Smith v Corkill - [2013] WADC 130

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL

LOCATION: PERTH

CITATION: SMITH -v- CORKILL [2013] WADC 130

CORAM: STAUDE DCJ

HEARD: 22 APRIL & 20 JUNE 2013

DELIVERED : 16 AUGUST 2013

FILE NO/S: CIV 3785 of 2012

BETWEEN: PETER JAMES SMITH
Plaintiff
AND
ALAN CORKILL
Defendant

Catchwords:

Contract - Loan facility agreement - Plaintiff's application for summary judgment - Appeal from deputy registrar's decision - Turns on own facts

Legislation:

District Court Rules 2005 r 15
Rules of the Supreme Court 1971 O 14

Result:

Appeal dismissed.
Application for summary judgment dismissed
Unconditional leave to defend granted

Representation:

Counsel:

Plaintiff: Mr B P Wheatley
Defendant: Mr W G Spyker

Solicitors:

Plaintiff: Mossensons
Defendant: Cornerstone Legal

Case(s) referred to in judgment(s):

Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1986) 162 CLR 549
Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87
Field Camp Services Pty Ltd v Site Accommodation Pty Ltd [No 2] [2012] WASCA 27

STAUDE DCJ:

Introduction

This is an appeal from a decision of a deputy registrar on 18 January 2013 dismissing the plaintiff's application for summary judgment by chamber summons dated 3 January 2013. The appeal is a fresh hearing of the application: District Court Rules 2005 (DCR) r 15(6). It is not necessary for the plaintiff to show error in the decision appealed from.
The claim is for $175,000 and interest. The claimed sum is the balance of a loan account created by a loan facility agreement in writing between the plaintiff as lender and Time Equity Pty Ltd as borrower. The defendant, a director of Time Equity Pty Ltd, is a party to the agreement as a guarantor of the performance of the borrower's obligations. Mr Michael Peter Smith, another director of Time Equity Pty Ltd, is also a guarantor.
The application is supported by four affidavits of the plaintiff sworn 3 January 2013 (P1), 19 February 2013 (P2), 17 April 2013 (P3) and 25 May 2013 (P4). The defendant has filed affidavits sworn 14 February 2013 (D1) and 6 May 2013 (D2). The plaintiff's schedule of monies paid pursuant to the agreement is contained in P4 at pages 11 – 15. The defendant's schedule is contained in D2 at pages 8 – 10.

Principles

The onus is on the plaintiff to show that he is entitled to judgment. He must show that there is no real issue to be tried: Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87, 99. Where a plaintiff has demonstrated a prima facie right to judgment, an evidentiary burden shifts to the defendant to satisfy the court that there is a question which ought to be tried, or that there ought for some other reason to be a trial of that claim: Rules of the Supreme Court 1971 (RSC) O 14 r 3(1). A defendant does not have to show a defence on the balance of probabilities, but must at least show that there is an arguable defence: Field Camp Services Pty Ltd v Site Accommodation Pty Ltd [No 2] [2012] WASCA 27, [4].

Pleadings

The statement of claim, which is endorsed on the writ of summons, is as follows:
1.By written loan facility agreement executed under seal in or about July or August 2011 the plaintiff agreed to advance $280,000 to Time Equity Pty Ltd (the borrower) and the defendant agreed to guarantee the obligations of the borrower.
2.The borrower repaid the sum of $80,000 to the plaintiff by payments of $40,000 on 13 June 2012 and $40,000 on 22 June 2012.
3.On 7 August 2012 liquidators were appointed to the borrower.
4.The appointment of liquidators to the borrower was an event of default pursuant to the loan facility agreement.
5.The defendant repaid the sum of $25,000 to the plaintiff on 30 August 2012.
6.An amount of $175,000 remains due and owing to the plaintiff pursuant to the loan facility agreement.
7.By letter dated 16 November 2012 the plaintiff declared that the loan and other amounts due and payable under the loan facility agreement were due and payable and demanded payment of the same from both the borrower and the liquidator of the borrower.
8.By letter dated 20 November 2012 the plaintiff demanded payment from the defendant within 14 days from the demand pursuant to the loan facility agreement.
9.In spite of demand the amount due to the plaintiff remains outstanding.
AND THE PLAINTIFF CLAIMS:
a.The sum of $175,000.
b.Interest on the sum of $175,000 at the rate pursuant to the loan facility agreement from 7 December 2012 until payment or, alternatively, at the rate of 6% per annum from 7 December 2012 until payment pursuant to section 32 of the Supreme Court Act 1935.
c.Costs.

