Vinokur v Furman
[2014] VCC 2221
•19 December 2014
| IN THE COUNTY COURT OF VICTORIA | Revised Not Restricted Suitable for Publication |
AT MELBOURNE
CIVIL DIVISION
COMMERCIAL LIST- BANKING & FINANCE DIVISION
Case No. CI-14-03259
| EFIM VINOKUR & ANOR | Plaintiffs |
| v | |
| ALEXANDER FURMAN & ORS | Defendants |
---
JUDGE: | His Honour Judge Cosgrave | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 14 November and 5 December 2014 | |
DATE OF RULING: | 19 December 2014 | |
CASE MAY BE CITED AS: | Vinokur & Anor v Furman & Ors | |
MEDIUM NEUTRAL CITATION: | [2014] VCC 2221 | |
REASONS FOR RULING
---
Subject: PRACTICE AND PROCEDURE
Catchwords: Summary judgment -- whether default interest rate constitutes a penalty --
Legislation Cited: County Court Civil Procedure Rules 2008 (Vic); Civil Procedure Act 2010 (Vic)
Cases Cited:Attwood v Lamont [1920] All ER Rep 55; Feldman v Frontlink Pty Ltd [2014] VSCA 27; General Steel (1964) 112 CLR 125; Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd [2013] VSCA 158
Ruling: The Plaintiff have judgment in respect of the unjust enrichment in the sum of $199,564.98.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr J Castelan | Casonato Lawyers |
| For the Defendants | Mr G Erlichster | George Erlichster Solicitor |
HIS HONOUR:
Nature of Application
1 By summons filed 10 October 2014, the plaintiffs applied for summary judgment against the defendants pursuant to Rule 22.02 of the County Court Civil Procedure Rules 2008 (“the Rules”). Alternatively they sought to strike out the defendants’ defences pursuant to Rule 23.02(a) on the basis that they did not disclose a defence.
2 The plaintiffs contended that by agreement made on 27 October 2010, the plaintiffs agreed to lend, and the defendants agreed to borrow, $300,000. The defendants sough the loan in relation to a property development at 344 Orrong Road Caulfield North (“the property”). There were terms of the Loan Agreement that:
· the defendants would repay the loan on 27 October 2011;
· the defendants would pay interest of 20 per cent per annum and if there were any default, the rate of interest would become 24 per cent per annum;
· the defendants charged their real and personal property in favour of the plaintiffs;
· the security included the property at 344 Orrong Road, Caulfield North, being the land in certificate of title volume 7962 folio 011.
3 In order to provide the loan to the defendants, the plaintiffs obtained a financial facility from Westpac Banking Corporation (“Westpac”), whereby they could access up to $600,000. As security, the plaintiffs gave Westpac a mortgage over their family home at 7 Elliott Crescent, Dingley Village.
4 The plaintiffs provided the loan of $300,000 to the defendants on 27 October 2010. The defendants did not repay the money on the due date. However, the defendants did make payments as follows: $81,000 on 29 November 2011; $36,515.11 on 12 December 2013; $48,252.42 on 7 February 2014. On the basis that they claimed the balance of moneys owing less instalments received, the plaintiffs sought final judgment.
5 Alternatively, if as the defendants allege, they are entitled to set aside the loan agreement, then the plaintiffs contend that:
(a) the defendants would have had and received the advance of $300,000 but, while they had made some payments, there remained an outstanding amount of $134,232.47;
(b) the plaintiffs would have received no consideration for those moneys.
The plaintiffs contend that on that basis, for the defendants to retain the whole of the advance would constitute unjust enrichment.
6 The defendants contend that there should be no order for final judgment for several reasons:
(a) the Loan Agreement is void because it contains a penalty clause regarding the default interest rate;
(b) the defendants allege that Alex Tvarkovsky (“Tvarkovsky”) was the plaintiffs’ broker and he represented to the defendants that if they did not repay the advance on the due date, the plaintiffs would take in lieu of cash one of the units being built on the property by the defendants;
(c) the defendants contend that the unjust enrichment claim must fail because they relied to their detriment upon the broker’s representations regarding repayment of the advance.
7 I consider there is a reasonably strong argument that the term of the agreement increasing the interest rate upon default constitutes a penalty. Hence, at least that particular clause could become void or unenforceable. While the defendants contend that the offending clause cannot be severed, the Agreement itself provides in clause 13.4 as follows:
“If a Court decides that any clause or part of a clause of this Loan Agreement is illegal or void the remainder of this Loan Agreement will be interpreted as if that clause or that part of the clause was not included in this Loan Agreement.”
