I am satisfied that the transaction occurred in the manner described by Mr Dib and I shall proceed to determine the defences on that basis.

The defences

45. The only paragraph of Mr Friedlander’s submissions which deals with the defences is paragraph 4.2, which acknowledges that the company urgently required at amount of $75,000 on the day the loan was sought and puts the following matters as being relevant to the defences:

1. “First Debenture urgently required an amount of $75,000 on that day;

2. The documents were numerous and comprised many closed typed pages;

3. The financing documents, in final form, were not discussed by Dib and Photios and were merely handed to Photios when he arrived at Dib’s office;

4. The certificate of independent legal advice required by Dib was provided by a solicitor not known to Photios who was in the building next to Dib’s offices and not by the solicitor then acting for Dib who worked in a different suburb; and

5. The provision for payment of default interest was at a minimum of 48% per annum or, as claimed in the proceedings, 48% cumulating monthly.”

46. The remainder of Mr Friedlander’s submissions related to the orders he considered should be made in relation to the first plaintiff (submissions 1 – 2) that Mr Dib should not be able to “effectively stand in the shoes” (paragraph 3.9 of the submissions) of the first plaintiff, and that either the proceedings against Mr Dib should be dismissed or he should be ordered to pay the costs.

47. The order permitting Mr Dib to be joined as a party was made by Taylor SC DCJ on 10 November 2016. No appeal was brought from that order and there is no basis put before me to set that order aside. What costs orders should flow from his late joinder is an issue which is dealt with in the section of this judgment relating to costs.

48. The remaining sections of Mr Friedlander’s submissions dealt with the issue of the 48% compound interest.

The Contracts Review Act claim

49. By way of summary, I am satisfied that Mr Photios was not hurried into any transaction but told that he must get independent legal advice, and that he had ample time to read and digest the documents. I accept Mr Dib’s evidence that he saw Mr Photios in the café reading them and that he refused to enter into the transaction until Mr Photios returned with the signed statement from the independent solicitor he consulted after Mr Dib’s refusal.

50. The claim for relief under the Contracts Review Act 1980 (NSW) is pleaded on the basis that the terms of the contract are harsh and unconscionable or alternatively void for uncertainty. The issues in relation to unconscionability are those set out at paragraph 45 (a) – (e) above but, despite the reference to “uncertainty” in the headline to paragraph 6 of the submissions of Mr Friedlander, I was not addressed as to which clauses were uncertain, or why.

51. Section 7 Contracts Review Act 1980 (NSW) provides:

“7 Principal relief

(1) Where the Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, the Court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, do any one or more of the following:

(a) it may decide to refuse to enforce any or all of the provisions of the contract,

(b) it may make an order declaring the contract void, in whole or in part,

(c) it may make an order varying, in whole or in part, any provision of the contract,

(d) it may, in relation to a land instrument, make an order for or with respect to requiring the execution of an instrument that:

(i) varies, or has the effect of varying, the provisions of the land instrument, or

(ii) terminates or otherwise affects, or has the effect of terminating or otherwise affecting, the operation or effect of the land instrument.

(2) Where the Court makes an order under subsection (1) (b) or (c), the declaration or variation shall have effect as from the time when the contract was made or (as to the whole or any part or parts of the contract) from some other time or times as specified in the order.

(3) The operation of this section is subject to the provisions of section 19.”

52. In Paciocco v Australia and New Zealand Banking Group Limited [2016] HCA 28 the history of this legislation was described as follows:

“[355] Relevant to unjustness is the body of jurisprudence built around the terms and operation of statutes such as the Contracts Review Act 1980 (NSW). In over 30 years of decisions, the courts have brought the equitable technique in Jenyns to bear on countless factual circumstances. The primary judge referred to the principles from those cases. Each statute contains its own body of relevant circumstances to assist in the evaluative assessment. Here, s 76 of the National Credit Code and s 32X of the FT Act provide considerations relevant to the conceptions of unjustness and unfairness.”

