Crab and Fish One Pty Ltd v Lindeque [2024] QDC 112

DISTRICT COURT OF QUEENSLAND CITATION: Crab and Fish One Pty Ltd v Lindeque [2024] QDC 112 PARTIES: CRAB AND FISH ONE PTY LTD (Plaintiff) v SUSANNA WILHELMINA LINDEQUE (Defendant) FILE NO: 2078/21 DIVISION: Civil PROCEEDING: Trial ORIGINATING COURT: District Court DELIVERED ON: 22 May 2024 (ex tempore) DELIVERED AT: Brisbane HEARING DATE: 20-22 May 2024 JUDGE: Andreatidis KC DCJ ORDER: 1. The plaintiff has judgment against the defendant in the sum of $489,753.84, which includes interest to 20 May 2024. 2. The defendant pay the plaintiff’s costs on the standard basis. 3. To the extent that there are reserved costs, I order that the defendant pay the plaintiff those costs. CATCHWORDS: CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – GUARANTEES – REMEDIES – where the parties entered into a contract for the provision of a short-term loan – where there was default – where the defendant was a guarantor under the loan – where the plaintiff made a demand – where the defendant failed to repay the loan – where a defence was filed that raised certain matters – where those matters had to be addressed despite the defendant’s failure to appear at the trial PROCEDURE – NON-APPEARANCE BY PARTY – where there were multiple pre-trial reviews and a pre-trial application – where the defendant is located in the United States – where the parties had previously appeared via audio-visual link – where it was directed that the defendant would appear at the -- 1 of 21 -- 2 trial in person – where, early on the morning of the trial, the defendant emailed the parties and the Court advising she would not be appearing – where the defendant did not request an adjournment or provide any reason for the non-appearance LEGISLATION Australian Securities and Investments Commission Act 2001 (Cth) Competition and Consumer Act 2010 (Cth), sch 2 (Australian Consumer Law) Corporations Act 2001 (Cth) ss 763A, 766A, 911A Evidence Act 1977 (Qld) s 92 National Consumer Credit Protection Act 2009 (Cth) sch 1 (National Credit Code) s 5 Trade Practices Act 1974 (Cth) Uniform Civil Procedure Rules 1999 (Qld) r 476 CASES Capital Financial Management Pty Ltd v Linfield Developments Pty Ltd [2017] NSWCA 99 Commercial Bank v Amadio (1983) 151 CLR 447 Commonwealth Bank of Australia v Aspenview Productions Pty Ltd [2001] VSC 444 Garcia v National Australia Bank (1998) 194 CLR 395 Kellas-Sharpe v PSAL Limited [2013] 2 Qd R 233 National Australia Bank v Rose [2016] VSCA 169 Orchid Avenue Pty Ltd v Parensky [2015] QSC 207 Perpetual Nominees v McGoldrick (No. 3) [2017] 317 FLR 227 PSAL Ltd v Kellas-Sharpe & Ors [2012] QSC 31 PT Thiess v PT Arutmin Indonesia [2015] QSC 123 Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656 Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 Taycon Pty Ltd v Williams [2023] QSC 297 Tricontinental Corp Limited v HDFI Limited (1990) 21 NSWLR 689 COUNSEL: M Stirling for the plaintiff No appearance for the defendant -- 2 of 21 -- 3 SOLICITORS: Cosgriff Lawyers for the plaintiff No appearance for the defendant OVERVIEW [1] In 2019 the defendant sought a short-term loan from the plaintiff to assist the defendant’s development company to complete a development. The loan was to be a six-month loan and the defendant offered interest at 20 per cent. The loan was entered into in August 2019. The defendant gave a personal guarantee. The monthly payments were made between August 2019 and, following some extensions, September 2020. [2] The date by which the loan was to be repaid was extended at the defendant’s request three times. The borrower ultimately defaulted. The borrower has gone into liquidation and administration. The plaintiff sues the defendant as guarantor. The defendant is a self-represented litigant. However, the defendant did not appear at the trial. NO APPEARANCE BY THE DEFENDANT AT THE TRIAL Reviews and a contested application [3] The matter was reviewed by me a number of times prior to the commencement of the hearing. The parties appeared at the reviews and in a contested application by video, because the plaintiff and the plaintiff’s legal representatives were interstate and the defendant lived in America. [4] At the defendant’s request, earlier trial dates were adjourned. The trial was ultimately set down for a four-day hearing before me, commencing 20 May 2024. The defendant did not resist the trial being set down to commence on that date. Pre-trial directions [5] At the pre-trial direction hearings, directions were made by me for the parties to prepare bundles of documents that were proposed to be tendered at the hearing. I made it clear that the evidence-in-chief was to be done orally, that is, viva voce. A direction requiring the parties to provide written openings dealing with the matters of fact and law was also made. -- 3 of 21 -- 4 [6] It is clear from the agreed trial plan that the defendant understood that the evidence- in-chief was to be viva voce. I also explained orally to the defendant at one of the pre-trial reviews, the procedure of the trial including the manner in which she would need to give evidence-in-chief in circumstances where she was simultaneously the