Ozyjiwsky v Ettridge

[2014] SASCFC 11

SUPREME COURT OF SOUTH AUSTRALIA

(Full Court)

OZYJIWSKY v ETTRIDGE

[2014] SASCFC 11

Judgment of The Full Court

(The Honourable Justice Vanstone, The Honourable Justice Anderson and The Honourable Justice Parker)

20 February 2014

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS - IMPLIED TERMS

The respondent advanced $100,000 to the appellant to be combined with funds of the appellant and traded on the FOREX - losses were sustained - respondent sought repayment of the sum advance - whether the primary judge was correct in characterising the written agreement between the parties as a loan agreement and not a joint venture agreement - whether a term dealing with the sharing of losses should have been implied into the agreement.

Held:  Vanstone J (Anderson and Parker JJ agreeing) - appeal dismissed.  The agreement was for a loan and there was no indication in it that the parties agreed that the respondent should share any losses.  There was no room for implication of a term to that effect.

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 clr 266, discussed.

OZYJIWSKY v ETTRIDGE
[2014] SASCFC 11

Full Court:  Vanstone, Anderson and Parker JJ

1. VANSTONE J:     By this appeal the appellant/defendant challenges the decision of a judge of the District Court in an action for recovery of a sum advanced by the respondent/plaintiff to the defendant.  The decision upholding the plaintiff’s claim turned on a consideration of a written contract executed by the parties against the background of various discussions and arrangements between them.  The defendant was unrepresented at trial but in this Court was represented by counsel.

   Background

2. The following summary of events is taken from undisputed findings made by the judge.  Over a period of time the defendant was apparently engaged in trading on the foreign exchange money market (FOREX).  He claimed a great deal of success.  In the relevant period he discussed his activities with the plaintiff, including a particular software program which he used to facilitate his trading.

3. As a result of these discussions the plaintiff agreed to advance monies to the defendant so that the latter could “invest” those monies and, it was anticipated, make profits which would be enjoyed by both.  At the suggestion of the plaintiff’s accountant a written agreement was drawn.  It was executed by both parties on 17 April 2012.  The document was in evidence before the judge.  It was brief and its terms can conveniently be set out.

   PRIVATE LOAN AGREEMENT

   I, Trevor James Ettridge of [address] agree to provide a Temporary Personal Loan to the amount of $100,000 to Roman Ozyjiwsky of [address].

   This loan is for the sole purpose of trading on the foreign currency exchange by Roman Ozyjiwsky for the benefit of Trevor Ettridge.

   Trevor James Ettridge known as the Lender

   Roman Ozyjiwsky known as the Trader

   Roman Ozyjiwsky agrees to accept Trevor Ettridge’s Temporary Personal Loan $100,000 to be used for trading on the foreign currency exchange using the:

   Velocity Trade – Account ID: [number], New Zealand: [number]

   1. The commencement of trading will be from the date that all funds have been deposited in Roman Ozyjiwsky’s Velocity Trading Account ID: [number]

   2. Roman Ozyjiwsky agrees to trade daily (5 days per week) for a period of one month (20 trading days) using Trevor Ettridge’s $100,000 loan together with Roman Ozyjiwsky’s $140,000.

   Combined trading funds = $240,000

   3. Roman Ozyjiwsky agrees to provide trading statements for every trading session to Trevor Ettridge each day during the month of trading.

   4. Roman Ozyjiwsky agrees to repay the Temporary Personal Loan of $100,000 plus 60% of the resulting profits achieved on trading the sum of $100,000, to Trevor Ettridge at the end of one month or at a date agreed between both parties.

   5. Both parties have the option to redraw some or all of their profits at the end of the month’s trading period with the mutual agreement of both parties.  Neither party may redraw any funds from the Velocity Trading Account during the month of trading.

   6. This agreement will apply for a period of one month (20 trading days) with the option for both parties to re-invest their funds and continue for a further one month period under the above terms and to the satisfaction of both parties.

   [signing clause and signatures]

   Date  17/04/2012

4. On 20 April 2012 the plaintiff made a payment of $100,000 as contemplated in the agreement.  On the same day the defendant transferred that amount to his “Velocity Trading Account” into which he had put $140,000 of his own.  A few days later he commenced trading on the FOREX, using the joint fund.

