Roda Australia Pty Ltd & Anor v Kaizen Strategic Alliances Pty Ltd & Ors
[2009] VSC 41
•20 February 2009
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 10517 of 2006
| RODA AUSTRALIA PTY LTD (ACN 105 664 775) (in its capacity as trustee of the Roda Trust) and OLYVIA TSOCANOS | Plaintiffs |
| v | |
| KAIZEN STRATEGIC ALLIANCES PTY LTD (ACN 105 161 377) and others | Defendants |
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JUDGE: | BYRNE J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 9, 10, 11 February 2009 | |
DATE OF JUDGMENT: | 20 February 2009 | |
CASE MAY BE CITED AS: | Roda Australia Pty Ltd v Kaizen Strategic Alliances Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2009] VSC 41 | |
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Contract – loan of money to company – whether misleading and deceptive representations made by directors – reliance upon continuing representations
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr M Stirling | Trumble Szanto |
| The 3rd Defendant appeared in person | ||
| For the 4th Defendant | Mr A Bristow | Poloni & Galgano |
HIS HONOUR:
At the beginning of 2003 the secondnamed plaintiff Olyvia Tsocanos found herself in the position of having a fund of $850,000 which represented the proceeds of a property settlement with her former husband. Although she had worked in a secretarial capacity in a legal office, she had no business or investing experience. Thinking to inform herself upon these matters, she paid the necessary $13,690 fee and enrolled in a series of investment seminars organised by the Henry Kaye organisation.
There she met other would-be investors including the secondnamed defendant Sean Jacobs and the fourthnamed defendant David John Loughnan. The task of recruiting attendees to these seminars and of looking after them at the seminars was handled by another company within the Henry Kaye group which employed sales consultants including the thirdnamed defendant Konrad Bobilak. Mr Bobilak said that Mr Jacobs and Mr Loughnan were his clients; Ms Tsocanos was not.
There was a preliminary meeting and the two seminars were each conducted over a number of days in Brisbane and in Melbourne. The Brisbane seminar included accommodation, and the attendees and the sales consultants, naturally enough, met socially outside the formal sessions.
It seems that Mr Jacobs had already had some investing experience and had a company for the purpose, for he spoke to Mr Bobilak and Mr Loughnan of these, of opportunities for profit in offshore investing and also of his plans for property development. In any event, these three men and another who is not a party to this litigation decided to register a company for investment purposes. According to Mr Loughnan and Mr Bobilak the company was to be a vehicle for real estate investment only; but this is not what happened. The firstnamed defendant, Kaizen Strategic Alliances Pty Ltd (“KSA”), was incorporated on 18 June 2003 with four directors, Mr Jacobs, Mr Bobilak, Mr Loughnan and the other man.
This litigation arises out of the allegation of Ms Tsocanos that she provided $700,000 upon loan to KSA repayable at the end of 12 months together with interest at the rate of 50% per annum. Interest totalling $175,000 only was paid; the principal was not. In this proceeding, commenced on 21 December 2006, she, or her own investment company, the firstnamed plaintiff Roda Australia Pty Ltd, which is the trustee of the Roda Trust, seeks payment of the $700,000 principal and $991,666 interest, calculated to 18 December 2006.
When the proceeding was commenced Roda was the sole plaintiff. On 15 August 2007 it obtained a judgment in default of appearance against KSA in the sum of $1,691,666 and interlocutory judgment in default of defence against Mr Jacobs and Mr Loughnan. The judgment against Mr Loughnan was set aside on 19 November 2007 so that the proceeding continued to trial against him and Mr Bobilak.
The claims of Roda were pleaded against KSA as claims for damages for breach of contract. The breaches alleged were a failure to pay the principal and interest, the failure to procure directors’ guarantees from Mr Jacobs, Mr Bobilak and Mr Loughnan and a failure to hold the invested sum in a National Australia bank account.