8 However, the defendants contend that the Loan Agreement constitutes a single, indivisible promise, and therefore, such a clause cannot be severed and the whole Agreement is void or unenforceable. The defendants referred to Attwood v Lamont without informing the court about the facts of the case, the relevant principles in the case, or their specific application to this case. There is nothing in the defendants’ affidavit material to suggest that this clause was of any particular significance to the defendants or that they treated the promise made to them as “single and indivisible” in nature. Indeed, the defendants argued in submissions that it was the plaintiffs who regarded the agreement as indivisible.
9 The defendants gave evidence about the circumstances in which the loan agreement was signed. The defendants made three points in this context. First, they said that the first plaintiff insisted the documents be signed at his solicitor’s office. They say he refused to forward the documents to the defendants before signing. They also allege that when they arrived to sign the documents, they were told they must be signed immediately and were not given an opportunity to read them or to seek legal advice. Secondly, based on the information given to the defendants by Tvarkovsky, they were told that if they did not repay the loan after 12 months the plaintiffs would acquire a unit, lot 202, for $300,000. Finally, they contended that they would never have agreed to such a low price for a unit if they had known that the Loan Agreement said it was at the lender’s option to purchase the unit.
10 The first of these matters does not constitute a defence. Assuming that the facts alleged by the defendants are correct, then the evidence is still inadequate to constitute a defence. In particular:
· the defendants do not state who made the statements to them which they relied upon;
· the defendants do not allege that whatever they were told caused them to sign the Loan Agreement;
· the defendants do not address the issue of whether, if the matters referred to had not been said, they would have acted differently;
· they do not say that they read the Loan Agreement before signing;
· they do not provide evidence of loss or damage suffered as a result of the statements allegedly relied upon.
11 The question raised by the second issue is whether the simple contention in argument that Tvarkovsky was the plaintiffs’ broker and he misled the defendants is sufficient to defeat the application for judgment. Nothing in the defendants’ affidavit material claims that Tvarkovsky was the plaintiffs’ agent. Even assuming the defendants’ evidence is correct, there is no direct connection alleged in the evidence between the plaintiffs and Tvarkovsky. In the absence of Tvarkovsky having (or being alleged in the evidence to have) actual or ostensible authority to act for the plaintiffs, I do not consider that the defendants can rely upon Tvarkovsky’s comments to impugn the plaintiffs. Further, the plaintiffs contended that the agency issue was raised at the hearing on 14 November and a reason for adjourning the application at that time was to give the defendants an opportunity to file further evidence on the issue. No evidence was filed.
12 The meaning of the third matter raised is unclear and in my view does not constitute a defence.
13 The defendants seek by their later affidavit sworn on 13 November 2014 to create factual contests by referring to alleged errors in the plaintiffs’ material. They point firstly to a difference of opinion regarding the circumstances in which the Loan Agreement was signed. The defendants contend that they were late for the signing meeting, not the plaintiffs. They also say the plaintiffs failed to refer to Tvarkovsky being present at that meeting. They deny receiving a copy of the Loan Agreement from the solicitor Zaitman.
14 In my view, none of these matters, even if true, constitutes a defence. Which party arrived later is irrelevant. Not referring to Tvarkovsky is not necessarily an error. The plaintiffs do not swear that particular nominated people were the only ones present at the meeting. Whether or not the defendants received a copy of the Loan Agreement is not directly relevant.
15 Secondly, the defendants say that the Loan Agreement contradicts the statement in paragraph 7 of the plaintiffs’ affidavit sworn 10 November 2014 where the first plaintiff says:
“…I deny that I or my wife ever said to any of the defendants or to Mr Tvarkosky that we wanted to obtain any unit in the Orrong Road development instead of repayments of the moneys owed to us.”
The Loan Agreement at clause 2.6(b)(i) says that:
“The Borrower confirms he is the owner of a property at 344 Orrong Road Caulfield North being developed for residential units. The parties confirm and agree that:
(i) The Lender at his option can choose to purchase Lot 202, for 344 Orrong Road Caulfield North being a one bedroom residential unit for the sum of $300,000.”
16 I consider that this point actually reflects adversely upon the defendants because their argument depends upon an inaccurate characterisation of the evidence. To say the purchase of the unit at the plaintiffs’ option was discussed with them is different from saying that the plaintiffs would exercise this option. The plaintiffs do not deny the matter was discussed – they deny they said that they wanted to exercise the option. Though the defendants put in further affidavit material from Svetlana Kozak responding to the plaintiffs’ later affidavit, I note that there was no affidavit from Mr Furman denying the conversation with the first plaintiff in July 2011. This conversation was referred to in the same paragraph of the first plaintiffs’ affidavit.
17 The defendants are on stronger ground pointing to the first plaintiff holding a power of attorney to sell Unit 2, 334 Orrong Rd, and to the plaintiffs influencing sales through their status as caveators. These allegations do not sit so comfortably with the statement that the plaintiffs could not have controlled the sale process because they were not the owners of the units.