advocate and the witness. [7] The plaintiff, in accordance with my directions, provided a written opening. No opening was provided by the defendant. Email from the defendant regarding her trial appearance [8] On 20 May 2024 at 2.50 am, the defendant emailed my Associate, copied to the solicitor for the plaintiff, stating that she will not attend the trial. In communicating to the Court about the 20 May 2024 trial, the defendant did not seek an adjournment. The defendant ought to have appreciated that if there was some compelling reason for the trial to be adjourned, she could make an application, having successfully applied for an adjournment in the past. [9] I had made it clear that the parties were to appear in person for the hearing of the trial. If there was some compelling reason to support an application for the defendant to appear by video for the trial, she could have done so, and had done so in the past. No such application was made. No reason was given by the defendant in her email to my Associate as to why she was not attending. Proceeding with the trial in the defendant’s absence [10] At the commencement of the trial, the defendant was called. There was no appearance. The trial proceeded in the defendant’s absence. Pursuant to r 476 of the Uniform Civil Procedure Rules 1999 (Qld) (UCPR), the plaintiff called evidence to establish an entitlement to judgment against the defendant. Consistent with the directions I made in the pre-trial directions hearing, the plaintiff adduced evidence- in-chief orally. The parties had provided affidavits, however, I had no regard to them because of the pre-trial directions I had made. In fact, I have not even read them. Matters pleaded in the defence cannot be ignored [11] Further, in all the circumstances, it would be unfair to the plaintiff for me to take into account the affidavit of the defendant, given: the trial directions I made in respect of evidence-in-chief; the absence of the defendant meant that the conditions in s 92 of -- 4 of 21 -- 5 the Evidence Act 1977 (Qld) could not be satisfied to make the affidavit admissible; and the defendant had not made herself available to cross-examined. But the matters pleaded in the defence cannot be ignored. [12] Guidance as to the procedure under r 476 may be found in the decision of Burns J in Orchid Avenue Pty Ltd v Parensky [2015] QSC 207. I note in particular what his Honour said at [9] (citations omitted): It is important to keep in mind when proceeding in accordance with r 476(1) that the contents of any filed defence cannot be ignored despite the feature that the defendant has failed to appear at the trial. As Brennan J (as his Honour then was) explained in Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd, the whole object of pleadings is to bring the parties to an issue and, when that occurs, the court’s function is to determine that issue. As such, the defence must be considered alongside the statement of claim and any reply in order to determine the issues to be tried in the defendant’s absence. Once identified in that way, the issues will then be determined by the court in accordance with such evidence as may be called by the plaintiff. That, of course, does not mean that the plaintiff will or must succeed on all such issues, but it will mean that an absent defendant will likely fail on any issue in relation to which he, she or it has a burden of proof. For example, a defendant who sets up a defence by which it is alleged that a contractual bargain was induced by a fraudulent misrepresentation would need to support such an allegation with evidence. If no such evidence is adduced, that issue – alive as it may have been on the pleadings – must necessarily be decided in the plaintiff’s favour. [13] Each of the pleaded defences will be addressed in turn. Before I do so, however, I will say something about the facts. THE FACTS First dealings [14] The loan and the guarantee were the first occasion that the parties had any business dealings with each other. I heard evidence that they had met at a real estate forum not long before the loan agreement was entered into. [15] The plaintiff operates an investment business and the evidence was that it does some lending but that is the extent of the evidence in that regard. The director and a -- 5 of 21 -- 6 shareholder of the plaintiff is Mr Simon Izzard. His wife, Angela Izzard, is a joint shareholder of the plaintiff. [16] The evidence was to the effect that discussions between the plaintiff and the defendant was via Mrs Izzard and not Mr Izzard. It is accepted by the plaintiff that the plaintiff does not have a credit licence, but it is contended, ultimately I consider correctly, that no such licence is required. The plaintiff is a trustee of the Crab and Fish One Trust. By clause 8.1 of the trust deed, the plaintiff may make any kind of investment that they could make if they were absolutely entitled to the trust fund. In particular, the trustee may require or deal in any way with property in any part of the world, and invest in speculative or hazardous investments, but may only be exercised with the written consent of the appointor. Mr and Mrs Izzard [17] Both Mr and Mrs Izzard