53. There are two specific steps set out in the statute, as noted by Brereton J in Riz v Perpetual Trustee Australia Ltd [2007] NSWSC 1153. In Kowalczuk v Accom Finance Pty Ltd (2008) 77 NSWLR 205 Campbell JA noted at [87] the observations by Brereton J in Riz v Perpetual Trustee Australia Ltd (to which Hodgson and McColl JJA agreed) as follows:

“[87] In applying the Contracts Review Act, two distinct steps are involved. As stated by Brereton J in Riz v Perpetual Trustee Australia Ltd [2007] NSWSC 1153; (2008) NSW Conv R 56-198 at [51]:

… The first is whether the contract was unjust in the circumstances in which it was made, having regard to the factors referred to in s 9. This is a conclusion of fact, albeit one of ultimate fact involving a broadly based value judgment [Antonovic v Volker (1986) 7 NSWLR 151 at 154–155 (Samuels JA, Kirby P agreeing); Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256 at 270E (Samuels JA); Perpetual Trustee Company Ltd v Khoshaba [2006] NSWCA 41, [34]–[40] (Spigelman CJ), [106]–[111] (Basten JA)]. The second, which arises only if the first is resolved in the affirmative, is whether any and if so what relief should be granted; this involves the exercise of a judicial discretion [Khoshaba, [34]–[36] (Spigelman CJ), [109] (Basten JA)].”

54. The question of whether a contract is unjust depends upon the circumstances in which the transaction was entered into. The facts of this case are very different from those in which relief from the whole or a part of liability has been granted. There is no evidence of undue pressure or absence of independent legal advice (as to both of which, see King Mortgages v Satchithanantham; Cash King v Satchithanantham [2006] NSWSC 1303); to the contrary, Mr Dib insisted on Mr Photios obtaining independent legal advice and exerted no pressure on him. Mr Photios, an experienced businessman, could have sought to negotiate the terms but did not. Nor was there any educational or language barrier.

55. As noted in the findings of fact set out above, Mr Photios was an experienced businessman who entered into this contract well knowing that, if he did not return the money within the period provided, very heavy interest provisions would commence to apply. He had the business acumen and the opportunity for independent legal advice but it is clear that whether he knew or understands the details he would have signed anyway because he was desperate to obtain the money. He was under no disadvantage in relation to age, language or other disability, and he was under no pressure from Mr Dib to sign the documentation; it made no difference to Mr Dib whether Mr Photios signed or not.

56. Mr Allen submits, and I agree, that if Mr Photios had considered the 48% interest rate too high, he could have entered into negotiation or he could have refused the deal. It was not Mr Dib’s fault that Mr Photios was negotiating to borrow this money on the last day available in circumstances where he had been unable to obtain this money from other sources. In fact, there is no evidence of Mr Photios being unable to pay as at 15 February 2013, or of not being able to honour the guarantee.

57. As to the particulars set out in paragraph 6.6 of Mr Friedlander’s submissions, Mr Dib was under no obligation to explain further the documents he had prepared after his conversation the previous day (which I am satisfied took place as Mr Dib claimed) to Mr Photios, nor was he obliged to commence proceedings immediately after the two-week interest-free period expired, or indeed at all until such time as he saw fit to commence enforcement proceedings. I do not accept the submission that there was no opportunity to negotiate the terms of the loan (paragraph 6.6.3); the real problem Mr Photios had was that he was so desperate for the money that he could not even wait for a cheque to be cleared and had to ask for it in cash. That, however, was his problem, and not something for which he could blame Mr Dib.

58. It is not the role of the legislature or the court to ensure fairness in contracts; the parties are supposed to make the best financial deal that they can, and there is nothing unjust in lending money for profit. This was a high risk transaction for Mr Dib, in that the first defendant was comparatively risky as a borrower and the money was required in cash and in circumstances of considerable urgency. In those circumstances, if the terms upon which he was prepared to lend the money included a guarantee and a very high interest rate, that was simply a sharp business bargain as opposed to being conduct amounting to grounds for the striking down of the contract as a whole.

