Plaintiff v Defendants

Supreme Court of Victoria|2011-11-08|Before: RANDALL AsJ

PRACTICE AND PROCEDURE - Plaintiff's application for summary judgement - plaintiff entered into a loan agreement with first to third defendants with fourth defendant and another as guarantors - first to third defendants unable to the repay loan by the due date - fourth defendant agreed to mortgage her interest in the family home to extend the due date for repayment - second loan agreement on terms that incorporated the provisions of the first loan agreement - the fifth defendant became a guarantor to the second loan agreement - issue of construction as to whether or not the mortgage previously granted over the property by the fourth and fifth defendant formed part of the security referred to in the second load agreement - whether terms of the second loan agreement were uncertain - not needed to decide what was the effect of entering in to the second loan agreement without obtaining independent legal advice - whether defence of the fifth defendant has no real prospect of success - Civil Procedure Act 2010, ss 61, -.

1 By summons filed 27 May 2011, the plaintiff seeks summary judgment against the first to fifth defendants for the amount set out in the prayer for relief against the first to fifth defendants and, as against the fourth and fifth defendants, possession of the land situate and known as 14 Peachy Court, Pascoe Vale in the State of Victoria together with damages or main profits to be assessed.

2 By further amended statement of claim, the plaintiff set out that it had at the request of the defendants advanced moneys to the first, second and third defendants under a loan agreement dated 19 July 2010 ("the Acknowledgment and Agreement").[1] The fourth and fifth defendants were guarantors pursuant to the Acknowledgment and Agreement.

3 By an Instrument of Mortgage dated 1 March 2010, the fourth and fifthnamed defendant mortgaged the Peachy Court land to the plaintiff. The defendants made defaults under the Acknowledgment and Agreement and the plaintiff served various notices dated 21 December 2010 and 11 January 2011 pursuant to the Acknowledgment and Agreement, the mortgage and the Transfer of Land Act.

4 There are further claims, which are not directly relevant to the summary judgment application, which seek relief with respect to a deed of charge dated 25 September 2009 given by the first, second and third defendants over each of those defendants' assets and undertaking. The plaintiff sought and obtained an injunction with respect to the sale of assets contended to be the subject of that charge. The affidavits sworn in support of the injunction application are also relied upon in relation to the summary judgment application.

5 The first to fourth defendants rely primarily on the affidavit of Josephine Minnella sworn 17 June 2011. That affidavit set out the relationship between parties and the relationship with Daniella Bussolaro and how the first three defendants became incorporated. On 25 September 2009, Bussolaro and the fourth defendant, as directors of the first three defendants, and in their personal capacities, as guarantors, executed a loan agreement with Capital One Securities Pty Ltd which was the trustee for the Capital Superfund ("the first loan agreement"). The initial advance was $150,000 which was repayable by 25 December 2009.[2] Further advances were made on 7 October 2009 in the sum of $150,000 repayable on 7 January 2010 and $200,000 on 19 October which was repayable on 19 January 2010.

6 The fourth defendant deposed that the first loan agreement was varied by agreement. The first to third defendants repaid $50,000 on 27 December 2009 and sought an extension of the loan term for all three advances. No variation was documented but Tom Karas (an officer of the plaintiff) said he would extend time for repayment provided Bussolaro and the fourth defendant secured their guarantees over the land.[3] The fourth defendant deposed:

"My home, was jointly owned with my husband Rocco Minnella and I needed to obtain his consent to mortgaging our home."[4]

7 The fourth defendant then deposed that her husband did not receive any independent legal advice about his agreeing to a mortgage over the home.

8 The fourth and fifth defendants signed a mortgage document dated 1 March 2010. The fourth defendant's affidavit then sets out the history of repayment and that no further funds were advanced pursuant to the first loan agreement.