The claims against the other defendants were put as claims for damages for misleading and deceptive conduct and for deceit. The deceit claim, however, was not pursued. The conduct relied upon as constituting misleading and deceptive conduct is three representations:
(i)Mr Jacobs, Mr Bobilak and Mr Loughnan would each execute a guarantee of KSA’s obligations;
(ii)Roda’ s investment of $700,000 would be held in the NAB account; and
(iii)The $700,000 would be used as collateral security to raise money for investment in bonds in the United States.
The representations were said to have been made by each of the three directors so that they were liable under the Fair Trading Act 1999 s 9 or made by KSA in contravention of the Trade Practices Act 1974. In the latter event, the three directors were sued as persons involved in its contraventions. Since the accessorial liability of Mr Bobilac and Mr Loughnan depended upon their having had an active involvement in the making of the representations, the case against them did not require an examination of the claim under the Trade Practices Act 1974 and I shall say nothing further about it.
When the case came on for hearing, a difficulty arose in that it appeared that Roda was not incorporated until 24 July 2003, a date after the money had been advanced and after any of the suggested representations had been made. And so, I permitted the plaintiff to add Ms Tsocanos as the second plaintiff and she became the party who was said to have been misled, to have relied upon the representations and to have suffered the loss.
The underlying facts of the loan transaction were not seriously in dispute and I can summarise them in a chronology. They all occurred in the year 2003.
April
Brisbane Seminar
May
Melbourne Seminar
27 May
Ms Tsocanos withdrew $700,000 from her term deposit account and deposited it in an NAB Account in the name of Merry Holdings Pty Ltd.
18 June
KSA registered.
$700,000 deposited by Merry Holdings into Ms Tsocanos’ NAB cheque Account No. 63 242 7168.
1 July
KSA cheque account No. 55 850 2122 opened at NAB Southland branch.
4 July
Ms Tsocanos withdrew $700,000 from her cheque account and deposited it in the KSA account.
KSA withdrew from its account $1 million which included the $700,000 deposited by Ms Tsocanos.
24 July
Roda incorporated.
8 September
Mr Jacobs as managing director of KSA provided Ms Tsocanos with a letter of comfort which included an interest payment schedule at the rate of $29,166.70 per month, first payment of $58,333.40 due on 18 September, presumably in respect of August and September interest. Payments are to be made electronically into her NAB bank account No. 63 242 7168.
18 September
Roda cheque account No. 56 227 9103 opened at NAB Malvern.
23 September
$58,333.40 interest paid into Ms Tsocanos’ bank account.
21 October
Ms Tsocanos executed a deed recording a loan of $700,000 from Roda to KSA and backdated it 3 July 2003.
31 October
$29,166.67 transferred from KSA account into Ms Tsocanos account, presumably in respect of October interest.
5 November
A sum equal to the October interest paid is transferred from Ms Tsocanos’ account to the Roda account.
13 November
$29,166.67 transferred from KSA account into Roda account, presumably in respect of November interest.
24 December
$54,333.34 paid into Roda account. This appears to represent interest for December 2003 and January 2004. Its source is unknown.
No further payments of interest were made and the principal was never repaid, notwithstanding enquiries by Ms Tsocanos. Following the default judgments no recovery has been made.
The only evidence of the loan transaction, other than the documentary evidence, was that of Ms Tsocanos. Both Mr Bobilak and Mr Loughnan said in evidence that they had no knowledge at the time of any loan from her. Mr Jacobs, who appears to have been an active participant in all of this, did not give evidence. The evidence of Ms Tsocanos suffered, I fear, from a degree of reconstruction. The events were some seven years ago and she was not financially astute. She was not aware of the fact that KSA was not in existence at the time she made the first payment of $700,000 and received it back from Merry Holdings.
In the circumstances, I place great reliance on the independent contemporary documents.