5. On about 29 April 2012 the defendant advised the plaintiff that he had not fared well and that money had been lost.  Early in May he was encouraged by the plaintiff to continue trading in an effort to recoup losses.  Then, on 5 May the defendant contacted the plaintiff and told him more losses had been sustained.  The plaintiff went to the defendant’s house at his request and they discussed the situation.

6. On Saturday, 6 May the defendant again telephoned the plaintiff.  He advised that yet further losses had been sustained.  He told the plaintiff that he had decided to offer to repay the $100,000.  Later that day the plaintiff went to the defendant’s home and told him that he was there to accept the offer and wanted back his $100,000.  The defendant told him he could not immediately finalise his trading positions.  However the defendant offered the plaintiff a caveat over his house property.  At trial the plaintiff relied on this evidence as amounting to an acknowledgment of the debt.

7. On 22 May 2012 the plaintiff sent an email message to the defendant advising that he was withdrawing his consent to continue trading and that he required the repayment of the $100,000 in accordance with the agreement.

8. The judge found both the plaintiff and defendant to be unsatisfactory witnesses.  He accepted the evidence of the plaintiff’s accountant, Mr Dichiera, in its entirety.  Having discussed the evidence and made the findings summarised above the judge narrowed the issues to “whether or not a joint venture existed irrespective of the loan agreement” and, if so, what obligations arose under the agreement.

9. The judge found that there was no joint venture in existence prior to the agreement being executed.  Therefore he found that the document recorded the parties’ arrangement.  He noted that the Velocity Trading Account into which the monies were to be paid was not to be held as tenants in common, but was in the defendant’s control.  The plaintiff’s rights were postponed to the end of the 20 day trading period.  The document was not, then, a record of any joint venture agreement.  It was a contract for a loan arrangement.

10. The judge discussed and rejected the defendant’s argument that the document was a receipt only.

11. The judge then turned to the terms of the agreement and found that it was to be characterised as a loan, embodying the obligations upon the defendant to repay the loan amount together with 60 per cent of any profits made on that part of the fund at the end of the month’s trading.

12. He then went on to consider other aspects of the defendant’s case.  He rejected any suggestion that there was an oral collateral contract standing alongside the written agreement.  (That argument is not put by the defendant.)  He then considered whether a term should be implied to the effect that losses (as well as profits) were to be apportioned.  The judge considered the principles relating to the implication into a contract of a term, referring to Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 and BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266. He identified difficulties with implying a term, especially that no particular term was suggested, and there was difficulty in formulating such a term, and, that the nature of the type of term contended for was such as to be inconsistent with the written contract.

13. For those reasons the judge found that the contractual relationship between the parties was governed solely by the agreement;  it was a loan agreement, and the plaintiff was entitled to have the return of the $100,000.

    The arguments on appeal

14. The defendant’s counsel, Mr Blight, advised that there was now no issue but that the written agreement was effective and that the parties were ad idem at the time of its execution.  However, it was put that, properly characterised and notwithstanding its description, it was an agreement for a joint venture.

15. Mr Blight pointed out that the commercial purpose of the agreement was specified as trading on the FOREX, that is wealth creation, and, though not decisive, the defendant was described as a “Trader” rather than a borrower.  The defendant was bound to use the funds as provided in the agreement.  The funds were to be deposited into a specified trading account.  The defendant was obliged to trade daily using the funds provided by the plaintiff’s $100,000 plus the defendant’s $140,000.  The period or periods of trading coincided with the period or periods of the advance, suggesting a capital contribution.  The defendant was to provide trading statements to the plaintiff.  In this way, it was said, the plaintiff was able to monitor and retain a degree of control over the trading.  The facts that funds were only to be withdrawn, or “reinvested”, at the end of a month’s trading and that the arrangement was anticipated to be ongoing were said to point to a joint venture.

16. Counsel argued that the contract was to be interpreted as a whole.  Clause 4 could not be divorced from clauses 5 and 6.  Because the funds were to be pooled and traded as a whole, it was not possible to calculate profits by reference to individual capital contributions, which factor it was said indicated a joint venture.  Moreover, contrary to the judge’s finding, the defendant did not have “full control” over the funds, because clause 5 of the agreement regulated withdrawal of the funds and required mutual agreement.  In that, there was an inconsistency within the agreement.  Mr Blight argued that while clause 4 referred to repayment at the end of one month, clause 5 required mutual agreement as to withdrawal.  Clause 6 contemplated extension of the arrangement for further month long periods, again with mutual consent.  The requirement of mutual agreement was suggestive of a joint venture as opposed to a loan.  Mr Blight argued that while the defendant held the legal interest in the funds, the plaintiff retained a property interest in them.

