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[2011] NSWCA 222
Court of Appeal (NSW)
2011-07-15
Beazley JA, Giles JA, Hodgson JA
Original judgment source is linked above.
Judgment 1BEAZLEY JA: I agree with the reasons and orders proposed by Hodgson JA. I also agree with the additional comments of Giles JA. 2GILES JA: The facts are fully set out in the reasons of Hodgson JA, which I have had the advantage of reading in draft. 3I agree with his Honour that categorisation of Mr Cheah's funding as an investment or a loan is not helpful, and that what has to be determined is the effect of the provisions of the agreement. Clause 2(1)(e) is a complete basis for liability of HPL, and for the guarantors to be liable pay $460,000 to Mr Cheah, if the principal repayment to La Trobe had fallen due. 4Clause 2(1)(e) was pleaded as the basis for liability, although it was not specifically pleaded that the principal repayment to La Trobe had fallen due. Whether the principal repayment had fallen due was not prominent in the proceedings, which in this respect became preoccupied with investment or loan, but was an issue for determination on such evidence as was directed to it. 5The La Trobe loan was for one year from no later than 21 June 2005. As explained by Hodgson JA, it is apparent from the letter of 29 June 2006 that Mr Cheah had by that date not extended it. Thus the principal repayment had fallen due. Mr Cheah appears thereafter to have extended the La Trobe loan so that in January-February 2008 it was "becoming due and payable". But the second proposal in the letter of 29 June 2006 had not come to pass, and his accrued entitlement to have the $460,000 paid to or for him remained and was not negated by any such extension. 6Mr Hubbard submitted to the effect that a finding that the principal repayment to La Trobe had fallen due could not properly be made, because that had not been pleaded and other evidence might have been called if it had been an issue. While not specific as to the principal repayment falling due, the pleading alleged that HPL failed to make any payment on the La Trobe loan and demands for the whole $460,000. It was within the pleading that the principal repayment had fallen due, and it was open to find that it had notwithstanding the little attention paid to it in the proceedings. 7Although the case was not decided by the primary judge with a direct finding that the principal repayment to La Trobe had fallen due, her Honour's decision was correct. I agree that the appeal should be dismissed with costs. 8HODGSON JA: On 6 October 2010, Sidis DCJ gave her decision in proceedings in which the first respondent (Mr Cheah) had sued the second respondent (HPL), the appellant (Mr Hubbard), the third respondent (Mr Lindsay) and Secure Mortgage and Leasing Pty Ltd (Secure) for amounts said to be due pursuant to certain agreements. On the basis of that decision, the primary judge gave a verdict and judgment in the sum of $460,000 against HPL, Mr Hubbard and Mr Lindsay jointly and severally, and adjourned the proceedings to 10 November 2010 to deal with issues of costs and interest. On 10 November 2010, the verdict and judgment was varied by the addition of interest of $129,606.57. 9Mr Hubbard appeals from that decision.
Outline of facts 10The proceedings arose from arrangements made by the parties in about May 2005 concerning the development of a property at Coolangatta in Queensland. Mr Hubbard and Mr Lindsay were at that time directors of HPL. 11The parties made an agreement dated 20 May 2005. In that agreement, HPL was identified as the developer, Mr Cheah as the investor, Secure as the broker, and Mr Hubbard, a Mr Pearce (since deceased) and Mr Lindsay each as the guarantor. 12Relevant provisions of that agreement are the recitals, and clauses 1, 2, 6, 7 and 9 - 13: WHEREAS: A. The developer is in the process of purchasing the property and becoming the registered proprietor and beneficial owner thereof. B. The developer will also acquire from the vendor of the property the current development application for the construction of eighteen (18) units, which the developer will use his best endeavours to vary to provide for the construction of 16 two (2) storey townhouses (description of project), subsequent to which the developer will undertake construction of the project with the intention that on completion of the development the property will be sold. C. The Parties acknowledge and agree to the developer contracting with a builder for the construction of the project and to the builder effecting the construction of the development and associated works on the property on behalf of the developer. D. The investor, at the request of the developer and the guarantors, has agreed to invest the investment funds with the developer to enable and assist the developer with the funding of the acquisition and development of the property, in consideration for which the developer has agreed that the investor shall be entitled to and receive a share in the profits derived and arising from the venture. E. The broker has procured both the investment funds from the investor and the finance facilities from the financier, in consideration for which the developer has agreed that the broker shall be entitled to and receive (in addition to any other fees agreed to be paid) a share in the profits derived and arising from the venture. NOW THIS AGREEMENT WITNESSES AND IT IS AGREED AS FOLLOWS: Definitions and interpretations