The loan facility agreement

The loan facility agreement which is the subject of this action is undated. It is annexed to P1. It is not expressed to be a deed, but the execution clause states that it is 'signed, sealed and delivered' by the plaintiff and the guarantors and executed by the borrower in accordance with s 127 of the Corporations Act 2001 (Cth).
The recitals are as follows:
AThe Lender has agreed at the request of the Borrower to provide a loan facility to the Borrower the principal amount of which is not to exceed the loan amount.
BThe Borrower is only permitted to use the loan facility funds for the purposes of paying the wages of employee/s of the Borrower.
CTo date the Lender has advanced the sum of one hundred and fifty‑five thousand dollars ($280,000) [sic] to the Borrower.
DThis agreement sets out the terms upon which the loan facility will be provided by the Lender to the Borrower.
EThe Guarantor has agreed to guarantee the obligations of the Borrower contained in the agreement.
Clause 1.1 relevantly provides:
'Interest rate' means interest in words per cent [sic] (0.001%) per annum calculated on a daily basis.
'Loan amount' means $280,000.
'Commencement date' means 1 May 2011.
'End date' means 30 April 2016.
Clause 2.1 provides that the lender upon request by the borrower will provide the loan amount or any portion of the loan amount on the commencement date or during the term of the agreement.
Clause 2.2 provides that the borrower must strictly use the loan amount or any portion of the loan amount to pay the wages of any employees of the borrower.
Clause 2.3 provides that the loan amount may be varied from time to time upon the written variation by all parties to the agreement.
Clause 3.1 provides that the agreement will come into effect on the commencement date and that the terms of the agreement will cease on the end date unless otherwise varied in writing by all parties.
Clause 4.1 provides that the lender will charge the borrower interest on the loan amount at the interest rate.
Clause 5 provides that the borrower shall pay the interest rate only on the outstanding loan amount with payments due on the first day of each month and that at the end date the borrower must repay to the lender any outstanding loan amount together with any outstanding interest at the applicable interest rate.
Clause 5.4 provides that the lender may recall the loan amount plus interest during the term of the loan agreement on 90 days' written notice to the borrower.
Clause 6.2 provides that in an event of default (as defined by cl 6.1) the lender may, by notice to the borrower, declare that the loan and any other amounts due and payable under this agreement are due and payable, in which case the borrower shall immediately pay those amounts to the lender.
Clause 7.1 provides that the guarantor guarantees that the borrower will do everything that the borrower is required to do under the agreement.
Clause 7.2 provides that the guarantor will continually indemnify the lender against any loss that the lender suffers because the borrower fails to comply with the agreement.

