Pannozzo v Fowler

Judgment 1Ward JA: I agree with Hammerschlag J. 2Leeming JA: I agree with Hammerschlag J. 3Hammerschlag J: This is an appeal against a judgment of the District Court of New South Wales (Olsson DCJ) given on 27 June 2012 in favour of the respondent against the appellant for $418,783 and costs ("the judgment").

BACKGROUND 4The appellant was the financial advisor to the respondent and her husband. He was the sole director and secretary of AME Investments Pty Ltd ("AME"), to which the respondent, at his suggestion, lent money. 5There were two loans. 6On or about 6 May 2005 the respondent advanced $125,000 to AME ("the first advance") pursuant to an oral agreement made in a conversation between the appellant and the respondent in which the appellant said words to the following effect: I know a builder that owns land at Speers Point. He is constructing Villas and looking for investors. The return is 12% paid monthly with the capital repaid in eight months. If you put $125,000 in there will be three investors, me, you and Steve Johnson. I will give you a personal guarantee securing the loan and payments. I will also transfer to you a share in my company which you can transfer back after repayment 7On 15 May 2005 the appellant and the respondent appended their signatures to a written agreement entitled "Deed of Loan" ("the first agreement") between the respondent as Lender and AME as Borrower. Clause 5 required repayment of the principal and interest on the Expiry Date or on termination of the facility, if earlier. No demand was required. 8The first agreement contains fairly comprehensive loan terms and conditions, extending well beyond the minimal terms of the earlier oral agreement. For example, it contains a provision which entitles the Borrower to prepay the whole of the Principal Outstanding at any time on certain conditions (cl 7) and a provision which entitles the Lender to assign its rights, but also provides that the Lender may not, without the Borrower's prior consent, disclose information about the Borrower and any guarantor (cl 15). 9The first agreement incorporates a "First Schedule". The First Schedule records, amongst others, the amount of the facility, its purpose (being to assist with the development of property located at 56 Thompson Road, Speers Point) and an Expiry Date of 31 October 2005. It contains three special conditions. Special Condition 3 is in the following terms: Paul Pannozzo of 6 Clements Street, Drummoyne NSW, sole director and secretary of AME Investments Pty Ltd hereby unconditionally guarantees performance of this Loan Agreement. 10The First Schedule includes an execution clause in the following form: Corporation: AME Investments PTY LTD (BORROWER) Authority: Section 127 of the Corporations Law Signature of authorised person: [appellant's signature appears here] Name of authorised person: [Paul Pannozzo] (handwritten) Office held: [Sole Director and Secretary] (handwritten) 11Neither the appellant's nor the respondent's signature was witnessed. 12It is not in dispute that the advance governed by the first agreement had already been made under the earlier oral agreement. To the extent that it was operative, the first agreement thus varied or novated the earlier oral one. 13From July 2005 until May 2006 the respondent received monthly interest payments on the first advance. The principal was not repaid on 31 October 2005 as required by the first agreement. 14The respondent thereafter contacted the appellant who said words to the effect "the project has not been completed. I will keep paying interest while you are waiting for your principal." 15The respondent received payments of principal on 12 July 2006, 13 July 2006, 18 July 2006 and on 5 October 2006 (all by way of deposit into her bank account) totalling $85,000. Beyond this, AME defaulted on the loan both as to principal and as to interest. 16A second advance of $270,000 ("the second advance") was made by the respondent to AME pursuant to a written agreement, also entitled "Deed of Loan" ("the second agreement") signed on 25 March 2008. The second agreement is in the same form. It too incorporates a First Schedule which records the amount of the facility, its purpose (to assist with the development of a property located at 147-149 Great North Road, FIVE DOCK NSW 2046) and an expiry date of 30 March 2009. 17It has the same form of execution clause. The appellant's signature appears above the handwritten word "Director". The respondent's signature has been witnessed. 18During the period June 2008 and May 2010 the respondent received interest payments on the second advance totalling $57,542.61. Beyond this, AME defaulted on the loan both as to principal and as to interest. 19AME was deregistered on 7 March 2009. Seemingly, the interest payments were thereafter made by the appellant. 20On 10 April 2011 the respondent sued the appellant in the District Court of New South Wales on his guarantee with respect only to the second advance. 21The appellant had a solicitor on the record in the District Court proceedings, being a Mr Adrian Holmes of Miller Noyce Solicitors. 22On 5 July 2011 the appellant filed a Defence admitting the loan and non-repayment but denying, in bald terms, the allegation that he had given a guarantee. He made no positive averments. 