gave evidence. I found them to present as honest and reliable. They accepted readily when they could not recall something, and answered the questions they were asked in what I assess to be a straightforward and forthright manner. The borrower was a company. The borrower owned a property at Dakabin in Queensland and was undertaking a development at that property. [18] It is not controversial that the borrower was placed into liquidation and administration. The defendant pleads that the borrower went into liquidation on 10 March 2020. The ASIC search of the borrower that was tendered, however, suggests that the borrower went into liquidation on 18 September 2020. Whichever of those two dates is correct does not matter as nothing turns on the date. The borrower was not a party to this proceeding. The defendant [19] The defendant was one of two directors of the borrower. There was no direct evidence before me about the defendant’s education or level of experience in business. In some of her email communications with the plaintiff the defendant’s signature block described her as “Chief Executive Officer of Linzen Dakabin,” which is the borrower. The defendant has also stated to the plaintiff prior to the loan being entered into, that in respect of the development being undertaken, and I will quote: -- 6 of 21 -- 7 We have completed our first stages 1, 2A, 2C and 2D, 27 units, and I expect settlements in August, but I need interim funds to complete stage 3A and 3B civils. We have spent already 1.7 million on the civils for stages 3 to 4. Our current valuation on the balance land is $3.6 million. [20] And then later in the email: We have sold out on 45 townhouses. [21] And again: It is really a short-term funding that I am after for six months at 20 per cent return. [22] I have noted the above matters because in the absence of anything to the contrary, it is evidence from which I infer the defendant was not a volunteer, not someone who was in a special position of disadvantage, and a person involved in a reasonably sized multi-million-dollar development that involved multiple stages. These matters are consistent with the defendant being an experienced and to some extent, sophisticated business person. I also note that nowhere in the defence is it pleaded by the defendant that she was a volunteer or a person who had some special disadvantage. The defendant seeks a short-term loan [23] On 8 July 2019 at 12.47 pm, the defendant sent an email to Ms Izzard. The contents of that email are the matters that I have already identifed about the stages and the need for funding. Mrs Izzard’s evidence was that this email was the first mention of interest rate, and that it was the defendant who had suggested the 20 per cent interest rate. [24] I note that the defendant was represented in the transaction by a law firm, Pacific Law. By email dated 28 July 2019 the defendant again wrote to Ms Izzard, although I will note that the email was by reference to Mrs Izzard’s maiden name. That email, in my judgment, is another indicator of the defendant’s understanding and knowledge pointing to her being an experienced and to some extent sophisticated businessperson because it reflects an understanding of the signing of loan agreements electronically, the contractual proposal that the caveat be kept but not lodged, and the need for it to have been signed. All of those things point to the conclusion that I have reached and indicated about the defendant. -- 7 of 21 -- 8 Loan agreement and guarantee [25] The loan agreement is dated 1 August 2019. The schedule helpfully summarises the names of the parties, identifies the defendant as the guarantor, defines the principal sum as $250,000, and any further loans, although there were none. It defines the expiry date as being six months from the advance date. I note that there is no definition for the term “advance date”, but nothing turns on that. It also identifies how the repayments are to be made, and that the interest rate is 20 per cent per annum, and references clause 3 and identifies that the only security is a registrable caveat and refers to clause 6. Clause 2.1 is the promise by the plaintiff to advance the $250,000. The evidence showed that that was, in fact, done. Clause 3 deals with interest. Relevantly, by 3.2: Interest shall be calculated daily in arrears and capitalised annually. [26] Clause 4 deals with the repayment. That is, it is to be all paid by the expiry date. Clause 11 is the default provision. That includes a failure by the borrower to make a payment. And clause 27.2 is the guarantee provision. I note that subclause 1 records that the guarantor is liable jointly and severally with the borrower. Subclause 3, a promise by the defendant if there is default by the borrower to pay on demand. [27] Subclause 4 concerns the liability of the guarantor, that is the defendant, is not affected by any neglect or omission on the part of the plaintiff. And subclause 8, that the obligations of the guarantor, that is the defendant, continue until all moneys have been paid and are not reduced or affected by insolvency or liquidation of the borrower. Money advanced [28] The money was advanced on 31 July 