Iacullo v Hillam

Supreme Court of NSW|2014-07-30|Before: Ball J

Introduction 1Pursuant to three loan agreements, the plaintiffs, Mr and Mrs Iacullo, agreed to lend to the defendant, Mr Hillam, a total amount of $455,000. Mr Hillam agreed to repay the loans by 12 January 2012 and to pay interest on the amount outstanding at the rate of 15 percent per annum. He also agreed, subject to an irrelevant qualification, to transfer to Mr and Mrs Iacullo shares in a company known as Carpentaria Exploration Ltd (Carpentaria) with a total value of twice the amount lent or, if those shares were not transferred to Mr and Mrs Iacullo by the due date for repayment of the loans, to pay an amount equal to twice the amount of the loans at that time. 2Mr and Mrs Iacullo advanced the sum of $380,000. They refused to advance the balance of $75,000 until Mr Hillam provided security, which he did not do. Mr Hillam has now repaid the amounts lent to him together with interest (the last payment was made during the course of the hearing). However, he has not transferred to Mr and Mrs Iacullo any shares in Carpentaria or made any payments as an alternative to the transfer of those shares. Mr and Mrs Iacullo now seek to recover the sum of $910,000 (twice the total amount agreed to be lent) together with interest on that amount pursuant to that obligation. The question that remains in the case is whether they are entitled to do so.

The issues 28Mr and Mrs Iacullo put their case in two ways. First, they submit that they are entitled to enforce their rights under the Third Loan Agreement, in particular the right to be paid the sum of $910,000, notwithstanding that they never advanced the sum of $75,000. They say that that is because the obligation to advance the $75,000 was dependent on Mr Hillam granting a charge. Mr and Mrs Iacullo say that they remained ready, willing and able to lend the sum of $75,000, but that, from an early stage, Mr Hillam made it clear that he was either unwilling or unable to grant a charge, and, in doing so, he repudiated the contract. Mr and Mrs Iacullo did not accept that repudiation, but instead have sought to enforce their rights under the contract by claiming the amount due to them. 29Second, and in the alternative, Mr and Mrs Iacullo submit that the Third Loan Agreement did not discharge the earlier two. Consequently, if they are not entitled to enforce their rights under the Third Loan Agreement, they are entitled to enforce their rights under the other two. They have performed their obligations under those loan agreements, and, consequently, they are entitled to be paid the sum of $710,000 together with interest on that amount from 12 January 2012 at the contractual rate. 30For the reasons that follow, I do not accept Mr and Mrs Iacullo's first contention. However, I accept their second.

The claim under the Third Loan Agreement 31Mr and Mrs Iacullo submit that the Court ought to have regard to the conversations that occurred leading up to execution of the Third Loan Agreement and to the correspondence between the parties - in particular, the terms of the email dated 26 July 2011 and the note on that email signed by Mr Iacullo and Mr Hillam on or about 11 August 2011 - in determining the rights and obligations of the parties. I do not accept that submission. The agreement on which Mr and Mrs Iacullo sue is the Third Loan Agreement. That sets out Mr Hillam's obligations in relation to security. In my opinion, that agreement supersedes any agreement recorded on the email dated 26 July 2011; and the parole evidence rule prevents the Court from taking into account that email or the conversations between the parties in interpreting the terms of the Third Loan Agreement: see Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471 at [33] per Gleeson CJ, McHugh, Kirby, Hayne and Callinan JJ. 32The essential obligation of Mr and Mrs Iacullo under the Third Loan Agreement was to lend Mr Hillam the amounts set out in the agreement (all of which had been lent except for the $75,000). In return, Mr Hillam agreed to repay those amounts with interest by 12 January 2012 and to pay the sum of $910,000 in the event that he failed to cause ordinary shares in Carpentaria to that value to be transferred to Mr and Mrs Iacullo at the time the loans had to be repaid. Mr Hillam also agreed to provide security for the loans within a reasonable time. However, I do not think that Mr and Mrs Iacullo's obligation to make the loans was dependent on the provision of security. It is clear that most of the loans had already been made at the time the agreement was executed, and the last loan was due to be made shortly after the date of the agreement, whereas the security simply had to be provided within a "reasonable time". It is true that Mr and Mrs Iacullo did not execute the agreement until some time later. However, I do not think that that altered the nature of the obligation placed on them once they executed the agreement. At the time they executed the agreement, they came under an obligation to advance the $75,000 immediately. 33In my opinion, it was open to Mr and Mrs Iacullo to lend the sum of $75,000 and, having done so, to insist on repayment of that amount on 12 January 2012 together with the payment of interest and the amount due under cl 4.2. If Mr Hillam failed to provide security within a reasonable time, it was open to Mr and Mrs Iacullo to terminate the agreement and to seek to recover the amount that they had lent together with the consequential losses they suffered because they lost the opportunity to receive shares in Carpentaria or the payment in lieu of those shares. However, it is not open to Mr and Mrs Iacullo to insist on the payment of $910,000 without having advanced the total sum by reference to which that amount was calculated, including the sum of $75,000. The payment of the $910,000 was dependent on the loans being made. 34Mr and Mrs Iacullo did not lend the further amount contemplated by the Third Loan Agreement, and none of the parties sought to enforce or perform the obligation to lend the remaining $75,000 or to provide security. The result, in my view, is that the parties must be taken to have abandoned the contract: see DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 434 per Stephen, Mason and Jacobs JJ.

