Kelen v Vitaman Pty Limited & Ors

CATCHWORDS : APPEAL - leave to appeal against Local Court decisions - leave to appeal granted - loans advanced to defendant company on the security of personal guarantees provided by directors - calculation of moneys outstanding under loan - whether deduction of $10,000 discount agreed - calculation of prejudgment interest - award of $10,000 damages under cross claim - denial of natural justice - award of damages and prejudgment interest - contradicted findings in first judgment - unexplained departures from conclusions reached in first judgment - costs - unexplained departures from general rule - plaintiff's success in proceedings overlooked - both plaintiff and defendants partially successful - just cost order that defendants bear two thirds of plaintiff's costs - appeal upheld - Local Court decision set aside - costs

Civil Procedure Act 2005 Local Courts Act 2007 LEGISLATION CITED : Supreme Court Act 1970 Trade Practices Act 1974 (Cth) Uniform Civil Procedure Rules 2005

Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175 Autodesk Inc v Dyason (No 2) [1993] HCA 6; (1993) 176 CLR 300 Bell v Veigel [2008] NSWCA 36 Burwood Municipal Council v Harvey (1995) 86 LGERA 389 Coulton v Holcombe [1986] HCA 33; 162 CLR 1 Degmam Pty Ltd v Wright [1983] 2 NSWLR 348 Foakes v Beer (1884) 9 App Cas 605 Guardian Mortgages v Miller [2004] NSWSC 1236; (2004) 12 BPR 22,833 CASES CITED : Liverpool City Council v Altaf Laskar [2010] NSWCA 52 Marks v GIO Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494 Sasterawan v Morris [2008] NSWCA 70) Suttor v Gundowda Pty Limited [1950] HCA 35; (1950) 81 CLR 418 Sydney South West Area Health Service v MD [2009] NSWCA 343; (2009) 260 ALR 702 Takemura v National Australia Bank Ltd [2003] NSWSC 339; (2003) 11 BPR 21,185 The Great Fingall Consolidated Ltd v Sheehan [1905] HCA 43; (1905) 3 CLR 176 Zheng v Cai [2009] HCA 52; (2009) 239 CLR 446 Todorovic v Moussa [2001] NSWCA 419; (2001) 53 NSWLR 463

Ronald Harry Kelen (Plaintiff) PARTIES : Vitaman Pty Limited (First Defendant) Clare Eileen Matthews (Second Defendant) Glenn Alan Kiddell (Third Defendant)

COUNSEL : Mr RD Marshall, counsel (Plaintiff) Mr RA Parsons, counsel (Defendants)

SOLICITORS : Matthew Grew Solicitor (Plaintiff) CLS Legal (Defendants)

LOWER COURT JUDICIAL OFFICER : Magistrate Bradd

LOWER COURT DATE OF DECISION : 6 March 2009, 30 June 2009

LOWER COURT MEDIUM NEUTRAL CITATION : Ron Kelen v Vitaman Pty Ltd, Clare Eileen Mathews, Glenn Alan Kiddell

• 36 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

2009/13752 RONALD HARRY KELEN v VITAMAN PTY LIMITED

JUDGMENT 1 HER HONOUR: By amended summons filed in November 2009 pursuant to ss 39 and 40 of the Local Courts Act 2007, Mr Kelen appeals decisions given by the Local Court in March and June 2009 on various questions of law, and if necessary, seeks leave to appeal and appeals mixed questions of fact and law. 2 The issues in contention concern the calculation of the amount outstanding under a loan; the deduction of a $10,000 'discount' from the amount of the loan, the pre-judgment interest to be paid under the loan; the awarding of $10,000 damages in favour of the defendants on a cross claim brought under s 51AC of the Trade Practices Act 1974 (Cth); and costs. 3 The proceedings took an unusual course, which requires some explanation, in order to understand the matters over which the parties have joined issue on appeal. 4 The proceedings concerned loans advanced by the plaintiff, Mr Kelen, to the defendant company on the security of personal guarantees provided by its directors, Ms Matthews, the second defendant and Mr Kiddell, the third defendant. The initial loan was for $30,000. His Honour found that the company then had an urgent need for money to purchase packaging to meet orders for its products. Mr Kiddell approached Mr Kelen, who operated as a lender of last resort, the defendants having no collateral to offer a bank as security for a loan. Mr Kelen assessed the defendants and made an offer to provide the money sought, at an interest rate of $1.80 per thousand dollars per day, which was accepted. (This was an effective annual rate of interest of 67.5%.) The agreement also permitted interest to be calculated at 2%, in the event of default, but at the hearing the plaintiff did not pursue a claim for such penalty interest. 5 The parties expected that the loan would be on a short term basis, but that expectation was not realised and the loan was not repaid. Mr Kelen was repeatedly approached by the defendants and agreed to provide further loans. Six agreements were made under which various sums were advanced over a two and a half year period, with amounts outstanding under the prior agreement being rolled over into the next agreement. Some thirty amounts totalling some $190,598.95 were advanced. 6 The plaintiff's claim related to the parties' final agreement of 3 August 2007, under which $57,000 was loaned to the defendants. That loan was repayable on 3 May 2008. The amount sought to be recovered in the statement of claim was $60,000. The claim was defended on the basis that only $22,524 had been advanced under this agreement and that the debt had been satisfied by payment of a cheque for $11,093.95, on the basis that presentation of the cheque constituted acknowledgement that all moneys had been paid. In the alternative, it was claimed that there had been an agreement for valuable consideration, that in consideration of payment of the principal sum outstanding at 5 March 2008, the plaintiff would discount the principal owing by $10,000. In accordance with that agreement, the sum of $11,093.95 was paid. 7 By their cross claim the defendants attacked the loan agreements and Mr Kelen's conduct as being unconscionable. The defendants claimed that the agreed rate was unconscionable and that by the way in which Mr Kelen had undertaken the calculation of interest, they had been charged an effective 182.5% interest rate. The defendants' claims were:

1. Damages pursuant to s 82 of the Trade Practices Act 1974 (Cth) for contraventions of s 51AC of the Trade Practices Act 1974 (Cth);

2. An orders(sic) pursuant to s 87 of the Trade Practices Act 1974 (Cth) for breaches of s 51AC of the Trade Practices Act 1974 (Cth): that the Plaintiff pay to the First Defendant such amount as may be found to have been paid to the Plaintiff in excess of the amount calculated by substituting for the interest rate imposed by the Plaintiff in its accounting of the transactions:-

(a) an interest rate equivalent to commercially available rates during the period of the transactions;

(b) alternatively such rate being 65.7% per annum as results from the interest rate claimed by the Plaintiff but without the imposition of interest on interests and without the imposition of penalty interest;

(c) alternatively such other rate as the Court deems just.

1. An order that to the extent that they may be personally liable for any part of the Plaintiff's claim, that they not be ordered to pay any amount to the Plaintiff beyond the amount, if any, of the liability of the First Defendant as may be ultimately held and determined after determination by the Court of the First Defendant's Cross Claim against the Plaintiff herein.

2. Alternatively, an order that the First Defendant not be ordered to pay any further amount to the Plaintiff in respect to claims brought by the Plaintiff in the Statement of Claim in these proceedings.