Plaintiff's evidence

In P1 the plaintiff simply recited the statement of claim and deposed to his belief that the defendant had no defence to the claim. Neither the statement of claim nor P1 stated that the loan amount was actually advanced, or when.
The agreement on its face is obviously problematic. It is not dated. Notably, recital C is ambiguous as to the amount which had been advanced by the time of the agreement. Also, cl 1.1 specifies an interest rate of 0.001% per annum which the plaintiff says is an absurdity. The plaintiff contends as a matter of fact that interest was charged by the plaintiff and paid by the borrower at the rate of 0.1% per day. There is no claim for rectification.
In P2 the plaintiff purported to give evidence as to the purpose of the loan facility agreement by reference to a letter of advice from lawyers Morgan Alteruthemeyer to Mr Michael Smith dated 28 July 2011. The affidavit also annexed a copy of an email from the defendant to the plaintiff on 27 August 2012 which purported to acknowledge personal liability for one‑half of a loan account balance at that time of $200,000.
Prior to the first hearing of the appeal the plaintiff filed an amended statement of claim, without leave, pursuant to O 21 r 3 RSC. It purported to address a deficiency observed by the deputy registrar in the original hearing, in that the statement of claim did not allege that money had in fact been advanced pursuant to the agreement. It also claimed interest at 1% per week.
A further affidavit was also filed (P3). In it the plaintiff deposed to having agreed to a weekly interest rate with the defendant on behalf of the borrower after the signing of the agreement.
At the first hearing I ruled that the plaintiff could not conduct the appeal from the original decision on the basis of an amended statement of claim. I granted leave to the plaintiff to rely on P3, but struck out pars 5, 6 and 11 dealing with the agreement as to interest.
In P4, in response to D2, the plaintiff annexed and verified an amended loan account schedule and stated that prior to the commencement date, the defendant agreed to an interest rate of 1% per day on the loan amount, a rate which he said was a commercial rate at the time, based on what he was told by his son, Michael Smith, the other guarantor, and by comparison with a commercial factoring firm, and that in or about October 2011 the plaintiff and the borrower agreed a weekly rate of interest of $1,960.00 which was paid by the defendant until 19 June 2012.
This evidence was relevant to the issue raised by the defendant as to the nature of payments made from time to time by the borrower. The evidence is inconsistent with the plaintiff's invoices annexed to P4 (annexure I) which show interest charged at $280 per day ($1960.00 per week), being a rate of 0.1%per day of $280,000. The plaintiff's evidence was that the rate was agreed in or about October 2011 (P4, par 8). Following the reduction of the loan amount by two payments of $40,000 by the borrower the weekly interest payment was changed to $1,400.00 (0.1% per day). Later, the plaintiff agreed to reduce the weekly payment to $1,000.
At the second appeal hearing, counsel for the plaintiff argued that there should be summary judgment for the principal, alternatively, for the principal less the amount by which the defendant contended that the borrower had overpaid interest.
The plaintiff sought to demonstrate that the schedules of loan account payments prepared by each party could be reconciled so as to prove that at the time of the signing of the agreement, said by the defendant to be 11 October 2011, $280,000 (not $155,000, as stated in recital C) had been advanced. In reduction of that amount the plaintiff says that the borrower paid $40,000 on 13 June 2012 and $40,000 on 22 June 2012, and the defendant paid $25,000 on 30 August 2012, leaving a balance of $175,000.
With respect to the alleged loan account, the evidence adduced on behalf of the plaintiff shows that from the commencement date to October 2011 (prior to the signing of the agreement) he advanced money to Time Equity as follows:
18 May 2011:                $15,000
25 May 2011:                $25,000
25 May 2011:                $25,000
26 May 2011:                $10,000
31 May 2011:                $25,000
1 June 2011:                  $15,000
12 July 2011:                 $25,000
13 July 2011:                 $15,000
24 August 2011:            $25,000
25 August 2011: $3,000
30 August 2011:            $25,000
31 August 2011:            $25,000
1 September 2011:         $25,000
2 September 2011:         $28,000
7 September 2011:         $22,000
The sum of these amounts is $308,000. During that period the borrower paid eight various amounts totalling $17,423 by way of interest. On 29 August 2011 the borrower repaid $28,000 by way of principal. The plaintiff's schedule, verified by affidavit, shows a balance of $280,000 as at the date of the signing of the agreement.
On 15 October 2011 the plaintiff invoiced the borrower $3,360 by way of interest. Subsequently, the borrower paid 33 amounts of $1,960 to 19 June 2012, and thereafter 11 payments of $1,000 and one payment of $2,000 to 25 September 2012. The plaintiff says that he advanced further sums of $17,000, $25,000 and $10,000 which were repaid. The plaintiff distinguishes, as unrelated to the agreement, five advances totalling $87,984 made on 8 and 9 February 2012 which were repaid in three moieties on 22 February 2012, 1 March 2012 and 13 March 2012, in total $90,000, which included $2,016 by way of interest.
The total amount the plaintiff says was paid by way of interest from the commencement date of the loan facility agreement is $108,343. The plaintiff annexes the borrower's profit and loss account for 2010 ‑ 2011 and 2011 ‑ 2012 (P4, annexure K) which show that amounts corresponding (approximately) to those which the plaintiff says were paid as interest were so treated, being identified as 'Peter Smith's interest fee': $13,242 in 2010 ‑ 2011 and $96,622 in 2011 ‑ 2012.
The plaintiff's amended schedule of loan facility agreement payments dated 27 May 2012 takes into account amounts referred to in D2 which were not reflected in the plaintiff's original schedule. Counsel for the plaintiff addressed the differences between the parties' schedules by reference to a document headed 'reconciliation of schedules plaintiff and defendant' dated 17 June 2013.
On the plaintiff's analysis, if the borrower's payments which the plaintiff characterises as payments of interest are treated as repayments of the loan amount there would still be due and owing to the plaintiff an amount of $66,657.