59. In particular, the provision that required Mr Photios to give a guarantee was not merely reasonable but standard in an agreement of this kind. The contract was perfectly reasonable in its terms; the only objectionable clause is the penalty clause.

60. Taking all of the above into account, the contract should not be set aside under s 7 Contracts Review Act 1980 (NSW). Nor do I consider any of its terms uncertain.

61. In the event that I have erred, I would note two points. The first is that, despite considerable evidence being led about the plaintiff’s professional experience and reasons for entering into the guarantee I was not addressed by either party as to whether s 6(2) Contracts Review Act1980 (NSW) (which provides that a person may not be granted relief under the Act in relation to a contract entered into in the course of or for the purpose of a trade, business or profession carried on by the person, other than a farming undertaking). I note that this oversight also occurred in King Mortgages v Satchithanantham; Cash King v Satchithanantham (see the observations to this effect at [135]), but that the court went ahead and made findings in favour of the defendant, on the basis that her husband had been carrying on the business, and not her. I consider that I am obligated, having regard to that decision, to note the evidence which has been led in this case to demonstrate that the plaintiff was in fact entering into this transaction for some professional purpose of his own.

62. The written submissions on behalf of the plaintiffs (at paragraphs 5 – 7) concerning Mr Photios’ own business activities, independent of the loan for the company, appear to hint that s 6(2) Contracts Review Act 1980 (NSW) would apply: Re Elsmore Resources [2016] NSWSC 856 at [64]. While it could be said that the company was carrying on the business (the grounds for exclusion in Toscano v Holland Securities Pty Ltd (1985) 1 NSWLR 145), the evidence led from Mr Photios in cross-examination show that he was making decisions in relation to other business activities as to whether a company he controlled would make loans (at T 153) and is, as the plaintiffs’ written submissions note at paragraph 27, “an experienced business man” in his own right. However, it does appear that the loan was for the purposes of the company and, however artificial it may be, it would appear that the giving of the guarantee falls within the Toscano v Holland Securities Pty Ltd loophole.

63. The second issue is the extent to which the contract should be set aside. Mr Friedlander submitted that the whole contract should fall, while Mr Allen submitted that only the interest rate should be exempted.

64. For the reasons set out above, if I have erred in my findings as to s 7 Contracts Review Act, all that should be set aside would be the interest rate. The rest of the contract (and in particular the requirement for a guarantee) is perfectly fair and reasonable and Mr Photios should not be excused from liability for his guarantee. In addition, he would also be entitled to interest, and I would have made exactly the same s 100 Civil Procedure Act 2005 (NSW) interest orders as I have made in lieu of the penalty clause rate.

The defence in paragraph 8

65. As noted at the commencement of this judgment, paragraph 8 of the defence pleads that the funds were not a loan at all, but a repayment of monies already owed.

66. Mr Friedlander did not make any submissions in relation to this defence, a point noted by Mr Allen, who submitted that the circumstances in which Mr Photios would bring such a claim which was wholly in contradiction with the terms of the loan agreement were an indication of his lack of honesty and reliability as a witness.

67. I formally note, in relation to this defence, that I am satisfied that the monies were advanced by way of a loan to the first defendant which was guaranteed by Mr Photios, and that there was no loan which required repayment.

The interest provisions

68. Mr Allen’s submission is that the provision for interest apart from a two week interest free period was not imposed as a punishment for not repaying the loan, but as a normal incident of borrowing money. Mr Allen argues that the rate need not be a genuine pre-estimate of loss, because the interest is not charged in order to compensate Mr Dib for a breach of contract, but to earn him a profit on his money in circumstances where there was a strong incentive on Mr Photios and the company to repay the loan as quickly as possible.

69. Mr Friedlander’s submission is that 48% compound interest is self-evidently a penalty. Alternatively, he submits that they are void for uncertainty, although without explaining why that is so.

