Volanne Pty Ltd v International Consulting and Business Management (ICBM) Pty Ltd

[2016] ACTCA 49

SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
COURT OF APPEAL

Case Title:

Volanne Pty Ltd v International Consulting and Business Management (ICBM) Pty Ltd

Citation:

[2016] ACTCA 49

Hearing Date:

12 August 2015

DecisionDate:

30 September 2016

Before:

Refshauge J, Perry J and Walmsley AJ

Decision:

1.    Within 21 days of judgment, the parties are to file draft orders, agreed or otherwise, giving effect to these reasons.

2.    If so advised, within 21 days of judgment, the parties are to file and serve brief written submissions on the appropriate order as to costs.

Category:

Principal Judgment

Catchwords:

CONTRACT – whether interest payable on loans – whether interest payable at Westpac indicator lending rate + 2% - whether implied tem that interest is to be calculated as compound interest.

Cases Cited:

BP Refinery (Westernport) Pty Ltd v Hastings Shire Council  (1977) 180 CLR 266

Briginshaw v Briginshaw (1938) 60 CLR 336
Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337
Morton v Elgin Stuczynski [2008] VSCA 25; (2008) 19 VR 294

RailPro Services Pty Ltd v Flavel [2015] FCA 504

Parties:

Volanne Pty Ltd (ACN 077 412 232) (First Appellant/ First Cross-Respondent)

John Fragopoulos (Second Appellant/ Second Cross-Respondent)

Anthoula Fragopoulos (Third Appellant/ Third Cross-Respondent)

International Consulting and Business Management (ICBM) Pty Ltd (ACN 080 349 855) (First Respondent/ Cross-Appellant)

Skybase (Vic) Pty Ltd (ACN 067 591 955) (Second Respondent)

Representation:

Counsel

Mr J Sexton SC and Mr Arthur(Appellants/Cross-Respondents)

Ms K Rees SC and Mr Sharwood (Respondents/ Cross-Appellant)

Solicitors

Donohue & Co Solicitors (Appellants/ Cross-Respondents)

Moray & Agnew, Lawyers (Respondents/ Cross-Appellant)

File Number(s):

ACTCA 54 of 2014

Decision under appeal: 

Court:  Supreme Court of the ACT

Before:  Harper M

Date of Decision:         25 July 2014

Case Title:  International Consulting And Business Management & Anor V Volanne Pty Ltd & Ors

Citation: [2014] ACTSC 175

THE COURT:

1. INTRODUCTION

1. The first respondent, International Consulting and Business Management Pty Ltd (ICBM), instituted proceedings against the second and third appellants, John and Anthoula Fragopoulos, pursuant to a deed of guarantee and indemnity with respect to a series of loans by ICBM to the first appellant, Volanne Pty Ltd (Volanne).  By the deed of guarantee and indemnity, Mr and Mrs Fragopoulos guaranteed payment of monies owing by Volanne. ICBM alleged that Volanne had defaulted on its repayment obligations with respect to the loans. 

1. On the appeal, the issues are limited to whether the Master correctly held that:

(a)interest was payable on the loans made by ICBM to Volanne after 1 July 2001;

and, if so, whether his Honour correctly held that interest was:

(b)payable at the rate of Westpac indicator lending rate (roughly averaging 9% per annum from 1 July 2001 to the date of trial) plus an additional 2% or alternatively was payable at 8% only; and  

(c)calculated as compound interest.

1. A cross-appeal was also filed by ICBM against the orders made by the Master as to costs.  The cross-appeal is not opposed and is dealt with shortly at the end of these reasons.

1. BACKGROUND

2.1     The parties

1. Both Mr and Mrs Fragopoulos were born in Greece where they married before moving to Australia in 1978.  Mr and Mrs Fragopoulos ran a fish shop at Belconnen called FishCo which they started in 1997.  The business sold to the public at the shop and also undertook some wholesale selling to restaurants, hotels and clubs.  Mr Fragopoulos describes himself as a seafood merchant.  He employed staff for the business and secured stock for the retail and wholesale side of the business.  Mrs Fragopoulos worked full-time in the fish shop, attending to bookkeeping, paying staff and paying accounts.  She also served in the shop from time to time.  She had undertaken a course in bookkeeping and business management.

1. Mr and Mrs Fragopoulos are the directors of Volanne to whom the loans in question were made.  It was not in issue that the knowledge of Mr and Mrs Fragopoulos was also the knowledge of Volanne; nor that Mr and Mrs Fragopoulos were authorised to enter into transactions on behalf of Volanne.

1. It appears that Mr Godfrey was introduced to Mr Fragopoulos in late 2000 by Mr Makas, who was a longstanding friend of Mr Godfrey and a businessman. Mr Godfrey was at all relevant times a director of the first and second respondents, ICBM and Skybase Pty Ltd (Skybase) respectively, and had effective control of both companies (Master’s reasons at [5]).  He was a Commonwealth public servant for many years achieving the position of Deputy Secretary of the Department of Administrative Services before his retirement from the public service in 1997 (Master’s reasons at [34]).  Mr Godfrey has a doctorate in labour economics.  Upon his departure from the public service, he undertook a number of consultancy projects through ICBM (which he formed for that purpose), including in relation to the Sydney Olympic Games in 2000, the two following Olympic Games and the Commonwealth Games in Melbourne.  In addition, between 2001 and 2005 he provided consultancy services to the NSW Department of Transport.  He has not undertaken any consultancy work since 2007 and was retired when he gave his evidence.  

1. Save for one of the claims relating to a loan in 2004, the issues in the appeal largely relate to ICBM and not Skybase: see further [37] below.

2.2     The Mobutu scam (late 2000)

1. In late 2000, Mrs Fragopoulos received a fax in the office at FishCo.  The fax purported to be a letter from a Dr Phillips who was seeking assistance to move $US40m from South Africa to Australia.  The letter stated that he was prepared to pay 20% of the total amount for that assistance.  The letter referred to King Mobutu trying to take his money and his family out of South Africa and provided a mobile telephone number. 

1. Unfortunately for all concerned and understandably described by her as the biggest mistake of her life, Mrs Fragopoulos gave the fax to her husband as a joke, telling him that it was clearly a scam.  Despite her wise words, Mr Fragopoulos decided to make further enquiries. 

1. Mr Fragopoulos arranged to meet Dr Phillips during a trip to South Africa in September 2000 with respect to (ultimately unsuccessful) negotiations for the potential export of fish to South Africa.  The Master summarised Mr Fragopoulos’ evidence with respect to the meeting with Dr Phillips as follows:

129. Mr Fragopoulos booked into his hotel in Johannesburg and rang the mobile number. Dr Phillips came to meet him at the hotel. He told Mr Fragopoulos that the money to be transported out of South Africa had first to be washed with a liquid which was very expensive. Only the banks had access to it. He also told Mr Fragopoulos that King Mobutu was in Morocco with refugee status and that there were only a few countries he was allowed to enter. He asked Mr Fragopoulos whether he had access to bank accounts in US dollars. He said that if Mr Fragopoulos was interested, he would be able to provide the liquid to wash the money in South Africa and then bank it in order to transport it out of the country. The liquid would cost $60,000.00 to $70,000.00. He told Mr Fragopoulos that he would need to provide the money to buy the liquid. Mr Fragopoulos told him that he would think about it and let him know.

130. He was subsequently informed that the bank notes were coated with some kind of powder and that this was the way large sums of money were transported from country to country for security reasons. If a note was coated with a white powder it appeared to be simply white paper. No printing on it was visible.

1. As later explained (see [16] below), Mr Fragopoulos encouraged Mr Godfrey to become involved with the scheme and they both travelled to Europe in an attempt to arrange for the money to be transported out of South Africa.  Mr Godfrey made a number of advances of significant funds to Mr Fragopoulos for the purposes of these trips and associated expenses. Ultimately, apart from a couple of banknotes, no currency was ever exported.  Indeed, as the Master noted at [280], all money put into the scheme was lost and there was no prospect of recovery let alone profit.

2.3     The initial meeting between Mr Fragopoulos and Mr Godfrey

1. Mr Godfrey gave evidence that, when he met Mr Fragopoulous, Mr Fragopoulos had explained how his business functioned and that he had recently returned from South Africa where he had been investigating the potential for exporting fish from Australia.  Mr Fragopoulos also said that he had met a South African, Dr Phillips, who was looking for an agent in Australia to transfer money out of South Africa to Australia.  Mr Fragopoulos said that his seafood business might need some money to operate.  Mr Godfrey’s evidence was that:

(a)he said that he would be in a position to lend money but would have to charge interest because he would otherwise be putting the money into his superannuation fund;

(b)he said that he would charge the rate being used by the organising committee for the Olympic Games in Sydney being the Westpac indicator lender rate plus, 2% compounded daily; and

(c)he agreed with Mr Fragopoulos to visit the fish shop the following weekend to look at the way the business operated and talk about what he could offer. 

(Master’s reasons at [42])

1. It was at this meeting that the November 2000 oral agreement was said to have been reached.

1. Mr Godfrey made a note in a notebook about the initial meeting later that evening or early the next morning. That note mentioned among other things the Westpac indicator lender rate plus 2% but made no reference to interest being compounded daily: see further below at [69]. The pleaded case for ICBM was also that the term as to compound interest was implied and not express. As such, we do not accept that Mr Godfrey said that he would charge compound interest at the meeting: see also the Master’s unchallenged findings as to credit below at [26]-[29].

1. As arranged, Mr Godfrey met Mr Fragopoulos and Mr Makas at the fish shop at the Belconnen Markets on the next weekend.  He also met Mrs Fragopoulos then for the first time.  He was shown around the fish shop, and inspected the cold storage and ice-making equipment (Master’s reasons at [46]).   Mr Godfrey said that they discussed Dr Phillips’ offer.  Mr Godfrey also gave evidence that if he was asked to provide business assistance, it would be on the basis of a consultancy arrangement.   At that time, Mr Godfrey said he was very busy with work relating to the Olympic Games which continued almost full-time until June 2001 (Master’s reasons at [48]).

