Tony Azzi (Automobiles) Pty Ltd v Scanlan

1. I order judgment for the plaintiff in the sum of $77,659.33 with interest in the amount of $26,659.33. DECISION: 2. The defendant pays the plaintiff's costs on the usual basis up to 10 September 2008. 3. The defendant pays the plaintiff's costs on an indemnity basis from 10 September 2008 to 8 April 2009.

CATCHWORDS: CIVIL - commercial loan security deed - alleged misrepresentation - failure of defendant to protect own interests - credit of solicitors: no preference

Argy v Blunts and Lane Cove Real Estate Pty Ltd (1990) 26 FCR Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 Dew v Richardson [1999] QSC 192 Elders Trustee and Executor Co Ltd v EG Reeves Pty Ltd (1987) 78 ALR 193 Ermogenous v Greek Orthodox Community of SA Inc. (2002) 209 CLR CASES CITED: Griffiths v Evans [1953] 2 All ER Houghton v Arms (2006) 225 CLR 553. Jones v Dunkell [1959] HCA 8; 101 CLR 298 May v Burcul (unrep) CA (NSW) 18 October 1982 Meerkin and Apel v Rossett Pty Ltd [1998] 4 VR 54 Parkdale Custom Built Furniture Pty Limited v Puxu Pty Limited (1982) 149 CLR 191 Rose and Frank Co v JR Crompton & Bros [1923] 2 KB 261

TEXTS CITED: Contract Law in Australia, Carter, Peden, and Tolhurst, 5th ed., p 248

PARTIES: Plaintiff: Tony Azzi (Automobiles) Pty Ltd Defendant: Ms M Scanlan

COUNSEL: Plaintiff: Mr D Price Defendant: solicitor/self-represented

1 The plaintiff claims the sum of $77,659.33 pursuant to a deed executed between the parties on 10 February 2009.

2 The plaintiff is a large motor vehicle dealership employing about 80 employees. The managing director of the organisation is Mr Tony Azzi.

3 The defendant is a solicitor with an unrestricted practising certificate. She was in a relationship with Mr Somosi, a former barrister, over the period 2001 - 2007. The plaintiff employed Mr Robert Somosi as a customer service officer between 2001 and 2007.

4 Mr Somosi was paid a salary and other sums were also advanced to him by the plaintiff to cover his rent and personal expenses. Mr Azzi's evidence was that the plaintiff had paid Mr Somosi about $200,000. The amount sought was the amount advanced on a separate account in Ms Scanlan's name established by the plaintiff to meet Mr Somosi's personal expenses.

5 It seems that in the period from at least early 2005 Mr Somosi's financial situation had deteriorated. The plaintiff wanted to secure its advances to Mr Somosi.

6 Ms Scanlan said that she knew Mr Somosi was a bankrupt in 1998 but thought that his bankruptcy had been discharged in 2001. She was unaware until later that he had apparently been bankrupt on another two occasions. The relevance of that matter is that Mr Somosi was not called as a witness - see below: Jones v Dunkell: non-appearance of Mr Somosi.

7 A deed was prepared by Ms Scanlan and signed by the parties. The parties executed the deed on 10 February 2005. Mr Somosi witnessed Ms Scanlan's signature.

8 The plaintiff's clear objective in seeking the deed was to provide security for Mr Somosi's advances. The deed contained an acknowledgement by Ms Scanlan that she had approached the plaintiff for a loan of $80,000. The deed also contained an acknowledgement by Ms Scanlan that the amount was to satisfy a previous loan agreement between the plaintiff and Mr Somosi in the sum of $60,000 and the provision of a further sum of $5,000 to Mr Somosi. The balance of $15,000 was to be advanced to Ms Scanlan. Security was to be provided by the defendant, the agreement setting out the items to be provided as security as a New Zealand property and a BMW motorbike.

9 Ms Scanlan received the sum of $15,000 on signing the deed. She says that she did not receive any of the other amounts referred to in the deed. As far as she knew the remainder of that money went to Mr Somosi.

10 Evidence was given by Mr Smith, the financial controller of the plaintiff company, that in 2006 the plaintiff sold the BMW motorbike that had been purchased for Mr Somosi at Mr Somosi's request. That motorbike was the one referred to in the security annexure to the deed. The proceeds of sale, $13,000, were deposited in Ms Scanlan's loan account on 3 October, 2006 apparently without reference to either Mr Somosi or Ms Scanlan.