17. Mr Blight argued that the judge’s approach of identifying common characteristics of a joint venture and then determining whether they were present led him to error.  For example, his reference to the funds not being held as tenants in common was unhelpful.  That feature was usually seen in joint ventures involving property holdings and, in any event, there was here a pooling of funds.

18. Mr Blight also suggested that the judge erred in using evidence of the subjective intentions of the plaintiff and his accountant to interpret the contract, finding that the form of the arrangement was as Mr Dichiera insisted.

19. It was put that the judge’s interpretation of this layman’s agreement, attributing to the defendant all the risk, was unreasonable, especially having regard to the many indicia of a joint venture and to the pooling of funds for the nominated purpose.  The judge should have found the document to be incomplete and should have implied a term “dealing with the consequences of unsuccessful trading”, such that each party took the burden of losses as well as the benefit of profits.

    Analysis

20. Upon the appeal there was no dispute between the parties as to any of the principles of law, including that regard should not be had to extrinsic evidence unless there was some ambiguity in the written agreement.  It is true that at trial a great deal of evidence was given about communications between the parties both prior to the contract being signed and subsequently.  However, as Mr Lazarevich, for the plaintiff, pointed out, the issues at trial were broader than those upon the appeal.  That was both because the plaintiff alleged misleading and deceptive conduct against the defendant in the lead up to execution of the agreement and because, as mentioned, the defendant claimed that the agreement did not represent the bargain made between himself and the plaintiff and that he understood the document he signed to be a receipt.  It was that first contention which led the judge to consider whether there was a collateral contract between the parties.  I would add that questions of admissibility and use were made more difficult for the judge by reason of the fact that the defendant was unrepresented and that it was he who wished to present evidence of communications passing between the parties, including after the agreement was executed.

21. The judge made only limited use of this extrinsic material.  As I have recounted, the judge concluded that there was no pre-existing joint venture arrangement between the parties at the time the contract was signed.  That finding was made against the defendant.  There might have been some force in the criticism that the judge enumerated typical characteristics of a joint venture and then examined the agreement to see if these featured, if that were all the judge did.  However, from that discussion the judge proceeded directly to the agreement itself and to its outstanding features.  And, in my view, the fact that there was no joint account in which the funds were to be held was a relevant matter.  The judge also rejected any suggestion of a collateral contract.  He rejected the defendant’s argument that the agreement amounted only to a receipt for the monies advanced by the plaintiff.

22. The evidence that the defendant offered to repay the $100,000 and the interchanges between the plaintiff and defendant after significant losses had been sustained was admissible and available to be used as an admission by the defendant that the amount was owing under the contract.

23. As to the particular complaint that evidence of the plaintiff’s subjective intentions and Mr Dichiera’s advice were relied upon in interpreting the nature of the agreement, a close reading of the judgment reveals that this is not so.  The judge used Mr Dichiera’s evidence to throw light on the way in which the contract came to be formulated and signed.  He recounted the fact that the original proposals between the parties concerned an advance by the plaintiff of the order of $10,000 to $20,000.  It was later in the negotiations that the amount under discussion was increased to $100,000.  He recounted that Mr Dichiera had urged the plaintiff to make a written record of the arrangements and that it be a loan agreement.  The importance of the evidence was, as the judge found, that Dichiera’s advice to the plaintiff was communicated to the defendant by the plaintiff, the plaintiff advising the defendant that he would need to follow Dichiera’s recommendations, and the defendant responding that he would be happy with whatever the plaintiff came up with.  Therefore there was no question of using the subjective intentions of either the plaintiff or his accountant.  Rather, the judge found that the plaintiff’s position was clearly communicated to the defendant and accepted by him.  In my view there is no indication in the judgment that the judge misused any of the evidence of pre-contractual discussions.