9 The affidavit then sets out a history of dealing with a debtor finance facility with Allianz and requiring the sum of approximately $360,000 to rectify the facility. On the fourth defendant's version of what ensued, the relationship between her and Daniella Bussolaro ceased because of difficulties with the refinancing. The fourth defendant consulted with Mario Merlo of Alliance Legal to draw up an agreement whereby the fourth defendant and Bussolaro would cease to be in partnership.[5] The reason for ceasing the partnership does not accord with what was subsequently set out by Bussolaro but nothing turns on that for the purpose of this application. The fourth defendant further set out matters in relation to the injunction obtained by the plaintiff with respect to the sale proceeds of the business. Again, matters relating to the injunction are not relevant to this application save that it is contended that the first to fifth defendants have a claim against the plaintiff with respect to enjoining the sale proceeds. The fourth defendant deposed that she requested proof that the sum of $200,000 had been paid to Bussolaro and that she "received a copy of the journal entry from 'Primary Capital Group Pty Ltd in trust for Plesiotis Family Trust' showing that a cheque had been drawn on 6 September 2010 for a Daniella Bussolaro." The fourth defendant further deposed:

"How the plaintiff asserts that the copy cheque represents an advance by the plaintiff under the Acknowledgement and Agreement remains unclear to me. Whether the cheque was banked, whether it in fact ever left the premises of "Primary Capital Group Pty Ltd is also not shown to me."[6]

10 In addition to the journal entry referred to in the fourth defendant's affidavit, the plaintiff also relies upon the affidavit of Bussolaro sworn 24 June 2011 in which she acknowledges receipt of the $200,000 paid to her as part of the settlement agreement with the fourth defendant.

11 The plaintiff, apart from the material filed on its own behalf, also seeks to rely upon what is set out in the affidavit of the fourth defendant sworn on 25 March 2011 and filed to resist the injunction application. An applicant may rely upon the affidavits of the respondent notwithstanding the objection that on their own affidavits no case is made requiring an answer.[7] An affidavit filed in a previous application in a proceeding may be relied upon in a latter application in the same proceeding.[8]

12 The affidavit of the fourth defendant sworn 25 March 2011 was filed on behalf of all the then first to fifth defendants, John V. Hayes & Co being the solicitor for all five. That affidavit deposed to, inter alia:

"8. On 25 September 2009, the plaintiff entered into a loan agreement with the first, second and third defendants. Pursuant to this loan agreement, the plaintiff agreed to lend a total amount of $500,000 ...

9. The security provided for the loan was a guarantee from both Bussolaro and me together with a debenture charge over the assets of the first, second and third defendants. There were no mortgages provided to the plaintiff as security at this time by either Bussolaro or me.

11. Pursuant to the first loan agreement, the loan was due and payable to the plaintiff by the first, second and third defendants on or before 25 December 2009.
12. The first, second and third defendants were unable to make the said repayment by the due date.
13. As a result of this, Ms Bussolaro and my husband and I agreed to provide a second mortgage over our home in return for the plaintiff agreeing to extend the time required for the repayment of the loans. The mortgage is dated 1 March 2010, however, it was not registered until 3 August 2010. My husband and I believed from conversations I had with Karas that the mortgage will be discharged when the loan was repaid.

In July 2010, I agreed to make a partial payment of $200,000 to Bussolaro as part of the full payment required to be made to Bussolaro.
19. In order to pay Bussolaro, the plaintiff lent me the further sum of $200,000 on the same terms as the first loan agreement being the second loan agreement dated 19 July 2010 as exhibited by Karas in his affidavit and marked TK-3 and TK-4. I have been advised that these funds were advanced to Bussolaro.

28. However, the quantum of interest payable on the second loan is disputed and is manifestly excessive. The plaintiff claims interest of $31,282.04. I have already paid the plaintiff an amount of $20,000 on 22 October 2010. I do not know whether this payment has been taken into account. I have asked the plaintiff for a breakdown of the interest amount but it has not done so.
29. The second mortgage held by the plaintiff more than secures the debt owed to it by the first, second and third defendant. The land the subject of the mortgage is valued at $800,000, with a first mortgage to the National Australia Bank of $420,000."

13 The fifth defendant (the husband of the fourth defendant) relied upon two affidavits sworn by himself. The affidavit sworn 17 June 2011 confirms the contents of his wife's affidavit (presumably that sworn 17 June 2011) and deposes that although he can speak English well he did not learn to read English "very well". He deposed that he did not receive independent legal advice in March 2010 when he was asked to mortgage his interest in the matrimonial home for his wife's company.

14 The two germane agreements are exhibited at TK-3 and TK-4.[9] The first agreement, made 25 September 2009, contains the following relevant clauses:

"1.1 Definitions

...

Moneys Hereby Secured means and includes:

(a) the Advance, and all other money lent, advanced (including all money repaid and redrawn and/or money already lent or advanced) or otherwise made available now or in the future from time to time by the Lender to the Borrower [the first three defendants] or for or on account or at the request of the Borrower under this document or any other account;

...