I analyse the position as follows. In Brisbane in April 2003 Ms Tsocanos expressed considerable interest in a proposal by Mr Jacobs that she invest money in a venture which he would establish. This was to be repayable at the end of 12 months with interest of 50%. She was told by Mr Jacobs that her money would be invested with an organisation which he referred to simply as “Kaizen” and she believed him. In Brisbane he had produced a business card of “Kaizen Australia” which bore his name, describing his position as Property Development and Investment Consultant. There was some suggestion that there then existed a company by that name but this does not appear on the card which bears only a business name; it gives no indication that the name was owned by a company. She said that Mr Jacobs told her that if she invested money with him, Kaizen would use it to make substantial profit from investments in bonds in America and that the money would remain in an NAB account with no risk to her. He said that he had had experience with these investments and that his clients had achieved 50% per annum interest. He told her that she would receive her money back plus 50% and she accepted all of this. So much was not contradicted by any witness and I accept it to be the fact. The area of factual controversy was her further assertion that Mr Loughnan was present at the Brisbane seminar when these matters were discussed with Mr Jacobs and that he made similar statements. This requires me to resolve the direct conflict of evidence between Ms Tsocanos and Mr Loughnan upon this point.
I have already remarked upon my perception that Ms Tsocanos’ evidence has been affected by reconstruction. She spoke of having met Mr Loughnan in a coffee shop in Toorak Road on a date which she fixed as 27 May 2003. She said that she went there because Mr Jacobs had told her that an investment opportunity had arisen. She said that she met Mr Loughnan, not Mr Jacobs, at the coffee shop and that he told her that she might invest $700,000. He produced a contract for her to sign and she did so, retaining a duplicate for herself. She threw away her copy after a loan agreement was entered into by her company Roda Australia which she believed superseded it . Mr Loughnan’s duplicate was not produced. Her account, it was suggested, was inherently improbable, but she maintained that it was so. She said that Mr Loughnan then accompanied her to the NAB in Toorak Village where she cashed her term deposit which then stood at $711,925.04. From the proceeds she deposited $700,000 in an account as directed by Mr Loughnan. She was adamant that the money was paid to an NAB account No. 55 850 2122 in the name of KSA. The bank documents show beyond doubt that she withdrew the money on the date which she identified but that she was in error in making this assertion about the payment: the money was paid into another account with the NAB, an account in the name of Merry Holdings. This, together with the surprising fact that she discarded her copy of the agreement, was relied upon in support of a submission that I should reject her evidence of this meeting and, generally.
On her behalf, an attack was mounted upon the credit of Mr Loughnan. He accepted in his evidence that he met Ms Tsocanos at the Toorak coffee shop but maintained that it was a social meeting and that the investment was not discussed, no document was produced or signed and that he did not go with her to the NAB. The date of the bank transaction was a weekday and the meeting occurred late in the morning. No credible explanation was offered by Mr Loughnan or suggested to Ms Tsocanos for his leaving his work as a plumber in Coburg on that day and travelling to Toorak to have a cup of coffee with a woman whom he had scarcely met and to engage in social chitchat with her.
It was put to him that he was less than candid when he said that, although he was a director of KSA, he was unaware of the fact that this company was engaged in 2003 in substantial commercial activities. Its bank statements show that, in the period 1 July 2003 to the end of December of that year, sums totalling about $3 million were received by it and paid out of its account. Mr Loughnan maintained, too, an ignorance of the commercial activities of KSA in the year 2004. This is not correct. Documents in evidence show not only his awareness of the fact that it was investing clients’ money in overseas bond trading, but he played an active role in this. This, together with his frankly unconvincing attempts to minimise his involvement, cause me to be cautious in accepting his evidence.
In short, I prefer the evidence of Ms Tsocanos as to the conversations at the seminar in Brisbane and as to the events at the Toorak coffee shop. I find that Mr Loughnan was present when Mr Jacobs spoke of his investment plans and how they operated and of the profits Ms Tsocanos might earn by participating in them. He was present, too, and assented to Mr Jacob’s assurances to her that the money she might invest would be held safe in an NAB account and that it would in this way be used as collateral security to support investments in bonds in the United States. He repeated them in the course of the coffee shop meeting.