11 In relation to the execution of the deed, there appears to be no issue of duress nor mistake nor is there a 'non est factum' defence raised, that is, that the signature which appears on the deed was not that of the defendant, Ms Scanlan. It is not suggested that Mr Somosi was the agent of the plaintiff.

12 Ms Scanlan repaid $16,000 in accordance with the provisions of the deed. She was further credited with the proceeds of sale of the motorbike. She signed a document acknowledging that the sum of $73,280 was outstanding on 30 June 2006. She signed that acknowledgment on 22 September 2006, that is about 18 months after the date of the deed.

13 Mr Tony Azzi and Mr David Smith gave evidence. There was no objection to the remainder of the plaintiff's affidavits being received and read.

14 Objection was initially taken to the entirety of Ms Scanlan's affidavit. That was in the context of Ms Scanlan's initial position which was, in summary, that she relied on a representation that the terms of the deed would not be enforced as it was entered into and simply prepared to protect the plaintiff in relation to a possible tax audit, that the representation was misleading and deceptive, that the deed was an embodiment of an illegal purpose, namely, to recognise a debt that was illegally claimed.

15 Ms Scanlan finally submitted that there was no assignment of the debts apparently owed by Robert Somosi to the plaintiff. That argument was not pressed. In the circumstances of a deed, consideration is irrelevant.

16 The primary position of the plaintiff is to rely on the deed and to dispute that issues of breach of contract or Ms Scanlan's beliefs are irrelevant. Counsel submitted that events that occur after the execution of a deed are irrelevant as is direct evidence of the actual (subjective) intentions of the parties and evidence of the parties' prior negotiations and evidence of the parties' subsequent conduct - see Contract Law in Australia, Carter, Peden, and Tolhurst, 5th ed., p 248.

17 The final position taken by the defendant, Ms Scanlan, was that she was induced to enter the deed by a misrepresentation made by the plaintiff or its employees that the amount advanced would never be enforced. That appears to be on the basis that there was a misrepresentation which should be viewed in accordance with the common law position rather than the position under section 52 of the Trade Practices Act 1974 as pleaded.

18 The alleged representation, that is, to the effect that the deed would never be enforced, was expanded in the final submissions of the defendant to add the additional representation that 'Robert and I (Mr Azzi) have our own arrangement about that'.

19 An alternative submission made by Ms Scanlan was that she signed the deed without any intention that it would have any legally binding effect.

20 The defendant alleges that she was induced to enter the agreement by Robert Somosi or alternatively by the representations of the defendant through Mr Azzi or, alternatively, his employees Mr David Smith, the financial controller of the plaintiff. Mr Somosi did not give evidence, nor was he subpoenaed. He was not joined in the proceedings in any way nor was agency alleged.

21 Ms Scanlan further submitted that the deed was defective because the items to be provided by her as security referred to in the deed, namely a New Zealand property and a BMW motorbike, were not hers at the time she signed the deed. She alleges that was known to the plaintiff and its officers.

22 I raised with Ms Scanlan the difficulties she might have as a solicitor given both the evidence and her submissions. The deed included terms that she covenanted to execute a mortgage over the property (which included the New Zealand property and the motor bike) referred to in the security sections and to sell that property. Ms Scanlan knew that none of those items were hers at the time.

23 Ms Scanlan's response to this issue was that the inclusion of these items in the security sections of the deed supported her argument that both she and the plaintiff were not intending to enforce the deed and that she, as a solicitor, would not include such items in a deed which was intended to have legal effect. Her final submissions also argue that the plaintiff's false representation caused her to execute a document known to be false.

24 The other matter of concern was the suggestion that the deed was prepared to provide 'cover' to avoid a potential tax audit of the plaintiff. Mr Smith denied that the plaintiff company's auditor had ever requested such an agreement or that a deed be prepared. I should add that in evidence Mr Smith also set out what was intended to be covered by the monies the subject of the deed. No issue of illegality on the part of the plaintiff appears to arise from the evidence.

25 After preliminary discussions on these and other matters, the defendant, Ms Scanlan, confined her defence to the issue of misrepresentation only. The plaintiff's objections to the remainder of the affidavit material were substantially withdrawn.

26 An affidavit was apparently prepared for and signed by Mr Somosi. However, I was informed by Ms Scanlan from the bar table he has apparently declined to give evidence despite being requested to do so by Ms Scanlan very recently. There is no issue as to his availability. He apparently lives in Bargo in NSW. It does not appear that a subpoena was sought to compel his attendance.

