Revolution Properties Pty Limited v Walter Ceccattini

[2008] NSWDC 179

CITATION:	Revolution Properties Pty Limited v Walter Ceccattini; Valenest Pty Limited [2008] NSWDC 179
HEARING DATE(S):	13 - 14 May 2008
JUDGMENT DATE:	16 May 2008
JURISDICTION:	Civil
JUDGMENT OF:	Goldring DCJ
DECISION:	Verdict for the plaintiff in the sum of $839,803.28 which includes repayment of the principal and interest calculated on monthly, rather than daily, rates.
CATCHWORDS:	CONTRACT - Estoppel - Contract - unconscionability - experienced business people
LEGISLATION CITED:	Contracts Review Act 1980
CASES CITED:	Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 Thompson v Palmer (1933) 49 CLR 507
TEXTS CITED:	The Law Relating to Estoppel by Representation (London, Butterworths, 1977)
PARTIES:	Revolution Properties Pty Limited (Plaintiff) Walter Ceccattini (Third Defendant) Valenest Pty Limited (Fifth Defendant)
FILE NUMBER(S):	4156 of 2007
COUNSEL:	M W Young (Plaintiff) E Chrysostomou (Third & Fifth Defendants)
SOLICITORS:	McGrath Dicembre & Co Bransgroves Lawyers

JUDGMENT

1 The plaintiff sues the third and fifth defendants as guarantors of a loan it made to the first defendant, a company, Trio Formwork Pty Limited (Trio). Judgment has already been obtained against Trio.

2 The loan was made pursuant to an agreement, which was formalised on 30 August 2006. It was for a sum of $200,000.00 plus interest, to be repayable on 21 September 2006.

3 The rate of interest is in dispute in these proceedings. The other dispute concerns whether the defendants' liability is restricted to 50% of the amount advanced. If the plaintiff succeeds on either issue, the defendants have raised by way of defence the plaintiff’s conduct and some ways in which the defendants say that the plaintiff is estopped from proceeding.

Factual background

4 Trio Formwork Pty Limited ('Trio') was the developer of a block of home units at The Entrance. 50% of the shares in Trio were held by the fifth defendant, a company of which Cecilia Ceccattini was the sole shareholder and director. Walter Ceccattini was a director of Trio. It appears, from the evidence, that Trio experienced some difficulties at board level and also some financial difficulties, as a result of which, subcontractors refused to do any further work. The building was not complete, and in the opinion of Walter Ceccattini, required another two to three months work. Trio had no funds to pay the subcontractors.

5 Matthew Castle, who is the sole director and shareholder of the plaintiff, had some experience in the provision of mortgage finance. At one stage, he was employed by the National Australia Bank in the area of finance, and, in that capacity, had come into contact with Walter Ceccattini, Cecilia Ceccattini, and their companies. A company controlled by Cecilia Ceccattini had completed about forty developments of industrial property, and owned several industrial properties, including a property at Victoria Street, Wetherill Park.

6 Mr Castle left the employment of the National Australia Bank and became a principal in a firm called Balmain NB, which obtained finance from other sources to lend to borrowers. Walter Ceccattini and Cecilia Ceccattini formed a close relationship with him, and arranged to borrow significant sums for their businesses, through Balmain NB. Mr Castle gained significant knowledge of the Ceccattini family’s businesses.

7 In mid 2006, when the Trio project at The Entrance was experiencing difficulties, Mr Castle was asked to arrange 'mezzanine' finance, so that Trio could pay its subcontractors, complete the building, and then either draw down further finance, under an existing loan from the ANZ Bank, or refinance the project.

8 Mr Castle was unable to obtain 'mezzanine' finance from his usual funding sources, because the amount required was less than those sources usually advanced in this type of lending. He agreed to advance the sum of $200,000 from his own funds. He made these funds available through the plaintiff.

9 The negotiations on behalf of Trio were, on the account of all witnesses, including Mr Castle, conducted by Mario Mura, who was a director of Trio, and he was also the accountant for Walter Ceccattini, his family, and their companies. Mr Mura, and the company controlled by him, were originally defendants in these proceedings, but default judgment was obtained against them.

