Subota v Boskovic (No 2)
[2013] NSWDC 262
•09 August 2013
District Court
New South Wales
Medium Neutral Citation: Subota v Boskovic (No 2) [2013] NSWDC 262 Hearing dates: 7, 8 and 9 August 2013 Decision date: 09 August 2013 Jurisdiction: Civil Before: P Taylor SC DCJ Decision: (1) Judgment for the plaintiff in the sum of $203,987.27 inclusive of interest.
(2) Defendant to pay the plaintiff's costs.
(3) Exhibits to be returned after 28 days.
Catchwords: AGREEMENT - real estate development - share profits and losses - implied term - breach of agreement - co-guarantor - contribution between guarantors Cases Cited: BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337Category: Principal judgment Parties: Branko Subota (plaintiff)
Ivan Boskovic (defendant)Representation: Mr P Menadue (plaintiff)
Mr R Jefferis (defendant)
Sean Wilkins & Company (plaintiff)
Harbourside Legal Services Pty Ltd (defendant)
File Number(s): 2012/231613 Publication restriction: No
ex tempore Judgment
Branko Subota, the plaintiff, and Ivan Boskovic, the defendant, were good friends. In 2005 Mr Boskovic found a potential real estate development opportunity in Toukley on the New South Wales Central Coast. The proposal involved two blocks of land zoned to allow unit development. Both Mr Subota and Mr Boskovic were interested. So was another associate, Mr Garo Aroutunian. A company was acquired and optimistically named B.I.G. Investments Pty Ltd ("BIG"), after the first initials of the names of the three proposed investors. Mr Aroutunian did not go ahead with the investment but the company name remained.
The two blocks of land were acquired in the name of BIG. Mr Subota and Mr Boskovic were the directors of BIG and the shares in BIG were owned 50 per cent by Mr Subota's wife, Margaret Palisi, and 50 per cent by Meliva Pty Limited, a company wholly owned by Mr Boskovic. The purchase price was $1 million paid for by a loan from the National Australia Bank ("NAB") of $880,000 secured against the Toukley properties, with the difference contributed equally by Mr Subota and Mr Boskovic. Mr Subota and Mr Boskovic were guarantors of the loan, along with Ms Palisi who had apparently consented to a mortgage on a property she owned as further security for the bank loan.
The proposal involved building 21 units on the lots. After purchase the first step was to obtain development approval. Time and money was spent on achieving this end, as well as to cover the shortfall between the rental of the properties and the interest on the bank loan. Financial contributions were made equally by Mr Subota and Mr Boskovic, amounting to perhaps $150,000 each.
In about 2008, Wyong Council rejected the development application. Mr Boskovic was having financial difficulties and was unable to continue contributing to the property. Both parties appeared to have lost interest in the development. They considered each taking over one lot but Mr Boskovic was financially unable to take that course, so the properties were marketed for sale. A proposed buyer offered $550,000 for the lots. Mr Boskovic thought he could obtain a better offer but none eventuated, so the lots were sold for that price. Both Mr Subota and Mr Boskovic signed the sale contracts and the transfers.
At that time, Mr Subota's wife was no longer prepared to continue to provide security for the loan and wanted to sell her property. That apparently occurred and thus Mr Subota's wife's property was released as security. Settlement on the sale of the Toukley properties resulted in approximately $350,000 still owing to the bank.
Mr Subota said that the parties agreed to share the remaining deficit of $350,000 equally but to release the other securities. The bank wanted some alternative security, so Mr Subota paid out 50 per cent of the debt, $175,618,80, and provided a term deposit and security for the residue that, he said, Mr Boskovic had agreed to pay.
Both Mr Subota and Mr Boskovic executed guarantees in respect of the remaining $175,600 approximately. Mr Boskovic made one payment of about $3,500 in respect of the residual debt, reducing the balance to the approved $175,000 but then ceased to make any more payments. He gave evidence that he had financial troubles and could not pay any contributions. The bank took funds from Mr Subota's term deposit to meet the interest obligations and ultimately, Mr Subota used his term deposit to pay off the whole loan.
Mr Subota sues Mr Boskovic for the funds he paid from the term deposit to pay off the loan, totalling a sum of $185,475.31 plus interest from 4 April 2012. Mr Boskovic denies liability.
Mr Subota's claim has three bases. First, he asserts an oral agreement in May 2011 where he says Mr Boskovic agreed to be responsible for the unpaid half of the outstanding debt to the bank, Mr Subota already having paid the other half. Part of this agreement, according to Mr Subota, involved Mr Subota putting up a term deposit as security because the bank required security for the loan and Mr Boskovic could not offer any.