8 His Honour dealt with the parties' competing contentions in his March 2009 judgment, concluding that while the interest rate which had been agreed was not unconscionable, Mr Kelen's conduct was, with the result that the defendants' cross claim had to succeed. His Honour found that when the first loan was not repaid, the second and each succeeding loan incorporated what was outstanding under the previous loan, but Mr Kelen had made errors in his calculations which the defendants had not detected. The information Mr Kelen provided as to his calculations, did not adequately reveal how he had undertaken his calculations. 9 His Honour took the view that the defendants' damages should be determined on the basis of a recalculation of what was owing under the six loan agreements. His Honour's recalculation was undertaken on a basis which departed both from what the plaintiff had pressed in his claim and what the defendants had urged in theirs. The plaintiff had sought to recover interest on the outstanding loan calculated on a compound basis and the defendants had urged that their damages in respect of the six loans should be calculated by their repayments being apportioned to principal, before interest. His Honour rejected both these approaches, but neither party has challenged his Honour's conclusions in that regard. 10 His Honour explained the approach which he had adopted to his calculations in this way: "29 In answer to the first issue: I find that interest is payable on the outstanding principal only. I further find that interest is to be calculated daily, so that interest is calculated when payments and repayments are made, rather than at the end of the month. I find that repayments are to be apportioned to interest before being applied to principal. ( Falk v Haugh (1935) 53 CLR 163 at 173)." 11 His Honour further explained that:

"38 Has Vitaman Pty Ltd suffered any loss or damage as a consequence of the conduct of Mr Kelen? The pleadings claim loss or future loss as a consequence of the manner in which Mr Kelen has calculated the amount owing. That matter has been dealt with in the judgement relating to the claim. There is no other loss or damage to Vitaman Pty Ltd as a consequence of the conduct of Mr Kelen." 12 His Honour invited the parties to consider his calculations, observing:

"44 My calculations show that Vitaman Pty Ltd has overpaid Mr Kelen. When the daily interest rates of 0.0018 is applied in accordance with the agreement, being to the principal amount outstanding, and repayments are apportioned to interest before principal ( Falk v Haugh (1935) 53 CLR 163 at 173) the defendant has overpaid $13455.30, which figure includes the discount of ($10,000) offered by Mr Kelen. The calculations are annexed to the judgement. The excel spreadsheet can be emailed to the parties if email addresses are supplied by sending an email to gbradd@courts.nsw.gov.au . The tools audit function can be used to check the spreadsheet.

45 The verdict of the court is for the cross-claimant on the cross claim.

46 Before entering judgement, the parties are invited to scrutinise the calculations and make submissions. The parties are also invited to make submissions relating to pre-judgement interest and costs. The parties should obtain a date for the hearing of submissions."

13 His Honour received further written submissions from the parties which challenged his calculations as being mathematically inaccurate in some respects. The plaintiff also challenged the calculations as not accurately reflecting the evidence, because two payments taken into account as having been made by the defendants, had not been made. Submissions on interest and costs were also advanced. 14 In these written submissions, it was argued for the plaintiff that prejudgment interest after 27 March had to be calculated at the contractual rate, in accordance with s 100(3) of the Civil Procedure Act 2005. The defendants argued that interest should be calculated in accordance with Schedule 5 to the Civil Procedure Act, revisiting their argument under the cross claim as to unconscionability. 15 In his June 2009 judgment his Honour accepted that he was in error in his earlier calculations and recalculated what was owing, but without explanation included in his calculations the two disputed payments. The result was that his Honour concluded that rather than the defendants having overpaid $13,455.30 that:

9 The verdict of the court in relation to the claim is for the plaintiff. The judgement is in the amount of $27,556.55. Vitaman Pty Ltd is to pay interest at the rate set out in schedule 5 of the Uniform Civil Procedure Act from 27/03/2008.

16 While not readily apparent from what his Honour said in this judgment, it was common ground between the parties that the figure $27,556.55 comprised a recalculation of what was advanced and repaid under the six loans on the basis determined by his Honour, at the agreed interest rate of $1.80 per $1,000 per day up to 27 March 2008, which was the date on which the defendants made the last repayment. This established what was loaned under the final agreement and what remained outstanding as at that date. 17 His Honour then concluded that interest for the period after 27 March 2008 should be calculated at the rate set out in Schedule 5 of the Uniform Civil Procedure Rules 2005. 18 Without prior notice to the parties his Honour also returned to the cross claim, concluding at [10] that '[t]he judgement of the court in relation to the cross-claim is in the amount of $10,000.' 19 This conclusion was also challenged on appeal, as an award of damages on a basis not argued at trial and on which the parties were not given an opportunity to address. It was common ground that the evidence had not been directed to such a claim; the defendants had not pressed such an order at trial; had made no submissions directed to such an order; had not been invited by his Honour to seek such an order and neither they, nor the plaintiff, were heard by his Honour as to whether or not it was an order supported by the evidence, or which could be made at that point of the hearing. 20 The defendants did not dispute the denial of natural justice involved in his Honour's approach, but argued that their pleadings had raised the possibility of such a damages order being made, even though it had not been pressed at the hearing and their evidence had not been directed to such an order. Nevertheless, it was submitted that the evidence was capable of supporting the order made and that the proper and just course in the circumstances was to remit the matter to his Honour, to enable the parties to be heard on the course which his Honour has determined should be taken. The plaintiff argued, correctly in my view, that such a course is not open in the circumstances, for reasons to which I will come. 21 As to costs, his Honour concluded that:

"[11] Since the issues raised by the defendant and cross-claimant were successful, I have decided that the plaintiff and cross-defendant is to pay the costs of the defendant cross claimant as agreed or as assessed in accordance with the Legal Profession Act ." 22 This conclusion too, was challenged on appeal.

Leave 23 For reasons which will be apparent, I have concluded that in so far as it is necessary to grant leave to appeal in this case, such leave should be granted. Interest payable under the loan and the cross claim 24 Given the way in which his Honour approached the calculation of money orders to be made to give effect to the conclusions which he had reached on the claim and cross claim, it is convenient to deal with these aspects of the appeal together.