2.4     Subsequent collaboration between Messrs Fragopoulos and Godfrey in pursuit of the scam (late 2001-late June 2002)

1. The Master set out in detail the evidence as to subsequent collaboration between Mr Fragopoulos and Mr Godfrey in pursuit of the opportunities which they believed were offered by Dr Phillips’ proposal.  These included Mr Fragopoulos taking a further trip to South Africa, a joint trip by Mr Fragopoulos and Mr Godfrey to Amsterdam in March 2001 (Master’s reasons at [58]-[63]), and a trip by Mr Fragopoulos to Spain in June 2001 (at [69]-[70] and [234]).  They also included the transfer of considerable sums of money to Dr Phillips to purchase liquid to wash the allegedly powdered notes.  Substantial sums were also contributed early on to the scam by others, namely, a friend who put in some $50,000.00, the Pangallo family who put in a total of $150,000.00, Mr Makas who put in $5000.00, and Mr and Mrs Fragopoulos’ son who contributed $21,000.00.  These appear to have been loans made to the respondents which were largely repaid:  Master’s reasons at [246]-[247], [251]-[252].

2.5     Circumstances leading to conclusion of the deed of guarantee and indemnity and deed of loan

1. Mr Godfrey gave evidence that towards the end of June 2001, when Mr Fragopoulos was away in Spain, he became aware of the parlous financial situation of FishCo and took steps to protect his interests.  The Master summarised his evidence on this point as follows:

71.ICBM’s bank statement for June 2001 records cheques for the two amounts mentioned, on 6 June and 19 June.  There is another cheque on 22 June for $6,000.00.  Mr Godfrey’s evidence about that was that he thought that he had received a telephone call from Mr Fragopoulos saying that his wife needed money to pay the Sydney fish market.  His recollection was that he went to the bank and cashed a cheque for $6,000.00 and took it to her at the fish shop.  He said that he was extremely concerned that the business did not have adequate funds to buy stock for a weekend. 

72.The evidence was corroborated by a note in his notebook to the effect that Mr Fragopoulos had rung from Spain on 22 June saying that he was confident that the deal was “going down”.  He spoke to Mr Fragopoulos who told him that his wife would be ringing about the fish market.  Mrs Fragopoulos then rang and asked for the $6,000.00 to cover fish from Sydney.

73.A further note in the notebook is to the effect that on 24 June he returned a call from Mr Fragopoulos in Spain and said that he was concerned about the business having debts, after his discussion with Mr Fragopoulos.  Mr Fragopoulos told him not to worry.  He said that they would talk about it when he returned but that he was positive he would have the money on his return.

74.Mr Godfrey said that when he went to the fish shop on that occasion Mrs Fragopoulos told him for the first time that her husband had borrowed a lot of money and that they were having trouble meeting business commitments.  She did not say who they had borrowed the money from.

75.Mr Godfrey said that he became concerned and wanted some security for the money his company had lent.  The day Mr Fragopoulos got back from Spain he asked him for a full set of accounts to the end of the financial year, so that he could make an assessment of the financial position of the business.  Mrs Fragopoulos sent some documentation, and after further prompting, most of the financial data to 30 June 2001.  By that time ICBM had lent approximately $51,000.00.  The figures showed that the business had a quarterly turnover of over $600,000.00.

76.Mr Godfrey told Mr Fragopoulos that he would be instructing solicitors to draw up agreements to document and secure the loan funds.  He instructed Phillips Fox.

77.At about the same time, Mr Godfrey said that he had discussions with Mr Fragopoulos about regular repayments.  They agreed on repayments of $1,000.00 per week, starting from 1 September 2001.

1. Mrs Fragopoulos gave evidence that after her husband returned from Spain, he had further meetings at the office at FishCo with Mr Godfrey, who would use the office to send faxes and emails and to make phone calls.  She also gave evidence as set out in the Master’s reasons that:

235…One day Mr Godfrey asked her for copies of some FishCo financial records, which he said he needed “to keep the tax man happy”. Mr Godfrey put $40,000.00 into the FishCo account, and subsequently two further amounts of $20,000.00 each, between mid-July and early August 2001.  By that time, the business had repaid $50,000.00 to the Pangallo Family Trust and was in a desperate financial position.

1. With respect to the preparation of the deed of loan, deed of charge and deed of guarantee and indemnity by Phillips Fox, the Master found that:

78. Phillips Fox prepared three documents: a deed of loan between ICBM and Volanne; a deed of fixed and floating charge in favour of ICBM over the assets of Volanne; and a deed of guarantee and indemnity between Mr and Mrs Fragopoulos and ICBM. Mr Godfrey said that he took those documents to Mr and Mrs Fragopoulos and left them with them to read. He subsequently went out and got the three documents executed. He left one set of the documents with them, and took the other set away. He instructed Phillips Fox to register the charge.  All of the documents are dated 17 September 2001, although it is apparent that they had been prepared in July of that year.

1. The Master accepted at [280] that Mr Godfrey provided copies of the three documents to Mr and Mrs Fragopoulos during July 2001 notwithstanding that they were not executed until September 2001.

2.6     Loans and repayments from July 2001

1. Following execution of the documentation, Mrs Fragopoulos gave evidence to the effect that:

237. Early in September 2001 she began making payments to Mr Godfrey or his company, initially of $1,000.00 and subsequently of other varied amounts. Most payments were of the order of $1,000.00 or $2,000.00. With one or two exceptions, she made the payments by handing cash to Mr Godfrey in an envelope. She said that he never asked for payments and that there was no discussion between them as to when the payments were to be made. She never got a receipt for any of the payments. She paid in cash because the business was a cash business. The bank account was often very close to its limit and it was safer for her to take cash out of the till and hand it to Mr Godfrey. It was less work for her. She recorded each of the payments on the computer.

238. On 21 May 2002 Mrs Fragopoulos noticed that a credit had appeared to the business bank account of $75,000.00. She did not know what it related to. She rang Mr Godfrey and asked him whether he had put the money in the account. He said that he had and asked her to put it down as a loan.

239. She then said that there had been a payment shortly prior to that of $25,000.00 which appeared as a credit in the bank account, and which she discovered had been put in by Mr Godfrey. Some time later there was a further credit of $12,000.00, deposited by Mr Godfrey.

240. Later in 2001, perhaps October, Mr Godfrey told Mrs Fragopoulos that he had paid for tickets for Comor [allegedly King Mobutu’s son] and another person to come to Australia. She advised him to make sure that the tickets could not be exchanged or cashed out otherwise there would be a risk that they might cash the tickets and take the money. He replied that it was his money.

1. The sum of $30,000.00 was also added to the amount of the loans through a joint venture by Mr Fragopoulos and Mr Godfrey in early 2002 to purchase another fish shop in the Belconnen Markets.  That venture ultimately failed when the fish shop was unable to trade on Easter Saturday because of an electrical fault and the landlord subsequently refused to consent to the transfer of the lease to Skybase (Master’s reasons at [86]-[91]). 

2.7     The ATSIC scheme

1. Finally, in considering matters of credit the Master took into account Mr Godfrey’s and Mr Fragopoulos’ participation in a scheme whereby a loan was made by the former Aboriginal and Torres Strait Islander Commission (ATSIC) to purchase a property based on an inflated valuation and Mr Godfrey’s plea of guilty to an offence of dishonesty in relation to that participation.  We return later to the findings of credit by the Master below.

1. Under the ATSIC scheme, the ultimate purchasers (Mr Cary and Ms Quince) decided on advice from a Mr Watson to interpose an intermediate purchaser, Mr Fragopoulos or his nominee, to on-sell the property to them for a greatly inflated price in an endeavour to avoid suspicion.  Mr Godfrey was brought into the scheme to advise in late 2001 or early 2002.  A false valuation was prepared by a valuer and settlement of the two transactions took place in May 2002.  Substantial payouts were then made to Skybase of $150,000.00 and to the other participants while ATSIC was left with a mortgage over a property worth no more than $750,000 as security for its loan of $2.1m (Master’s reasons at [106]-[112]). 

1. Mr Godfrey pleaded guilty to a charge of dishonesty in relation to his involvement in the scheme.  The Master summarised Judge Goldring’s sentencing remarks as follows: 

113.Judge Goldring noted in his sentencing remarks that Quince had been acquitted at trial.  Watson and Mr Godfrey had both pleaded guilty to a charge of taking part in a scheme with the intention of taking a benefit from a Commonwealth entity dishonestly.  They pleaded guilty during the week after the trial was listed, before the jury was empanelled and while the judge was dealing with pre-trial issues.  Cary and Camm were found guilty by a jury and convicted.  The trial lasted for some eight weeks.  The judge said that the facts in the agreed statement were similar to the case presented by the Crown at trial and disclosed that the offence committed by Mr Godfrey was committed as part of the same illegal joint enterprise which gave rise to the conspiracy charges.

114.The judge was satisfied that Watson was the architect and prime mover in the conspiracy, and the scheme was his idea.  He referred to evidence given by Mr Fragopoulos, which he said was not of great probative value, but led to the inference that Mr Godfrey had been drawn into the scheme by Watson.  Judge Goldring said that the scheme had required the involvement of Camm, the valuer, and Mr Godfrey.  It was clear that Camm had lied to ATSIC and that Mr Godfrey had been involved in planning and executing the deception.  The valuer had agreed to give evidence against the conspirators and was given immunity from prosecution.

115.The judge summarised the involvement of Mr Fragopoulos in the matter.  He said that he was a fish merchant in Canberra who knew Watson as someone working in a shop near his own, and Mr Godfrey who was a customer.  Watson told him that he was helping an aboriginal couple get a loan from ATSIC.  Mr Fragopoulos told Watson about Mr Godfrey who he understood had worked for or with ATSIC.  He described Mr Godfrey as an investor.  He introduced them and was present at some meetings where they discussed the arrangements relating to the ATSIC loan.