Are the interest provisions void for uncertainty or unenforceable as a penalty?

70. A “penalty” clause is one for a payment of money which amounts to being in terrorem of the defaulting party, unlike payment of money as liquidated damage that is a genuine covenant to a pre-estimate of damage. The relevant tests will include whether the sum stipulated is extravagant and unconscionable in comparison with the greatest loss that could conceivably be proved to have followed from the breach. In Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656 the High Court confirmed that the basic principles governing the law of penalties in Australia are derived from the speech of Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79 (Paciocco v Australia and New Zealand Banking Group Limited at [6], although French J goes on, at [7] – [10], to note that reliance should be placed on Australian decisions).

71. Mr Friedlander’s contention is simply that the interest rate of 48% is a penalty clause rather than a genuine pre-estimate as to liquidated damages: Multiplex Constructions Pty Ltd v Abgarus Pty Ltd (1992) 33 NSWLR 504 (at 527); Clydebank Engineering and Shipbuilding Co Ltd v Don Jose Ramos Yzquierdo y Castaneda [1905] AC 6 (at 15).

72. Whether a clause in a contract is a penalty clause is a question of construction on the terms and circumstances of each particular contract charged at the time of making the contract, not at the time of the breach. The substance of the transaction, rather than the words used, is the focus of the inquiry.

73. Relevant considerations include (see Multiplex Constructions Pty Ltd v Abgarus Pty Ltd at 513):

1. The relationship between the parties;

2. The origin of the clause;

3. Discussions concerning the clause;

4. The bargaining position of the parties;

5. Whether they were fully advised; and

6. Whether in all the circumstances the party claiming the ineffectiveness of the clause appreciated the likely imposition were its application to arise.

74. In Paciocco v Australia and New Zealand Banking Group Limited, Kiefel J (as the Chief Justice then was) analysed the four tests for penalty clauses as follows:

“[32] Lord Dunedin offered four “tests” to assist “this task of construction”. They were couched in the language of their time and were intended as guidance only. Tests tend, over time, to encourage literal application. Especially is this so where the basal purpose of the larger principle, or policy, of the law is not stated. That policy has not changed over time. It is that a sum may not be stipulated for payment on default if it is stipulated as a threat over the person obliged to perform; it may not be stipulated where the purpose and effect of requiring payment is to punish the defaulting party. This latter prohibition has found expression in modern times, as is evident from the passage from Legione v Hateley referred to above and also from judgments in Cavendish. It may be inferred from this policy that a sum stipulated for payment on default is a penalty if it bears no relation to the possible damage to or interest of the innocent party.

[33] The first, and principal, “test” stated by Lord Dunedin is that a sum stipulated will be a penalty if it is:

“extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach.”

If the “test” is understood to convey that only loss in the nature of damages directly flowing from the breach is to be considered, then it is unduly restrictive, though no doubt it remains useful to many cases.

[34] The terms “extravagant” and “unconscionable” (and also “exorbitant”) had been used in Clydebank Engineering and Shipbuilding Co v Don Jose Ramos Yzquierdo y Castaneda, where the Earl of Halsbury LC said that the jurisdiction given to the court to interfere in an agreement between parties was with respect to an agreement which was “unconscionable and extravagant, and one which no Court ought to allow to be enforced.” Even earlier, the Scottish Court of Session in Forrest and Barr v Henderson, Coulborn, and Co had said that “equity will interfere to prevent the claim being maintained to an exorbitant and unconscionable amount.” As explained below, “extravagant”, “exorbitant” and “unconscionable” are “strong words”; despite the different expressions used, they all describe the plainly excessive nature of the stipulation in comparison with the interest sought to be protected by that stipulation.