The interest rate agreed, while high, was not unconscionable 25 The plaintiff originally sought to recover $60,000 outstanding under the 2007 loan, by way of principle and interest. An order for compound interest was, however, not pursued. There was no issue between the parties that the agreed interest was $1.80 per day per $1,000, an effective annual rate of 67.5%. There were issues between the parties as to the amount of the principle outstanding and when interest was payable, given how what was owing under the previous agreement had been rolled into the final 2007 agreement. 26 The grounds on which the cross claim was advanced included that the plaintiff conducted a business of lending money at interest as a lender of last resort; that the plaintiff knew that the defendant company lacked the ability to borrow funds from ordinary commercial lenders; that the plaintiff had obtained an effective interest rate of 182.5%, as the result of his accounting of the transaction and the compounding of interest which was unreasonable and usurious; and that this constituted unconscionable conduct, contrary to the parties' agreement. 27 His Honour found that Mr Kiddell had approached Mr Kelen; he and Ms Matthews had sold property to finance the corporate defendant's business; that they had been in business before going into business together and they both had experience with finance relating to business, but not with short term finance. They expected each loan to be on a short term basis, but their expectations were not realised and they relied on Mr Kelen to provide further funding from time to time. 28 In his March judgment his Honour found that the daily interest rate offered by the plaintiff did not of itself constitute unconscionable conduct. That conclusion was open on the evidence and has not been challenged on appeal. The mere fact that there is a high interest rate charged in trade and commerce between people of business under an agreement freely and voluntarily made, will not of itself be sufficient to establish unconscionability. (See Takemura v National Australia Bank Ltd [2003] NSWSC 339; (2003) 11 BPR 21,185 at [18] to [31], where Young CJ In Eq discussed equitable relief in relation to agreements for payment of high interest rates and in Guardian Mortgages v Miller [2004] NSWSC 1236; (2004) 12 BPR 22,833 where Wood CJ at CL concluded that a high interest rate of itself was not unconscionable in the case of a commercial loan, where there was no pressure placed by the plaintiff on the defendant to enter the loan (at [104]). 29 In this case the evidence showed that it was the defendants who repeatedly approached Mr Kelen. They did not have the assets to enable them to obtain funds from a bank at ordinary commercial rates. It was the pursuit of their business interests, including the opening of a shop at Woollahra and the failure of a partial acquisition of the business by a purchaser, which resulted in their pursuit and the provision of further loans by Mr Kelen, when they were unable to repay the initial loan. 30 His Honour also found that Mr Kelen was not a sophisticated lender. He had himself borrowed money on an overdraft at 8 - 10% interest which he used to provide funds to the defendants. He had adopted the same approach to his interest calculations, as was adopted by his banks on his equity loan and credit card. The result was that he had erred in calculating interest on a monthly basis and in capitalising the interest. His Honour accepted the defendants' claim that Mr Kelen's conduct and the way in which he had calculated interest had been unconscionable and that this unconscionability should be redressed, by recalculating what was owing under the six loans, by way of principal and interest. 31 His Honour concluded at [36] - [37], that:

"[36] Is the conduct of Mr Kelen, in all the circumstance, unconscionable conduct? The interest rate offered by Mr Kelen does not of itself constitute unconscionable conduct, but the manner of its expression might, since it did not alert Ms Matthews and Mr Kiddell to the rate of interest as a percentage. The manner of expressing the interest is most unusual. Although Ms Matthews and Mr Kiddell had experience with mortgage loans, loans from family and friends, and possibly business loans it is highly unlikely that they would have seen interest expressed in the same terms found in the agreement. Because they were desperate for money to overcome a packaging problem that needed to be sorted out urgently they were particularly vulnerable, so they were less likely to question the manner of the expression of the interest. The scant information provided by Mr Kelen during the course of the loans did not inform them of the interest rate applied.

[37] I find that Mr Kelen engaged in conduct that is, in all the circumstances, unconscionable."

How unconscionability was addressed 32 A [38] of the first judgment, his Honour observed that the loss and damage which the defendant company had suffered, had been dealt with in the judgment in relation to the plaintiff's claim and that the defendants had suffered no other loss or damage. 33 The basis upon which his Honour undertook the recalculation of interest under the six loans was not explained, but appeared in the attachments to his first judgment. 34 While his Honour's mathematical calculations were in error, neither party challenged his Honour's conclusions as to Mr Kelen's unconscionable conduct. That was the basis upon which to the defendants' cross claim succeeded. The calculations undertaken by his Honour in the first judgment in respect of the period to 27 March 2008, led him to the conclusion that the defendants had overpaid the plaintiff by some $13,455.30. As his Honour then invited, the parties took issue with his Honour's mathematical calculation; the inclusion of two amounts (in respect of which it is now agreed that the sum of $789.69 should not have been included); and also made submissions as to pre-judgment interest and costs.

An unexplained departure from the conclusions reached in the first judgment 35 In his second judgment of 30 June 2009, his Honour accepted the parties' mathematical recalculation of the loan on the basis he had determined, concluding that the defendants owed the plaintiff $27,556.55 principal and interest as at 27 March 2008, the date on which the defendants made their last repayment. As to the calculation of interest from the date of that payment to judgment, his Honour concluded that interest should be calculated according to the rates provided by Schedule 5 of the Uniform Civil Procedure Rules. The plaintiff takes issue with that conclusion. On its face, this was a departure without explanation from his Honour's earlier conclusion that the agreed interest rate, while high, was not unfair. 36 Logically, given his Honour's earlier conclusions, interest for the period from 27 March 2008 to judgment, ought to have been calculated on the same basis as interest had been calculated up to the time of the last repayment. 37 That was the approach which the plaintiff urged in its written submissions, relying upon Degmam Pty Ltd v Wright [1983] 2 NSWLR 348, where Holland J had to consider the proper construction of the predecessor to s 100 of the Civil Procedure Act, s 94 of the Supreme Court Act 1970, which was in relevantly identical terms. Section 100 provides: 100 Interest up to judgment (cf Act No 52 1970, section 94; Act No 9 1973, section 83A; Act No 11 1970, section 39A) (1) In proceedings for the recovery of money (including any debt or damages or the value of any goods), the court may include interest in the amount for which judgment is given, the interest to be calculated at such rate as the court thinks fit: (a) on the whole or any part of the money, and (b) for the whole or any part of the period from the time the cause of action arose until the time the judgment takes effect. (2) In proceedings for the recovery of a debt or damages in which payment of the whole or a part of the debt or damages has been made after the proceedings commenced but before, or without, judgment being given, the court may include interest in the amount for which judgment is given, the interest to be calculated at such rate as the court thinks fit: (a) on the whole or any part of the money paid, and (b) for the whole or any part of the period from the time the cause of action arose until the time the money was paid. (3) This section: (a) does not authorise the giving of interest on any interest awarded under this section, and (b) does not authorise the giving of interest on a debt in respect of any period for which interest is payable as of right, whether by virtue of an agreement or otherwise, and (c) does not authorise the giving of interest in any proceedings for the recovery of money in which the amount claimed is less than such amount as may be prescribed by the uniform rules, and (d) does not affect the damages recoverable for the dishonour of a bill of exchange. (4) In any proceedings for damages, the court may not order the payment of interest under this section in respect of the period from when an appropriate settlement sum was offered (or first offered) by the defendant unless the special circumstances of the case warrant the making of such an order. (5) For the purposes of subsection (4), appropriate settlement sum means a sum offered in settlement of proceedings in which the amount for which judgment is given (including interest accrued up to and including the date of the offer) does not exceed the sum offered by more than 10 per cent. 38 Holland J concluded at 353: "However, I think that the better interpretation of s 94 is that for which the defendant has contended. I think it preferable because I would infer that the intention of the section was to provide a discretion to award interest to fill the gap where, on a claim to recover money, a legal right to include a claim for interest did not exist and not to intrude at all where a right to interest on a debt already existed as a result of the exercise by parties of their freedom to contract or by statute or some rule of law. In the case of a guarantee of the present kind the plaintiff's right to recover damages encompasses a right to have included therein a sum for interest at a specified rate by virtue of the covenants in the mortgage. That seems to me to bring the case within the exclusion intended by s 94(2)(b). Moreover, it would seem to me that, applying the ordinary meaning of the words in the section here, these are proceedings for the recovery of money in relation to a debt upon which interest is payable as of right by virtue of an agreement even though the debt and the covenant to pay interest thereon is that of a third party. As this is my view of s 94 in its application to guarantor cases of the present kind, obviously I cannot make an exception because this guarantor ought, in justice to the plaintiff, be required to pay a rate of interest different from the agreed rate."