(d) all money which the Borrower is now or in the future becomes liable to pay to the Lender for any reason except money which the Parties agree in writing do not form part of the Moneys Hereby Secured;

Security means the security listed in Item 6 to be given by the Borrower and the Guarantor for the Moneys Hereby Secured;

3.2 Payments in gross

The Borrower must make all payments under this Agreement without:

(a) any set-off, counterclaim or condition; and

....

9.1 In order to secure repayment to the Lender of the Advance and any Outstanding Moneys payable under this Agreement, the Borrower and the Guarantor jointly and severally:

(a) agree to provide the Security;

(b) hereby charge all their beneficial interest in any real and personal property (including all property acquired after the date hereof) in favour of the Lender whether or not a demand has been made on the Borrower or the Guarantor; and

...

Schedule

Item 6 Security

(a) Deed of Charge over each Borrower company;

(b) Guarantee from each Guarantor."

15 In addition to the execution by the first to third defendants, the first loan agreement was executed by the fourth defendant and Bussolaro as guarantors.

16 It is of note that the fifth defendant was not privy to that agreement nor did the first loan agreement require the provision of a real property mortgage by the guarantors.

17 The Acknowledgement and Agreement relevantly sets out:

By a Loan Agreement dated 25 September 2009 the Lender agreed to advance funds to the Borrower from time to time on the terms of the said Loan Agreement and the securities therein referred.
The Guarantor agreed to guarantee the obligations of the Borrower under the said Loan Agreement.

The Borrower sought the advance of further funds from the Lender and the Lender has agreed to make a further advance to the Borrower on the terms herein set out.

The Guarantor acknowledges the further advance be made by the Lender to the Borrower and agrees to guarantee the obligations of the Borrower with respect to the further advance.

...

AND THE PARTIES HEREBY AGREE AS FOLLOWS:

...

2. The Further Advance shall be made by the Lender as soon as practicable after registration of the mortgage over the security property of the Guarantor.

3. The Borrower and the Guarantor and each of them acknowledge and agree that:

(a) the Further Advance is made by the Lender pursuant to and on the same terms and conditions as the Loan Agreement;

(b) the Further Advance shall be and is governed by the terms of the Loan Agreement; and

(c) the securities given by the Borrower and Guarantor and each of them shall apply to and secure the Further Advance made pursuant to this Acknowledgement and Agreement."

18 Save that the plaintiff did not execute the Acknowledgement and Agreement (the fourth defendant placed her signature at the designated position for execution by the plaintiff), all the relevant defendants including the fifth defendant executed the document. The fourth and fifth defendants were defined as the "Guarantor" by the title of the document. The fifth defendant had not guaranteed the obligations of the Borrower under the first loan agreement. He, together with his wife mortgaged their home in favour of the plaintiff to secure an extension of time within which to repay pursuant to the first loan agreement. The giving of that mortgage was completed without any formality in relation to varying the first loan agreement or entering into a new agreement to vary the same. Albeit, that the mortgage had been executed prior to entering into, the Acknowledgment and Agreement had not been registered as at 19 July 2010. Registration occurred thereafter.

19 The submission put forward on behalf of the fifth defendant, which was adopted by the first to fourth defendants, was that:

A number of issues, on which a trial would be necessary, arise with the 'Acknowledgement and Agreement' -

8.1 the plaintiff has not signed it;

8.2 there is no evidence that the plaintiff made any advance under it;

8.3 it is so uncertain as to its terms as to be without meaning and unenforceable;

8.4 the document sought to be incorporated - a loan agreement of 25 September 2009 to which the fifth defendant had not been party - has not been incorporated under the rules of incorporation of extraneous documents into contracts particularly having regard to:

8.4.1 the English illiteracy of the fifth defendant;

8.4.2 the plaintiff placing the document into the hands of the fourth defendant to obtain her husband's signature upon it;

8.4.3 the lawyer ostensibly 'acting for' the defendants also ostensibly acting for the plaintiff in the same transaction.