[35] The second “test” was said to be merely a corollary of the first, and concerns the case where the breach is constituted by a mere failure to pay a sum of money. The sum stipulated to be paid in the event of a breach will be a penalty if it is greater than the sum which ought to be paid. This reflects equity’s concerns about penal bonds and its view that the tender of principal together with interest thereon is sufficient compensation. This “test” has a narrow range of operation and is confined to the simplest of cases. It does not take into account that damages for breach may now include interest by way of damages and opportunity costs. It says nothing about the damage to a party’s wider commercial interests, for example to its trading, which was the real issue in Dunlop. And it says nothing about the financial effects for which the ANZ contends.

[36] The third “test” is stated as a presumption (“(but no more)”) that a sum will be a penalty where it is a single sum made payable on the occurrence of one or more of several events, some of which may occasion serious, and others only inconsequential, damage. The presumption derives from what was said by Lord Watson in Lord Elphinstone v Monkland Iron and Coal Co:

When a single [lump] sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage, the presumption is that the parties intended the sum to be penal, and subject to modification.

[37] However, the provision for payment in that case was not in fact of that kind. It was referable to a single obligation and the sum to be paid bore “a strict proportion to the extent to which that obligation is left unfulfilled.” In Ringrow, this Court said that this reasoning “did not require there to be a strict proportion; it merely relied, as a step towards the conclusion that the compensation was not inordinate or extravagant, on the fact that the compensation bore a strict proportion to the unfulfilled obligation.”

[38] Further, because a provision of the kind mentioned is merely a presumption, it may be rebutted. In Dunlop, Lord Atkinson observed that it was there rebutted by the fact that the damage caused by default may be of such an uncertain nature that it cannot be accurately ascertained.

[39] The last “test” stated by Lord Dunedin in Dunlop refers to just such a circumstance. It identifies the case where the parties agree a figure although a forecast of loss, in reality, is almost impossible. Nevertheless, the sum agreed may not be a penalty, indeed it is likely that in circumstances such as these it is not. His Lordship said:

“It is no obstacle to the sum stipulated being a genuine pre-estimate of damage, that the consequences of the breach are such as to make precise pre-estimation almost an impossibility. On the contrary, that is just the situation when it is probable that pre-estimated damage was the true bargain between the parties.”

[40] A similar observation had been made in Clydebank.

[41] What Lord Dunedin was pointing to is damage of a kind which is different from that for which liquidated damages could be assessed. It will be different because the interests of the party which are intended to be protected by the provision in question extend beyond an interest in the recovery of compensation for loss caused by the obligation. This was the situation in Dunlop.” (Footnotes and citations omitted)

75. Some relevant factors in determining whether the interest clause is a penalty include:

1. A compound rate of 48% for a comparatively small sum, which is wholly out of proportion for the interest generally recoverable on a loan of $75,000 (which, unlike the interest in Clydebank Engineering and Shipbuilding Co Ltd v Don Jose Ramos Yzquierdo y Castaneda or Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd, is relatively easy to calculate). Mr Friedlander pointed out that if the plaintiff had chosen to wait out the six-year period from the date of commencement of the loan until its end, the interest claimable would have been over one million dollars. While the possibility that the amount recoverable under the clause might exceed the claimant’s actual loss does not prevent the clause from being valid: Esanda Finance Corporation Ltd v Plessing (1989) 166 CLR 131 (at 142), it is hard to imagine any actual loss remotely resembling the amount of interest claimed here.

2. The loan document was open-ended, in that the loan was clearly intended to be one of short duration (Delaware North Marine Experience Pty Ltd v The Ship “eye-spy” [2017] FCA 708 at [220). This raises the interesting question of whether, by Mr Dib not commencing proceedings until the interest on the loan exceeded half a million dollars, the clause had become a penalty clause if it was not one beforehand. Mr Dib’s delay in commencing proceedings is not explained; Mr Allen’s submission is that Mr Photios has led no evidence of his inability to pay the loan and that the emphasis should be on his failure to do so.

76. The purpose of this enormous interest rate is presumably to compel immediate repayment of the sum in full without the lender having to go to court. Even so, the amount in question goes far beyond a pre-estimate of the cost of going to court, and in this regard Mr Dib’s failure to go to court seems inconsistent with any such intention.