24. The starting point in terms of interpreting the written agreement is that agreement itself.  Both counsel acknowledged that the character of the agreement was not determined by its title – Private Loan Agreement – or specific items of terminology used within the agreement.  On the other hand, those matters were to be considered in the context of the whole of the agreement.  The agreement calls itself a loan agreement and immediately refers to the agreement to provide what is referred to as “a Temporary Personal Loan”.  The loan is said to be solely for the purpose of trading on the foreign currency exchange by the defendant for the benefit of the plaintiff.  The plaintiff is described as “the Lender” and the defendant as “the Trader”.  Again, reference is made to a temporary personal loan and the amount of $100,000 is nominated.  The account into which that money is to go is described.  The agreement stipulates a commencement for the trading, which is aligned with the date of deposit of the funds.  The period of trading is stipulated, being five days in each week for a period of one month, or 20 trading days.  The amount of the combined trading funds – adding the defendant’s contribution of $140,000 – is given as $240,000.  There is the reference to the provision of trading statements for every trading session.

25. Repayment is dealt with in clause 4, the verb “to repay” being used.  It is clear that repayment is to occur at the end of one month, or at a date agreed between the parties.  The repayment is stipulated as being the sum of $100,000 “plus 60% of the resulting profits achieved on trading” that sum.  Clause 5 relates to what is called “redrawing profits”.  It provides that both parties “have the option to redraw some or all of their profits”.  This can only be done at the end of the month’s trading period and “with the mutual agreement of both parties”.  Clause 6 contemplates that the parties may choose to “reinvest their funds” and continue to trade for a further month under the same terms as before.

26. I do not agree with Mr Blight’s argument that there is inconsistency as between clauses 4 and 5.  Clause 4 seems to me to give to the plaintiff the entitlement to repayment of the principal of $100,000 at the end of the first month.  In addition, it allows the plaintiff to take 60 per cent of profits made on his proportion of the capital.  I do not agree with Mr Blight that there is any difficulty in calculating what part of any profits made would be attributable to the plaintiff’s share of the combined fund.  It is simply an arithmetical exercise which, in the event, was not called for.  Nor do I agree with Mr Blight that there is any difficulty in reading the reference to profits as “60% of [any] resulting profits …”.  As the agreement stands it makes allowance for return of profits to the plaintiff, but no provision is made for him to share in any losses.  Clause 5 seems to contemplate that the parties might choose to continue to trade beyond the first month and to agree to withdraw some or all of the accrued profits.  As Mr Lazarevich argued, clauses 5 and 6 provide for agreement to be reached about further trading and further withdrawal of some profits, in which case the contract would continue.  But in contrast, clause 4 reserves to the plaintiff the right to be repaid his principal sum and some of the profits made by use of it.

27. This interpretation is entirely consistent with that of the judge.  In my view he was correct to characterise the agreement as a loan agreement.  The fact that the money advanced was to be earmarked for a particular purpose and that the plaintiff/lender was to have an entitlement to some of any profits made does not undermine that characterisation.

28. Turning to the argument that the judge should have implied a term related to the sharing of losses and Mr Blight’s argument that the document was incomplete and unreasonable in the absence of such a term, the first point to make is that the contract provided for substantial benefit to the defendant if his trading were successful.  He would retain 40 per cent of the profits made on the plaintiff’s proportion of the fund as well as profits on his own proportion.  The next point is, were a term dealing with loss sharing to be implied, it is not clear what term it would be.  As Mr Lazarevich submitted, it would be illogical to imply a term to the effect that losses should be equally shared, since the plaintiff was never going to keep all his profits.  Moreover, losses on the defendant’s greater proportion of the fund would always be proportionately more.  But more fundamentally, there is no indication in the contract that the parties ever agreed that the plaintiff should bear the loss of part or all of his principal.  Clause 4 is contrary to any such implication.  If the agreement is properly characterised as a loan agreement then there is no room for implication of a term that the lender should risk any part of his principal.  Even approaching the matter as Mr Blight did it is apparent that there is no necessity to imply such a term to give business efficacy to the agreement and it could not be said that it goes without saying that the parties must have intended to share losses as well as profits.  Applying the principles emerging from the judgment of Mason J in Codelfa Constructions at 347, I consider that criticisms of the judge’s conclusion in relation to implying a term are not warranted.

    Conclusion

1. I consider that none of the attacks on the findings of the trial judge is justified.

2. I would dismiss the appeal.

3. ANDERSON J.     I agree that the appeal should be dismissed for the reasons given by Vanstone J.

4. PARKER J:          I would dismiss the appeal.  I concur with the reasons of Vanstone J and have nothing further to add.