Jones v Dunkell inference: non-appearance of Mr Somosi

27 The plaintiff asks me to draw that inference based on the rule in Jones v Dunkell [1959] HCA 8 particularly where Ms Scanlan alleges that Mr Somosi attended with her - and asked her to come to two meetings with Mr Azzi on 8 and 10 February, 2005 where it is alleged that the misrepresentations were made by Mr Azzi.

28 Ms Scanlan concedes that, in so far as her case depends on Mr Somosi, that would operate against such that the plaintiff would be entitled to ask the court to infer that his evidence would not support her.

29 There may be many good reasons why Mr Somosi would not want to give evidence where his credit or his potential liability might be in issue or for example, if he was bankrupt, whether the payments he received had been disclosed to his trustee. I also note Ms Scanlan's evidence that her attempts to persuade Mr Somosi to give evidence were unsuccessful and that they are not barely on speaking terms.

30 Given my findings on the primary issue, I do not find it necessary to rely on any such inference. What is significant is that, absent evidence from Mr Somosi, there is no evidence supporting Ms Scanlan's account of the representation on which she relies - especially in relation to what would have been a crucial meeting on 10 February, 2005, the date of the deed. The only matter which could be inferred on the evidence available to me is that whatever was said to induce Ms Scanlan to enter the deed is likely to have been said by, or in the presence of, Mr Somosi. He was the one who had the most to gain from the deed - at least $65,000 - as opposed to the amount of $15,000 to be received by Ms Scanlan. However, there is no cross-claim against Mr Somosi, which might have been anticipated in the event that there was the misrepresentation as alleged. Nor, as I repeated in the course of submissions, was any subpoena issued to Mr Somosi.

31 Ms Scanlan gave evidence that she had three conversations with Mr Azzi - not one as alleged by him. However, she had no file notes of any of those conversations nor any relevant documentation. When pressed on this subject she said that she regarded the whole arrangement as a personal matter, by inference, not a matter requiring her to take or keep notes.

32 Pursuant to leave she amplified the concerns she had set out in her affidavit as being the following: a) that she wanted Mr Azzi to stop lending Robert (Somosi) money; and b) that there had been references to her security (or the security she was going to provide) when those items were not hers.

33 Against this background Ms Scanlan gave evidence that she made the suggestion that Mr Clarke (a solicitor normally used by the plaintiff) that he should redraw the deed, the precedent for which she had prepared and forwarded. Whatever the situation it appears that the deed - which she prepared in accordance with precedents she had - had been "back and forward" a few times between Mr Somosi and Mr Smith. Mr Smith denied that occurred.

34 Mr Clarke has provided an affidavit stating that, at the relevant time, he was a partner of McClelland Lawyers, that he did not recall ever being given any instructions from either the plaintiff, or any of its officers nor the defendant nor Mr Somosi to prepare or settle such a deed. Mr Clarke was not required for cross-examination.

35 As it was an issue on the pleadings and affidavit material and to avoid any doubt on the matter, I find that Ms Scanlan prepared the deed.

36 In cross-examination, Ms Scanlan confirmed that she was aware of the consequences of signing a deed. She said that she was concerned about Mr Somosi's financial position. She was aware at the time that he had been a bankrupt in about 1998. Further that he had a salary and that he was getting money "with ease" from Mr Azzi. She thought that he (Mr Somosi) might not be able to repay that in the future on his salary.

37 Ms Scanlan was also aware of the interest rates set out under the deed. She said that one of the reasons for her concern was that she was aware that the amount owned - on her account by Mr Somosi) - "would have doubled" over a year. She reiterated in her evidence that she only signed the deed because she was told that it would not be used. Further that it was being required for auditing purposes and she thought that it would "help Robert and Mr Azzi."

38 Ms Scanlan did receive a benefit under the deed including the $15,000 for her practice and further sum of $13,000, which was credited against her loan account once the motorbike was sold.

39 Ms Scanlan signed a document on 22 September 2006 confirming the amount owed by her was $73,280 on the 30 June 2006. Notwithstanding that, she didn't contact either Mr Azzi or Mr Smith nor query that amount with them. Instead she simply spoke to Robert Somosi. She said she had no idea whether that amount was correct or not.

40 That evidence needs to be viewed against the fact that the letter or memorandum that she signed attached a reconciliation, which was headed up "Loan to Margaret Scanlan".

41 Ms Scanlan also acknowledged that she had received correspondence from the plaintiff dated 31 May 2007 with an updated reconciliation of the loan account. That included a notation showing the motorbike had been sold on the 3 October 2006.