Conclusions concerning interest

77. High interest rates are not of themselves evidence of a penalty. Dunedin LJ in Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd stated that that there may be no reason to suspect that the figure agreed by the parties is unreasonable “provided that figure is not extravagant”.

78. However, the 48% compound interest rate in this agreement resembles the example given by Halsbury LC in Clydebank Engineering and Shipbuilding Co Ltd v Don Jose Ramos Yzquierdo y Castaneda (at [10]) of what was an extreme and obvious penalty, namely an agreement to build a house for £50 but “to pay a million of money as a penalty” if the house was not built (at 10). While $75,000 is not £50, it is wholly disproportionate not only to any pre-estimate of loss or of the risk but also the costs of commencing proceedings.

79. I am satisfied that in those circumstances, the interest clause should be set aside as a penalty but that interest should be awarded on the alternative basis set out in the current statement of claim, namely under s 100 Civil Procedure Act 2005 (NSW). In that regard, I have exercised my discretion to do so in relation to the awarding of interest from the date of the cause of action under s 100(2).

77. I do not accept the submissions of Mr Friedlander that Mr Dib cannot claim this interest by reason of his asserted concessions about the availability of s 100 interests in a Notice to Admit Facts, these being matters of law for determination by the court. The proposal of this method of calculating interest, as opposed to leading evidence of commercial rates for risky transactions such as the present, is a reasonable and fair alternative method of the kind which I consider acceptable in these proceedings, having regard to the overriding purpose in ss 56 – 62 Civil Procedure Act 2005 (NSW).

78. Nor do I accept Mr Friedlander’s alternate submission that the interest schedule already provided to the court in Schedule B cannot be relied upon as mathematically correct. However, if they are not mathematically correct, then he will have the opportunity to put what he says is the correct figure by reason of the liberty to apply that I have granted if the parties cannot agree the interest calculations for the purpose of entry of judgment.

Application to reopen the case

82. In the course of his closing submissions Mr Friedlander renewed his application for MFI 6 to be admitted into evidence.

83. The principles for reopening a case and recalling witnesses or seeking leave to adduce further evidence are helpfully set out in Reid v Brett [2005] VSC 18 at [41]. The relevant principles governing the exercise of discretionary power to reopen a case to admit further evidence where the hearing has concluded but judgment has not been delivered may be summarised as follows:

1. the further evidence is not merely admissible or even relevant, but so material that the interests of justice require its submission;

2. the further evidence, if accepted, would most probably affect the result of the case;

3. the further evidence could not by reasonable diligence have been discovered earlier; and

4. no prejudice would ensure to the other party by reason of the late admission of the further evidence.

84. I have also had regard to the principles set out by the High Court in Smith v New South Wales Bar Association (1992) 176 CLR 256 at 266-267.

85. None of these grounds for the reopening of the case have been made out. In fact, Mr Friedlander did not develop further his reasons for seeking to reopen his case to make a fresh application to retender this MFI. For the same reasons that I have rejected it in the course of the hearing, I reject the tender of this document, the more so by reason of it being brought in circumstances where the proceedings were over and leave to reopen was necessary.

Costs and interest

86. These proceedings have an unimpressive procedural history:

1. The claim and cross-claim were listed for directions and applications at least 18 times prior to the hearing. On six of those occasions the plaintiff was ordered to pay costs (24 June 2015, 6 June 2016, 28 June 2016, 10 November 2016 (costs thrown away by amendment; the costs of vacating the hearing were reserved), 14 February 2017 1 March 2017), on seven of those occasions costs were reserved (20 June 2016,10 November 2016, 12 December 2016, 24 January 2017, 3 February 2017, 14 February 2017, 1 March 2017) and on three occasions “Show Cause” applications were threatened (4 April 2016, 6 June 2016 and 14 February 2017). The costs reserved also included the question of whether interest should be paid for the period following the first adjourned hearing date, which issue was reserved for the trial judge to determine.