…

117.Judge Goldring said that the Crown case was that Mr Godfrey had been involved in devising the structure of the operation using the intermediary as a means to deceive ATSIC.  Counsel for Mr Godfrey pointed out that the evidence did not inevitably lead to that conclusion if it had not been for the admission made by Mr Godfrey in his plea of guilty.

118.Mr Duff realised that the arrangement would give rise to a capital gains tax liability for the intermediate purchaser.  He had referred Mr Godfrey for advice about that issue.  On the date contracts were exchanged Mr Duff [(a law clerk)] was given a written direction, he thought by Mr Fragopoulos, for the purchasers to pay $150,000.00 to Skybase.

119.Judge Goldring said that in many respects the evidence of Mr Fragopoulos at the trial was unreliable.

120.The judge noted that Mr Godfrey had pleaded guilty, but not until after the matter had been listed for trial.  He acknowledged that this had reduced the length of the trial significantly, and that the plea put beyond doubt some matters which the Crown might have had difficulty in proving.  He noted that Mr Godfrey had been regarded as a person of outstanding character prior to these events.  There was evidence in a psychiatric report that he was suffering from an anxiety disorder with depressed mood.

121.The judge said that the offence had been a fraud on the Commonwealth of a serious nature.  It had been opportunistic but highly sophisticated and had required considerable thought.  He noted that by the time of sentencing Mr Godfrey had repaid to the Commonwealth the amounts he had received.  He imposed terms of imprisonment to be served on some of the defendants.  He sentenced Mr Godfrey to one year and ten months imprisonment, to be suspended on his entering a recognisance.  The sentence was expressed to conclude in March 2010.

1. THE JUDGMENT BELOW

1. Given that by the time of trial, all of the witnesses were giving evidence of matters which had occurred some eleven years earlier, the Master found that he could have no confidence in the ability of any witness to remember the words used during conversations so many years earlier.  Accordingly, his Honour considered that contemporaneous written records were far more likely to be reliable (Master’s reasons at [259]).

1. However, his Honour also considered that both of the two principal witnesses, Mr Godfrey and Mr Fragopoulos, had a significant personal interest in acceptance of their respective versions of events and that there were factors which, quite apart from his Honour’s assessment of their demeanour in the witness box, “must have some impact on my assessment of their credibility.”  (Master’s reasons at [261]).

1. First, with respect to Mr Fragopoulos, the Master found that:

262.Quite apart from his extraordinary gullibility, Mr Fragopoulos has been prepared at different times to say and do things which he must have known were untrue or misleading and probably unlawful.  Although his attempt to do so was unsuccessful, he tried to smuggle a bottle of extraordinarily expensive liquid into Australia, and I have no doubt that if the joint venture had been successful he would have brought in millions of dollars in United States currency without disclosing it to the authorities as required by law.

263.It is also clear that he gave evidence at the committal proceedings in Wagga [in relation to the ATSIC matter] which was less than the whole truth.  I do not have a transcript of his evidence at the trial but Judge Goldring found him an unsatisfactory witness.  I have no doubt that he was a party to the ATSIC conspiracy and that he would have kept his share of the success fee if the conspiracy had not been uncovered.

264.I accordingly approach his oral evidence with a considerable degree of scepticism, particularly where he gave answers to his own financial advantage

1. Secondly, the Master found that despite the fact that Mr Godfrey had an excellent record and reputation until he met Mr Fragopoulos, he had admitted to and been convicted of a serious offence of dishonesty.  In this regard, the Master accepted that “the arrangement within the ATSIC conspiracy was that in the event of success Mr Godfrey was to receive and to retain a success fee of $50,000.00, an amount which I see as commensurate with involvement in a criminal enterprise, rather than a fee which might have been seen as justified for consulting work at an hourly rate” (Master’s reasons at [265]).  Notwithstanding that the Master found that by the time of trial Mr Godfrey clearly felt great remorse and shame, his Honour considered that he could not avoid taking Mr Godfrey’s involvement in the conspiracy the subject of the offence into account in assessing his character and credit (Master’s reasons at [265]). 

3.1     ICBM’s case at trial

1. Initially, ICBM sued for recovery of monies under the deed of loan executed in September 2001.  The appellants denied that the document entitled deed of loan represented the true agreement between the parties. Only in the Fourth further amended statement of claim (Fourth FASC) did ICBM abandon reliance upon the September 2001 deed of loan.  In its place, ICBM pleaded that in about November 2000, ICBM and Volanne entered into an agreement whereby Volanne agreed to repay all moneys lent by ICBM to Volanne with interest.  This loan agreement was said to be partly express, based on oral conversations between Mr Godfrey and Mr Fragopoulos in Leichhardt and Belconnen, and partly implied, based on ICBM’s business of lending money at commercial rates of interest.

1. ICBM alleged that the implied terms included that all repayments would be on account of principal and interest, interest charges would be calculated daily at the applicable rate of interest on the basis of a 365 day year, and interest would be capitalised daily (i.e. compound interest).  ICBM contended in the Court below that the implied terms were necessary in order to give business efficacy to the loan agreement and are terms that are customarily implied in loan agreements of a similar nature in the commercial money lending industry. Specifically, ICBM pleaded in its Fourth FASC that:

8.In or about November 2000 the first plaintiff [ICBM] and the first defendant [Volanne] entered into an agreement whereby, in consideration of the first plaintiff lending money to the first defendant from time to time, the first defendant agreed to repay all monies lent by the first plaintiff to the first defendant (the “principal”) with interest (the “loan agreement”).

PARTICULARS OF THE AGREEMENT OF DECEMBER [sic] 2000

a)     The loan agreement was partly express and partly implied.

b)     To the extent that the loan agreement was express, it was wholly oral, consisting of conversations between Godfrey on behalf of the first plaintiff and the second defendant on behalf of the first defendant which took place at Lidcombe [sic] in New South Wales and Belconnen in the Australian Capital Territory.

c)     The substance of the conversations relevantly was that in order to conduct the first defendant’s commercial activities the first defendant borrowed money and paid interest on such borrowings.  The second defendant told Godfrey that the first defendant was desirous of borrowing money at more competitive rates of interest than the first defendant had hitherto paid.  Godfrey on behalf of the first plaintiff offered to lend money to the first defendant at the rate of 2% plus the Indicator Lending Rate from time to time set by the Westpac Banking Corporation Limited, such offer being accepted by the second defendant on behalf of the first defendant.  The second defendant on behalf of the first defendant offered to repay all monies loaned and interest accrued and accruing thereon within a reasonable time by instalments to be made as, when and in such amounts as the first defendant was from time to time able, such offer being accepted by the first plaintiff.

d)     To the extent that the agreement was partly implied, the implication arose by reason of the following facts matters and circumstances namely, that the first plaintiff carried on the business of, inter alia, lending money at commercial rates of interest.

9.     In the premises, the express terms of the loan agreement were that:

a)     the first plaintiff would lend the principal to the first defendant from time to time;

b)     the defendants would repay the principal with interest;

c)     the applicable rate of interest would be 2% plus the Indicator Lending Rate from time to time set by the Westpac Banking Corporation Limited;

d)     the first defendant would repay the principal and all interest accrued and accruing thereon within a reasonable time by instalments to be made as, when and in such amounts as the first defendant was from time to time able (the “repayment term”).

1. ICBM alleged that Volanne had defaulted on its repayment obligations with respect to the loans, being allegedly minimum weekly repayments of $1000.00 agreed on or about 8 July 2001 which was said to have been varied to minimum weekly repayments of $2000.00 agreed on or about 21 July 2002 (Master’s reasons at [10] and [14]).  Specifically, after pleading that loans of $51,150.80 were made to Volanne pursuant to the loan agreement, ICBM alleged at [12] of the Fourth FASC that:

12.On or about 8 July 2001 in consideration of the first plaintiff continuing to lend money to the first defendant in accordance with the loan agreement and forbearing on action to recover the then outstanding principal and interest the first defendant agreed to:

a)  vary the repayment term to require the first defendant to make minimum weekly repayments of $1,000 plus any such other amounts as the first defendant was from time to time able; and

b)  provide security for all past and any all future loans made or to be made by the first plaintiff to the first defendant.

PARTICULARS

i)The said agreement was wholly express and wholly oral, consisting of a conversation between Godfrey on behalf of the first plaintiff and the second and third defendants on behalf of the first defendant at Canberra on or about 8 July 2001.

ii)The substance of the conversations relevantly was that Godfrey on behalf of the first plaintiff told the second and third defendants on behalf of the first defendant that Godfrey held concerns about the first defendant’s ability to repay the amounts loaned and would not be prepared to loan any further monies unless the first defendant to began making regular repayments of $1,000 per week and provided security.  The second and third defendants on behalf of the first defendant offered to make regular repayments of $1,000 per week and to provide any security that the first plaintiff may require, which offer was accepted by Godfrey on behalf of the first plaintiff.

1. At [13]-[15] and [17] of the Fourth FASC, ICBM alleged that it had lent Volanne monies from July 2001 pursuant to the November 2000 loan agreement as varied in accordance with [12(a)] of the Fourth FASC for purposes relating to Volanne’s business, including to reduce or meet business debts owed to third parties, to purchase stock, and for repairs and maintenance. 

1. With respect to the question of security referred to at [12(b)] of the Fourth FASC, ICBM pleaded at [14]:

14.In furtherance of the agreement referred to in paragraph 12(b) above, on or about 17 September 2001 the second and third defendants executed a Deed of Guarantee and Indemnity whereby the second and third defendants guaranteed payment by the first defendant to the first plaintiff of all money which was actually or contingently owed or remained unpaid to the first plaintiff by the first defendant in any capacity;

PARTICULARS

a)   Clauses 1 (Guaranteed Money (a)) and 2.1 of the Deed of Guarantee and Indemnity dated 17 September 2001 (the “Deed of Guarantee and Indemnity”).