10 Mr Castle's evidence was that he arranged with Mr Mura to advance the money, at an interest rate, initially of 7% per month, reducible to 5% per month if instalments were paid on time. If this arrangement was ever reduced to writing, no copy of that writing was ever given to any of the defendants before me. The loan was to be secured by a second mortgage over Trio's property at The Entrance, and by guarantees from Mr Mura and Walter Ceccattini, as directors of Trio. Mr Castle instructed his solicitors, Church and Grace, to prepare documentation accordingly. These instructions stated that the interest rate was to be 7.5% per month, reducible to 5.5% per month if instalments were paid on time. The solicitors were instructed to prepare a mortgage of the Trio property and a deed of guarantee. At this time, no instructions were given in relation to any mortgages to be provided by the guarantors. In his evidence, Mr Castle said this was an oversight.

11 On about August 26, a meeting was arranged at the Sydney offices of Balmain NB in Martin Place. The evidence was that this meeting took place in the evening, after the front doors of the building had been locked. Mr Castle was present, as were Walter Ceccattini and Cecilia Ceccattini. Cecilia Ceccattini's evidence was that she did not know why she was required to attend the meeting, but her husband had asked her to go. In the course of the meeting, Mr Castle produced a number of documents. None of these documents were signed on that occasion. Cecilia Ceccattini said that, when asked to do so, she refused to guarantee anything. Mr Castle did not mention this in his affidavit evidence. The omission is, in my view, significant, as this meeting is important, in relation to the contention that Mr Castle agreed to limit the defendants’ liability.

12 There were further negotiations between Mr Castle and Mr Mura. It is not clear that Walter Ceccattini was involved, and both his evidence and that of Mr Castle was that Mr Mura did most of the negotiations.

13 Ultimately, Cecilia Ceccattini was persuaded to sign a guarantee on behalf of her company, the fifth defendant in these proceedings.

14 Annexed to Mr Castle's affidavit is a draft mortgage from the fifth defendant over the property at Victoria Street, Wetherill Park. This document appears never to have been executed. Mr Castle said he had it at the Martin Place meeting, and also at a subsequent meeting at Gosford.

15 On 30 August, there was a further meeting at the Gosford offices of Balmain NB, where Mr Castle, Walter Ceccattini and Cecilia Ceccattini were all present. Cecilia Ceccattini, by this time, had agreed to give the guarantee. The evidence is that Walter Ceccattini and Cecilia Ceccattini signed the deed of guarantee and mortgage, and, immediately thereafter, Walter Ceccattini says that he pointed out to Mr Castle that the interest rate provided in the mortgage document was, in his view, wrong. The rate set out in the document was 7.5% per month reducible to 5.5% per month, but Walter Ceccattini says that his understanding, up until that time, was that the interest should be charged on an annual, rather than a monthly, basis. He says he pointed this out to Mr Castle. He made a mark on the document in pencil, next to the clause providing for the rate of interest. The original document is not in evidence, but a mark, which could easily be a pencil mark, is clear on the copy that is in evidence.

16 Walter Ceccattini's evidence was that Mr Castle said that the mistake would be fixed up. He said that it was something that would have to be done by the lawyers, but that he would take care of it. Mr Castle denies that any such conversation took place. Cecilia Ceccattini gave evidence that supported her husband's version.

17 In his affidavit, Mr Castle says that, at that meeting at Gosford, the guarantors also executed a deed of priority, which had the effect of postponing the plaintiff's security to that of the ANZ Bank.

18 In his oral evidence, Mr Castle corrected this inconformity with the evidence of Walter Ceccattini and Cecilia Ceccattini, and acknowledged that the deed was, in fact, signed a few days later in the car park at the Tuggerah shopping centre.

19 Walter Ceccattini and Cecilia Ceccattini both gave evidence that, after the discussion of the interest rate, and as they were about to leave, Cecilia Ceccattini said to Mr Castle that the agreement was that Walter Ceccattini and her company should only be liable for 50% of the amount guaranteed, because the interest in Trio was a 50% interest, and that Mr Mura and his company should be liable for the remaining 50%. This was apparently the position under the loan from the ANZ Bank. Walter Ceccattini and Cecilia Ceccattini both said that Mr Castle agreed to this, and left the room. He returned a few minutes later with a typed document signed by him, and on the defendants' evidence, Mr Castle gave them the original letter. A copy of this document is in evidence.

20 Mr Castle's evidence on this issue is different. He agrees that Cecilia Ceccattini made the request, and that he prepared the letter. He says that he showed the letter to Walter Ceccattini and Cecilia Ceccattini, but did not give it to them.