2. The proceedings were listed for hearing on 10 November 2016 but this date was vacated by reason of the proposed joinder of the second plaintiff, in response to the challenge to his assignment of the debt. No orders were made in relation to the status of the first plaintiff prior to the hearing, with the result that this became an issue at the trial.

87. This appears to demonstrate a serious failure by the plaintiffs to conduct the litigation. However, closer inspection of the reasons for these applications demonstrates that many of the second defendant’s complaints were misconceived. The inadequacy of the two attempted assignments of the debt from the Mr Dib to the first plaintiff has no bearing on the merits of the claim, which always turned on the evidence of Mr Dib, and the material so vigorously sought – by way of notices to produce (14 February 2017, 1 and 3 March 2017), answers to interrogatories (1, 21 and 23 March 2017), notices to admit facts and numerous notices of motion and affidavits of correspondent – bore little or no relevance to the issues in this case. Claims of a requirement for an interpleader and lack of a licence under the Commercial Agents and Private Inquiry Agents Act 2004 (NSW) were perhaps understandable applications, but challenges to the authenticity of signatures of the plaintiff’s solicitors and Mr Dib’s mobile phone records (both the subject of orders for interrogatories) were of no assistance to either party in these proceedings, and took up valuable court time in five of those application dates.

88. However, part of the problem was that the parties’ timetables were rubber-stamped and the parties’ pleadings not the subject of case management. For example, no consideration was given as to the need for any claim by the defendant under s 6 Contracts Review Act 1980 (NSW) to be pleaded, or what relevance (if any) lack of a licence or interpleader had to the case.

89. Finally, I note that the manner in which these proceedings were conducted on behalf of Mr Photios caused difficulties, some of which will be apparent from the excerpts of transcript set out above.

90. While specialist lists are sometimes criticised as leading to too much examination of the pleadings and as resulting in multiple applications, the same problem can occur in general lists, as these proceedings demonstrate. What has occurred here is that there have been a number of applications in relation to issues that are largely irrelevant to the issues in the proceedings and for this reason I should be cautious in giving too much weight to interlocutory costs orders, as opposed to asking “who, as a matter of substance and reality, has won” (R. Parkes QC, A. Mullis, G. Busuttil, A. Speker & A. Scot, Gatley on Libel and Slander (Sweet & Maxwell, United Kingdom, 12th ed.) at [35.12], citing Sir Thomas Bingham MR in Roache v News Group Newspapers [1998] EMLR 161).

91. Similarly, although Mr Photios has been successful in having the 48% compound interest clause set aside, it should not be overlooked that the statement of claim gave, as an alternative to that interest, a provision that interest be calculated in accordance with s 100 Civil Procedure Act 2005 (NSW). It is not to Mr Photios’ credit that he continued almost to the last to deny receiving the money he is shown counting and still seeks orders striking out the whole of the contract as well as a stay on the basis of lack of interpleader (a problem I have dealt with by simply dismissing the first plaintiff’s claim, but which is misconceived because their claims were always in the alternative).

92. Mr Friedlander submitted that Mr Dib’s failure to commence proceedings until 24 April 2015 and his liability for the setting aside of the 10 November 2016 hearing date were decisive factors in denying Mr Dib any interest, let alone penalty interest. As this is one of the questions left for my determination by the previous trial judge in his orders of 10 November 2016, I set out my reasons for refusing this application.

93. Court attitudes to delay in commencing proceedings have undergone a change as a result of the overriding purpose in ss 56 – 62 Civil Procedure Act 2005 (NSW). However, other than in limited kinds of actions, such as defamation or in equity (where delay can result in nominal damages or amount to a defence such as laches), the commencement of proceedings some years after the event is not generally the subject of criticism. In addition, although Mr Friedlander complains of the failure to serve any notice or to commence proceedings in a timely fashion, it was always open to Mr Photios to commence proceedings to strike out the contract and/or the 48% penalty interest clause.