1. ICBM also sought recovery of monies allegedly loaned to Volanne before 1 July 2001 and for alleged consultancy fees.

3.2     Appellants’ case at trial with respect to the loans

1. The appellants denied that any monies had been loaned to Volanne prior to July 2001 and that there was any consultancy agreement.  However, the loan amounts pleaded as lent by ICBM to Volanne from July 2001 was admitted by the appellants, namely:

8 July 2001 and 13 September 2001	$88,500.00
17 September 2001 and 20 July 2002	$225,771.45
21 July 2002 and 16 June 2003	$122,000.00
2004	$27,500.00
Total	$463,771.45

(Master’s reasons at [11], [13], [15], [23], [25], [283] and [291]). 

1. In this regard, the claim for $27,500.00 was made by Skybase pursuant to an oral agreement in 2004: see the Fourth FASC at [33]. It was pleaded that the terms of that agreement were the same as the earlier agreement between ICBM and Volanne in July 2001. As such, the challenge to the claims for interest on that sum in the appeal will be determined by the decision with respect to the challenges to the claim for interest by ICBM, as the appellants submit.

1. The appellants also admitted that there had been a loan agreement between ICBM and Volanne in the terms pleaded in the Fourth FASC (Master’s reasons at [23]).  However the appellants contended that:

(a)the agreement was not made in November or December 2000 but rather in about July 2001;   

(b)there had been no agreement to pay interest, express or implied, and that that reflected the relationship between the parties;

(c)the agreement to require minimum weekly payments of $1000.00 occurred in early September 2001 and not in July 2001; and

(d)the variation in July 2002 was simply to endeavour to pay $2000.00 per week without any contractual requirement to pay more than $1000.00 per week (Master’s reasons at [23]-[24]). 

1. Finally, the appellants denied that Volanne had failed to make repayments as required on various dates between November 2001 and May 2007, and that, even if there had been any such failure, it amounted to an event of default. 

3.3     Findings by the Master

1. First, with respect to the deed of loan, the Master found that: 

79.Although ICBM sues Mr and Mrs Fragopoulos on the deed of guarantee and indemnity, for reasons which have not been articulated to me, ICBM does not sue Volanne on the deed of loan.  That document is not mentioned in the pleadings.  Nevertheless the deed of loan is in evidence and has clearly been executed under common seal by Volanne, over the signatures of Mr and Mrs Fragopoulos, and executed by Mr Godfrey as a director of ICBM.  Whether or not this is significant, the deed of loan does not contain any recital to the effect that any moneys had been advanced prior to its execution.  It deals on its face with a loan of $200,000.00, to be advanced, subject to satisfaction of a number of conditions precedents, in a single lump sum on the date of the deed.  Nor do either of the other documents contain any such recital.

1. Secondly, the Master upheld the appellants’ contention that payments made prior to 1 July 2001 were not properly characterised as loans.  In this regard, the Master found that Mr Godfrey was, at least in the early stages, taken in by the Mobutu scam to some degree and decided to go into the scheme in the hope that it was genuine with some expectation of making a large amount of money (Master’s reasons at [270] and [275]).  The Master did not accept that Mr Godfrey would have lent, or did lend, the large amounts of money he put in towards the Mobutu investigation as a loan to Mr Fragopolous or his company, without a loan agreement in writing (Master’s reasons at [273]).  To the contrary, his Honour was satisfied that Mr Godfrey “was at the time a meticulous record-keeper and a careful man.  He had used a loan agreement in the past, at least for the $100,000.00 loan” (ibid).  While his Honour found that the position changed in July 2001, it followed that ICBM’s claim to the extent that it was based upon loans allegedly made prior to July 2001 was dismissed.

1. Thirdly, his Honour had a similar difficulty with Mr Godfrey’s evidence that there was an oral agreement to undertake consulting work for Mr Fragopoulos or his company Volanne at an hourly rate (Master’s reasons at [274]).  Given the extent of Mr Godfrey’s consulting work at a senior government level in relation to the Olympic Games and NSW Public Transport which his Honour inferred must have been pursuant to written agreements, his Honour did not accept that Mr Godfrey would have entered a business arrangement with someone he had just met without committing the consultancy arrangement to writing (ibid).  That claim was also therefore dismissed.

1. Fourthly, accepting that the existence of the loans after July 2001 were admitted, his Honour found that interest was payable on those loans as pleaded by the respondents.  Specifically at [283] his Honour found without further elaboration by way of reasons that:

…Entitlement to interest is denied but I find for the plaintiffs on that issue.  I am satisfied that the agreed interest rate was the Westpac indicator lending rate plus 2%, and that Mr and Mrs Fragopoulos were well aware of that.

1. That being so, there was no issue that the Westpac indicator lending rate plus 2% over the relevant period varied over the relevant period from 10.75% to 14.01%.  The parties agreed on the basis of these rates on the calculation of interest to give effect to the judgment below.  

1. We note however that his Honour did not make any express finding as to whether the loans were made pursuant to the oral agreement allegedly made in November 2000 as pleaded by the respondents in the Fourth FASC or, in the alternative, pursuant to an agreement allegedly made in or about July 2001 as pleaded by the appellants in their Defence to the Fourth FASC at [3] (albeit that the pleading lacked any material facts). Nonetheless, not surprisingly in light of the way that the matter appears to have been run at trial, the appellants assume that the Master found at [283] that there was an agreement made in November 2000 to pay interest on loans: see appellants’ summary of argument at [14]. The respondents’ arguments appear to rest on the same assumption. In this regard, the respondents submitted that “[t]he fact that Mr Godfrey and Mr Fragopoulos agreed on 9 November 2000 that advances would be subject to interest at Westpac’s indicator rate plus 2%, but then proceeded to invest monies in what proved to be a scam, does not preclude that evidence from being relevant to the terms on which ICBM then proceeded to lend money to Volanne thereafter.”  As we understand the submission, the case is therefore effectively that there was an agreement in November 2000 (as pleaded) which was not ultimately acted upon until July 2001 given the unchallenged findings by the Master that the payments before that time were not loans.  In this regard, we note that the November 2000 agreement related to loans for the seafood business and that the monies provided from July 2001 which were found to be loans were for that purpose.  However, the moneys paid prior to July 2001 were found to be monies invested by Mr Godfrey in the scam and therefore were for a different purpose.

1. In the fifth place, his Honour held that the parties agreed that interest would be compound interest.  His reasons for so holding were briefly stated at [284] as follows:   

There is a subsidiary dispute between the parties as to whether interest should be treated as simple or compound.  The deed of loan, which is in evidence although not sued upon, included a clause to the effect that interest on the principal sum was to accrue from day to day and to be computed on a daily basis of a year of 365 days.  A further clause provided that interest not paid when due was to be capitalised as at the due date.  I am satisfied on the evidence that this was consistent with banking practice.  I am satisfied that the agreement between the parties was that interest was to be compound interest.

1. In this regard, it is unclear whether his Honour found that that interest was to be compounded only when due and unpaid or whether he found that compound interest applied from the date on which the monies in question were lent:  see further below at [94]-[107].

1. Furthermore, four payments claimed by Volanne to have been made to ICBM in reduction of the loan were initially in dispute, namely:

(a)$4000.00 paid on 25 June 2002;

(b)$2000.00 paid on 1 September 2002;

(c)$2000.00 paid on 22 June 2003; and

(d)$2000.00 paid on 1 April 2006.

1. These were ultimately not in issue and the Master was satisfied that those payments were made on those dates (Master’s reasons at [299]).

1. Next, with respect to the dispute in the course of evidence about whether the repayments from the beginning of July 2001 at $1000.00 per week initially and later at $2000.00 per week had been made on time, the Master found that no complaint was made about any default, if there was one, before letters of demand were sent in April 2007.  The Master held at [301] that “the plaintiffs were entitled to send that letter and that when the outstanding principal and interest were not paid as demanded, there was a default.  I am not satisfied that there was any event of default prior to that.”  No challenge is made to that finding.

1. Finally, the appellants admitted executing the deed of guarantee and indemnity in September 2001.  Notwithstanding the date on which the deed was executed, the Master found that Mr and Mrs Fragopoulos had been provided with copies of the deed and understood that its terms would apply to loans from the beginning of July 2001 (Master’s reasons at [23] and [281]).  No issue is taken with these findings on appeal.

1. The parties were directed to lodge and serve a summary consistent with his Honour’s reasons setting out the amount for which judgment should be entered. On 26 September 2014, orders were made that judgment be entered for ICBM against the appellants in the amount of $472,948.48. Pursuant to an agreed schedule of payments, Volanne was ultimately found to have paid $466,191.41 to ICBM by instalments over time. As such, as the appellants contend, the judgment in the sum of $472,948.48 is effectively comprised of interest. 

1. CONSIDERATION

4.1     Principles applied in determining an appeal against factual findings

1. The principles governing the circumstances in which a court is entitled to set aside the Master’s findings are well settled and were recently summarised by Perry J in RailPro Services Pty Ltd v Flavel [2015] FCA 504 at [78] as follows.

(a)A fundamental distinction is drawn between the approach of an appellate court in two different classes of cases -  the drawing of inferences from admitted facts or facts found by the trial judge, on the one hand, and findings which depend upon the view taken of conflicting oral testimony, on the other hand (Fox v Percy [2003] HCA 22; (2003) 214 CLR 118 (Fox v Percy) at 146 [88] (McHugh J); Brunskill v Sovereign Marine & General Insurance Co Ltd (1985) 59 ALJR 842 at 844 (the Court); State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in liq) [1999] HCA 3; (1999) 73 ALJR 306 (SRA v Earthline) at [93] (Kirby J)). … The assessment of a witness’ state of mind has also been said to fall within the second category of cases: Bendigo [Board of Bendigo Regional Institute of Technical and Further Education v Barclay (2012) 248 CLR 500] at 544 [141] (Heydon J) (citing with approval Nocton v Lord Ashburton [1914] AC 932 at 957 (Viscount Haldane LC)).

