Paillas v Loans Plus Pty Ltd

[2008] NSWSC 849

CITATION:	Paillas v Loans Plus Pty Ltd [2008] NSWSC 849 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	1 May 2008; 14 May 2008
JUDGMENT DATE :	19 August 2008
JUDGMENT OF:	Fullerton J
DECISION:	1. In accordance with paragraph 40 herein, the first defendant to pay damages in the following amounts: a) $ 195,000 plus interest to the date of judgment; b) $ 3,300 plus interest to the date of judgment; c) $ 79,766.63 plus interest to the date of judgment; d) $ 6,991.16. 2. The plaintiffs to have liberty to apply on 3 days notice for orders as to the interest component in orders 1 (a)-(d). 3. The first defendant to pay the plaintiffs’ costs.
CATCHWORDS:	CONTRACTS - breach of contract - damages
LEGISLATION CITED:	Fair Trading Act 1987 Trade Practices Act 1974 (Cth) Uniform Civil Procedure Rules 2005
CASES CITED:	Hadley v Baxendale (1854) 2 CLR 517
TEXTS CITED:	LexisNexis, Ritchie’s Uniform Civil Procedure NSW
PARTIES:	John Edward Paillas (1st Plaintiff) Christine Joyce Paillas (2nd Plaintiff) Rodney John Paillas (3rd Plaintiff) Loans Plus Pty Ltd (1st Defendant) Rory Joseph McDonnell (2nd Defendant)
FILE NUMBER(S):	SC 2006/20001
COUNSEL:	CS Ward (Plaintiffs) Second defendant in person
SOLICITORS:	Peninsula Law Solicitors (Plaintiffs) Second defendant in person

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION
CIVIL LIST

FULLERTON J

19 AUGUST 2008

2006/20001 JOHN EDWARD PAILLAS & ORS v LOANS PLUS PTY LTD & ANOR

JUDGMENT

1 HER HONOUR: The plaintiffs, John, Christine and Rodney Paillas commenced proceedings by statement of claim dated 3 January 2006 alleging that Loans Plus Pty Ltd, a company that is now in liquidation (“Loans Plus”) and Rory Joseph McDonnell, who was at all material times the sole director of Loans Plus (“Mr McDonnell”) were liable in damages arising out of what are said to be failed attempts by the plaintiffs to secure loan finance from Loans Plus with a view to them being in a position to proceed to settlement on the purchase of a motel in Tamworth. The plaintiffs contend that Mr McDonnell represented that Loans Plus would arrange, and had in fact arranged, for the plaintiffs to obtain the necessary finance and, to that end, various sums of money were advanced by them pursuant to a loan agreement which they are entitled to recover. They also seek to recover damages suffered as a direct result of the plaintiffs being unable to proceed to settlement, and the vendor’s termination, in particular the loss of the deposit, and what are said to be related heads of damage.

2 The plaintiffs also seek to recover damages flowing from what are alleged to be a further series of assurances that Loans Plus would make loan funds available to enable the plaintiffs to enter into a separate contract for the purchase of a commercial property in Nambucca Heads, also trading as a motel.

The pleadings

3 It is patent that the statement of claim was not prepared with the benefit of legal advice and, as a consequence, it fails to comply with the pleading requirements in Part 14 of the Uniform Civil Procedure Rules (“UCPR”). There being no application to amend the pleadings prior to default judgment being entered on 24 April 2006, or to seek to reopen the pleadings at any time thereafter, in my view the plaintiff’s cause of action at the time of default judgment was at best an action for breach of contract. This is a finding that has ramifications for the proceedings as they have developed since that time.

4 Despite the fact that the statement of claim nominates various amounts totalling $12,938,254.81 as being due by way of “compensation and damages” in both liquidated and unliquidated sums, it appears that at the time judgment was entered the plaintiffs were either not in a position to nominate the heads of damage with any greater precision or to quantify the damages sought under some of those heads, or the court was otherwise of the view that Rule 16.7 of the UCPR applied. In the result, default judgment was formally entered on the basis that damages were to be assessed.

Pre trial directions

5 On 8 February 2007 Malpass AJ directed that the plaintiffs prepare and file a schedule of damages and written submissions identifying the evidence they relied upon to establish each head of damage, and the relevant law entitling them to relief, with a view to the matter being listed for a hearing to assess damages.