The claim for $710,000 35Mr Hillam claims that the Third Loan Agreement involved a novation of the Second Loan Agreement and that, as a result, the rights and liabilities of the parties were governed by the Third Loan Agreement. Consequently, the only rights Mr and Mrs Iacullo had were under that agreement, and they have lost any right to claim the $910,000 under that agreement because they did not lend all the amounts due under that agreement, which was a precondition to that right. 36It is not at all clear that that result follows, even assuming the Third Loan Agreement involved a novation of the Second Loan Agreement. In DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423, the plurality, following the decision of Isaacs J in Summers v The Commonwealth (1918) 25 CLR 144 at 153, held that the deposit paid under an abandoned contract for the sale of real property was recoverable. By analogy, it might be said that the termination of an earlier contract that is effected by a novation that is abandoned is ineffective. However, it is not necessary to resolve that question in this case. 37Whether one contract is intended to replace another depends on the objective intention of the parties. As the Court of Appeal explained in Fightvision Pty Ltd v Onisforou [1999] NSWCA 323; (1999) 47 NSWLR 473 at [78]: Novation is a transaction by which all parties to a contract agree that a new contract is substituted for one that has already been made (Olsson v Dyson (1969) 120 CLR 365 at 388, per Windeyer J, ...). Novation involves the extinguishment of one obligation and the creation of a substituted obligation in its place. Intention is crucial to show a novation: see, eg, Vickery v Woods (1952) 85 CLR 336 at 345, per Dixon J as his Honour then was. A novation may be express or implied from the circumstances. 38In my opinion, it was not the intention of the parties to replace their previous agreements by subsequent ones. Leaving aside cl 4.4 of the Third Loan Agreement that deals with the question of security, cl 4 of each agreement imposes increasing obligations on Mr Hillam corresponding to the increased amounts lent to him. Before the Third Loan Agreement was executed, Mr and Mrs Iacullo had an accrued right to receive shares in Carpentaria to the value of $710,000 or cash of $710,000 if they did not receive those shares by 12 January 2012. The question is whether, when the parties entered into the Third Loan Agreement, they intended to add to that right, or whether they intended to substitute a new right, which meant that Mr and Mrs Iacullo would be entitled to shares in Carpentaria to the value of $910,000 (or the cash equivalent), but only if they made total loans of $455,000, failing which they would be entitled to nothing. In my opinion, the parties must have intended the former and not the latter. It makes no commercial sense for Mr and Mrs Iacullo to have agreed to give away their accrued rights. To put the point another way, at the time the Third Loan Agreement was entered into, Mr and Mrs Iacullo had already lent Mr Hillam all but $75,000. It is clear that the obligation to make payments under cl 4 were intended to be tied to the amounts lent. It makes no sense in that context for the parties to have agreed that Mr and Mrs Iacullo would receive shares or cash to the value of $910,000 if they advanced the additional $100,000 referred to in that agreement (of which $25,000 had already been advanced) but nothing otherwise. 39The parties did not say or do anything to suggest that they intended that the later agreements would replace the earlier ones. It is true that the agreements were between the same parties and covered the same subject matter. In many cases, that fact may provide some evidence that the later agreements were intended to replace the earlier ones. But in this case, if that is what happened, the result would have been to alter substantially the basis on which the additional amounts were paid. If that is what the parties intended to do, it is to be expected that they would use clear words to make their position plain. They did not do so. In fact, on the very day that Mr Hillam signed and gave Mr Iacullo the Third Loan Agreement, Mr Iacullo gave Mr Hillam signed versions of the First and Second Loan Agreements. The fact that he did so is consistent with an intention that both agreements remained on foot. 40The fact that Mrs Iacullo did not sign the Second Loan Agreement does not alter the position. In circumstances where she is expressed to be a party to the agreement and she signed the Third Loan Agreement, which repeated and added to the obligations set out in the Second Loan Agreement, the parties must have intended that she would be a party to the Second Loan Agreement.

Orders 41It follows that Mr and Mrs Iacullo are entitled to judgment in the sum of $710,000 plus interest on that amount at the rate of 15 percent per annum calculated from 12 January 2012 to the date of this judgment, making a total of $981,647.95. 42Mr and Mrs Iacullo have been largely successful. Every part of their claim that had not already been the subject of a successful summary judgment application was resisted by Mr Hillam, at least up until the hearing. Mr and Mrs Iacullo have been largely successful in the balance of the claim; and the issues relating to the recoverability of the $910,000 are not easily separated from the issues relating to the recoverability of the $710,000. In those circumstances, in my opinion, it is appropriate that Mr Hillam pay Mr and Mrs Iacullo's costs of the proceedings 43The orders of the Court, therefore, are: (1)Judgment for the plaintiffs in the sum of $981,647.95. (2)The defendant pay the plaintiffs' costs of the proceedings.

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: 30 July 2014

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