(b)With respect to cases falling within the first class, the principle is that expressed by Gibbs ACJ, Jacobs and Murphy JJ in Warren v Coombes (1979) 142 CLR 531 (Warren v Coombes) at 551, namely:

…the established principles are, we think, that in general an appellate court is in as good a position as the trial judge to decide on the proper inference to be drawn from facts which are undisputed or which, having been disputed, are established by the findings of the trial judge. In deciding what is the proper inference to be drawn, the appellate court will give respect and weight to the conclusion of the trial judge, but, once having reached its own conclusion, will not shrink from giving effect to it.

In so holding, the High Court rejected the approach of judicial restraint adopted in some of the authorities which required that error be demonstrated in the decision of the primary judge before the appellate court would reverse findings of fact or inferences from fact provided that both inferences were open:  see further the detailed and helpful analysis of the authorities by Dodds-Streeton JA in Kelso v Tatiara Meat Co Pty Ltd [2007] VSCA 267; (2007) 17 VR 592 (Kelso) at [65]-[95] (with whose reasons the remainder of the Court agreed).

(c)This trend away from strict judicial restraint was continued by the decision in Fox v Percy which concerned the second class of cases.  In Fox v Percy, the majority held that, while account must be taken of the advantages enjoyed by the primary judge in resolving conflicting oral evidence, the mere fact that she or he resolved the conflict by findings as to credit does not immunise the conclusion from challenge.  The approach to be applied where such findings are challenged on an appeal by way of rehearing is explained by Gleeson CJ, Gummow and Kirby JJ in Fox v Percy at 128 [28]-[29] as follows:

In particular cases incontrovertible facts or uncontested testimony will demonstrate that the trial judge’s conclusions are erroneous, even when they appear to be, or are stated to be, based on credibility findings.

…  In some, quite rare, cases, although the facts fall short of being ‘incontrovertible’, an appellate conclusion may be reached that the decision at trial is ‘glaringly improbable’ or ‘contrary to compelling inferences’ in the case.  In such circumstances, the appellate court is not relieved of its statutory functions by the fact that the trial judge has, expressly or implicitly, reached a conclusion influenced by an opinion concerning the credibility of witnesses.  In such a case, making all due allowances for the advantages available to the trial judge, the appellate court must ‘not shrink from giving effect to’ its own conclusion.  Finality in litigation is highly desirable.  Litigation beyond a trial is costly and usually upsetting.  But in every appeal by way of rehearing, a judgment of the appellate court is required both on the facts and the law.  It is not forbidden (nor in the face of the statutory requirement could it be) by ritual incantation about witness credibility, nor by judicial reference to the desirability of finality in litigation or reminders of the general advantages of the trial over the appellate process.

(Emphasis added.)

…

(d) It may also be the case that appealable error exists by reason of a failure at first instance to determine the case upon a proper consideration of the real strength of the body of evidence presented by the losing party and the basis upon which the evidence of a witness was found unreliable is too fragile or slight:  SRA v Earthline at [63]-[64] (Gaudron, Gummow and Hayne JJ), [93]-[94] (Kirby J) and [148]-[155] (Callinan J); cf e.g. Hasler v Singtel Optus Pty Ltd [2014] NSWCA 266; (2014) 311 ALR 494 (Hasler) at 525 [157] (Leeming J (with whose reasons the remainder of the Court agreed)).

(e)Underpinning the authorities as to the second class of cases is a continuing appreciation of the advantage which the primary judge may enjoy despite the availability today of complete transcripts of evidence and argument, the trend to giving evidence in chief by affidavit, and a growing understanding of the fallibility of the judicial evaluation of credibility from the appearance and demeanour of witnesses, particularly in the stressful environment of the courtroom and in an increasingly culturally diverse society…

(f) A finding that oral testimony is disbelieved will almost invariably be express.  However, it cannot be assumed that every consideration influencing the primary judge’s assessment of credibility, including her or his impressions of the witness, will find expression in the reasons.  In discharging the appellate function, account should also be taken for unexpressed considerations and impressions: Fox v Percy at 132 [41] (Gleeson CJ, Gummow and Kirby JJ)….

(g) Finally, the weight to be given to the advantage enjoyed by the primary judge must, of necessity, be affected to some degree by the circumstances of the individual case….

79. In short, as Dodds-Streeton JA explained in Kelso at [150]:

As Warren v Coombes, the authorities approved therein and subsequent High Court decisions such as Fox v Percy and Della Maddalena make clear, the appeal court must consider the record of the trial below and the judgment of the trial judge, together with any additional evidence admitted.  It must reach an independent conclusion on all issues which it is as well placed as the trial judge to determine, such as the assessment of documents, expert reports which are independent of the credit of any witness seen by the trial judge and inferences from established fact.  It must also independently determine matters in which the trial judge enjoyed a legitimate advantage, such as the observation of witnesses, physical demonstrations and other matters referred to in Fox v Percy and like cases, but must make appropriate allowance, without uncritical deference, for such an advantage.  If it reaches a different conclusion, either on any specific issue or the ultimate outcome of the case, it must give effect to its own decision.

1. In addition, it is important to take into account, as his Honour did, the inevitable impact of the passage of time on the quality of evidence.  It is that impact which underlies McHugh J’s observations in Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 at 551 as to the policy underpinning limitations periods (but equally relevant here):

The enactment of time limitations has been driven by the general perception that “[w]here there is delay the whole quality of justice deteriorates”. Sometimes the deterioration in quality is palpable, as in the case where a crucial witness is dead or an important document has been destroyed. But sometimes, perhaps more often than we realise, the deterioration in quality is not recognisable even by the parties. Prejudice may exist without the parties or anybody else realising that it exists. As the United States Supreme Court pointed out in Barker v Wingo “what has been forgotten can rarely be shown”. So, it must often happen that important, perhaps decisive, evidence has disappeared without anybody now “knowing” that it ever existed. Similarly, it must often happen that time will diminish the significance of a known fact or circumstance because its relationship to the cause of action is no longer as apparent as it was when the cause of action arose. A verdict may appear well based on the evidence given in the proceedings, but, if the tribunal of fact had all the evidence concerning the matter, an opposite result may have ensued. The longer the delay in commencing proceedings, the more likely it is that the case will be decided on less evidence than was available to the parties at the time that the cause of action arose.

1. In such cases, as the Master held below, the contemporaneous documents assume a heightened significance. 

4.2     Issues on Appeal

1. There is no challenge to the findings of the Master rejecting the claim by Mr Godfrey for consultancy fees, nor that the moneys provided by ICBM to Volanne prior to 1 July 2001 were not loans but in effect moneys invested by ICBM in effectively a joint venture with Volanne to pursue certain business opportunities offshore which turned out to be scams.   The loans made after 1 July 2001 were admitted subject to minor matters not presently relevant, as were repayments on the loans. 

1. As earlier explained, the appellants contend that the Master erred in finding that interest was payable; or in the alternative that interest was agreed at the Westpac indicator lending rate plus 2% as opposed to 8% and calculated as compound interest.

1. The basis upon which the appellants contend in the alternative for an interest rate of 8% is that the only document between the lender and borrower, as opposed to the deeds of guarantee and charge, is the deed of loan and that document specifies 8% as the interest rate. Given however that no party contended that document accurately represented their agreement, the submission must be rejected: see also at [105] below.

4.3     Preliminary matters

1. Before addressing the substantive issues, three preliminary points should be emphasised. 

1. First, in civil cases such as the present, the onus lies upon the debtor (ICBM) seeking to recover interest on the loans, to establish on the balance of probabilities the existence of an agreement that interest be payable at the particular rate and calculated in the manner alleged. 

1. Secondly, the appellants rightly submit, with respect, that his Honour has failed to explain his reasons for finding at [283] that interest was agreed at the Westpac indicator lending rate plus 2%.  As such, this Court is placed in the difficult position where it must on the appeal determine the issue effectively without the benefit of reasons from the Master and without the advantages enjoyed by the Master, including hearing directly the evidence of the witnesses. 

1. Thirdly, there is no challenge to the Master’s findings as to credit and to the manner in which Mr Godfrey’s and Mr Fragopoulos’ evidence must be approached given those findings; nor to the emphasis which his Honour in our view correctly placed upon the importance of contemporaneous documents having regard to those findings as to credit and to the passage of time generally upon the quality of evidence in any event.

4.4     Did the Master correctly find that interest was payable on the loans post-July 2001?

1. For the reasons that follow, the Master correctly found at [283] that interest would be charged at “the Westpac indicator lending rate plus 2%”.  While there are some discrepancies in the evidence, overall we consider that the weight of the evidence supports the conclusion reached by the Master to this extent including the documentary evidence at the time that the oral agreement is alleged to have been concluded and later evidence as to the conduct of, and records maintained by, the parties prior to the commencement of the litigation.

4.4.1  Evidence of the alleged oral agreement in November 2000 to charge the Westpac rate plus 2%

1. Mr Godfrey gave evidence that there was an oral express agreement with Mr Fragopoulos to charge interest at the Westpac rate plus 2% reached at the meeting on 9 November 2000. 

1. As earlier mentioned, the meeting came about as a result of an introduction by Mr Makas.  That introduction is noted in the notebook maintained by Mr Godfrey marked as being for the period 12 July 2000 to 30 Dec 2000. That note states:

6 November

Manny [Mr Makas]

·     Wants to meet with person I might be able to help.

·     Out at motel LIDCOMBE 1900 Thursday 9 November

-    Manny will confirm address.

1. We note that this notation incorrectly referred to the meeting taking place at a motel at Lidcombe instead of Leichardt but nothing was said to turn upon that error.

1. At the meeting on 9 November 2000, Mr Godfrey said that Mr Fragopoulos explained that he was interested in pursuing the potential for fish export from Australia as an alternative to his current business and referred to the opportunity to transfer money raised by Dr Phillips.  In response to Mr Fragopoulous saying that his business may need money to operate, Mr Godfrey said:

I said, well, I’d be in a potential position to loan money but as it was money that I’d be otherwise putting in to my super account then I would be charging interest.  And at the time because I was daily working on interest calculations I said that my assessment of interest would be the Westpac rate that we used in the Olympic Games contracts….