6 On 1 June 2007 the plaintiffs filed a notice of appointment of a solicitor. They have been represented since that time. Loans Plus has at all times, until the Liquidator was appointed in May 2007, been represented by Mr McDonnell who also continues to appear on his own behalf as a self-represented litigant. I note that on 6 February 2006, that is before default judgment was entered, Loans Plus submitted to the entry of judgment against it in respect of all claims save as to costs. The notice was signed by Mr McDonnell.

7 On 3 August 2007 a Statement of Particulars of Damage was filed in which the claim for damages under various heads was referenced to nominated paragraphs of the affidavit of Mr John Edward Paillas, the first plaintiff, sworn on 23 June 2006. This included claims for the reimbursement of various fees paid pursuant to the application for loan finance inclusive of interest, costs related to the obtaining of bridging finance to enable the deposit to be paid under contract for the purchase of the Tamworth Motel, the loss of the deposit paid on exchange also inclusive of interest, and projected loss of profits and loss of the chance to profit from the operation of the business.

8 On 18 December 2007 a notice of motion seeking to set aside the default judgment was heard by Simpson J. Her Honour noted that the despite the fact that the matter had been before the court on numerous occasions since judgment was entered the defendants had effectively done nothing by way of meeting the plaintiffs’ claim for damages. Her Honour also noted that the proposed defence was prepared without the benefit of legal advice and suffered the defects that might be expected in those circumstances. Her Honour was not however satisfied that the defence (such as it was) was arguable or that there was any adequate explanation for the defendants’ failure to file and serve a defence and dismissed the motion. It is apparent from her Honour’s judgment that the question of whether the damages as quantified by the plaintiff were referable to the case as pleaded did not emerge as an issue on the hearing of the motion.

The assessment of damages

9 On 1 May 2008 the matter was listed before me for an assessment of damages.

10 On that occasion Mr Ward of counsel, who appeared for the plaintiffs, sought to persuade me that the plaintiffs were entitled to recover damages under each of the various heads of damage and against each of the defendants on a number of alternative bases under Part V Division 1 of the Trade Practices Act 1974 (Cth), related provisions in the Fair Trading Act 1987, and for breach of contract.

11 There can be little doubt the relief under both Acts was pursued with a view to recovering damages against Mr McDonnell personally in circumstances where, on 18 May 2007, this Court ordered the winding up of Loans Plus and the appointment of a liquidator. I have not been informed as to the progress of the winding up or the company’s state of indebtedness. There was no appearance for Loans Plus in the proceedings before me. Mr McDonnell appeared on his own behalf as the second named defendant.

12 In the course of argument Mr Ward conceded that in light of the available evidence some of the claims for damages were undermined by issues of causation and the difficulties inherent in seeking an award of damages for loss of a chance. He did not however expressly abandon them. He did not address what was, on any view, a more fundamental question, namely whether the plaintiffs are entitled to recover damages under Trade Practices Act or the Fair Trading Act when no cause of action for contravention of relevant provisions of either was pleaded.

13 Mr McDonnell did not seek to address me at that time as to whether any or all of the alternate bases of liability in damages against him personally were open, or whether or not the claims as quantified could be established on the evidence. His submissions were directed to the question of liability which had of course been foreclosed by the court entering default judgment in April 2006.

14 After giving the matter some initial consideration I re-listed the matter for further argument directed to the fact that the case as pleaded did not refer to either the Trade Practices Act or the Fair Trading Act, much less the statutory preconditions to an action under either statute. I also invited submissions on a related issue, namely whether an action under the Trade Practices Act was available in any event having regard to the definition of financial services for the purposes of s 51AF of the Trade Practices Act and related provisions in the Fair Trading Act. However, since I am of the view that because of the deficiency in the case as pleaded the plaintiffs are unable to recover damages by reason of a contravention of either statute, that matter does not need to be decided.

15 Mr Ward sought to rely on Rule 16.10 of the UCPR as a mechanism by which the plaintiffs in addition to the case in contract (which, as I have noted, is capable of being gleaned from the pleadings) were entitled to recover under either or both of the aforementioned statutes. That rule finds articulation in that part of the UCPR that concern default judgment. It provides as follows:

“ Judgment not limited by plaintiff’s claims for relief
Whatever the plaintiff’s claims for relief against a defendant in default, the court may, on application by the plaintiff, give such judgment against the defendant as the plaintiff appears to be entitled to on his or her statement of claim.”