Defendant's position

The defendant's position, to which he deposed in D1, is that from August 2010 the plaintiff had advanced sums to Time Equity Pty Ltd which were repaid as and when the company was able to do so. As at October 2011 the company owed $265,000 which it was not able to repay. The loan facility agreement was executed on or about 11 October 2011. Time Equity Pty Ltd went into liquidation in or about August 2012.
In D2 the defendant stated that the only interest rate to which he agreed, as a director of Time Equity Pty Ltd or as guarantor, was the rate stipulated in the agreement. He did not agree that the borrower would pay interest at 0.1% per week. This is clearly at odds with the documentary evidence which clearly shows payments by the borrower of interest at that rate. It is not an issue that can be resolved in this appeal.
The potential effect of the defendant's contention is significant. If the borrower and the plaintiff made an arrangement by which the borrower agreed to pay interest in excess of the rate specified in the agreement, without the defendant's consent, the guarantee in question may arguably have been discharged as a consequence: see Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1986) 162 CLR 549, 559. I would observe in this regard that the evidence in this case tends to show (as counsel for the plaintiff conceded at ts 98) that the burden of interest payments at the effective rate of 36.5% per annum contributed to the borrower going into liquidation.
This issue is enough to warrant leave to defend being granted.
The defendant's other contentions in answer to the claim are:
1.The agreement is not enforceable as there was no consideration for the guarantee. The defendant disputes the plaintiff's plea that the agreement was by deed (under seal).
2.The agreement is not enforceable with respect to monies that had already been advanced by the plaintiff on the basis that the agreement was in respect of loan amounts yet to be advanced by the plaintiff, making the guarantee obligation prospective.
3.The obligation of the guarantor, by definition the defendant and Michael Smith, is a joint and not a several obligation.
4.To the extent that the borrower overpaid interest (as the defendant contends it did by paying 0.1% per day, rather than 0.001% per annum as stipulated by the agreement) the principal debt should be reduced. At the contractual rate the interest would have been $2.95. The defendant contends that interest was overpaid by an amount of $110,021.68.
5.Alternatively the defendant says that if 0.1% per day were the agreed interest rate, then it would constitute a penalty and the agreement would be unenforceable.
6.The amounts in the loan account categorised by the plaintiff as interest should be treated as payments of capital.
In response to those points the plaintiff maintained that:
1.The agreement was signed as a deed and the defendant is estopped from denying that it was.
2.By operation of s 27 of the Corporations Act 2000 (Cth) and s 9 of the Property Law Act 1969 (WA) the agreement is a deed and therefore enforceable without consideration.
3.As to the effect of the agreement, the plaintiff had advanced $150,000 as at the time of the agreement and advanced in total $280,000, of which the borrower repaid $80,000 and the defendant $25,000.
4.By operation of s 50 and s 51 of the Property Law Act the guarantors are jointly and severally liable.
5.The defendant is estopped from denying liability because he represented by signing the agreement that he was bound by the guarantee and the plaintiff relied on that representation to his detriment.
6.The borrower going into liquidation was an event of default which enabled the plaintiff to declare the loan amount due and payable, and rendered the defendant liable under the guarantee.
Having found that there is a real question to be tried as to whether the guarantee in question is vitiated by the borrower paying interest at a rate much greater than the rate stipulated in the agreement, it is unnecessary to canvass the other issues raised in answer to the plaintiff's application. It is enough to say that I do not consider that the position taken by the defendant is shadowy or lacking in bona fides such that leave to defend should be granted conditionally.

Conclusion

In my view the application for summary judgment should be refused. Leave to defend is granted. The appeal is dismissed.