42 Ms Scanlan said she did not recall receiving the letters of 21 June 2007 and 24 July 2007 threatening legal action unless the amount was paid.

Defendant's failure to take reasonable care of her own interests

43 Even if I am incorrect on the primary finding that there was no misrepresentation as alleged, section 52 of the Trade Practices Act, 1974 does not exist to protect people who fail to take reasonable care of their own interests - Elders Trustee and Executor Co Ltd v EG Reeves Pty Ltd (1987) 78 ALR 193 per Gummow J at [241]; Parkdale Custom Built Furniture Pty Limited v Puxu Pty Limited (1982) 149 CLR 191 per Gibb CJ at 199. See also Argy v Blunts and Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112 per Hill J at 138.

44 The defendant is a solicitor and had been a solicitor at the time of the agreement for about four years. She had an unrestricted practicing certificate since 2003. She neither took nor made any notes of all or any of the series of events that occurred. Even if her evidence is accepted that she did not do so because she regarded the matter as a personal matter - by inference, not a matter relating to a client - that does seem to be, at the least, peculiar given the potential impact on her of the deed that she had drafted. There is no ambiguity or complexity about the terms of the deed.

45 On her own evidence Ms Scanlan was, at the time of the preparation of the deed, concerned about Mr Somosi's financial situation and the situation he might be getting himself into. She knew that the amounts outstanding might double given the compound interest provisions in the deed. Her evidence indicated that she was acutely aware of both the provision and the implications and effect of it. Even if she relied on a representation the deed would not be enforced - which I do not accept - she took no steps to safeguard her position. There was, for example, no 'honour' clause as was referred to in Rose and Frank Co v JR Crompton & Bros [1923] 2 KB 261.

Relevant implications arising from position as a solicitor

46 I have mentioned Ms Scanlan's position as a solicitor on a number of occasions in these reasons. I should emphasis that these references are relevant to my findings of her capacity to understand the nature of the obligations contemplated in the deed, the effect of the provisions of the deed which she prepared and signed and her failure to take any contemporaneous (or other) notes or prepare any other document in the circumstances of what was clearly a potentially significant financial liability.

47 It is clear that solicitors have an 'equal right to be believed' - Dew v Richardson [1999] QSC 192 per Chesterman J at [10] as well as May v Burcul (unrep) CA (NSW) 18 October, 1982; Meerkin and Apel v Rossett Pty Ltd [1998] 4 VR 54 at 66 and generally "Lawyers' Professional Responsibility" GE Dal Ponte at pp.49 ff. That is the basis on which I have approached the competing parts of the evidence given in this case. I have reservations about accepting the submission of the plaintiff that the law as stated by Denning LJ in Griffiths v Evans [1953] 2 All ER 1364 at 1369 that, all other things being equal, the law will side with a client in a dispute with a solicitor is relevantly binding on me in the circumstances of this case.

48 Here I have not proceeded on any basis or presumption of preferred credit. Rather, I do not consider that, on the evidence, the defendant has established that the plaintiff or its officers or employees made the representation alleged.

49 As I have already said, the primary position of the plaintiff is that there was a deed, the parties' obligations are governed by the deed and questions of intention are irrelevant. The terms of the agreement that need to be considered rather than any subjective intention of the parties. The defendant's case is that she had no intention to enter any kind of legally binding agreement by signing the deed and that that belief was induced by the plaintiff's misrepresentations.

50 This is not a situation where the agreement was drafted nor executed in the context of a family, domestic or social situation where there might be a presumption that there was no requisite intention to enter a legally binding agreement - see Rose and Frank Co v JR Crompton & Bros [1923] 2 KB 261 at 293. This was a deed negotiated by Ms Scanlan with a commercial entity, namely, a large car dealership, which was the employee of the Ms Scanlan's then partner. On Ms Scanlan's evidence, the discussions went on over a period of about a month. There was a large amount involved - particularly given Ms Scanlan's then financial position as a solicitor trying to set up her own practice.

51 To the extent relevant given the decision of the High Court in Ermogenous v Greek Orthodox Community of SA Inc. (2002) 209 CLR 95 and its applicability to employment contracts, even if there no presumption of an intention to enter a commercial agreement in these circumstances, I find that there was such an intention in the circumstances of this case.