16 I do not consider that the construction of the rule for which the plaintiffs contend is open. Its operation is not only expressly limited to the time at which default judgment is entered but, when read in the context of the proceeding rules, it is designed to ensure that where there is uncertainty as to whether the claim is for a liquidated or unliquidated amount, or a claim of a specific kind to which other sub-rules in Part 16 refer, then the court may craft the terms in which the judgment is to be entered to avoid any uncertainty. It does not overtake the fundamental requirement to which the purpose of proper pleadings are directed, namely, that it is for the plaintiff to identify the claim that is made and to state the factual allegations that support it so as to give notice to the defendant of the case alleged and to facilitate resolution of the dispute by reference to the relevant facts and law (see generally the discussion of Uniform Civil Procedure Rules in LexisNexis, Ritchie’s Uniform Civil Procedure NSW, Vol 1 at [14.2.10]).

17 In so far as the statutory causes of action are concerned, the statement of claim in this case failed to meet that fundamental requirement. After identifying amounts said to be due by way of “compensation and damages”, the statement of claim simply provides as follows:

“The plaintiffs rely on the following facts and assertions:
1. The defendants, despite their continued assurances, failed to produce the funds to settle the original contract.
2. The plaintiffs have suffered actual financial loss due to the actions of the defendants.
3. The defendants also failed to produce any funds in the second instance despite their advice to the plaintiffs and the plaintiffs solicitor acting in that matter.
4. The plaintiffs have suffered damage to their credit rating as a result of the actions of the defendants.
5. The plaintiffs have suffered damage to their reputation and credibility as a result of the actions of the defendants.
6. The plaintiffs have suffered loss of profit due to the non establishment of the loans by the defendants.”

(I note that paragraphs 4 and 5 have since been abandoned.)

18 In my view, to simply assert that the defendants failed to produce funds to enable a contract to be settled (or entered into) despite their “continued assurances”, and that the plaintiffs’ have suffered loss as a consequence is barely a proper pleading as matter of general law. However, there being no action taken by the defendants to strike out the statement of claim pursuant to Rule 14.28, and since judgment has been entered on the statement of claim as filed, I propose to assess damages on the basis of a breach of contract.

19 As I have noted, neither Loans Plus nor Mr McDonnell have filed any evidence on the question of damages. When the matter was re-listed for further argument Mr McDonnell filed submissions that are an admixture of evidence and argument. Since the time has long since passed when either of the defendants could have availed themselves of the opportunity to file and serve any evidence on the question of assessment of damages, I expressly reject any part of the written submissions that assert factual matters that are not otherwise in evidence before me.

The plaintiffs’ evidence as to damages for breach of contract

20 The evidence upon which the plaintiffs rely consists of an affidavit sworn by the first plaintiff, John Paillas, to which various documents are annexed or exhibited. From that material I am invited to find various facts established and the damages the plaintiffs seek (but necessarily limited to breach of contract) also established.

21 With appropriate emphasis on either the lack of any sufficient evidence (or in some cases any evidence at all) what follows are my findings in reaching the conclusion that some heads of damage are recoverable and some not. The quantification of the loss under those heads of damage that are established is not in issue, although interest remains to be calculated.

22 The plaintiffs responded to an advertisement in the Daily Telegraph and were introduced to Mr McDonnell who represented himself as an accredited member of the Mortgage Industry Association of Australia and a director of Loans Plus. Although Mr McDonnell was in fact a director of Loans Plus the representation that he was an accredited member of the Mortgage Industry Association of Australia was false. Nothing turns on that fact for the purposes of an assessment of damages for breach of contract given that there is nothing to suggest that at any relevant time Mr McDonnell was acting otherwise than as an agent of Loans Plus as the contracting party.

23 The plaintiffs entered into a loan agreement with Loans Plus some short time after 13 July 2004 in circumstances where Loans Plus was aware that the purpose for which the loan monies in the amount of $1.8 M were sought was to settle the purchase of the property at Tamworth. It was a term of the agreement that the total sum would be secured by way of a first mortgage over the property to be purchased and a second mortgage of $150,000 over residential property at Wahroonga which was the primary residence of Mr and Mrs Paillas.

24 While it would appear that during the negotiations with Loans Plus the plaintiffs were given to understand that the loan monies would be forthcoming from an unspecified source overseas, (subject to a satisfactory valuation of the Tamworth property and other security for the loan being available), the formal offer to extend loan finance did not issue until 13 July 2004. It is also clear that by 13 July 2004 the plaintiffs were already well advanced in their negotiations with the vendors to acquire the property, in fact, these negotiations commenced before the plaintiff first approached Loans Plus for finance in March 2004. It was pursuant to those negotiations that on 7 April 2004 a deposit in the amount of $195,000 was paid to the vendor’s agent. The contract for sale was amended at that time to include a clause that completion was “subject to finance”.