39 It followed, it was argued for the plaintiff, that it was not open to his Honour to depart from the contractual rate he had determined for the period after 27 March. It was the defendants who urged his Honour to depart from that approach, by applying, as he did, the rates provided by Schedule 5 of the Uniform Civil Procedure Rules. In the 30 June judgment his Honour observed that:

"6 The defendants submit that because of the unconscionable conduct of the plaintiff the interest rate payable on the agreement should be reduced to the rate set out in schedule 5 of the Uniform Civil Procedure Act. The relief claimed in the cross-claim, however, is either an interest rate equivalent to the commercially available interest rates during the period of the transactions, or the interest rate claimed by Mr Kelen, but without the imposition of interest upon interest, and without the imposition of penalty rates. For the reasons set out in the judgment of 06/03/2009, I determine that the latter course is the most appropriate.

7 The plaintiff claims interest from 27/03/2008 until the date of judgement at the daily rate of 0.0018. Pre-judgement interest is payable to compensate the successful party for the loss suffered. Mr Kelen is to be compensated by the payment of interest at the rate set out in schedule 5 of the Uniform Civil Procedure Act on the amount of $27,556.55 from 27/03/2008 until 06/03/2009. The amount of compensation ensures that Mr Kelen will not suffer any loss as a consequence of being without the amount owed over the period."

40 His Honour erred, it was argued for the plaintiffs, by departing from the requirements of s 100(3)(b) in the conclusions reached in [7]. Ordering that interest be calculated in accordance with Schedule 5 of the Uniform Civil Procedure Rules from 27 March 2008 until the date of judgment 6 March 2009, was an approach not open as a matter of discretion, given the conclusion reached on the cross claim in the March judgment and the provisions of s 100(3) of the Civil Procedure Act. 41 That submission, it seems to me is difficult to resist, given the earlier conclusions which his Honour had reached and the authorities which bound his Honour. While the interest rate agreed was high, his Honour found that it was not unconscionable. The problems with the way in which Mr Kelen had calculated interest, which his Honour had found was unconscionable, had been redressed by his Honour's recalculation of what was owing under the six loans, up until the date of the last repayment in March 2008. That was what his Honour's conclusions at [6] of the June judgment reflected. There was nothing identified by his Honour which could have resulted in some different approach being adopted thereafter. His Honour's departure from that approach at [7] conflicted with his earlier findings on the cross claim. 42 His Honour had to deal with the question of pre-judgment interest, that not having been dealt with in the March judgment, for the period after 27 March 2008. The defendants urged his Honour to award interest in respect of the post 27 March period, at the Schedule 5 rate, an approach not available under s 100 of the Civil Procedure Act, but it was argued, available by way of analogy to that 'well established process' and just, given Mr Kelen's unreasonable dealings with the defendants. On appeal, His Honour's decision to apply a rate of interest equivalent to Schedule 5 was argued to have been the appropriate order, flowing from his findings of unconscionable conduct in connection with the parties' transactions. 43 The plaintiff's contention that it involved a departure, without explanation, from what had already been determined in the earlier judgment must be accepted. His Honour had already concluded that while the rate agreed was undeniably high, it was not unconscionable. The expression of interest as daily interest would have benefited the defendants, but interest was not calculated on that basis by Mr Kelen. He had calculated interest on a monthly basis, without credit being given for repayments made during each month. When the defendants failed to pay on time, Mr Kelen capitalised interest payments each month. That, and the lack of subsequent information provided to the defendants about the state of the loan were found to be 'unfair tactics' (at [35]). 44 His Honour thus concluded that the manner of expressing the interest rate might have been unconscionable, because it did not alert Mr Kiddell and Ms Matthews to the rate of interest, as a percentage. They were desperate for money to overcome the packaging problem that needed to be sorted out urgently and so were particularly vulnerable and less likely to question the manner of expressing interest. His Honour also concluded that 'the scant information provided by Mr Kelen during the course of the loans did not inform them of the interest rate applied' (at [36]). 45 Thus his Honour concluded in his first judgment that:

"[42] Mr Kelen claims that by written agreement dated 03/08/2007 he agreed to lend to Vitaman Pty Ltd the amount of $57,000 upon terms that: the loan was repayable on 03/05/2008; interest was payable at the rate of $1.80 per day per $1,000 on the amount payable under the loan from time to time; and penalty interest was payable at the rate of $2.00 per day per $1.000 on any payments not paid when due. Mr Kelen claims that the amount outstanding on the loan is in excess of $60,000 and he claims $60,000.

[43] I am satisfied on the balance of probabilities that when Vitaman Pty Ltd entered into the agreement of 03/08/2007 its directors Ms Matthews and Mr Kiddell did so in the mistaken belief from previous agreements with Mr Kelen that Vitaman Pty Ltd owed Mr Kelen a certain sum of money, and agreed for that sum to form part of the $57,000 consideration for the agreement. Mr Kelen also was mistaken in the way he calculated the debt due to him. The subject matter of the agreement was money loaned by Mr Kelen to Vitaman Pty Ltd. Mr Kelen loaned $22,450 to Vitaman Pty Ltd in execution if his promise to loan money to Vitaman Pty Ltd. The agreement has effect with respect to the amount of money Mr Kelen actually loaned to Vitaman Pty Ltd. Since the stated consideration in previous agreements is based on mistaken calculation as to the debt due from previous agreement, each of the agreements has effect only as to the amount loaned by Mr Kelen, and has no effect with respect to the amount carried forward from a previous agreement." 46 It was these conclusions and the recalculation of what was owing under the six loans, which explains his Honour's earlier observation that the defendants' damages on the cross claim had been dealt with in the judgment relating to the plaintiff's claim. 47 In his second judgment his Honour noted at [6] that the two alternative ways in which the defendants had pursued their claim for relief were by either an interest rate equivalent to the commercially available interest rates during the period of transactions, or the interest rate claimed by Mr Kelen, but without the imposition of interest upon interest, and without the imposition of penalty rates. His Honour said that for the reasons set out in the earlier judgment he had concluded that 'the latter course was the most appropriate'. 48 Despite this conclusion and without further explanation, in respect of the period after 27 March 2008 his Honour departed from the basis on which he had determined what was owing under the loans by way of interest and instead, awarded interest on the basis of the rates fixed by Schedule 5, a claim which had not been advanced to that point. 49 His Honour accepted the analogy which the defendants' sought to draw a with s 100 of the Civil Procedure Act, notwithstanding that it was an approach which departed markedly from the case which they had earlier pursued in the proceedings, by way of the two alternatives which his Honour had referred to. His Honour had already accepted that the defendants' cross claim had been made out and had redressed the claimed unconscionability on the basis of a calculation of interest without the imposition of interest upon interest, and without the imposition of penalty rates. His Honour plainly erred in departing from that approach.