52 In terms of the standing of the parties or their relationship with each other as was also alluded to in Ermogenous v Greek Orthodox Community of SA Inc. op cit. at 105-106, Ms Scanlan was not in any sort of category of 'special disability'. I should add that I did not detect in Mr Azzi's demeanour while giving evidence and being cross-examined on the relevant events any suggestion of a tendency to browbeat or pressure anyone in any way to warrant any kind of finding of duress or unconscionable conduct - let alone someone such as Ms Scanlan. Her presentation throughout the hearing was as both articulate and confident.

53 Ms Scanlan argues that section 52 of the Trade Practices Act, 1974 applies in that the plaintiff was engaged in trade or commerce and that the representation was made in that context. She submits that the deed was executed by the company as a corporation attempting to secure a commercial priority. Clearly the plaintiff is a company and was engaged in conduct. However the issue is whether the representation, if it was made, was made 'in trade or commerce' - see Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594. In my view it was not. What occurred was an attempt by an employer to secure its loans to an employee. It was not conduct which bore any relationship to the plaintiff company's trading nor commercial activities - per Dowsett J in Hearn v O'Rourke (2003) 129 FCR 64 at [29]. It was not conduct of a trading or commercial character - see Houghton v Arms (2006) 225 CLR 553.

54 The action is properly based in debt rather than on contract. It is clear on the evidence and the admissions made in court that the provisions of the deed have otherwise been implemented, namely, the sums referred to paid to and received by the defendant, the monthly payments contemplated not having been made in accordance with the timetable referred to, the two year period having expired and proper demand having been made for the amounts due.

55 In the event that I am wrong on this primary finding, I will set out my views and findings on the remainder of the matters raised given that, as I understand the position, Ms Scanlan does not argue that the deed is unenforceable rather that she was told it would not be enforced.

56 Ms Scanlan's primary argument essentially depends on whether her evidence is accepted that she relied on a representation by Mr Azzi that the deed she signed would not be the subject of any enforcement action and that she did not intend to be bound by the terms of any deed.

57 Having heard and read the evidence of Mr Azzi and Mr Smith and Ms Scanlan, I find that there was no representation by the plaintiff or its officers or employees that the deed would have no effect. I accept the plaintiff's submission that the defendant signed a document, which was expressly at odds with the alleged misleading representation. It was clearly a formal document, drawn up as such in accordance with the precedents provided by the defendant herself.

58 Even if this is not correct - as was submitted by Ms Scanlan - the subsequent history does not sit easily with Ms Scanlan's claims. Ms Scanlan acknowledged and confirmed her indebtedness to the plaintiff as at 30 June 2006 on 22 September 2006, in other words, some 16 months after the execution of the agreement. She made a series of payments under the agreements totalling about $13,000. She received benefits under the agreement, namely, the initial $15,000 and the $13,000 credited against the loan. At neither stage did she raise the claims that she now makes - nor when letters of demand were sent to her as I accept that they were.

59 All the evidence - including the acceptance of Ms Scanlan's own evidence that she received the correspondence and schedule showing the amount outstanding - indicates what can only be regarded as, at best, a dismissive attitude to formal correspondence concerning a claim for significant amounts. That is inconsistent with Ms Scanlan's evidence that she was aware of the fact that the amount of the debt was considerable and that it would double with the compound interest provisions. That course of behaviour is, in my view, consistent with someone who was hoping that the problem of the debt would either 'just go away' or be dealt with by someone else, namely, Mr Somosi. The unfortunate reality was that Mr Somosi's problems, like the interest and the amounts outstanding under the deed, were compounding.

60 The plaintiff has properly made a demand for the monies owed. The latest affidavit of Mr Smith sets out the full amount outstanding to the date of the commencement of the hearing. That obligation arose because the defendant had not made the monthly payments required of her by clause (ii) of the deed. She received a benefit from the arrangement to the sum of about $28,000. Mr Smith swore an affidavit on the first day of the hearing setting out the amount outstanding under the deed as being $77,659.33. That is not challenged.

61 On the evidence, it does not seem to me that the defendant is entitled to any relief under the Trade Practices Act. In my view, there can be no characterisation of her conduct in signing the deed in such circumstances other than that she failed to take care of her own interests.

Orders 1. I order judgment for the plaintiff in the sum of $77,659.33 with interest in the amount of $26,659.33. Costs

62 Following the tender of a Calderbank letter from the plaintiff's solicitor to the defendant and hearing submissions from the parties, the following orders were made: 2. The defendant pays the plaintiff's costs on the usual basis up to 10 September 2008. 3. The defendant pays the plaintiff's costs on an indemnity basis from 10 September 2008 to 8 April 2009.

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