23By letter dated 24 January 2012 from the respondent's solicitors to the appellant's solicitors (which was forwarded to the appellant), the appellant was given notice of a motion by the respondent to amend her Statement of Claim by including a claim based on a separate agreement first formed in May 2005. 24The respondent filed an Amended Statement of Claim on 10 February 2012. 25The appellant did not file any Amended Defence. 26It seems, from what the Court was informed from the Bar table during submissions (although there was no evidence), that the District Court proceedings were fixed by a registrar of that court on 13 March 2012 for hearing on 27 June 2012. 27The District Court proceedings came on before Olsson DCJ on 27 June 2012. 28Her Honour's reasons for judgment record that the defendant was called three times and that there was no appearance. They record that a Notice of Ceasing to Act was filed on 9 May 2012. Her Honour states that "[s]ince then, neither the Court, it appears, nor the plaintiff, have had any contact with the defendant". The trial proceeded in the appellant's absence and her Honour delivered the judgment ex tempore on the same day. 29Her Honour's reasons for judgment record that the respondent read an affidavit sworn 5 January 2012. 30As to the first agreement, her Honour's reasons for judgment include: (a)a description of the initial oral agreement and a finding that it was varied by the first agreement; (b)reference to various provisions of the first agreement, including Special Condition 3, and a finding that under it the appellant personally guaranteed the performance of the first agreement; (c)reference to the payments of interest and repayments of capital that were made; and (d)findings that the respondent made demand of the appellant under his guarantee, that in breach of the guarantee he had failed to pay the balance of the principal and interest, and that that amount was still owed. 31In error, her Honour states that the first agreement appears to have been witnessed. No witness signature is evident. Nothing, however, turns on this. 32As to the second agreement, her Honour's reasons for judgment include: (a)its salient terms; (b)reference to the payments of interest made over the period June 2008 to May 2010; (c)a finding that the principal was repayable on 30 March 2009 and that the appellant had not repaid the principal and any interest after May 2010; (d)a finding that AME was deregistered on 7 March 2009 and that notwithstanding that deregistration, it appeared that the appellant at least continued to make interest payments; and (e)a finding that the respondent had made demand of the appellant under his guarantee for the principal and interest and the appellant had not paid any of the principal, and that after May 2010 interest was still owing. 33Her Honour was satisfied that the respondent had made out her claims and entered judgment in her favour for $418,783 and costs. 34By Notice of Motion filed on 7 September 2012, the appellant moved the District Court to set aside the judgment. A Judicial Registrar dismissed the motion on 14 September 2012. The appellant filed a Summons in this Court seeking leave to appeal the Registrar's decision. That application was abandoned at the commencement of the present appeal. 35In support of the application in the District Court to set aside the judgment, the appellant swore an affidavit on 7 September 2012. His affidavit was tendered and admitted into evidence on this appeal without objection. 36In it, the appellant refers to having received the letter from the respondent's solicitors dated 24 January 2012 with the Notice of Motion seeking to file an Amended Statement of Claim, together with two affidavits and the proposed amended pleading. 37He says further that his solicitor also acted for a business associate of his, Mr Gee, and this appeared to give rise to a conflict of interest. He does not, however, say when this apparent conflict arose. 38He says further that by letter dated 9 May 2012, Mr Holmes served him with a Notice of Ceasing to Act, but after a discussion with his solicitor, he understood that the solicitor and Mr Gee were working to resolve the matter. He says that he received a letter from the respondent's solicitors dated 24 July 2012 advising him of the judgment which had been obtained against him, and that by letter dated 9 August 2012 he was served with an Examination Notice. He says that he then had a conversation with Mr Gee who said that he would speak with Mr Holmes. He says that between 14 August and early September, he had a number of discussions with Mr Gee and realised that the discussions were not leading to any resolution and he conferred with new solicitors who filed a Notice of Appointment. 39As to his failure to defend the proceedings, apart from what is recounted above, he says no more than that: I have not had the opportunity to defend the plaintiff's claims. 40As to his defence, he says no more than that: The plaintiff has pleaded that the deed contained a provision that I "unconditionally guaranteed the performance of the agreement by AME". I was not a party to that deed and that deed does not contain that provision.