94. I am satisfied that the proceedings were commenced within a reasonable period and I am also satisfied that the relief sought in the current statement of claim (namely the alternative claim for interest under s 100 Civil Procedure Act 2005 (NSW)) is a reasonable and fair calculation which Mr Photios could have accepted. This is an eligible claim, being for a recovery for a debt in which the judgment is for the principal only and not for interest, and interest should not be refused merely for the purpose of penalising delay, even where there has been a late amendment of the kind made here in relation to the joinder of Mr Dib: Heath v Goodwin (1986) 8 NSWLR 478. Consequently, I do not propose to refuse interest under s 100 to Mr Photios for any part of the period during which the $75,000 loan remained outstanding.

95. This brings me to the question of costs. Mr Allen agreed that the appropriate rate was for his client to be awarded a percentage of the costs and suggested an 80% costs order, with all previous costs orders vacated.

96. The desirability of a “broad axe” costs order in such circumstances is clear in both interlocutory (Re Chapman’s Ltd (No 3) [2015] NSWSC 2082 at [15] per Brereton J) and hearing (Metlife Insurance Ltd v Visy Board Pty Ltd and 25 Ors (Costs) [2008] NSWSC 111 at [4] per Brereton J) costs. The issue, in determining those costs, is to identify the “costs event” (r 42.1 Uniform Civil Procedure Rules 2005 (NSW)) for these proceedings, both in relation to the interlocutory costs applications and the costs of the trial.

97. Most of the evidence in these proceedings on behalf of Mr Photios was irrelevant and some of the submissions made by Mr Friedlander, including his attacks on the integrity of Mr Dib and his solicitors, were as serious as they were without foundation. I also take into account that Mr Photios lied in his affidavit about not receiving the cash, one of the reasons why I considered that his evidence should not be accepted without corroboration.

98. Parties who conduct their litigation in a combative or discursive fashion should not expect the costs orders that would otherwise apply merely because of a success in the litigation which owes nothing to the way it was conducted. Having regard to the history of these proceedings and the limited nature of the relevance of most of the interlocutory skirmishes, I consider that Mr Dib has been broadly successful along the lines identified by Mr Allen, and I propose to make the costs order sought by Mr Allen on behalf of his client, including the setting aside of interlocutory costs orders, an important step in reducing the costs assessors’ task, and thus of benefit to the parties.

Stay of proceedings

99. Mr Friedlander sought a stay, if judgment of any kind was entered against his client, on the basis of need for the plaintiffs to file interpleaders before the case can proceed further (even if I dismiss the claim brought by the first plaintiff, the step I told Mr Friedlander I intended to take).

100. No interpleader was or now is necessary and, as a general rule, a party which is successful is entitled to the fruits of the litigation victory. Apart from the circumstances which may apply if an appeal is lodged, there is no other basis for a stay. I accordingly refuse to make any such order.

101. Mr Friedlander also sought a stay for a variety of other reasons which appear to include Mr Dib’s late joinder and delay in commencing the proceedings. These are not matters which would warrant the granting of a stay. Nor do I regard it as relevant that costs were incurred in relation to the joinder of Mr Dib; this is already taken into account in the section of this judgment on costs.

102. The application for a stay on judgment on those grounds is also refused.

Orders

1. First plaintiff’s claim against the defendants dismissed.

2. Judgment for the second plaintiff against the second defendant for the sum of $75,000 plus interest calculated from 1 March 2013 pursuant to s 100 Civil Procedure Act 2005 (NSW).

3. The parties are to bring in Short Minutes of Order reflecting the mathematically agreed calculation of interest.

4. The second defendant is to pay 80% of both the plaintiffs’ costs of the proceedings.

5. All previous costs orders vacated.

6. Second defendant’s application for a stay refused.

7. Liberty to restore in relation to interest and costs.

8. Exhibits retained until further order.

**********

Decision last updated: 04 July 2017