1. The questioning then continued:

[MR SHARWOOD (then counsel for ICBM)] Just before we go to that, you mentioned a couple of different matters that were discussed by Mr Fragopoulos.  Was any one of those said to be more important than the other or did you understand that he wanted to ---

HIS HONOUR:  Would you say “said to be”, said by whom?

MR SHARWOOD:  Said by him to be ---

HIS HONOUR:  Said by Mr Fragopoulos to be more important?

MR SHARWOOD:  Mr Fragopoulos to be more important?---No, no and at that stage I think the discussion’s fairly general and it was more discussion in relation to the actual business in Belconnen and how it operated rather than anything else.

When you said interest would be the Westpac Bank corporation rate used in the Olympic Games contracts, is that all you said about that or did you say anything else in that meeting about that?---No I think in the first meeting, I just said that I would have to apply interest to any monies I loaned because the company couldn’t loan without that, that we could discuss that further.  I don’t think there was much else I said at that time.

Did you take a note or make any record of that conversation?---Yes I made a record in one of my note books of the conversation.  I was in the habit of making notes of meetings in books or in my diary from my work career. 

(emphasis added)

1. Mr Godfrey submitted that his evidence about what was said at the meeting including as to the interest rate is corroborated in a number of important respects by the note of the meeting made by Mr Godfrey in the evening after the meeting or early the next morning which read (incorrectly spelling Mr Fragopoulos’ name:

Meeting

Met with Manny and J (John) Fragopolos?

Runs fish market at Belconnen.

Very good little business, best in Cbr.

Just returned from overseas – good prospects.

Has borrowed money – wants to have good business relationship.

I indicated I would be interested. 

-    Still working full time.

-    Have capacity to loan money – would be from my super (ICBM payments) which currently earning VG interest/returns – need similar – perhaps use Olympic arrangements – Westpac Bank plus 2%.

John [telephone contact numbers for Mr Fragopoulos]

-    Meet at markets have coffee + sort things out.

Manny suggest meet at Belconnen on Sunday.

1. This note appears immediately below Mr Godfrey’s note dated 6 November on the same page of the notebook.

1. Mr Godfrey was cross-examined on whether he made the note in 2009 after he had briefed lawyers which he denied, saying that “No.  If I’d written it in 2009 I would have known how to spell Mr Fragopoulos and wouldn’t have written his telephone numbers down.”  That explanation is credible and we accept Mr Godfrey’s evidence that the note was contemporaneous.

1. Mr Godfrey also said that when he spoke to Mr Fragopoulos in the early part of the relationship about the basis on which he would be prepared to advance money:

Well, the only comment he made at the time was that that seemed okay and that he was paying exceptionally high interest rates on different things.  Now, he didn’t specify what interest rate he was paying.  Whether he was referring to some of the outstanding hire purchase or agreements that he had but he did indicate that he was paying high rates of interests.  I think the figure in the mid 20s was mentioned but I can’t quite recall that when that happened.

(emphasis added)

1. Counsel for the appellants submitted that this evidence fell well short of evidence that an agreement as to interest had been reached in November 2000. 

1. The appellants emphasised first the fact that Mr Godfrey’s note said “perhaps use Olympic arrangements – Westpac Bank plus 2%”.  We do not consider that that necessarily meant that there was no agreement as to the interest rate to be applied.  The word “perhaps” is not used to qualify the interest rate but the use of “Olympic arrangements”; nor is there any question mark after the reference to the interest rate in contrast to the position with respect to Mr Fragopoulos’ name or other indication on the note that the rate was not settled.  In this regard, Mr Godfrey’s evidence was that the Olympic contracts included the Westpac rate but also other terms relating to interest as follows: 

Did any of those contracts deal with interest at all?---All of the contracts had the common clause of interest in terms of any potential for late payments or non-provision of services where there would then be a charge by the government against the contractors.  And that was based on the Westpac who were the major banking sponsor for the games, using their indicator lender rate plus 2% of all monies outstanding.

Were the consistent clauses in those contracts dealing with compounds of interest, for example?---Yes, the interest was compounded at a daily rate.  The – most of the contracts had a clause that if it wasn’t paid by the due date that then became the date of compounding interest.  We did not have to apply that for the games but after the games there was some $600 million involved where the interest application was applied.  After the games people hadn’t paid or were refusing to pay for different reasons.

HIS HONOUR:  You said that the clause referred to the Westpac indicator lending rate, plus 2%?---Yes.

This is something that a lot of people will know but I should and don’t.  Is the Westpac indicator lending rate something that’s easily ascertained by a member of the public?---Yes, all banks and the Reserve Bank have lending rates.  The two most common ones are the Commonwealth Bank and the Westpac rate.

Yes?---It might vary by one or two points but not very often vary between the two and they are used for the basis for setting their loans for both housing, business throughout all their banking interest and that was what was applied to the Olympic contract.

1. There were other components in the Olympic contracts which Mr Godfrey did not expressly raise, in particular compound interest.  However, that does not mean in our view that the parties were not agreed on the fact that loans would be made at a particular rate.

1. Secondly the appellants relied upon the fact that Mr Godfrey’s evidence was that Mr Fragopoulos only said “that seems ok”.  However, the statement that “that seems ok” in written form could mean either that “that seems ok” indicating hesitancy about whether or not it is ok, or that “that seems ok” indicating agreement.  That the latter is the preferable construction of the evidence gives due weight to the finding by the Master that Mr and Mrs Fragopoulos were well aware of the provisions with respect to interest, given the advantages he enjoyed in having heard their evidence, as the respondents contend. It is also consistent with the parties’ conduct thereafter as the evidence considered below demonstrates.

1. Thirdly, the appellants also relied upon Mr Godfrey’s evidence that “we could discuss that further” (quoted at [68] above), submitting that it showed that there was no agreement about interest at the meeting. That submission, however, overlooks the question to which the answer was directed, namely, whether Mr Godfrey said anything else about interest apart from the Westpac rate. Fairly read, we do not consider that Mr Godfrey was attempting to resile from his evidence that he said that interest would be the Westpac rate used in the Olympic Games contracts (quoted at [69] above).

1. Fourthly, whatever precise words were used, they were clearly understood by Mr Godfrey as indicating agreement.  In this regard, Mr Godfrey’s evidence both as to his concerns to ensure that the monies loaned would earn him a return and as to Mr Fragopoulos’ statement that the rate suggested by Mr Godfrey was much better than what he was getting elsewhere, are inherently plausible.  On the other hand, it stretches credibility, with respect, to suggest that Mr Godfrey would have loaned such significant amounts to Volanne, who was effectively a stranger as the Master found, for use by that company in pursuit of its own profits for an unspecified period of time without any interest payable.  In this regard the largest sum which ICBM had loaned in the past had been a loan with a company for $100,000.00 which had recovered with interest as arranged within the agreed period of two months.  Otherwise, by the time he met Mr Fragopoulos, ICBM had made only half a dozen other loans for up to $20,000.00 for a maximum period of three months. The trial judge appears to have accepted Mr Godfrey’s evidence about ICBM’s prior loans and there is our view no reason to disbelieve it.

1. In the fifth place, while it was the appellants’ case that no interest was payable, counsel for ICBM submitted that the only cross-examination on the point was directed solely at whether Mr Godfrey had in fact prepared the note of the November 2000 meeting in 2009.  In ICBM’s submission, it was not squarely put to him that there was no agreement on interest; nor was his evidence as to the statement attributed to Mr Fragopoulos that the interest rate proposed “seems ok” directly challenged.  No issue was taken with this submission as to the scope of cross-examination in reply by counsel for the appellants notwithstanding the extensive cross-examination of Mr Godfrey (much of which focused upon the various amendments to the statement of claim and the scam) and the fact that Mr Godfrey was recalled for further evidence on two occasions.

1. Moreover, the agreement to charge interest at the rate equivalent to the Westpac indicator lending rate plus 2% per annum is consistent with the fact that both the deed of guarantee and indemnity and the deed of charge provide for interest to be calculated at that rate from the date of demand upon outstanding amounts of the guaranteed/secured money excluding double charging of interest (see cl 3.4 and the definition of “applicable rate” in cl 1 of the deed of guarantee, and cl 4.11 and the definition of “applicable rate” in cl 1 of the deed of charge).  (We leave aside for present purposes the fact that those deeds also provided for interest to be charged daily on a compounding basis.)  While these documents were executed in September 2001, they were prepared in July 2001 and the Master held at [281] that he was satisfied that Mr and Mrs Fragopoulos had been provided with copies of them and understood they would apply to loans from July 2001.  Given that the parties accepted that the deed of loan did not represent their agreement, the fact that the deed of loan specified a different rate is irrelevant.

1. Furthermore, a printout dated 20 November 2006 of a ledger account kept by Mr Godfrey entitled “Balance Volanne Loan” for the period 1 December 2000 to 19 November 2006 was also in evidence (exhibit K).  Mr Godfrey gave evidence that he typed in the raw data within the same month but normally the same day or within the week, and the program calculated interest and so forth.  Mr Godfrey gave evidence that he had given this document to Mr and Mrs Fragopoulos who, on seeing it, brought out their records (as they did on several occasions) and asked him to reduce the interest.  In response Mr Godfrey said that he would think about it if the amount outstanding was reduced. He denied in cross-examination the suggestion that he never provided exhibit K to Mr and Mrs Fragopoulos before he commenced proceedings.  Consistently with this, Mr Fragopoulos gave evidence that he thought that he had seen the document before.