25 At some unspecified time before 7 April 2004, that is some months before the loan agreement was executed, although clearly enough, so far as the plaintiffs were concerned, in anticipation of finance being made available the plaintiffs obtained what is described as a short term bridging loan from another finance company in order to meet the costs of the deposit and stamp duty and for what is described as “working capital”. The plaintiffs claim the costs of obtaining the short term bridging loan plus interest, and the associated costs of refinancing their home at Wahroonga to provide security for the loan, as a consequence of the defendant’s breach of contract. I am not satisfied that this meets either the first limb or second limbs of the test in Hadley v Baxendale (1854) 2 CLR 517. These costs cannot on any sensible view be said to flow in the ordinary course from a lender’s breach of contract and, in circumstances where there is no evidence capable of establishing that the defendants knew prior to execution of the loan agreement that the plaintiff had sought and obtained bridging finance so as to enable them to contract with the vendors, I am not satisfied that they are liable under the second limb in Hadley v Baxendale.

26 The terms of the offer to provide finance are expressed to be subject to the letter of offer of 13 July 2004 being signed by the plaintiffs as borrowers no later than 3pm the following day and conditional on the assignment and execution of various “loan, security and surety documentation” and the payment of various amounts as “establishment fees” specified in the following way:

1. Interest on Loan Establishment fees in the amounts of:

a) $ 45, 063 to Flight Centre Travel, Sydney.
b) $ 10, 000 in Euro’s cash.
c) $ 5, 000 USD in cash.
d) $ 10, 000 AUD cash.
Period – 13/07/2004 – 18/08/2008.

2. Interest on Lost Deposit of $ 195, 000.00
Period – 31/12/2006 – 18/08/2008.

3. Interest on Legal Costs (solicitor’s and counsel’s fees)
incurred of $ 70, 808.59
Period – 31/01/2006 – 18/08/2008.

27 The letter of offer goes on to declare that it does not “comprise, give rise to or evidence an agreement to lend”.

28 The plaintiffs claim that these fees (in the total amount of AUS $79,766.63) were provided to Loans Plus within the stipulated time frame and that formal loan documents and mortgages were prepared and executed by the plaintiffs on or before 16 July 2004. The loan agreement, prepared by lawyers retained by Loans Plus, is in its terms directly referable to the acquisition of the Tamworth property.

29 The plaintiffs seek to recover the fees paid as establishment fees as part of their claim for damages for breach of the agreement, plus interest to the date of judgment. Documentation in the form of bank withdrawals and foreign exchange receipts was tendered. Somewhat surprisingly no document was tendered in which Loans Plus acknowledge receipt of these monies nor does it seem that a receipt was sought at the time the funds were provided. That said, I am satisfied that these monies were paid as consideration for entering into the loan agreement and are recoverable.

30 Mr Paillas also claims that $9100 was paid to Archwell Finance at the defendants’ direction as a fee of some kind on 1 July 2004. There is no evidence as to the terms upon which the fee was paid, proof of payment to that entity or any connection between that entity and Loans Plus as the contracting party. Moreover, the fee does not appear to relate in any way to the offer to provide loan finance dated 13 July 2004 where different amounts are nominated as “establishment fees”. In these circumstances, and despite the fact that Loans Plus does not seek to put this or any other aspect of the claim in issue, I am not satisfied that the plaintiff is entitled to recover this amount as a consequence of the breach of the loan agreement.

31 The plaintiffs also claim the costs involved in obtaining a valuation of the properties that were offered by way of security since a satisfactory valuation was a specified precondition to Loans Plus entering into the loan agreement. I am satisfied that these costs are recoverable as being directly referable to the breach of the loan agreement.

32 On 12 May 2004 contracts were exchanged and stamp duty in the amount of $82,019 paid. This has since been refunded by Office of State Revenue however the plaintiffs claim interest on the stamp duty during the interim. I consider this is recoverable.

33 Before the date for settlement the plaintiffs were advised by Mr McDonnell that finance was not available and that settlement should be delayed. The plaintiffs were assured however that finance would definitely be available at a later date. There is no evidence as to any explanation sought or offered as to why this was the case, or when the finance would in fact be available, although a revised settlement date of 20 July 2004 was agreed with the vendor. No funds were forthcoming by that date and on 5 August 2004 the vendors terminated the contract. The deposit was forfeited. There is no evidence of any explanation sought by the plaintiffs or given by the defendants for the failure to provide the funds as agreed.