18 As I understand them, the defendants seek to defend the claim for unjust enrichment on the basis that:
· Estoppel constitutes a defence to such a claim; and
· The plaintiffs are bound by the representation of Tvarkovsky, their broker and agent, which the defendants relied upon to their detriment.
19 In their written submissions, the defendants say that:
“The defendants claim in their affidavit that they were told by the plaintiffs’ broker that if they did not repay the loan after 12 months, the Lender would acquire the unit instead of repayment…The plaintiffs only entered into the Loan Contract on the basis that the plaintiffs would purchase the unit.”
20 This passage merits two comments. First, the defendants’ affidavit sworn 29 October 2014 says:
“Based on information given to us by the broker, Alex Tvarkovsky, we were told that if we did not repay the loan after 12 months, the lender would acquire the unit, Lot 202, for $300,000.”
While one might infer that Tvarkovsky allegedly told the defendants about the consequences of not repaying the loan on time, it was not necessarily him. One wonders why the deponent was not more explicit.
21 Further, I query whether the initial reference in the defendants’ submissions in the last sentence quoted in paragraph 20 to “the plaintiffs” should have been a reference to “the defendants”. I do not know how the defendants could readily comment upon the plaintiffs’ motivation for acting. In the context, it appears more likely that the defendants were referring to themselves.
22 If it were truly intended to refer to the defendants, this creates another issue – if the defendants entered the Loan Agreement on the basis that the plaintiffs would have bought the unit upon a failure to repay the loan on the due date, such a position appears inconsistent with the defendants’ sworn evidence that they would never have agreed to such a low price of $300,000 if they knew it was at the plaintiffs’ option to purchase.
23 The Court of Appeal recently confirmed in Feldman v Frontlink Pty Ltd[1] the principles governing summary judgment applications as set out in Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd[2]:
“(a) the test for summary judgment under section 63 of the Civil Procedure Act 2010 is whether the respondent to the application for summary judgment has a ‘real’ as opposed to a ‘fanciful’ chance of success;
(b) the test is to be applied by reference to its own language and without paraphrase or comparison with the ‘hopeless’ or ‘bound to fail test’ essayed in General Steel;
(c) it should be understood, however, that the test is to some degree a more liberal test than the ‘hopeless’ or ‘bound to fail’ test essayed in General Steel and, therefore, permits of the possibility that there might be cases, yet to be identified, in which it appears that, although the respondent’s case is not hopeless or bound to fail, it does not have a real prospect of success;
(d) at the same time, it must be borne in mind that the power to terminate proceedings summarily should be exercised with caution and thus should not be exercised unless it is clear that there is no real question to be tried; and that is so regardless of whether the application for summary judgments made on the basis that the pleadings fail to disclose a reasonable cause of action (and the defect cannot be cured by amendment) or on the basis that the action is frivolous or vexatious or an abuse of process or where the application is supported by evidence.”
[1][2014] VSCA 27
[2][2013] VSCA 158
24 In summary, on the plaintiffs’ primary claim the defendants rely upon the penalty argument and the misrepresentation arguments. While I have considerable doubt that the penalty argument has a real prospect of success, I am prepared to give the defendants the benefit of the doubt on this point. The other argument I regard as even weaker on the material presented. However, I do not consider that any matters raised in relation to the unjust enrichment argument has a real chance of success. Accordingly, I propose to grant final judgment on the unjust enrichment claim.
25 Were I wrong about the summary judgment application, I would have struck out the defences currently lodged by the defendants. The plaintiff criticised them as defective in not satisfying the Court Rules and as not containing significant facts and arguments relied upon in this application. The defendants did not seek to uphold the pleadings.
26 Accordingly, I order that:
(a) Pursuant to rule 22.02 of the County Court Civil Procedure Rules 2008 judgment be entered for the plaintiffs in respect of the parts of the claim identified in paragraphs 8-10 of the amended statement of claim in the sum of $199,564.98, being made up of:
(i) outstanding principal - $134,232.47;
(ii) interest pursuant to section 58 of the Supreme Court Act 1986 (Vic) as follows:
1. on the outstanding principal of $300,000 for the period from 27 October 2011 to 29 November 2011 - $2,934.25
2. on the outstanding principal of $219,000 for the period from 30 November 2011 to 12 November 2013 - $46,671.00
3. on the outstanding principal of $182,484.89 for the period from 13 December 2013 to 7 February 2014 - $2,887.26
4. on the outstanding principal of $134,232.47 for the period from 8 February 2014 to 14 November 2014 - $12.840.00
(b) The defendants pay the plaintiffs’ costs of and incidental to this application, including reserved costs, such costs to be taxed on a standard basis in default of agreement.
0
3
0