The second alternative basis of Mr Subota's claim is that in 2005 the parties agreed to share equally the profits and losses, and that the unpaid amount of the NAB loan after the sale of the two properties represented the outstanding amount of the loss. Mr Subota says that, having paid his half, it was incumbent on Mr Boskovic to pay the remaining half of the loan outstanding and to pay the equivalent amount of damages for breach when he defaulted.
The third alternative claim is that Mr Boskovic was liable as a co-guarantor to contribute 50 per cent of the amount paid by the other guarantor, Mr Subota, who had paid the whole of the $350,000, approximately, outstanding. This claim for contribution between guarantors relied on the 2011 guarantee or, alternatively, the 2005 guarantee.
These three alternative claims raised all the issues identified by the parties. I propose to deal with each claim separately.
1. Recovery for the breach of the 2011 agreement
Settlement on the sale of the Toukley properties appears to have occurred on about 23 May 2011 and the net sale proceeds were credited against the debt owed by BIG. Mr Subota gave affidavit evidence that in early May 2011 he had a conversation with Mr Boskovic in a coffee shop in Brighton-Le-Sands to the following effect:
"[Mr Subota] 'We will still owe the Bank around $350,000.00. The Bank wants the loan paid out in full or if it they continue it they want security and we will both have to guarantee the loan.'
[Mr Boskovic] 'I can't give any security.'
[Mr Subota] 'I know you can't give security. I can pay my half at settlement of the sale. The Bank will accept a term deposit from me as security. I will pay my half of the amount at settlement and I will give the bank a term deposit for $175,000.00 as security if you will pay the loan. All you have to do is make the loan payments.'
[Mr Boskovic] 'OK I can do that no problem. I have got some money coming in anyway. I am going to re-organize my finances. I can pay the loan out quickly. It's bad luck we didn't do any good. We will both take a loss. Next time will be better'".
Mr Subota adhered to this evidence when challenged in cross-examination. When asked why he did not get a signed agreement from Mr Boskovic, he said:
"Mainly that we were very good friends. We trusted each other. We had fifty-fifty ownership in B.I.G. We were equally liable under the personal guarantees. I trusted Ivan and Ivan trusted me. Simple as that."
The agreement resulting from the conversation in early May 2011 was pleaded in a verified statement of claim filed in July 2012. While Mr Boskovic's verified defence denied the agreement, it also admitted that Mr Boskovic defaulted in loan payments to the bank in breach of the agreement. In an amended defence filed on the second day of the hearing this admission remained. Further, although Mr Boskovic denied an agreement in 2011, he accepted that at the commencement of the project in 2005 he agreed with Mr Subota "We would share any profits equally." This existing agreement, not in contest, seems to me to make it more plausible that the conversation alleged by Mr Subota occurred.
Also, in my view, the signing of the guarantee in 2011 by Mr Subota and Mr Boskovic in circumstances where Mr Subota had allowed his term deposit to be held by the bank as security for the remaining debt provides some support for Mr Subota's account.
Both Mr Subota and Mr Boskovic gave evidence. I was impressed with Mr Subota's evidence. He appeared to do his best to answer each question carefully and honestly, making concessions where appropriate.
He was asked about the signatures on a guarantee and readily admitted his own signature but admitted to not recognising Mr Boskovic's signature, although it appeared above the printed name of Mr Boskovic. It was in Mr Subota's interest to have evidence of Mr Boskovic having signed the guarantee. His oral evidence in this regard indicated to me, among other matters, a willingness in Mr Subota to only give evidence of what he knew.
Mr Boskovic's version of the events was less than clear. In cross-examination of Mr Subota, Mr Boskovic's counsel suggested that Mr Boskovic first saw the guarantee he signed in 2011 when he read Mr Subota's affidavit. The affidavit of Mr Subota that contained the guarantee was dated 1 August 2013, less than a week before the trial. This suggestion was not plausible.
Mr Boskovic's evidence was characterised by a number of matters that he claimed not to remember or be aware of, although they were in the relevantly recent past, some two years ago and were matters one might expect to remember, such as the sale price of the Toukley properties. I note that Mr Boskovic had signed contracts and transfers which recorded those sale prices. In the case of the transfer the prices were recorded a few lines above his signature.
Further, when Mr Boskovic claimed to be unaware of the sale price of the Toukley properties it was put to him that he was well aware before the properties were sold that the price was $550,000 and he answered, "Margaret [the plaintiff's wife] called me once and told me a figure. I said, 'Give me time. I'll do much better.'" To me this answer acknowledges that Mr Boskovic was informed of the price.
The allegation that Mr Boskovic would "do much better" was reflected in a pleaded allegation of "failure to mitigate" loss by Mr Subota in Mr Boskovic's initial defence, although this allegation of a failure to mitigate was not pursued nor contained in the amended defence.