21 Walter Ceccattini and Cecilia Ceccattini both say that they expected to be given copies of the security documents and the mortgage, and that, in fact, they requested these documents, but they never received them. They did not receive any correspondence from Mr Castle about these transactions. Mr Castle agrees that this is the case.

22 Walter Ceccattini says that at the meeting in the car park at Tuggerah, he did not ask Mr Castle for the copies of the documents, because he considered that he did not need to do so.

Credit

23 My decision in this case depends very largely on the credit I attach to the witnesses. Apart from Ms Sue-Ellen Ceccattini, all the witnesses had an interest in the outcome. I could not be satisfied that any of them were totally reliable, in that the evidence each gave supported their case. In my view, evidence given by each of Walter Ceccattini, Cecilia Ceccattini and Matthew Castle was, on some points, dishonest. My decision in this matter rests almost entirely on the documentary evidence, signed by the witnesses, which gives a more accurate view of the facts.

24 Mr Castle is an experienced operator in the provision of finance. He is aware of the terms of business, and the need to make difficult decisions. Walter Ceccattini arrived in this country from Italy many years ago and established himself as a successful concrete fabricator and property developer. His wife, Cecilia, has, for many years, operated her own business as a developer and property investor. Both are familiar with borrowing and financial transactions, and, I infer, with the nature of interest rates. While their first language is not English, and they speak to each other mostly in Italian, they are familiar in general terms with commercial realities in Australia. Walter Ceccattini gave evidence that he did not need a written document to constitute a binding agreement. This may well be the case in the culture with which he is most familiar, but it is simply not credible that a person, with his experience in the construction and property industries in Australia, would not realise that, in this country, particularly in property and financial transactions, written documents have a particular significance. Each of these witnesses was a highly sophisticated and experienced businessperson.

25 I do not accept that either Walter Ceccattini or Cecilia Ceccattini really believed that the interest rate for 'mezzanine' finance would be as low as 7.5% per year, which, as Walter Ceccattini admitted in cross-examination, was lower than the rate of interest they were paying on the primary loan from the ANZ Bank. I accept Mr Castle's evidence, that he had previously arranged 'mezzanine' finance on behalf of Walter Ceccattini, Cecilia Ceccattini or companies controlled by them. They were, therefore, familiar with that form of finance, and the fact that the interest on it was charged at a higher rate.

26 Even if it was the understanding of Walter Ceccattini and Cecilia Ceccattini, that the interest rate on the 'mezzanine' finance was to be calculated on an annual, rather than a monthly, basis, they signed a formal, legal document knowing full well that it provided for the calculation of interest on a monthly basis, even though they may not have accepted it as reasonable.

27 They are not in the same position as the person considered by the High Court in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447. They are sophisticated and experienced businesspeople, and must have expected to be bound by what they signed. I accept Mr Castle’s evidence, that neither Walter nor Cecilia Ceccattini asked for a variation in the interest rate, though I accept that, on the balance of probabilities, Walter Ceccattini made a pencil mark in the margin, next to the relevant provision.

28 On the other hand, I do not accept Mr Castle's evidence, that he did not hand to Walter Ceccattini and Cecilia Ceccattini the letter, limiting their liability for the guarantee to 50% of the amount. Mr Castle says that he prepared the letter, but did not give it to the Ceccattinis, because Cecilia refused to execute the mortgage from her company over the property at Victoria St, Wetherill Park, whereupon, he said that he would insist that the guarantee be unlimited.

29 I accept the version of events, on this issue, given by Walter Ceccattini and Cecilia Ceccattini, and reject that given by Mr Castle. I can find no other reason why the letter should come into existence and be signed by Mr Castle, other than that Mr Castle accepted these terms as part of the agreement he made with Walter Ceccattini and Cecilia Ceccattini and the companies they represented. If there was no written confirmation by Mr Castle that he would amend the interest rates, a matter on which all parties agree, I see no other reason why he would prepare this letter. I find his version of the creation of the letter is a fabrication. I find, more probably than not, that Mr Castle did agree with Walter Ceccattini and Cecilia Ceccattini, that their liability was to be so limited, and that he gave Walter the letter, intending to be bound by it, but without knowing that the law would probably prevent it from having any effect. He also is a sophisticated and experienced businessperson. I do not accept the plaintiff's case that this letter was taken by Walter Ceccattini and Cecilia Ceccattini in some surreptitious manner.