2019. The caveat was prepared but not lodged, and it was not lodged until after default. There were, as I have indicated, three variations, all of which occurred at the request of the defendant. Relevantly, each of the deeds of variations extended the expiry date. Under the loan agreement the expiry date was six months from the advance date, which I have said not defined but the money was transferred on the 31st of July 2019. Any businessperson reading the loan agreement would in context understand that the expiry date was on or about six -- 8 of 21 -- 9 months from 31 July 2019 or, at worst, 1 August 2019, being the date the date of the loan agreement. [29] The third variation deed extended the expiry date to 15 December 2020. The plaintiff accepted during the course of the trial that the default interest specified in the second and third deeds of variation amount or at least arguably amount to a penalty, however, the plaintiff does not seek to recover the default interest. In any event, the defence does not plead that the default interest in the deeds of variations are penalties. [30] Accordingly, whether the default interest rate in the deeds of variation are a penalty or not is not relevant to this proceeding but I note that even if it was, and the Court found it to be a penalty, the Court has the power to strike through or sever the default interest provisions in the variation deeds. I also note that the deeds of variation expressly contemplate severing invalid or unenforceable provisions. Demand made [31] Demand for payment was made on the defendant on 19 July 2021. I have been provided very helpfully with a schedule which sets out the payments made, the payments missed, the interest claimed and the debt owing as at 20 May 2024, which is day one of the trial, and that has been made an exhibit. I was also taken through each bank statement showing all the payments that were made. I also heard evidence as to when payments stopped. [32] I also note that the plaintiff expressly stated that it was only seeking costs in the usual way in litigation. It was not pursuing costs under the indemnity provisions in the guarantee. HAS THE PLAINTIFF PROVED ITS CASE? [33] Yes, it has. [34] It has proved the existence of the agreement, the existence of the guarantee, that they were signed, that the plaintiff performed its end of the bargain by providing the funds, that payments had been received and then payments stopped. Notice was given to the guarantor and a demand made, and the defendant has not made payment pursuant to the demand. -- 9 of 21 -- 10 DEFENCES [35] I will now turn to each of the defences in turn. I will make one observation. In the course of the hearing, counsel for the plaintiff made a submission in effect that what the defence does is state legal concepts in a vague way without generally identifying material facts that would support a defence that has been pleaded. Now, I will go through these matters in more detail as I deal with each of the defences, but the submission was made by the plaintiff in effect that the nature of the defence indicates a lack of merit, and that is a submission that I think is made out. And I raise that only because it is something that might be relevant in terms of what the appropriate costs order should be from a particular date. [36] I will deal with each of the defences in the order in which they are pleaded for the first time in the defence, adopting the particular complaint in the pleading as a heading. “Interest rate is unconscionable” [37] The complaint is that it was unconscionable not to reduce the principal sum by the repayments made. I note the defence does not plead the Australian Consumer Law or any other consumer law. It does not plead that she suffered from some special disadvantage. It does not plead that she was a volunteer. It does not plead any conduct on the part of the plaintiff that is alleged to have been unconscionable beyond the failure to reduce the principal sum. It does not plead misleading or deceptive conduct against the plaintiff. [38] The defendant did not appear at the trial and has not provided a written opening as directed. The defendant led no evidence at the trial. Authorities [39] At a very high level, whether or not a term constitutes a penalty turns on whether the impugned stipulation is extravagant and unconscionable having regard to or out of all proportion to the interest of the innocent party in enforcement of primary obligations. [40] There is a plethora of cases about this but for current purposes I will note Australia Capital Financial Management Pty Ltd v Linfield Developments Pty Ltd [2017] -- 10 of 21 -- 11 NSWCA 99 at [362]-[367]. The defendant has the onus to prove it is a penalty: Kellas-Sharpe v PSAL Limited [2013] 2 Qd R 233 at [22]. Discussion [41] The loan was to be a short-term loan: six months. The structure of the loan, on its terms was that it was an interest-only loan for the six months, with the capital to be repaid at the end of that term. The date by which the capital was to be repaid was extended three times as the request of the defendant. The effect of the extensions was to change the six-month short-term loan to one that