34 The plaintiffs seek to recover damages constituted by the forfeited deposit plus interest, the legal costs incurred in solicitors acting on the loan agreement and the purchase, and the legal costs incurred in unsuccessfully seeking to recover the deposit in proceedings brought in this Court.

35 Despite the fact that the plaintiffs contracted with the vendors and paid the deposit prior to executing the loan agreement or receiving the letter of offer, I am satisfied that the loss of the deposit plus interest is recoverable since the loss of the deposit was the direct result of their inability to complete the contract which was in turn due to the defendants’ breach of their obligation to provide finance under the loan agreement.

36 By contrast, I am of the view that the legal costs incurred in unsuccessfully seeking to recover the deposit are not recoverable as being too remote. Even were it argued (and it was not) that these were costs reasonably incurred by the plaintiffs seeking to mitigate their loss, I have not been taken to any analysis of the evidence or the law which would persuade me that the proceedings had any prospect of success. I do not consider that the legal costs incurred by the plaintiff in retaining solicitors to advise and act on the purchase are shown to be relevantly causally connected with the defendants’ breach of their obligations under the loan agreement in circumstances where, as I have noted, the plaintiffs were well advanced in their negotiations before contracting with the defendants, and where the evidence does not satisfactorily isolate or identify the discrete legal costs associated with or referable to obtaining finance as distinct from acting on the sale, simpliciter.

37 With respect to the claim for loss of profits, the plaintiffs submitted that since the original contract price of the Tamworth property was $1,950,000 and that it has been more recently listed for sale at $2,950,000 that it was entitled to claim a buffer by way of damages for the lost profit on resale and the loss of a chance to realise the profit inherent in the venture over a three year period.

38 There is no evidence as to whether the property sold at the increased sale price or for that matter whether the property has been improved by the vendors in the meantime. The claim for damages by way of a buffer is unsubstantiated and I reject it.

39 The claim for damages for unrealised profit is also without any, or any satisfactory, evidential support. The only material relied upon is a document described as a “profit forecast” over a twelve month period from July 2004, a document that was apparently prepared by the vendor’s agent for the purposes of sale. There is no supporting material to verify the accuracy or reliability of the information or the basis upon which the calculations were made. I am not satisfied in these circumstances that the plaintiff has established an entitlement to recover any damages for loss of or unrealised profit.

40 In the result, the only damages to which the plaintiffs are entitled in respect of the defendants’ breach of the loan agreement for the purchase of the Tamworth Motel are as follows:

(a) the loss of the deposit plus interest;

(b) the costs of obtaining the valuation of the Tamworth motel plus interest;

(c) the monies paid by way of “establishment fees” plus interest;

(d) interest referable to the payment of stamp duty.

41 For reasons that are not obvious, after the vendors terminated the contract for the sale of the motel at Tamworth the plaintiffs accepted Mr McDonnell’s oral assurances, on behalf of Loans Plus, that finance was available for them to acquire a motel at Nambucca Heads. No letter of offer is produced referable to that proposal much less any executed loan agreement. The plaintiffs provided a firm of solicitors with a copy of the contract for the sale for advice and subsequently received a bill of costs from this firm in the sum of $2,481.14. The plaintiffs exchanged contracts but these were said to be “held in escrow” pending finance. Again, funds were not made available and the vendors accepted the plaintiffs’ failure to complete as a repudiation of the contract.

42 The plaintiffs seek to recover the costs incurred for advice sought on the purchase and what is alleged to be the loss of the potential to profit by the operation, subdivision and development of the site. This claim suffers from the fundamental flaw that no liability for breach of contract has been established.

Orders

1. In accordance with paragraph 40 herein, the first defendant to pay damages in the following amounts:

a) $ 195,000 plus interest to the date of judgment;

b) $ 3,300 plus interest to the date of judgment;

c) $ 79,766.63 plus interest to the date of judgment;

d) $ 6,991.16.

2. The plaintiffs to have liberty to apply on 3 days notice for orders as to the interest component in orders 1 (a)-(d).

3. The first defendant to pay the plaintiffs’ costs.

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05/11/2008 - Amount of $69,766.63 amended to $79,766.63 - Paragraph(s) 28 and Orders