The plaintiff’s failure to re-finance

30 The defendants said that the failure of Trio, and the subsequent failure to repay the principal and interest on the loan, were due to the failure of the plaintiff to refinance the loan, in the way that he had undertaken to do. The undertaking was allegedly given at a meeting, at which the plaintiff was present with some subcontractors, and which Sue-Ellen Ceccattini also attended.

31 Clearly, it was in the interest of all parties if the loan could be refinanced. The plaintiff would obtain commission and repayment of the money he had advanced, and, presumably, the defendants and Trio would be able to borrow money at the lower rate of interest.

32 I find that any undertaking, which the plaintiff gave in respect of refinancing, was not an unconditional obligation to ensure that the loan was refinanced, but rather an undertaking to use his best efforts to do so. It is clear that the project was in difficult financial circumstances, and any refinancing would have been difficult, because of the reluctance of lenders to advance money, without certainty of repayment. In his evidence, Walter Ceccattini said that he understood this; and he also referred to the dispute, that had arisen on the board of Trio, as a contributing factor.

33 In the circumstances, there is no defence, because the plaintiff was not in breach of any undertaking as to refinancing, which he might have given.

The estoppel defence

34 At the beginning of the hearing, Mr Chrysostomou, for the defendants, indicated that he wished to amend the defence so that two statutory defences would be deleted, and that he wished to raise two issues, alleging that the plaintiff was estopped from pressing its claim in two ways. During the hearing, by consent, I gave leave for an amended defence to be filed. The two estoppel questions related, first, to the interest rate and, secondly, to the limitation of the defendants' liability, on the guarantee, to half of the amount guaranteed.

35 Given that I have found that the defendants are bound by the interest rate stated in the mortgage and guarantee documents, and that the statements alleged to have been made by Mr Castle were not, in fact, made, I need not consider the estoppel issue in respect of interest rates.

36 However, given my findings in relation to the letter signed by Mr Castle, which purports to limit the liability of the defendants, as this is part of the representation alleged, as an essential element of the matters giving rise to their estoppel claimed, I must consider whether there is an estoppel.

37 The authorities on what constitutes an estoppel by representation are conveniently gathered by Sir Alexander Turner in the third edition of Spencer Bower's The Law Relating to Estoppel by Representation (London, Butterworths, 1977) at pages 4-6.

Where one person ("the representor") has made a representation to another person ("the representee") in words or by actual contact . . . with the intention . . ., and with the result, of inducing the representee on the face of such a representation to alter his position to his detriment, the representor, in any litigation which may afterwards take place between him and the representee, is estopped, as against the representee, from making, or attempting to establish by evidence, any averment substantively at variance with his former representation, if the representee at the proper time, and in the proper manner, objects thereto.

38 Many authorities are quoted to support this proposition, including a passage from the judgment of Sir Owen Dixon in Thompson v Palmer (1933) 49 CLR 507, 547.

39 There is no doubt that, on my finding, Mr Castle, on behalf of the plaintiff, made a representation. However, on the evidence before me, I am unable to find that the defendants altered their position to their detriment, by acting upon it. By the time the representation was made, the defendants had already executed the guarantee and mortgage. They make no specific reference to the order of events at the 30 August meeting in their affidavits, but Walter Ceccattini says, clearly, that the issue of the limitation of liability was raised as he and his wife were about to leave. I infer that the documents had already been executed by then.

40 The defendants have not adduced any evidence that, after the letter was given to them by Mr Castle, they altered their position in any way, nor that they have done so, in a way detrimental to them. Mr Chrysostomou contended, on their behalf, that the execution of the mortgage and guarantee deed was part of the same bargaining process as the representation by Mr Castle. Given the evidence of the sequence of events, to which I have referred, I could not make that finding, because the law is quite clear. Nor is there any evidence that the defendants have raised the question at the proper time and in the proper way. The issue was not raised until a time, not only well after the proceedings had commenced, but after the hearing commenced. It may be that the plaintiff’s conduct in seeking to enforce the liability for the full amount of the guarantee in the circumstances could be described as unconscionable, and it might have been appropriate to seek an order for rectification, but that relief has not been sought before me, and, as I have said, a defence under the Contracts Review Act was abandoned.

Conclusion

41 Accordingly, none of the defences succeed, and there must be a verdict for the plaintiff, calculated in accordance with the contents of Exhibit D, which was prepared by the plaintiff, calculating the interest on monthly, rather than daily, rates. That sum, including repayment of the principa,l is $839,803.28.

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