8.5 even if the loan agreement of 25 September 2009 has been incorporated

8.5.1 the guarantees in the 25 September 2009 loan agreement were specifically limited to 'the advance' under that earlier agreement which had been repaid in full by May 2010 if not significantly earlier and

8.5.2 the failure of the plaintiff to obtain the consent of one of the guarantors of the early agreement voided the guarantees under the early agreement and rendered the 25 September 2009 guarantees incapable of 'incorporation' into the later agreement;

8.6 the fifth defendant stood to gain no benefit at all under the Acknowledgement and Agreement and the plaintiff, by reference to 8.4 above, took unconscionable advantage of the fifth defendant.

20 Relevantly, the fifth defendant has also contended that he has a counterclaim against the plaintiff that he has not yet had the opportunity to plead in:

(a) damages for interference with contract [the injunction contended to be wrongly granted];

(b) compensation for unconscionable conduct;

(c) damages for negligent misstatement.

Until the issue of proceedings the defendants did not dispute the loan, but rather they sought indulgences and time to pay and raise queries about the appropriate interest rate. By the amended defence, the defendants do not dispute entering into the loan agreement and mortgage, but allege that no moneys were advanced pursuant to the loan agreement and that the mortgage should have been discharged by payment out of an earlier loan. This is fanciful. Clause 3(a) of the loan agreement contains an acknowledgement and agreement on behalf of the first to third defendants as borrowers and the fourth and fifth defendants as guarantors that the further advances made by the lender pursuant to and on the same terms and conditions as the earlier loan agreement of 25 September 2009.

22 The plaintiff also made a number of submissions with respect to:

(a) the advance of the funds and acknowledgement of receipt; and

(b) the fifth defendant's complaint about his previous solicitor, his contention as to his ability to understand English, the lack of any third party proceeding and the failure to raise any of these matters in his defence.

23 I am not impressed by any of the arguments propounded by the fifth defendant. However, I determined that it is unnecessary to deal with the same save as to the contention that:

(a) the plaintiff had not demonstrated that any advance had been made pursuant to the acknowledgement and agreement; and

(b) the acknowledgement and agreement is so uncertain as to its terms as to be without meaning and unenforceable.

24 As to the first issue, the plaintiff has adequately demonstrated the advance pursuant to the Acknowledgement and Agreement. The journal entry referred to in the fourth defendant's affidavit demonstrates the funds emanated from the plaintiff and Bussolaro has acknowledged receipt of the sum of $200,000 paid to her as part of the settlement agreement with the fourth defendant, which ensued pursuant to the separation between the fourth defendant and Bussolaro referred to in paragraph 9 hereof.

25 As to the second issue, it is a matter of construction of the Acknowledgement and Agreement. The mortgage given by the fourth and fifth defendants was executed prior to the Acknowledgement and Agreement. The mortgage was not given to secure the obligations under the first loan agreement. The securities referred to in the first loan agreement were defined and limited to a deed of charge over the property of each of the borrowers and were further constituted by a guarantee from each of the guarantors of the obligations under the first loan agreement.

26 The mortgage was given for the sole purpose of securing the plaintiff's agreement or acquiescence to the extension of time for repayment of the amounts due under the first loan agreement. The memorandum of common provisions held by the Registrar of Titles in No. AA690 and referred to in the mortgage has not been admitted into evidence. The common provisions may contain an "all moneys clause" but this is a circumstance where it is common ground that the borrowers pursuant to the first loan agreement are the first to third defendants. It has not been demonstrated that the mortgage secures any sum advanced pursuant to the first loan agreement although that is presumed given the history set out by the fourth defendant with respect to the first loan generally and with respect to the request for the provision of the mortgage. In that regard I refer to paragraph 6 hereof.

27 However, of more significance is the timing of the mortgage and the reason why it was executed in the first instance. Notwithstanding that the mortgage was not registered until after the Acknowledgement and Agreement, it had been executed in March of 2010, prior to the Acknowledgement and Agreement. Prima facie, it was not given in support of the obligations pursuant to the Acknowledgement and Agreement. On one view, the obligations under the first loan agreement were satisfied. It is of note that the plaintiff makes no claim with respect to the same in the further amended statement of claim. If the obligations under the first loan agreement have been satisfied or extinguished then the mortgage has no efficacy as a security unless it is incorporated into the Acknowledgement and Agreement.

(a) the mortgage became incorporated into the first loan agreement as security for the guarantee obligations;

(b) the securities given by the borrowers and guarantor pursuant to the first loan agreement included the mortgage and not just those securities defined in the first loan agreement;

(c) the fifth defendant (albeit not a guarantor pursuant to the first loan agreement) assumed the role of guarantor by execution of the Acknowledgement and Agreement and thereby acknowledged that he was a guarantor under the first loan agreement by the provision of the mortgage.