The defendants could not have obtained the interest rate ordered in the market place 50 His Honour had rightly rejected an approach to the calculation of damages which rested on any consideration of commercial interest rates, because there was no evidence that the defendants could have obtained loans in the market at rates lower than those which they had agreed with the plaintiff. The only evidence as to interest rates was that Mr Kelen, who had himself borrowed money on an overdraft secured over his home, in order to loan money to the defendants, was paying 8 - 10% interest for the money which he loaned the defendants. 51 His Honour had observed that damages awarded under s 82 of the Trade Practices Act are compensatory, not exemplary. That observation accords with the High Court's approach in Marks v GIO Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494. There the High Court refused a claim for damages calculated on the basis of the difference between what GIO had represented would be a fixed interest rate and the higher rate actually charged, because on the evidence, no other loan available in the market at the relevant time would have given the plaintiff a better rate than that actually charged by GIO. Gaudron J explained as to s 82 of the Trade Practices Act, under which the defendants here advanced their cross claim, that:

[9] Before turning to the argument, it is convenient to note two matters which are clear from the terms of ss 82 and 87. The first is that for a person to obtain relief under those sections he or she must have suffered loss or damage or, in the case of s 87, be likely to suffer loss or damage. The second is that there is no punitive aspect to these provisions, they being concerned solely to provide for recovery of "the amount of the loss or damage [suffered]" (s 82) or to "compensate" for or "prevent or reduce" loss or damage (s 87).

[10] Section 82 of the Act was considered by this Court in Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1. That, too, was a case involving a contract that did not incorporate the terms as represented. And as in this case, the representation was not contractual [ Gates (1986) 160 CLR 1 at 5-6, per Gibbs CJ; at 10-11, per Mason, Wilson and Dawson JJ.] . The question in Gates was identified as "the appropriate measure of damages recoverable by a plaintiff who suffers loss or damage by conduct done in contravention of [Pts IV and V of the Act]" [ Gates at 11, per Mason, Wilson and Dawson JJ. See also at 6-7, per Gibbs CJ.] .

[11] The Full Court's distinction between "expectation" loss and "consequential" loss for the purposes of ss 82 and 87 of the Act may be traced to the joint judgment of Mason, Wilson and Dawson JJ in Gates. Their Honours said: "The Act does not prescribe the measure of damages recoverable by a plaintiff for contravention of the provisions of Pts IV and V. Accordingly, it is for the courts to determine what is the appropriate measure of damages recoverable by a plaintiff who suffers loss or damage by conduct done in contravention of the relevant provisions. Two established measures of damages, those applicable in contract and tort respectively, compete for acceptance. In contract, damages are awarded with the object of placing the plaintiff in the position in which he would have been had the contract been performed -- he is entitled to damages for loss of bargain (expectation loss) and damage suffered, including expenditure incurred, in reliance on the contract (reliance loss). In tort, on the other hand, damages are awarded with the object of placing the plaintiff in the position in which he would have been had the tort not been committed (similar to reliance loss) [ Gates at 11-12.] ."

52 In order for the defendants to have recovered damages on their cross claim, they had to establish damage. His Honour found that the interest rate agreed between the parties was not unconscionable, but Mr Kelen's conduct in communicating the interest rate and calculating what was owing was unconscionable. That unconscionability led to damage, which his Honour addressed by the recalculation of the loans determined in the first judgment. His Honour's conclusion in the second judgment, that he should depart from that approach in relation to the calculation of interest for the period after 27 March 2008, did not rest on any conclusion that in that period, the interest rate agreed had become unconscionable, or that there was any aspect of Mr Kelen's unconscionable conduct, which made it appropriate to reduce the interest rate which was otherwise found not to have been unconscionable. Indeed, his Honour observed that '[p]rejudgement interest is payable to compensate the successful party for the loss suffered'. 53 Given the evidence and his Honour's earlier conclusions, it is apparent that the conclusion that the interest which had been agreed, should effectively be reduced to the rate of interest which Mr Kelen himself was paying for the money loaned to the defendants, given the rates of interest by Schedule 5, involved an unexplained departure from his Honour's earlier conclusions and an award of punitive damages not available under the Trade Practices Act. 54 The end result of his Honour's approach, in respect of the period after 27 March 2008 was that interest was to be calculated at 10% for the period to the end of 5 March 2009 and 9% after 5 March 2009 . 55 There was simply no evidence that the defendants could have obtained loans in the market place at such rates, or indeed, at rates lower than that agreed with the plaintiff. There was certainly no evidence that they could have obtained loans at the rates fixed by Schedule 5. His Honour certainly gave consideration to the evidence as to the interest rate which the plaintiff himself was paying on the money which he loaned to the defendants, out of funds which he had available under an overdraft, secured by his home. The evidence established that the defendants themselves had no security to offer a lender and it follows that it must be inferred that they could not themselves have obtained finance at such a rate of interest in the marketplace. The effect of his Honour's approach was to reduce interest to a rate not available to the defendants, a rate which the plaintiff was himself paying for the money loaned to the defendants. 56 The plaintiff's argument that his Honour's conclusion was not open on the evidence, or as a matter of law must be accepted. The consequence of that conclusion is that the interest calculation for the period after 27 March should have been undertaken on the basis of the alternative claim which the defendants had earlier advanced and which his Honour had accepted in his March judgment, as the basis for calculating interest for the period prior to 27 March 2008. That approach accorded with s 100(3) of the Civil Procedure Act. Not only was it not open to his Honour to revisit his earlier conclusions in relation to interest, there was no basis in the evidence for departing from them.

The general damages claim 57 As his Honour had invited in his first judgment, written submissions were made by the parties in relation to the calculation of what was owed under the loan, interest and costs. His Honour had observed at [38] that the defendant's claim was loss or future loss as a consequence of the manner of calculation of the amount owing. He had concluded that there was no other loss or damage which had flowed from Mr Kelen's conduct. Consistently with these conclusions the defendants neither sought, nor made written submissions in support of any order of damages on a basis different to that which had been argued at trial. Nor did the plaintiff address any submissions to the possibility of any other damages award. 58 The cross claim made reference to damages pursuant to s 82 for contraventions of s 51AC of the Trade Practices Act. What the parties had joined issue over at trial, were the matters which his Honour had dealt with in his first judgment. He had found that there had been no damages suffered, other than those which flowed in relation to the calculation of what was owing under the loans and interest. 59 There had never been any submission put for the defendants that there should be any general damages awarded on the cross claim, nor had there been evidence led to suggest that such damages had been suffered, as the result of the plaintiff's unconscionable conduct. All that was pursued by way of damage was the interest rates which were challenged as unconscionable and the calculation of what was outstanding under the loan agreements, in the manner which I have earlier explained. 60 Despite this, in his second judgment his Honour awarded the defendants $10,000 damages, on a basis not mentioned in his first judgment. How that sum was calculated was not revealed, unsurprisingly perhaps, given that the defendants had never sought to establish such damage. All that his Honour explained was:

"8 The cross-claimant seeks damages pursuant to the Trade Practices Act, s. 82. The damages are compensatory, not exemplary. The unconscionable conduct of Mr Kelen led to him giving Vitaman Pty Ltd insufficient and wrong periodic information about monies owed, being information upon which Vitaman Pty Ltd made business decisions. Mr Kelen pressured Vitaman Pty Ltd to pay him based on erroneous figures of what was owed. Mr Kelen sought a mortgage over property based on erroneous figures. The pressure Mr Kelen applied to Vitaman Pty Ltd caused its directors to spend considerable time seeking alternative sources of funds, but without knowing the true amount owed (sic) Vitaman Pty Ltd lacked the information to properly deal with the issue. I assess the damage to Vitaman Pty Ltd by the unconscionable conduct of Mr Kelen to be $10,000."

