Sklash Pty Ltd v Yarra Capital Group Pty Ltd
[2004] VSC 441
•9 November 2004
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 8474 of 2003
| SKLASH PTY LTD (ACN 083 360 034) | Plaintiff |
| -and- | |
| YARRA CAPITAL GROUP PTY LTD (ACN 094 615 657) | First Defendant |
| -and- | |
| STEVEN GOLDBERG | Second Defendant |
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JUDGE: | MORRIS, J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 21 October 2004 | |
DATE OF JUDGMENT: | 9 November 2004 | |
CASE MAY BE CITED AS: | Sklash Pty Ltd v Yarra Capital Group Pty Ltd & Anor | |
MEDIUM NEUTRAL CITATION: | [2004] VSC 441 | |
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P D Crutchfield | Clayton Utz |
| For the First and Second Defendants | Mr D A Klempfner | Velos & Davis |
HIS HONOUR:
The Defendants have appealed against an order of Master Evans made on 7 October 2004 granting summary judgment in this proceeding to the Plaintiff.
The appeal is by way of hearing de novo: see Rule 77.05(7) of Chapter 1 of the rules.
Master Evans gave detailed written reasons for his decision. I am entitled to, and do, consider those reasons.
No issue was taken before me that the Plaintiff had satisfied the Court as to its formal proof of its claims. But the Defendants submitted that there were two questions which ought to be tried, namely:
(a)the Plaintiff’s treatment of payments made by the First Defendant in respect of the loan deeds (“the accounting issue”); and
(b)whether the Plaintiff’s claim to “interest” is in the nature of a penalty and therefore unenforceable (“the interest issue”).
It is trite law that the Defendants ought be given leave to defend the proceeding if there is a question that ought to be tried or, alternatively, if there ought for some other reason be a trial of the claim. Further, it is clear that the power to order summary or final judgment is a power that should be exercised with care and should not be exercised unless it is clear that there is no real question to be tried.
The Accounting Issue
The Plaintiff and the First Defendant engage in the business of borrowing and lending money, generally with limited security and in circumstances of high risk. The various transactions the subject of this proceeding involve the First Defendant borrowing money from the Plaintiff and then relending the money to third parties. Generally the loans to the third parties are on a short term basis, possibly with some security, but nonetheless involving significant risk. The loans to the First Defendant and, I infer, by the First Defendant could be described as loans carrying a high rate of interest.
It is uncontroversial that the First Defendant has not only borrowed substantial sums from the Plaintiff but has also repaid substantial sums to the Plaintiff. Indeed, the Plaintiff acknowledges receipt of $341,883 from the Defendants in relation to the loans the subject of the proceeding. The Defendants claim in their defence that they have paid to the Plaintiff sums totalling $1,336,009. However the Plaintiff says, via an affidavit of Ben Kamer sworn 15 June 2004, that all but $341,883 was in relation to “other loans”, being loans unrelated to the proceeding. The Defendants dispute the Plaintiff’s allocation of the various repayments and submit that there is a question to be tried in relation to the Plaintiff’s allocation of loan repayments by the Defendant.
It is apparent that a number of the loan repayments that have been allocated to “other loans” were made before the loans the subject of the proceeding were made and before repayment was due. Clearly, as was pointed out by counsel for the Plaintiff, such repayments are not relevant. Master Evans dealt with a similar submission in paragraphs 15 to 21 of his decision. He notes that in the affidavit in opposition to the application the Second Defendant states that he has “a firm belief” that all principal amounts due and payable pursuant to the loans the subject of the proceeding have been paid. But he also notes that Mr Goldberg expresses no belief as to the payment of interest or other sums payable under such loans. Master Evans comments that a statement of belief along these lines is immaterial if not supported by evidence as to its basis. In the circumstances of this case, I agree.
Master Evans deals with the matter in detail in paragraphs 16 to 21. Having heard the matter afresh I reach the same conclusion, for the same reasons, as that reached by Master Evans. I find that the Plaintiff has provided a detailed, verified account of all its loan transactions, including the six deeds the subject of this proceeding. That account records the payments made to the Plaintiff and explains the manner in which those payments have been allocated in respect of various loans. By contrast, the Defendants have not produced information that raises any genuine question to be tried in relation to this matter; as I have previously indicated, a statement to the effect that a defendant has “a firm belief” that all principal amounts have been paid is insufficient to demonstrate that there is a real issue to be tried.