29 The fifth defendant submitted that the terms of the Acknowledgement and Agreement were so uncertain as to be without meaning and unenforceable. That is, did the securities only include the defined securities or did that definition ('securities') also include the mortgage which was subsequently given? Was the guarantor, as that phrase is used in Acknowledgement and Agreement, only intended to include the guarantors referred to in the first loan agreement? Of course, the fifth defendant was not a party to the first loan agreement.

30 Although I am attracted by the plaintiff's submissions, the weakness in the argument is that the same necessarily must rely upon evidence of the circumstances surrounding the giving of the mortgage rather than being confined to a construction relying upon reference only to the four corners of each of the Acknowledgement and Agreement and the first loan agreement. The High Court refused special leave in Western Export Services Inc v Jireah International Pty Ltd.[10] In doing so, the High Court reminded the profession that Codelfa Construction Pty Ltd v State Rail Authority of New South Wales,[11] is still binding authority as to the admission of evidence of surrounding circumstances or antecedent negotiations. Subject to exceptions, such evidence is not permissible. Mason J said:

The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. It is not admissible to contradict the language of the contract when it has a plain meaning. ... Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merge in, the contract itself. The object of the payroll evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification.[12]

31 There is arguable doubt as to the meaning of the terms of the Acknowledgement and Agreement. That doubt may lead to a factual enquiry as to the circumstances relating to the provision of the first mortgage by the fifth defendant and the circumstances relating to the execution by the fifth defendant of the Acknowledgement and Agreement. In those circumstances, I cannot opine that the fifth defendant's defence has no real prospect of success.

32 The test to be applied is conveniently summarised by Bell J as follows:

Under s 61 of the Civil Procedure Act 2010, in a plaintiff's application for summary judgment the question is whether the defendant's defence has no real prospects of success. As was held by J Forrest J in Matthews v SPI Electricity (Ruling No 2) and by Dixon J in Ottedin Investments v Portbury Developments, the defendant will have no real prospect of success if those prospects are no more than fanciful.[13]

33 Later, Bell J said at [11] in dealing with a construction of a put option agreement:

In my view, the defence in this case can only be properly evaluated upon a full consideration of the provisions of the deed at trial. While the plaintiff's case seems strong on the law and indeed on the merits, there is material risk that the Court would do a serious injustice to the defendant by giving summary judgment against it.

34 The same principle is apposite in this application for summary judgment.

35 Accordingly, there will be judgment for the plaintiff against each of the first to fourth defendants in the amount set out in the prayer for relief, together with costs and interest.

36 The fifth defendant is granted leave to defend. I previously set out that I would not consider the merits of the fifth defendant's submission flowing from his contentions based upon his lack of written English. I do not resile from that observation. Given that leave to defend has been permitted on the basis of the construction of the Acknowledgement and Agreement, and given that evidence relating to the execution of the Acknowledgement and Agreement might be admissible, it is appropriate I determine, pursuant to s 64 of the Civil Procedure Act, that all issues viz a viz the fifth defendant be allowed to be ventilated at trial.

[1] Exhibit TK-4, Affidavit of Tom Karas sworn 18 March 2011.

[2] Exhibit TK-3, Affidavit of Tom Karas sworn 18 March 2011

[3] Paragraph 18, Affidavit of Josephine Mannella sworn 17 June 2011.

[4] Paragraph 19, Affidavit of Josephine Mannella sworn 17 June 2011.

[5] Paragraph 34, Affidavit of Josephine Mannella sworn 17 June 2011.

[6] Paragraph 39, Affidavit of Josephine Mannella sworn 17 June 2011.

[7] Re Margetson & Jones [1897] 2 Ch 314; Williams, Civil Procedure at 43.01.230.

[8] Williams, Civil Procedure at 43.01.175. See also Muirfield Properties Pty Ltd v Erik Colle & Assocs Pty Ltd [1988] VicRp 22; [1988] VR 167.

[9] Exhibits TK-3 & TK-4, Affidavit of Tom Karas sworn 18 March 2011.

[13] APN Funds Management Ltd v Australian Property Investments Strategic Pty Ltd [2011] VSC 555 at [4].

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