expired on 15 December 2020. So, in effect, it went from being a six-month loan to effectively a one and a- half year loan. [42] The plaintiff, I note, has been held out of its capital for well beyond the period agreed, and I also note that the legitimate or commercial interest of the plaintiff was for it to be paid interest-only for a short-term loan, and at the end of the loan to have its capital returned. There is, in other words, nothing in the agreement that says that the payments were to reduce the capital. It is expressly stated to the contrary. Conclusion [43] In all the circumstances, I do not consider the payments made, being treated as interest and not reducing the capital, to be a penalty. The defendant has failed to discharge her onus of proof. This aspect of the defence fails. I turn to the next pleaded defence. “Calculation of debt has not taken into account that some principal has been repaid” [44] The complaint is that the plaintiff has not reduced the capital sum owed by reference to any of the payments made. I have already indicated what the proper construction of the agreement was. The loan agreement is clear. The payments to be made were for interest only and capital to be paid by the expiry date. The defence in this regard fails as it finds no support from the agreement reached between the parties. “Interest not calculated correctly” [45] The defendant simply asserts the interest has not been calculated correctly. The defendant does not plead in what respect it has not been calculated correctly. I was taken through a schedule that set out how the interest was calculated. There is no -- 11 of 21 -- 12 error that I find in the math calculating the interest and it seems to be done, in my judgment, in accordance with the agreement. This aspect of the defence fails. Has the defendant admitted the existence of a debt? [46] The next matter is not so much a defence but dealing with a non admission made by the defendant as to the existence of the debt. The plaintiff contends that the defendant has admitted the debt in a number of communications. The defendant does not admit the allegation. The documents relied on by the plaintiff are consistent with an acceptance by the defendant that a sum of money is owed and that she is responsible for the debt. However, the defendant does not state the amount that is being acknowledged. I note that in one of the emails the defendant sent to Mrs Izzard, the defendant stated in an email dated 21 May 2021: In terms of the repayment under my guarantee but also it is my duty to repay you as you provided the funds to the project in good faith to me. [47] Whilst there has been an acknowledgment that the money is owed, the acknowledgment does not go so far as to admit the amount owed. I do not consider that the acknowledgment to take the plaintiff’s case any further than there being a general acceptance on the part of the defendant that she owes money to the defendant, I do not understand the contention being made on behalf of defendant to seek to take it any further than that. “Plaintiff failed to secure the loan” [48] The next defence is that the plaintiff failed to secure the loan. The defendant asserts that the plaintiff is in breach of contract by failing to lodge the caveat. The only security over the property contemplated by the loan was a registrable caveat. Clause 6.3 of the loan agreement expressly provides that the security, that is the registrable caveat, is to be held in escrow by the lender and only lodged for registration on the title if the borrower or guarantor is in default. In the absence of any other evidence, the defendant has failed to make out this aspect of the defence. [49] The plaintiff did what was agreed. That is, the caveat was only to be lodged following default. Further, pursuant to clause 27.2, subclause 4, any admission or neglect by the plaintiff does not affect the defendant’s liability. In any event, in the absence of a contractual provision that requires something to be done before the -- 12 of 21 -- 13 plaintiff is entitled to demand and recover payment from the defendant as guarantor. The guarantor’s obligation to pay arises upon default by the borrower and demand being made. Both of these conditions precedent have occurred: Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 256. The defence in this regard fails. “The plaintiff failed to enforce the loan” [50] The next defence is that, “The plaintiff failed to enforce the loan.” The defence asserts that the plaintiff would not promptly or properly enforce the security. As I have already noted and dealt with, the only security contemplated by the loan agreement was the registrable caveat. The defendant has not pleaded any terms of the agreement or any other matter that can be said to create a condition precedent to the entitlement of the plaintiff to make a demand on the defendant as guarantor that has not occurred. See Tricontinental Corp Limited v HDFI Limited (1990) 21 NSWLR 689. [51] Other than asserting that the plaintiff has not promptly or properly enforced the security, the defendant does not plead any term of the agreement or any other matter that requires the plaintiff to do something