61 As the plaintiff argued, this entirely contradicted what his Honour had found in the earlier judgment at [38]. 62 As the defendants accepted, his Honour's departure from the conclusions reached in his first judgment was without notice to the parties and without any opportunity being given to the plaintiff to be heard. While it was argued that the evidence could support the conclusion which his Honour reached, no attempt was made to point to any evidence on which that submission could rest. 63 The Court of Appeal has repeatedly said that the 'ambush theory of litigation is dead in this State'. (See Sydney South West Area Health Service v MD [2009] NSWCA 343; (2009) 260 ALR 702 at [53]). In this case the ambush did not come from the defendants, but from the trial judge, after judgment had been given and all that remained to deal with was a checking of the mathematical calculations, his Honour had undertaken, prejudgment interest for the period after 27 March 20008 and costs. 64 It is well settled that it is the issues proposed and pursued by the parties which a trial judge must determine, not those which the judge himself proposes and adopts, particularly not after judgment has been given on the matters over which the parties have joined issue. (See, for example, the discussion of Mahoney J in Burwood Municipal Council v Harvey (1995) 86 LGERA 389 at pp 410-411.) 65 Contrary to the defendants' submissions, justice could not permit the course which they now propose, namely that the matter be referred back to his Honour to receive submissions on the course which he has already determined to take. That would be effectively to now permit a re-opening of the proceedings, in order to advance a claim which the defendants have never made in the proceedings. That is entirely inappropriate, particularly when it is considered that a re-opening after the first judgment was given was not sought by either party and was not first raised with them by his Honour, in order that they might consider and be heard on the question of whether an award of damages on a basis not pursued by the defendants in its case, should be permitted after judgment had been given on the issues over which the parties had joined issue at the trial. 66 The Uniform Civil Procedure Rules permit a re-opening in limited circumstances. There can be no suggestion that they were present here. (See Rule 36.16 and Autodesk Inc v Dyason (No 2) [1993] HCA 6; (1993) 176 CLR 300.) 67 Even if his Honour's change in approach had been confined to an alteration to the reasons for which conclusions already reached were given, his Honour would have been in error. Changes of substance rather than form, are impermissible (See Todorovic v Moussa [2001] NSWCA 419; (2001) 53 NSWLR 463 at 468 [46] and [47], discussed in Sasterawan v Morris [2008] NSWCA 70). In Bell v Veigel [2008] NSWCA 36, Mason P, with whom Giles and Tobias JA agreed, observed:

220 It would in my view be wrong for a judge who has pronounced reasons for final judgment to make a material addition or alteration to those reasons simply because some better idea has come to mind. Sometimes, however, a judge fails to spell out what was in his or her mind referable to a particular argument, simply due to oversight. I see no reason why such an oversight could not be remedied, on application or on the judge's own motion, in a proper case."

68 In this case his Honour went much further than spelling out what was in his mind in relation to arguments which had been put. He himself advanced and decided a claim not pressed by the defendant, nor first revealed to the plaintiff. If it were the defendant, rather than his Honour who had sought the opportunity to pursue a general damages claim, after the first judgment had been given, his Honour would have been bound to refuse such a marked alteration in approach (see Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175). 69 Justice requires that the plaintiff's appeal must in this respect also be upheld.

The $10,000 credit 70 His Honour observed at [30] of the March judgment that Mr Kelen 'acknowledges the discount' and included a $10,000 discount in the calculation which finally resulted in the conclusion that as at 27 March 2008, the plaintiff was owed $27,556.55 principal and interest. That conclusion was challenged on appeal. 71 By their defence, the defendants had claimed credit for a $10,000 'discount' which had been agreed between the parties, as well as claiming that by their payment of a sum of some $11,039.95 it had been agreed that the entire debt was extinguished. The plaintiff denied both agreements. 72 The parties' contest over both these matters depended on a resolution of conflicting evidence as to what had been discussed and agreed at a meeting attended by Mr Kelen, Ms Matthews and a solicitor, Ms Deigan. His Honour did not refer to, or resolve that evidentiary conflict, but concluded that a discount of $10,000 had been acknowledged, but the payment of $11,039.95 had not extinguished the debt. 73 The plaintiff argued that his Honour erred in concluding that a discount had been agreed. Payment of a lesser sum in satisfaction of a debt is not good consideration and cannot be contractually binding (see Foakes v Beer (1884) 9 App Cas 605). There was a distinction between offering a discount in setting a price in the formation of a contract and a creditor offering to accept less than the full amount of an existing debt, which did not alter the existing obligation to pay the debt owing. It followed that his Honour had erred in the calculation of what was outstanding under the loan agreements. 74 The defendants' case was that a $10,000 discount had been agreed and that the evidence showed that there had been consideration given for that agreement, namely that a third party would pay what was outstanding, if the discount was given. The defendants also argued that the case was outside the core principle in Foakes v Beer because the plaintiff had received sufficient consideration to support the agreement for a discount. 75 The plaintiff conceded that if the evidence had established that a third party had agreed to make a payment in return for a discount and that such a defence to the claim had been argued below, then the defendants would have been able to rely on the argument advanced on appeal. The applicant objected to the case being so advanced, however, submitting that the question of such consideration had not been argued at trial and that it was not now open for the defendants to raise this argument on appeal. 76 The defendants accepted that the argument had not been advanced at trial in the way in which it was sought to be raised on appeal, but submitted that it had formed a part of its case on accord and satisfaction and that the evidence showed that the necessary consideration had been given. The third party in question was Ms Matthews' partner, identified in the evidence as Guilio. 77 It was observed in Suttor v Gundowda Pty Limited [1950] HCA 35; (1950) 81 CLR 418 at 438: The circumstances in which an appellate court will entertain a point not raised in the court below are well established. Where a point is not taken in the court below and evidence could have been given there which by any possibility could have prevented the point from succeeding, it cannot be taken afterwards. 78 Those observations were considered in Coulton v Holcombe [1986] HCA 33; 162 CLR 1, in a case where an appeal was proceeding by way of rehearing. There it was also concluded that the new point sought to be raised on appeal was not available. It follows that in this case it is not open to the defendant to pursue their case on the basis sought. The parties did not join issue on the basis raised on appeal Evidence relevant to the point was plainly not led and in any event, the evidence such as it was, made the point a doubtful one. In Liverpool City Council v Altaf Laskar [2010] NSWCA 52 reference was recently made to the High Court's judgment in Zheng v Cai [2009] HCA 52; (2009) 239 CLR 446, where it was observed at [16] that the Court of Appeal having allowed a new point to be raised on appeal and found for the respondent on that point, had "so prejudiced the applicant's position as to call for remedy by this Court". It follows that the defendant may not advance its case on the new basis sought now to be raised. 79 Mr Kelen's evidence was that at the meeting on 5 March 2008, attended by he, Ms Matthews and Ms Carolyn Deigan, he was asked if he would accept $40,000 in full and final payment of what was outstanding, to which he responded 'No. However I would be prepared to reduce the amount of my claim by $10,000', but no agreement was reached and the meeting ended. 80 Ms Matthews' evidence was that at the meeting there was a discussion that: "Carolyn: "As you know VitaMan has been having some financial difficulties and Clare and Glenn are trying to work out what to do. I haven't even looked at any of the documents or the figures as yet. Clare is trying to raise moneys through her friend Giulio but cannot believe after all the payments she has made you are still claiming over $60k. It cannot be correct."