Indeed, I was referred to various correspondence between the Plaintiff and the Defendants (being Exhibits BK26 to BK30 of the affidavit of Ben Kamer dated 15 June 2004) which provides strong support for the Plaintiff’s position; but does not support the Defendants’ position. For example, on 3 September 2002 an officer of the Plaintiff wrote to the Second Defendant giving an update of the outstanding loans, in a manner consistent with the amounts now sought to be recovered in this proceeding. On 3 September 2002 the Second Defendant replied stating “your numbers are a bit off but I love you anyway (your [sic] close though)”. In my opinion, this evidence casts doubt on the Defendants’ claim that there is a real issue to be tried.
The Interest Issue
The nature of the loans from the Plaintiff to the First Defendant were somewhat unusual. A deed was entered into by the parties in relation to each loan, a typical example of which can be found at Exhibit BK39 to the affidavit of Ben Kamer. This particular loan was in the sum of $65,000 and was made on 29 April 2002. The schedule to the deed provides that the due date for the repayment of the loan was 29 July 2002 (that is, three months later). The deed provided:
“The borrower shall repay the Principal Sum together with a fee of $10,000 a total of $75,000 on the due date herein and failing repayment on the due date shall pay interest to the lender in the sum of $275 per day for each day beyond the due date that the loan is not repaid.”
There is no dispute about the fee of $10,000 which was required to be paid under this loan arrangement. Rather it was said that the sum of $275 per day, for each day beyond the due date that the loan is not repaid, was not actually “interest”, but a penalty payment; or, more accurately, it was said that there was a real issue to be tried about this matter. In schedules to his decision Master Evans calculated the annualised interest, as a percentage of the principal, of both the fee and the subsequent daily payment. Thus, for the second deed, which relates to the loan of $65,000, the Master calculated that the fee was the equivalent of an interest rate of 61.5%; and that the daily sum of $275 was the equivalent of an annualised interest of 154.4%. The calculations in the schedules to the Master’s decision show that the fee payable in each case was the equivalent of an annualised interest rate of between 44% and 240%; and that the daily fee payable was generally in the order of between 120% and 180%. The Master concluded, as do I upon a rehearing, that the effective interest rate payable on the daily fee in each case is in the same “ball park” as the interest payable on the loan as such.
In AMEV-UDC Finance Limited v Austin (1986) 162 CLR 170 Mason and Wilson JJ of the High Court of Australia said:
“But equity and the common law have long maintained a supervisory jurisdiction, not to rewrite contracts imprudently made, but to relieve against provisions which are so unconscionable or oppressive that their nature is penal rather then compensatory. The test to be applied in drawing that distinction is one of degree and will depend on a number of circumstances including (1) the degree of disproportion between the stipulated sum and the loss likely to be suffered by the Plaintiff, a factor relevant to the oppressiveness of the term to the Defendant, and (2) the nature of the relationship between the contracting parties, a factor relevant to the unconscionability of the Plaintiff’s conduct in seeking to enforce the term. The Courts should not, however, be too ready to find the requisite degree of disproportion lest they impinge on the parties’ freedom to settle for themselves the rights and liabilities following a breach of contract.”
As to the nature of the relationship between the contracting parties, it is plain that the relationship was one of mature and sophisticated persons who arrived at the loan agreements exercising freewill. That being so the degree of disproportion between the stipulated sum for interest and the loss likely to be suffered by the Plaintiff if not repaid on time would need to be great, possibly extreme, to justify relief against the stated provisions as being unconscionable or oppressive.
I am not satisfied that there is a real issue to be tried in this regard; or, rather, I am satisfied that summary judgment should be given, because there is no real issue to be tried.
First, I agree with the analysis of Master Evans to the effect that there is no significant difference between the payments that are due if the loan is not repaid on time and the fee, which is not contested, which is due if the loans are repaid on time. The fact that the annualised interest of the two payments is similar, and the fee is not contested, makes an argument based upon disproportion difficult.
Second, it is plain that both the Plaintiff and the First Defendant were engaging in high risk lending. The nature of this endeavour is such that there is always the prospect that the principal sum will not be repaid, thus causing a significant loss to the lender. Although the interest rates in this case are high, indeed extremely high, the evidence before me suggests that the risks were also high.
Third, the question could be legitimately asked: why would the First Defendant borrow money from the Plaintiff in the circumstances under consideration if the money was not to be relent at a profit? And, if it was to be relent at a profit would not the interest rate imposed upon the relending of the money (or some other profit associated with that) be greater than the interest payable to the Plaintiff? And, if so, would the First Defendant enter into those arrangements if it believed there was a prospect that those loans would be unenforceable in equity by reason of being unconscionable or oppressive?
Having regard to these factors, I am satisfied that there is no real issue to be tried in relation to the interest question.
Conclusion
I am satisfied that summary judgment should be entered. The appeal is dismissed.
I will hear the parties as to costs and the form of any order.
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