Pleadings 23Relevantly, Mr Cheah's statement of claim alleged the agreements, referred to the terms of cll 12 and 13 of the agreement of 20 May 2005, and continued: 16 Pursuant to clause 2(1)(e) of the First Agreement, the First Defendant was obliged to pay on behalf of the Plaintiff all the costs including application fees, legal fees and establishment costs plus interest and principal repayments (if any) as and when they fall due under the Plaintiff's loan facility with La Trobe. 17 On or about 27 May 2005 the Plaintiff advanced to the First Defendant the sum of $460,000.00. 18 From the sum of $460,000.00 an amount of $60,000.00 was set aside to service the loan. 19 Upon the expenditure of the sum of $60,000.00 the First Defendant failed to make any payment on the loan from La Trobe. 20 By letter dated 6 December 2006 the Plaintiff made a demand on the First defendant for the payment of all moneys owed to him by the First Defendant. 21 Pursuant to clause 11 of the First Agreement, the Plaintiff terminated the First Agreement by letter dated 21 December 2006. 22 Pursuant to clause 7(1)(m) of the First Agreement, the Plaintiff is entitled to penalty interest at the rate of 9.5% per annum on the sum of $460,000.00 from 19 May 2006 until date of payment. 23 By letters dated 5 December 2007 the Plaintiff made a demand on each of the First, Second, Third and Fourth Defendants for payment of all moneys owed by the First Defendant to the Plaintiff. 24 On or about 15 th February 2008 Plaintiff settled the loan to La Trobe by obtaining a loan from Westpac Banking Corporation ("Westpac") in the sum of $426,400 and personally contributing the sum of $26,812.48. 25 The loan obtained from Westpac was on terms and conditions no less favourable than the existing loan with La Trobe. 26 The First, Second, Third and Fourth Defendants have not paid the amount outstanding under the First Agreement to the Plaintiff. 24The defence of Mr Hubbard relevantly quoted cl 2(1)(e) and continued: 18 Does not know and cannot admit the truth of the facts alleged in paragraphs 17, 18 and 19. 19 ... 20 Admits that the Plaintiff purported to terminate the First Agreement as alleged in paragraph 21 but does not admit that the First Agreement was validly terminated by the Plaintiff. 21 Says that in relation to the facts alleged in paragraph 22 of the Statement Of Claim that for the purposes of the First Agreement the "venture costs" include: "(m) penalty interest for late completion payable to the investor by the developer for late completion, being 9.5% p.a. from that date which is twelve (12) months from the date of this agreement until the date of payment of venture profits to the investor." But otherwise does not admit the facts alleged. 22 Does not admit that demands were made as alleged in paragraph 23 of the Statement Of Claim. 23 Do not know and cannot admit the truth of the facts alleged in paragraph 24 of the Statement Of Claim. 24 Do not know and cannot admit the truth of the facts alleged in paragraph 25 of the Statement Of Claim. 25 Denies that moneys are outstanding as alleged under the First Agreement to the Plaintiff and say that: (a) Upon termination of the First Agreement the Agreement provides that: "11.(3) Upon the termination of the venture pursuant to cl 11 a full account in writing shall be taken of all the assets of the venture and of all liabilities connected with the venture and immediately after such account shall be taken all the assets (other than cash) of the venture shall be valued and realised and sold to the best advantage and the moneys arising from such sale and other moneys of the venture shall be applied in accordance with cl 9 and 10 hereof." (b) No account in writing has been taken of the assets of the venture and of all of the liabilities connected with the venture. (c) The assets of the venture have not been valued nor realised nor sold to the best advantage and that accordingly no moneys have arisen from the sale of the venture assets to be applied as provided for in Clauses 9 and 10 of the First Agreement, which clauses provide as follows: [And it then quoted clauses 9 and 10 of the agreement of 20 May 2005.] On that basis, Mr Hubbard denied indebtedness to Mr Cheah.
Decision of primary judge 25The primary judge identified the following issues: 1 Did the plaintiff provide funds to the first defendant by way of investment or loan? 2 What were the first defendant's obligations in regard to repayment of the funds? 3 Was the agreement validly terminated? 4 Were the second and third defendants discharged from their obligations as guarantors? 5 Was the third defendant bound by the terms of the guarantee? 6 What were the plaintiff's rights to interest? 26The primary judge held that the funds were provided by Mr Cheah to HPL by way of loan. She then considered whether any obligation on HPL (and the guarantors) to pay Mr Cheah was postponed until there had been a winding-up of the venture in accordance with cl 11(3) and/or cll 9 and 10. The primary judge rejected that, holding that those provisions did not displace the obligation in cl 2(1)(e) to pay all amounts including principal and interest as and when they fell due. 27The primary judge held that the agreement was terminated by effluxion of time on 20 November 2006; and that the guarantors were not discharged by any change made from the original loan offer by La Trobe. 28On that basis, the primary judge found that Mr Cheah was entitled to $460,000 plus interest.
Grounds of appeal 29Mr Hubbard relies on the following grounds of appeal (he did not press ground 3 in the amended notice of appeal): 1 The Trial Judge erred in finding that the Plaintiff (First Respondent) provided funds to the First Defendant by way of loan. 2. The Trial Judge erred in finding that the Plaintiff (First Respondent) was entitled to the repayment of the sum of $460,000.00 (and interest) in the absence of the winding up of the Venture.