Mr Boskovic also claimed not to be interested or aware of the amount that remained owing to the NAB after the Toukley settlement, although he signed a guarantee related to it. Mr Boskovic admitted in evidence that initially he "contributed equally" but that his "contributions stopped because [he] had financial difficulties" which I conclude contained an implied acknowledgment that he was obliged to make contributions.
Mr Boskovic also acknowledged in evidence his obligation to the bank to pay the outstanding deficit or shortfall after the sale of the Toukley properties. When asked about his admitted defaults in 2011/2012 Mr Boskovic said, "I had financial problems and couldn't pay my contributions but I don't see this as my share." Although not raised in submissions by counsel, I noticed that Mr Boskovic spoke with quite a heavy accent and may have lacked a ready and detailed familiarity with the English language. Even taking this into account, I think he was prepared conveniently to forget matters that were adverse to his interest.
In my view, as considered below, from the outset the parties agreed that they would share equally in the outcome. They were good friends. Little words were needed to clearly express the concept that each would share in the good and the bad of the investment that ultimately expressed itself in the outstanding debt to the NAB. No argument was raised that prior contributions of the parties were other than equal contributions.
In all these circumstances, I am persuaded that the parties did agree in 2011, as Mr Subota testified, that once Mr Subota paid his half of the residual debt Mr Boskovic was obliged to pay the remainder. This is sufficient for Mr Subota to succeed in the claim.
2. The 2005 agreement
As I have accepted the 2011 agreement alleged by Mr Subota a finding in respect of the earlier agreement is strictly unnecessary. However, there was no issue that the parties agreed to share the profits. The only argument was whether this embraced sharing the losses also. If it were necessary, such an implied term would seem to me to satisfy the five elements identified in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 and Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337: reasonableness, obviousness, capable of clear expression, not contrary to express terms and necessary for business efficacy.
In any event, I accept Mr Subota's evidence that the parties were to "share any profits and any losses equally".
In Mr Boskovic's original verified defence, the only basis for a denial of liability of a claim under the 2005 agreement to share profits and losses equally was that Mr Subota "failed to mitigate his loss" by selling the properties below market value. As I have said, this is a contention that was not ultimately pursued. But this pleading takes no issue with the existence of a loss and the liability of Mr Boskovic to share in it.
Accordingly, and even in the absence of any 2011 agreement, I conclude that Mr Subota is entitled to succeed under the 2005 agreement.
3. The guarantees
Mr Subota also claimed entitlement to recover contribution from Mr Boskovic as his co-guarantor under the 2005 and/or the 2011 guarantee. Various arguments were raised against this claim, including the asserted need for, and absence of, a demand on the guarantee and the asserted discharge of the guarantees. By the conclusion of submissions Mr Boskovic and Mr Subota through their counsel appeared to accept that under the guarantees Mr Boskovic bore a liability for one-third of the amount of Mr Subota's payment on the settlement in 2011 (since Mr Boskovic was one of three original guarantors) plus one-half of the amount claimed by Mr Subota in these proceedings (since Mr Boskovic and Mr Subota were co-guarantors under the 2011 guarantee). Together this would amount to approximately five-sixths of the amount claimed by Mr Subota. As I have found liability for a greater amount under the agreements than appears to be conceded under this equitable right of contribution, I need not calculate its precise amount.
Conclusion
I find in favour of the plaintiff. The quantum was not the subject of dispute. The total amount repaid by Mr Subota in respect to the original loan was $185,475.31. Although some of this was paid in 2011, interest is only claimed from the date of payment of the final amount on 4 April 2012. That amount of interest, on my calculations, is $18,511.96 according to the following table:
Start of period
End of period
Interest Rate (per cent per year)
No. of days in period
Interest Rate per day (decimal)
Interest for period ($)
04-Apr-2012
30-Jun-2012
8.25
88
0.000226
3,689.18
01-Jul-2012
31-Dec-2012
7.5
184
0.000205
7,012.49
01-Jan-2013
30-Jun-2013
7
181
0.000192
6,438.28
01-Jul-2013
09-Aug-2013
6.75
40
0.000185
1,372.01
18,511.96
Accordingly, I propose to give judgment in favour of the plaintiff in the sum of $203,987.27, being the sum of $185,475.31 plus $18,511.96 interest.
The parties both submitted that the successful party should be awarded their costs.
Accordingly, the orders of the Court are:
(1) Judgment for the plaintiff in the sum of $203,987.27 inclusive of interest.
(2) Defendant to pay the plaintiff's costs.
(3) Exhibits to be returned after 28 days.
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Decision last updated: 03 February 2014
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