I do not find, however, that Mr Bobilak was present or gave his assent to any of these statements. I do not find that anything was said by any of the defendants about directors’ guarantees.
At the time of the Brisbane seminar and at the coffee shop meeting, KSA was not yet incorporated; Mr Jacobs simply spoke of Kaizen. His representations and those of Mr Loughnan were directed to Ms Tsocanos in order to induce her to provide money for investment by them or by a company which they planned to create.
As I have mentioned, the $700,000 paid to Merry Holdings was returned to Ms Tsocanos on 18 June as the investment did not go ahead. On that day KSA was incorporated.
A little while later Mr Jacobs telephoned Ms Tsocanos advising her that another investment opportunity had presented itself and he gave her details of the newly opened KSA bank account where she should deposit her funds. This deposit was made on 4 July 2003.
On the same day KSA withdrew $1 million from its account. This represented Ms Tsocanos’ $700,000 and $300,000 transferred to the KSA account by Westpac warrant the source of which is unknown. This withdrawal was contrary to the assurances given to Ms Tsocanos in April and May by Mr Jacobs and Mr Loughnan that her money would be kept in the NAB account. Although the assurances were given some weeks previously, there is no suggestion in the evidence that the two defendants, when they made them, had any basis for believing that they would be complied with. Mr Loughnan has not discharged the onus imposed upon him by the Fair Trading Act 1999 s4.
It must be acknowledged that Ms Tsocanos was naïve. She paid a very large sum upon the suggestion of men whom she hardly knew. Although she had had an agreement in writing in May she held no document to evidence the investment which she made in July. She accepted at face value the improbable assurance that she would earn 50% on her investment.
It is true that Mr Jacobs provided her with a letter of comfort dated 8 September 2003. This letter serves to confirm her evidence that she was given an assurance that her money would be held in the NAB account without risk to her.
About this time, too, it seems that she sought to formalise the arrangements with respect to her investment. She had incorporated Roda on 24 July 2003 on the advice of her accountant and, on 18 September 2003, she opened an account in its name with the NAB. On or about 21 October 2003 she requested Mr Jacobs and received from him a form of loan agreement in which KSA is shown as borrower and Roda as lender. This, she said, was in the same form, apart from the names of the parties, as that which she had signed in the coffee shop on 27 May. The document refers to the principal of $700,000 having been advanced by electronic transfer on its date. Accordingly, since the transfer had taken place on 4 July 2003, she dated the document 3 July 2003, signed and returned it.
There is mention in this document of guarantees and this is relied upon as supporting the first representation. But the document comes too late to support a claim for misleading and deceptive conduct based on this. Moreover, the mention of guarantees is barely comprehensible and certainly does not amount to the alleged representation.
I accept the evidence of Ms Tsocanos that she relied upon the statements made to her in April and May that her money would be held safe in the NAB account and that nothing was said by Mr Jacobs or Mr Loughnan or anybody else prior to 4 July 2003 to disabuse her that this would happen. Accordingly, on 4 July she entered into this improvident transaction as a consequence of this representation.
As things turned out, the loan was in some way transferred to Roda, presumably by an entry in her loan account with that company. When the principal was not repaid she suffered its loss since there were no funds to pass to Roda to enable it to discharge its liability to her.
In this proceeding, counsel for the plaintiffs said that he sought judgment in the sum of $700,000 only, this being the amount of Ms Tsocanos’ loss. This was not challenged and, I think, this was correct. Had Ms Tsocanos not been induced by the misleading and deceptive conduct she would still have her money. True it is she has received interest in the sum of $175,000 from KSA but she would have earned this amount over the period from July 2003 to this date had she retained the money. I am satisfied that she had suffered loss in the sum of $700,000 by the misleading and deceptive conduct of Mr Loughnan.
I propose, therefore, that there be judgment for the secondnamed plaintiff against the fourthnamed defendant in the sum of $700,000. There should also be judgment for the thirdnamed defendant against the plaintiff. I will hear counsel further as to the orders to be made to give effect to these conclusions and as to costs.
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