1. That printout also records amounts described as “interest”, “loan” or “repayment” and describes the interest rate for the whole period as 11%.  Mr Godfrey gave evidence to explain that because the Westpac indicator lending rate goes to three decimal points on some occasions, he rounded the figures and this accounts for the consistent rate.  For example, he explained, that 8.5% plus 2% rounds up to 11%.  Conversely 9.25% plus 2% rounds down to 11%.  As such he said that while the effect of the rounding made it look as if the rate had not changed, it did change seven or eight times during the period through to November 2006 with the consequence that there was an overstatement of $7000.00 in the cumulative total at the end of exhibit K. That evidence is broadly consistent with the Westpac Business Lending Historical Rates – Indicator Lending Rate (ILR) which demonstrated that the ILR ranged between 8% to 10% only over that period with the rate rounding to 11% applying Mr Godfrey’s methodology for the majority of that period (approximately 3 years 9 months over the period 1 December 2000 to 19 November 2006), namely:

Date

(rate effective from):

Indicator Lending Rate

(ILR)

(Interest rate applies to all limits)

…

10 November 2006

10.00%

4 August 2006

9.75%

8 May 2006

9.50%

9 March 2005

9.25%

10 December 2003

9.00%

12 November 2003

8.57%

12 June 2002

8.50%

15 May 2002

8.25%

12 December 2001

8.00%

10 October 2001

8.25%

12 September 2001

8.50%

11 April 2001

8.75%

14 March 2001

9.25%

14 February 2001

9.50%

10 August 2000

10.00%

1. This evidence as to the Indicator Lending Rate over the relevant period was not challenged.  Given that evidence as to the rate and the inherent plausibility of Mr Godfrey’s evidence as to the rounding up and down of the Indicator Lending Rate to explain the references to 11% in exhibit K, we accept (contrary to the appellants’ submissions) that exhibit K is consistent with, and further corroborates, the other evidence that the loans were subject to an interest rate at the Westpac Indicator Rate plus 2%. 

1. There was also a proper and sufficient basis in the evidence to support the finding below that Mr and Mrs Fragopoulos well knew that interest was payable on the loan.  In addition to the evidence as to the meeting in November 2000, we would add the following points.

1. First, that finding is consistent with the fact that after the November meeting and being aware of Mr Godfrey’s view that he would need a benefit in return given that he would otherwise have invested the moneys in superannuation, Volanne thereafter accepted the loans from July 2001.  In this regard, it was not in issue that the knowledge of Mr and Mrs Fragopoulos was also the knowledge of Volanne.

1. Secondly, the ledger kept by Mrs Fragopoulous included two payments in relation to the loans identified as “interest”, namely for sums of $4000 on 25 June 2002 and $2000 on 1 September 2002. She gave evidence that these were included because Mr Godfrey had asked her to identify these as interest payments for tax purposes.  Counsel for the appellants argued that that could not be taken as evidence that she considered that interest was payable on the loans.  However, that submission would in effect require the Court to infer that both she and Mr Godfrey intended to perpetrate a fraud on the Australian Taxation Office and requires therefore that the Court act with the caution required by the principle in Briginshaw v Briginshaw (1938) 60 CLR 336. The inference suggested by the appellants should not be drawn. Mrs Fragopoulos’ evidence on this point is equally consistent with her complying with Mr Godfrey’s request to identify the amounts as interest in circumstances where she knew that interest was payable on the loans and therefore that an innocent explanation is at least equally open, if not more likely. This is so even accepting, as the appellants suggested, that neither of the figures were referable to specific amounts of interest due. Nor despite the implication of a fraudulent intent, was it put to Mr Godfrey that he made the request knowing it was false. Accordingly to the extent that the submission was in fact pressed, it must be rejected.

1. Thirdly, a printout by Mr Godfrey dated 4 June 2004 for the period 1 December 2000 to 31 July 2003 (exhibit X) of a ledger account of loans to Volanne recorded amounts variously described as “Interest’, “Loan” or “Repayment”. Significantly, not only did these records kept by Mr Godfrey record the accruing of interest on the various loans and therefore his understanding that interest was payable; the document was also seen by Mrs Fragopoulos whose handwriting appeared on the document. If interest was not payable, it can reasonably be inferred that Mrs Fragopoulos would have taken issue with the ledger, particularly given her role as the bookkeeper for her and her husband’s seafood business.  Yet there is no evidence to suggest that any objection was taken. 

1. The significance of the apparent acceptance by Mrs Fragopoulos of the fact that interest is being charged is not diminished in our view by the fact that there are discrepancies between the ledgers printed out in exhibits X and K.  Nonetheless, as the appellants submit, the amount of interest earned recorded on exhibits X and K for the same periods do not correspond.  For example, the printout on 4 June 2004 (exhibit X) starts with a loan of $35,000.00 on 1 December 2000 and states that interest earned for the period ending 31 December 2000 is $252.67.  The printout on 20 November 2006 (exhibit K) also starts with the loan of $35,000.00 on 1 December 2000 but states that interest for a period of 31 days at 11% amounted to $334.42.  The appellants submitted that the calculations of interest in exhibit X were at approximately 8.5%.  ICBM did not agree and submitted that it depended upon the basis on which the calculations were undertaken. Similar submissions were made with respect to the ledger for the period 1 December 2000 to 30 April 2007 (Exhibit 15).  The evidence is not sufficient for us to be able to resolve such discrepancies across the ledgers.  Nonetheless, notwithstanding such discrepancies, we remain of the view that the weight of the evidence supports the Master’s finding that interest was charged at the Westpac Indicator Rate plus 2% for the reasons we have given and Mr Fragopoulos’ evidence that no interest was payable is not credible.

4.4.2  Evidence given by Mr Fragopoulos at the committal proceedings

1. Finally, ICBM sought to rely upon Mr Fragopoulos’ sworn evidence at the committal proceedings in Wagga Wagga on 20 April 2007 relating to the ATSIC conspiracy charges in support of its case that Mr Fragopoulos well knew that interest was payable.  Strictly speaking it is unnecessary for us consider that submission given the conclusion which we have already reached.  However, for the reasons set out below, we do not consider in any event that that evidence ultimately advances either party’s substantive case.

1. At the committal hearing, Mr Fragopoulos adopted as true and correct his statement signed on 17 March 2007.  That statement included at [3] that:

I was introduced to Mr Brendan Godfrey (“Brendan”) in around November 2000.  Brendan agreed to finance Fishco by loaning money to my company Volanne… Money was advanced to Volanne by Brendan through his company International Consulting and Business Management (ICBM) Pty Ltd ….. secured by a fixed and floating charge over the assets of Volanne.  Volanne’s current indebtedness to ICBM is $336,000.

1. In his oral evidence, Mr Fragopoulos clarified this evidence only to say that he and his wife had no idea where the money loaned to Volanne came from, whether ICBM or Mr Godfrey’s personal account.  However, he expressly confirmed that the level of current indebtedness to Mr Godfrey was $336,000. 

1. It was put to Mr Fragopoulos at the trial in these proceedings that that amount included interest.  Mr Fragopoulos’ evidence on this issue was as follows:

You were happy to leave in the $336,000?--- I wasn’t happy.  I had no idea.  I assumed---

Mr Fragopoulos, this is just a bit convenient, isn’t it?--- It’s not.  I’ve just explained to you, I never keep records of anything in particular like this.  It’s my wife is in charge. 

Because you know that that amount included ---? --- How do I know that?

Could you wait for the question, please?--- Go ahead.

Because you knew that that figure of $336,000 included interest and it was the amount that Mr ---? ---How am I supposed to know that, sir?

Because Mr Godfrey had given you schedules from time to time, including interest, showing where the level of indebtedness was? --- Never.  The first schedule he gave us with interest again was after we had gone through this ATSIC and he came to us and asked us for our records in order to make his.

Well, they are your records there in that other piece of paper I gave you, aren’t they? --- No.  It says Vollane [sic], so they must be.  The problem that I have right now is for you to understand, to convince you that Mr Brendan Godfrey, if it was consultancy or if it was borrowings, he never gave us any kind of statement, any letters, anything to say that we were – we have paid this or you are in arrears, never, nothing whatsoever.  And the reason of that, because we were together in the venture for one reason only, to succeed. If we did not succeed, we support the business in order to pay to get all our losses back.

Well, why didn’t you tell the court that? --- Okay. Why did I tell the court what?

….

… Vollane’s [sic] current indebtedness to ICBM is $336,000. Why did you tell the District Court in Wagga and certify that that was true, if you are now saying that that is not true? --- Okay.  This is one of the very few statements that I have ever made in my life and knowing where – now where [Mr Jim Colquhoun, the solicitor acting for Mr Godfrey] was going with this, I realise that even that should not have been done – signed, okay.  The reason I had not signed a statement since all this commotion, one or two or three years ago, when this happened, this is in 2007.  They came to us, I think, in 2003/2004, so about three years ago.  They were asking for a statement and I was denying that.  So I had a solicitor that I told him, for this particular letter, I don’t want to give any statements.  Mr Calhoun [sic], he came up repeatedly and he convinced me, he made all this up.  I had no idea of – no understood – yes, this particular paragraph 3 here where it says “Money, advanced by Vollane [sic] to Brendan Godfrey through his company”, “secured by a fixed and floating charge over the assets of Vollane [sic]”, okay, I didn’t even understand most of it, okay.  I understand he’s talking about Brendan, that he has lent us money, the amount 336.  I said, yes, we owe him money, about that, yes, what else, and I moved on and I made some changes, okay.  Now you know.  This became in here from Jim Calhoun [sic].  I have signed it and I don’t believe that this is true.

So you mislead the District Court when you gave evidence in Wagga? --- I did so without my – without my knowledge, yes.

Or are you misleading his Honour in this court now? --- I have no reason.

1. That evidence is evasive and unsatisfactory and is an example of a case where Mr Fragopoulos apparently gave evidence in furtherance of his perceived financial interests:  see also Master’s reasons at [262]-[264].  As such, we give Mr Fragopoulos’ evidence on this issue in the Court below no weight and accept the truth of his evidence in the District Court as to his understanding of Volanne’s level of indebtedness at that stage.  Nonetheless, while the parties put in further written submissions on the appeal by email after the hearing to address whether the figure of $336,000 included a substantial interest component, we accept the appellants’ submissions that there was no cross-examination to the effect that Mr Fragopoulos knew that substantial interest was included in the figure of $336,000; nor any evidence as to how the figure of $336,000 was calculated at the time of Mr Fragopoulos’ statement.  As such, we do not consider that Mr Fragopoulos’ evidence at the committal hearing assists in resolving the substantive issues.