Ron: "Look I want to help. I am fond of Clare and Glenn I would just not like, in fact I would hate to get back less than all my principal."

Carolyn: "How much of your actual principal is still owing, Ron?"

Ron: "I would have to work that out, but it is whatever it is and I would like to at the very least get it all back. I will need to check my records and get back to Clare."

Carolyn: "Well(sic) work it out and I will get Clare to work it out from her end and we can see if we can get you at least your principal back."

Ron: "Good, we can discuss it again once we agree on the figures. But to get you started I will definitely write off $10,000 of whatever is actually owed."

81 Ms Deigan's evidence was that her conversation with Mr Kelen at the 5 March meeting was:

"Ron: "I have had some computer problems. I actually don't know at present. I have been using the figures Clare's girl is working from which I gave her a while back and then I do a manual calculation. How much can Giulio raise? I really just want to make sure I can get my principal back."

Me: "Guilio is waiting to hear back from the bank. How much principal are you owed?"

Ron: "I don't exactly know. I'd have to work it out but I want to help Clare and at the same time get my principal back."

Me: "But you are claiming something like $60,000 and they have made a number of payments to you."

Me: "So are you saying if we do the figures in accordance with the documents you will accept your principal only?"

Ron: "I'd have to see the figures but I definitely want my principal back."

Me: "Ron - I just noticed from this agreement Clare just handed me that the interest is expressed as $1.80 per $1,000 a day or a penalty of $2.00 per $1,000 per day if they are late."

Me: "I am not giving you advice and you should check it with your solicitor but penalties are not enforceable. That is why loans are usually expressed as a higher rate of interest with a lower rate if the payments are made on the due date. That may be important for you to know for any future loans you make."

Ron: "Oh I will check it. No-one has ever told me that before."

Me: "And Ron this loan looks like simple interest. Have you been charging simple or compound interest?"

Ron: "I'm not sure. Get Clare's girl to do the figures and I will have a look at them."

Me: "Well as I say the figures will be the figures but you will need to sharpen your pencil. If Giulio raises the money to pay you out he will want to see some discount. Clare or I will work the figures out - strictly in accordance with the documents and the payments made."

'Ron: "OK I will tell you what I will do to help. I will discount the amount owing by $10,000 I am happy to do that. When the figures are done I may be able to help a bit more - I really only want my principal back but I will discount the amount whatever it is by $10,000 and I want it as soon as Giulio can get it."

Me: "I will do the figures and get back to you. By the way do you have a solicitor? I'm guessing you did the loan documents yourself."

82 In cross examination, Mr Kelen agreed that Ms Deigan had a better recollection of the meeting than he did and he accepted her account of what was discussed. 83 The parties' discussion continued after the 5 March meeting, but no agreement was reached as to what the defendants owed Mr Kelen. On 14 March, Ms Matthews advised Mr Kelen by email that her partner was having problems finding more than $40,000 and that she had calculated that the defendants had repaid a little more than the principal he had lent them - $178,698. On 18 March, she advised that she would get back to Mr Kelen the following week. On 18 March, Ms Matthews emailed again, proposing an interest rate of 10% if she was able to provide security. 84 On 19 March, Ms Matthews forwarded to Mr Kelen an email which she had received from Ms Deigan, asking for his response and advising him that Guilio respected her advice and insisted that she listen to what Ms Deigan recommended. Ms Deigan's email said:

"Clare, you know my concerns about the company generally and the advice regarding possible insolvent trading. Whilst there are moneys available to meet the debts as and when they fall due you are afforded the protection of the corporate veil - once pierced the consequences are dire. We have been through all this and I believe all moneys available are best used putting an end to the hemorrhaging(sic) rather than band-aiding.

I have looked at the agreements you sent me between Ron and yourselves. They are poorly drafted and:

the interest as expressed can only be applied as simple interest - as the agreements do not provide for compound interest and unless is clearly expressed it cannot be charged.

For more abundant caution I ran the agreements past a barrister who agrees with my assessment of the documents. Also whilst Courts can no longer declare an agreement unenforceable as usurious they take a dim view of these very high rates of interest and always read misstatements or ambiguities in favour of the borrower - they do not read into them compound rates etc unless these are very clearly spelt out. They also take a dim view of interest expressed in a way that disguises the big amount that it really represents (65.7%pa) any ambiguities are read in favour of the borrower in light of the doctrine of contra proferentum(sic). I can never understand why lenders don't get their loan agreement properly drafted.

I have entered the figures that Linda prepared in an Excel spreadsheet. I have attached those workings. You will see that when calculated as simple interest you owe $21,107.02 and if you look at the other pages you will see that compounded daily results in the [... UNREADABLE ... ] to the amount Ron was claiming prior to our meeting with him.

At our meeting Ron's main concern was the return of his principal which Linda's figures show was achieved with the payment on 20 February. Have you put that to him because on that basis it would be a walk away deal which would truly be of assistance to you in the current circumstances, although I am not sure even that will solve all of the current problems?

If Ron was not prepared to accept the amount paid to date (and his comment about receiving his principal was a comment not an agreement) I note that he did agree to concede $10k off the amount owing - which by my calculation would leave $10,107.02. I understand this amount can be raised without putting either Guilo or your head any further in a noose.

Let me know how it is going." 85 On 20 March Mr Kelen replied by email. He did not accept what was proposed. Amongst other things, he said he had offered a $10,000 discount for prompt payment. He had also been prepared to accept a lesser sum than he was owed, with a $10,000 discount, if he was paid half of what was owed within 7 days and the remainder was funded on the basis of 10% per annum, with a caveat registered on Guilio's property. He then made a further offer:

"amount due on March 23, 2008, ..in round figures and including the $5 per order offer .. $69,000 - $10,0000...discount already offered - $7000...final 7 day settlement offer = $52000 for full payment in 7 days..

or alternatively, a lump payment of $37000 within 7 days and 12 monthly payments of $1380 per month, provided a caveat is put on giulios(sic) property for the balance over the $37000 paid. 86 On 28 March, Ms Matthews sent Mr Kelen a cheque for some $11,039.95 in full satisfaction of the debt. Mr Kelen's evidence was that he was not prepared to settle on that basis and was advised by his solicitor Mr Grew to put the cheque into his solicitor's trust account. When deposited into that account, the cheque bounced. Later, without further discussion, Ms Matthews deposited that amount into Mr Kelen's personal account. Mr Kelen then believed that some $69,000 was owed as at March 2008 and no offers to settle the matter which he had made were accepted by the defendants. 87 Ms Matthews explained that she had calculated what was owing, including by deducting from her calculation the amount of $10,000 'Mr Kelen agreed to deduct from the moneys owing to him'. She borrowed $11,093.95 from her partner and sent Mr Kelen a cheque for that amount, under cover of a letter of 27 March which provided:

"Please find enclosed a cheque for $11,093.95 in full and final settlement of all moneys owing to you by VitaMan Pty Limited and/or either Glen Kiddell and myself. This amount has been calculated as the amount of interest owing on the debt as at 28 March, 2008 less the $10,000 discount you agreed to accept. Banking the cheque is acknowledgement that all moneys have been repaid. Thank you for your assistance." 88 On 27 March, Mr Grew wrote to Ms Deigan, seeking confirmation of various matters, including that an offer of settlement was made at the meeting on 5 March and that a counter offer was made by email a few days later, which was open for acceptance until 28 March. 89 On 31 March, Ms Matthews discovered that the cheque had bounced. Ms Matthews then authorised her bank to transfer the sum from her account to Mr Kelen's account, she having his account number in her files. Her evidence was that she was not then aware that Mr Grew had tried to bank the cheque into his trust account. 90 On 10 April Mr Grew wrote again to Ms Deigan advising that Ms Mathew's cheque had not been accepted by Mr Kelen in satisfaction of the debt. The amount had been banked into his trust account, but the cheque had been dishonoured. The payment made into Mr Kelen's account had not been used and would not be accepted in settlement of what was outstanding. 91 On 15 April, Ms Deigan replied asserting that the banking of the cheque had resolved the dispute between the parties. It was the bank which had made an error and the moneys had been placed into Mr Kelen's account, when the error was acknowledged. It was asserted that what had been paid was what was owed, less the discount offered and accepted, as evidenced by the correspondence between the parties. 92 It is apparent from this evidence that his Honour erred in concluding that the parties had agreed to a discount of $10,000 on the debt. There was an evidentiary contest as to what had been discussed on 5 March. It was a discussion held in response to an offer of $40,000, which was not accepted by Mr Kelen. The parties were then unsure as to what was owing. Mr Kelen's computer had broken down and it was agreed that the calculations had to be checked. The discussion went forward in the context that there would be prompt payment of what was owed, once agreed, less a discount of $10,000, with a third party, Guilio, prepared to provide the funds to the defendants to enable the payment to be made. There was no evidence of any agreement ever being reached between Mr Kelen and Guilio, that he would pay Mr Kelen what was owing in return for a discount. Ms Matthews' evidence was that she later borrowed the money she used to pay Mr Kelen what she had calculated was owing. No agreement was ever reached between Mr Kelen and the defendants as to that sum. Mr Kelen was prepared to agree to a discount, once the amount outstanding was agreed, in order to obtain prompt repayment. That never occurred. 93 As his Honour concluded, what was outstanding was never repaid and there was no agreement that the $11,039.95 proffered by Ms Matthews in full payment of what was owing, was accepted on that basis. His Honour correctly rejected the claim that this payment amounted to accord and satisfaction of what the plaintiff was owed. As observed by Griffith CJ in The Great Fingall Consolidated Ltd v Sheehan [1905] HCA 43; (1905) 3 CLR 176 at 190, an agreement by way of accord and satisfaction requires consideration. So too, does an agreement to a discount. There was no evidence of such consideration. 94 Questions of consideration apart, Mr Kelen's offer to discount what was owing by $10,000 depended on agreement of what was owing being reached and prompt payment being made by the defendants. Neither occurred. It follows that the appeal must also be upheld in this respect.

Costs 95 His Honour concluded that the plaintiff should bear the costs of the proceedings, because the defendants had succeeded on their cross claim. The plaintiff argued that in reaching that conclusion, his Honour failed to take into account the plaintiff's success on the claim he had advanced, which had been resisted in various ways, including that there had been an accord and satisfaction by the plaintiff's receipt of some $11,000, which his Honour had rejected. It followed that even if the appeal failed in other respects, the plaintiff should succeed on costs. 96 The plaintiff had claimed $60,000 plus interest. He had been substantially successful, his Honour accepting that the plaintiff had established that $27,566.55 was owing to him, after deduction of $10,000 as a discount. To that was added interest, resulting in an order in his favour of $30,942.06. That reflected the reduced interest rate determined in the second judgment for the period after 27 March 2008. The amount of the outstanding loan was derived from his Honour's recalculation of what was owing under the terms of the six agreements, that being the basis upon which the defendants succeeded on the cross claim. It was the plaintiff's errors in the way in which he had calculated interest under those agreements, which had led to the need to recalculate what was owing. While initially of the view that the defendants had overpaid the plaintiff, the balance of the loan account was finally found to be substantially in the plaintiff's favour. 97 It was submitted that his Honour's conclusions on the defendants' case were challenged in various respects on appeal, but even if unsuccessful, still meant that the plaintiff had been more successful in money terms in his claim, than the defendants had been in theirs. His Honour had failed to pay regard to this in the costs order which he made, thereby departing without explanation from the basic principle that costs should follow the event. The majority of the time spent in the proceedings was concerned with the calculation of the balance of the loan account, on which the plaintiff had succeeded. Costs were a discretionary matter, but in this case, error was shown in the exercise of the discretion, given the outcome respectively achieved by the parties in their claims. 98 The defendants' case was that the costs order reflected a proper exercise of discretion in the circumstances where the plaintiff's conduct had had a pervasive effect on the calculation of the amounts allegedly due under the loan agreements and communicating this to the defendants, before the commencement of the action and in the proceedings. 99 I am satisfied that the plaintiff's appeal in relation to costs must succeed. The plaintiff was overwhelmingly successful on the claim brought. When his Honour accepted the parties' calculation of what was outstanding under the agreement, it was concluded that some $27,000 principal was outstanding to which had to be added interest. His Honour's order took no account of the plaintiff's success. On appeal it has been shown that the sum of $10,000 was wrongly deducted as an agreed discount; and that one repayment which the defendants claimed they had made, but did not establish on the evidence, was also incorrectly deducted. The principal recovered thus stands at over $37,000, to which has to be added further interest. The result was that despite the defendants' success on the cross claim, the plaintiff was overwhelmingly successful on the claim he brought. 100 While costs are determined as a matter of discretion, the discretion is one which must be exercised in the context that ordinarily costs should follow the event. Here the parties each succeeded in part on the claims they advanced. In the circumstances, a conclusion, without explanation, that the plaintiff should bear the entire costs of the proceedings, involves obvious error which must be corrected on appeal. 101 A just costs order in the circumstances, where the plaintiff recovered some two thirds of what was claimed and the defendants succeeded in resisting one third by their cross claim, is that the defendants bear two thirds of the plaintiff's costs of the proceedings.

Costs of the Appeal 102 Costs of the appeal would ordinarily follow the event. Unless the parties wish to advance submissions that there should be any departure from that order, in which event they should approach within 21 days of the date of this judgment, the defendants should bear the plaintiff's costs of the appeal, as agreed or assessed.

Orders 103 For the reasons given, I otherwise order that: 1. Leave to appeal is granted.

2. The appeal is upheld and the Local Court decisions are set aside.

3. The parties are to recalculate the sum owed to the plaintiff, in accordance with the conclusions reached in this judgment.

4 . The defendants are to bear two thirds of the plaintiff's costs in the Local Court proceedings, as agreed or assessed.

5. The parties are to file short minutes to reflect the conclusions reached. *********

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