Submissions on appeal 30Mr Hall for Mr Hubbard submitted that the language of the agreement was of capital investment, not loan; and that this was confirmed by oral discussions in evidence and by descriptions given to the arrangement in correspondence. 31He submitted that the principal did not become payable to Mr Cheah because: (1) It would not in any event become due to Mr Cheah unless and until the venture was wound up; (2) Even if clause 2(1)(e) operated independently of winding-up, it was not alleged or proved or found by the primary judge that the principal ever became due and payable to La Trobe. Mr Cheah's affidavit said only that it was "becoming due and payable" when he was negotiating with Westpac; so that it may have been paid out using the Westpac loan before it actually fell due.
Decision 32In my opinion, it is not to the point whether the agreement is properly characterised as an investment agreement or a loan agreement: what has to be determined is the effect of its provisions. In my opinion, the conversations and the descriptions in correspondence have no bearing on that question. 33In my opinion, it is clear that cl 2(1)(e) operates independently of cll 9 and 10 and 11. If it be the case that the principal of the loan became repayable to La Trobe prior to the winding-up of the venture, the obligation of HPL and the guarantors was to pay that principal at that time. There is nothing in cll 6, 7, 9, 10 and 11 to suggest the contrary. 34There is more substance in Mr Hall's second submission. It was not explicitly alleged in the statement of claim that the principal did become due and payable to La Trobe, and it was not explicitly found by the primary judge that it did so. 35However, plainly Mr Cheah was relying on cl 2(1)(e) as support for his claim for payment of the principal. There are in my view strong reasons for holding that, if Mr Hubbard wished to raise the point that the principal was not due because it never became due to La Trobe, that point should have been raised in the defence: (1) Defendants have an obligation to raise matters that otherwise could cause surprise: see Uniform Civil Procedure Rules (UCPR) r 14.14. (2) Defendants as well as plaintiffs have an obligation to draw the court's attention to the real issues in the case: see Civil Procedure Act 2005 s 56. (3) It might even be that Mr Cheah did not have an obligation to plead that the principal became due to La Trobe, as this might be regarded as a mere condition precedent: see UCPR r 14.11. 36Further, in my view the primary judge was permitted by the parties to proceed on an assumption that the principal had become due and payable: see for example the following paragraphs of her judgment: 47 Clause 10(1)(d) provided for the payment of venture costs outstanding and then due and payable before any profits might be distributed. This provision clearly contemplated that venture costs would be paid for as and when they fell due. It could therefore only be interpreted as applying to so much of the La Trobe loan as was required to be paid to obtain discharge of the finance facility entered into with the plaintiff if the loan was not repaid when it fell due. 48 Further, the first defendant paid the fees and costs of the plaintiff's securing the loan facility from La Trobe and paid interest up to the sum of $60,000 in accordance with the provisions of the loan agreement. It was apparent therefore that it clearly understood that it was the first defendant's obligation to meet these payments in accordance with the terms of the loan agreement. It was not suggested that the first defendant expected the plaintiff to meet those obligations and await the termination of the venture for reimbursement. 49 The argument that the second agreement supported the second defendant's interpretation of the first agreement was clearly untenable. The second agreement confirmed the obligation contained in clause 2(1)(e) of the first agreement to pay the plaintiff's costs, including application fees, legal fees and establishment costs, as and when they fall due . There could be no suggestion that this provision excused the first defendant from meeting principal repayments as they fell due. 37Even if it is appropriate that this point be permitted on appeal, in my opinion it should not succeed. 38There was in my opinion sufficient evidence that the principal did become due and payable in May 2006 (or at the latest 21 June 2006). The loan agreement was for one year, so unless some further binding agreement was made between Mr Cheah and La Trobe, before the expiry of that year, it did then become due and payable. It would not matter that La Trobe did not at that time press for payment, but allowed it to remain outstanding. 39The letter of 29 June 2006 strongly supports an inference that at that time Mr Cheah had yet not made a binding contractual arrangement with La Trobe as to terms on which the loan would be extended; so that the principal must have fallen due by 21 June 2006 at the latest. 40That would be sufficient to justify dismissal of the appeal. However, I note also the following: (1) Upon termination of the venture on 20 November 2006, HPL was obliged by cl 11(3) to realise the assets and apply them in accordance with cll 9 and 10. (2) A reasonable time for that exercise must have passed by 14 August 2008, when the proceedings were commenced. (3) The effect of cll 9 and 10 (noting especially cl 9(2)(a)) is that HPL (and thus the guarantors) would be liable to make up any shortfall from the distribution to Mr Cheah of amounts payable to La Trobe. (4) It was clear that Mr Cheah had, by 14 August 2008, suffered a loss to the extent of the liability to La Trobe that he had reasonably paid out in February 2008, a loss against which he was indemnified by HPL and the guarantors under cl 12.
Conclusion 41In my opinion, the appeal should be dismissed with costs.
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 21 March 2012
Hubbard
Cheah