4.5     Did the Master err in finding that compound interest was payable?

1. The Master gave two reasons for finding that “the agreement between the parties was that interest was to be compound interest”, namely:

(a)while the deed of loan was not sued upon, it was in evidence and included clauses that interest on the principal sum would accrue from day to day and be computed daily, and that interest not paid when due was to be capitalised as at the due date; and

(b)this was consistent with banking practice.

(Master’s reasons at [284])

1. While not directly addressed in submissions, the finding at [284] could be read in two ways.  First, read literally the finding is simply that interest was to be compound interest.  If so, evidence that interest was to be compounded if it was not paid when due would not logically support a finding that it was to be compounded as soon as it accrued.  In this regard, the Master held that no default in repayments had been established prior to the demand in April 2007.  Alternatively, read in the context of the evidence expressly relied upon by the Master as the basis for the finding, the intention may have been to find that compound interest would apply in respect of interest not paid when due.  Yet that was not ICBM’s case.  It will be recalled that ICBM pleaded that the implied terms of the loan agreement were that interest charges would be calculated daily at the applicable rate of interest on the basis of a 365 day year and, importantly for present purposes, that interest would be capitalised daily (Fourth FASC at [10(b) and (c)]).  Ultimately therefore, it must fall to this court to decide whether there was an implied term for compound interest as pleaded by ICBM.

1. The particulars of the basis for the implied terms given in the Fourth FASC were that: the implied terms were necessary in order to give business efficacy to the loan agreement and are customarily implied into loan agreements of a similar nature in the commercial money lending industry. 

1. While in the Third Further Amended Statement of Claim ICBM sought rectification of the deed of loan, that claim was abandoned in the Fourth FASC which abandoned reliance on the deed of loan in favour of an oral agreement.  The difference between rectification, on the one hand, and implication as ultimately argued, on the other hand, is an important one.  As Mason J explained in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 (Codelfa Construction) at 346:

The implication of a term is to be compared, and at the same time contrasted, with rectification of the contract. In each case the problem is caused by a deficiency in the expression of the consensual agreement. A term which should have been included has been omitted. The difference is that with rectification the term which has been omitted and should have been included was actually agreed upon; with implication the term is one which it is presumed that the parties would have agreed upon had they turned their minds to it — it is not a term that they have actually agreed upon. Thus, in the case of the implied term the deficiency in the expression of the consensual agreement is caused by the failure of the parties to direct their minds to a particular eventuality and to make explicit provision for it. Rectification ensures that the contract gives effect to the parties' actual intention; the implication of a term is designed to give effect to the parties' presumed intention.

1. As his Honour then continued at 346:

For obvious reasons the courts are slow to imply a term. In many cases, what the parties have actually agreed upon represents the totality of their willingness to agree; each may be prepared to take his chance in relation to an eventuality for which no provision is made. The more detailed and comprehensive the contract the less ground there is for supposing that the parties have failed to address their minds to the question at issue.  And then there is the difficulty of identifying with any degree of certainty the term which the parties would have settled upon had they considered the question.

1. As summarised by the majority in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 at 283 (in a passage approved by Mason J in Codelfa Construction at 347), the conditions necessary to ground the implication of a term are that:

(1)    it must be reasonable and equitable;

(2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;

(3)    it must be so obvious that ‘it goes without saying’;

(4)    it must be capable of clear expression;

(5)    it must not contradict any express term of the contract.

1. The case law does not support the proposition that an implied term to pay compound interest can be inferred from the fact that such a term is customarily implied into loan agreements of a similar nature.  That would seem to require a presumption rejected by the Victorian Court of Appeal in Morton v Elgin Stuczynski [2008] VSCA 25; (2008) 19 VR 294 (Morton). In this regard, Neave JA (with whose reasons Kellam JJA and Cavanough AJA agreed) held at 300 [28] that:

Whatever may have been the case historically, today there is no presumption that interest payable on a loan made by a private lender is to be calculated as either simple or compound interest. In Alington Group Architects Ltd v Attorney-General the New Zealand Court of Appeal said that:

The question whether the interest payable … is to be simple or compound interest is to be approached without reference to any predisposition the Courts may have demonstrated in favour of simple interest as against compound interest. It is purely one of contractual interpretation. The agreement is to be interpreted so as to give effect to the meaning intended by the parties.

Hence, any … “presumption” in favour of simple interest is out of place in determining the meaning of the words in issue.

1. While the issue of presumption was addressed in Morton in the context of determining whether as a matter of construction the parties had agreed to simple or compound interest as opposed to whether such a term could be implied, equally it would seem to follow that there is no presumption to be made when determining whether such a term is to be implied.

1. In any event, the evidence was inadequate to establish that such a term is customarily implied into loan agreements, notwithstanding the commercial nature of the loan arrangement between Volanne and ICBM and the lack of detail as to the terms of their agreement. Evidence was led only of the terms and conditions which applied to Westpac’s Business Overdraft facility in around November 2000.  The evidence of the practice of only one bank is scarcely sufficient to establish an industry practice.  Nor was ICBM a large bank such as Westpac raising an issue as to the validity of the analogy sought to be drawn in any event.  Moreover, the Westpac terms and conditions expressly provided for compound interest to be charged in clause 17, so do not establish a customary implication.  Furthermore, clause 17 only provided for compound interest where there had been a failure to pay interest on the date on which it was due.

1. Nor is the evidence of Mr Godfrey as to inclusion of a clause for the charging of compound interest for late payment under the contracts for service providers to the Olympic Games sufficient or even relevant to establishing customary banking practice. 

1. In addition, ICBM contended that the deed of guarantee and indemnity, the deed of charge, and the deed of loan corroborated the agreement or understanding that Volanne was to be charged compound interest on a daily rate.  Thus counsel for ICBM submitted, “[t]hat was in the draft documents that they had for some months before they signed them and it was on that basis [that the Master] was satisfied that there was an agreement as to compound interest”. In this regard, the deed of loan provided only for interest not paid when due to be capitalised (see cl 4.3.1, deed of loan).  Similarly by cl 4.11.2 of the deed of charge, the Mortgagor (ICBM) acknowledged that secured money which is interest not paid on its due date would itself bear interest at the applicable rate. The deed of guarantee provided that the guarantors (Mr and Mrs Fragopoulos) must upon demand pay the lender (ICBM) any money not paid by the borrower (Volanne) on its due date (cl 2.1) and interest at the applicable rate calculated daily until it is paid (cl 3.4.1).  By implication, it appears to have been intended that interest on unpaid amounts was to be capitalised under the deed of guarantee as cl 3.4.2 provided that “[t]he Guarantor is not required to pay interest on an amount of Guaranteed Money which, pursuant to an agreement between the Borrower and the Lender, is bearing interest where that interest is itself Guaranteed Money.” 

1. However, we consider that no weight can be given to the deed of loan when neither party sought to enforce any part of that deed on the basis that it did not accord with the parties’ intentions.  There is no principled way of effectively “cherry-picking” (to use the metaphor employed by counsel for the appellants) certain parts of the deed of loan while disavowing any reliance on other parts of it.  Moreover the submission does not, with respect, sit well with the fact that the case for ICBM was that the term was implied.  As earlier explained, terms are implied where it is presumed that the parties would have agreed upon them if they had turned their minds to them and not that they had in fact agreed upon them. In this regard, we accept the appellants’ contention that, with respect, the Master erred in failing to hold ICBM to their pleaded case in the fourth FASC in which ICBM abandoned any claim on the deed of loan.

1. As to ICBM’s pleaded case, it is difficult to see in any event how these documents could assist ICBM in meeting the requirements in Codelfa for an implied term.  If anything, the evidence of these documents demonstrated that an implied term that interest was to be compounded daily was not necessary to afford business efficacy to the oral loan agreement as they provided only for compound interest on default.  It was not, however, ICBM’s case that a term to this effect was to be implied. 

1. It follows that the appeal must be upheld in so far as it is contended that the Master erred in finding that compound interest was payable under the parties’ oral loan agreement.

1. CONSIDERATION OF THE CROSS-APPEAL

1. A cross-appeal was also filed by ICBM against the order made by the Master on 26 September 2014 that ICBM and the second respondent, Skybase, pay Volanne’s costs on a party-party basis to 22 December 2011 and on a solicitor-client basis thereafter and be substituted with orders that:

(a)The first cross-respondent [Volanne] pay the cross-appellant’s [ICBM’s] costs on a party-party basis to 22 December 2011, and on a solicitor-client basis thereafter; and

(b)The second cross-respondent [Mr Fragopoulos] and the third cross-respondent [Mrs Fragopoulos] pay the costs of the cross-appellant [ICBM] on an indemnity basis from 14 May 2007.

1. The cross-appeal is not opposed and we are satisfied that the orders sought should be allowed.

1. CONCLUSION

1. For the reasons set out above, we consider that the appeal should be dismissed in so far it was sought to appeal the Master’s decision that interest was payable on the loans from ICBM to Volanne from 1 July 2001 at the Westpac indicator lending rate plus 2%. However, the appeal is allowed insofar as his Honour found at [284] that the agreement between the parties was that interest was to be compound interest or that any such term was to be implied. The same conclusions follow with respect to the loan for $27,500.00 from Skybase to Volanne for the reasons set out at [37]. The parties are to file draft orders to give effect to these reasons (agreed if possible) within 21 days of judgment.

1. Finally, it is our tentative view that there should be no orders as to costs given the conclusions which we have reached.  However, we will afford the parties the opportunity to make brief written submissions within 21 days of judgment on the appropriate orders as to costs should they be so advised.

I certify that the preceding one hundred and eleven [111] numbered paragraphs are a true copy of the Reasons for Judgment of the Court.

Associate:

Date: 29 September 2016