as a condition precedent to making the demand from the defendant. There is no contractual obligation that creates a condition precedent beyond the requirement that the borrower be in default and that a demand be made. The borrower was in default; the plaintiff made demand of the defendant. The defendant’s obligation to pay as guarantor arises upon default by the borrower and the demand being made, as both those conditions precedent have occurred. Prima facie the debt is owed and the plaintiff has simply exercised its contractual rights. See again Sunbird Plaza Pty Ltd v Maloney at 256. “The guarantee was not executed correctly” [52] The next defence is that, “The guarantee was not executed correctly”. Again, this is not really a defence but a non-admission. The plaintiff pleads that the guarantees were executed correctly. That is the subject of a non-admission by the defendant. There is no evidence before me that the loan agreements or the variations were not executed correctly. Now, with one exception, the documents I was taken to were signed. The second deed of variation was not signed, however, the evidence was -- 13 of 21 -- 14 that it was signed and, in particular, I note an email from the defendant which records that she had signed the deed. This aspect of the defence fails. Set-off [53] The defendant asserts a set-off but does not plead anything that is in the nature of a set-off. This aspect of the defence fails. The borrower is in liquidation and administration, and the administration was not finalised [54] The next defence is that, “The borrower is in liquidation and administration and the administration is not finalised.” The defence asserts that the borrower is in liquidation and currently under administration, and that the liquidation is not yet concluded. Various contentions are made in the defence, including an assertion that someone from the liquidator’s office told the defendant that the liquidation was ongoing because a number of stages of the development had not been finalised. [55] The defendant does not plead any term of the agreement that requires the plaintiff to wait for the liquidation of the borrower to be finalised or for the development to be finalised before it is entitled to demand payment from the defendant. There is no provision to that effect in the loan agreement or the deeds of variation. There are no contractual provisions that indicate that any of the matters the defendant has pleaded in paragraphs 32(f) to (k) amount to a defence in this proceeding. [56] It follows that the plaintiff was entitled to demand payment from the plaintiff as guarantor and to recover against the defendant. The defendant’s obligation to pay as guarantor arose upon default and demand being made. Again, both those conditions precedents have occurred and I repeat Sunbird Plaza as authority. The interest is a penalty [57] The next defence is an assertion that, “The interest is a penalty”. Now, there is, in effect, nothing more than a bare assertion that the interest is a penalty. The relevant provision to consider is clause 3.2 of the loan agreement which provides: Interest shall be calculated daily in arrears and capitalised annually. [58] The schedule to the loan agreement records that the interest is 20 per cent per annum. The first matter to note is that there is no variable rate. That is, no higher or lower -- 14 of 21 -- 15 rate in the event of default versus compliance with the obligations under the agreement. Second, the interest rate of 20 per cent per annum is to be understood in the context of it being the agreed rate of interest for what was to be a short-term loan that was not to be secured other than by way of a registrable caveat, and then only after default, and that the rate is the rate the defendant offered to pay the plaintiff. [59] And, third, the capitalisation of the interest only operates on the proper construction of the agreement if there is a default in the payment, in which event the unpaid interest is capitalised annually. Now, that follows because on the proper construction of the agreement the whole debt and/or the payments were to be made within six months, so there would be no occasion for capitalisation. And I understand counsel for the plaintiff too have accepted that construction. Authorities [60] The principles to consider in respect of the law on penalties is conveniently summarised by the High Court in Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656, see in particular [10], [11] and [13]. The High Court also considered the principles governing the penalty doctrine in Paciocco v Australia & New Zealand Bank (2016) 258 CLR 525. The High Court in Ringrow at [13] stated that for a contractual provision to be a penalty that: …the propounded penalty must be judged “extravagant and unconscionable in amount”. It is not enough that it should be lacking in proportion. It must be “out of all proportion”. [61] I have also had regard to the decision of Kellas-Sharpe v PSAL Limited, which discusses whether capitalisation of interest could be a penalty. The onus of proving the interest rate is a penalty falls on the defendant, see Kellas-Sharpe v PSAL Limited at [22]. And the onus to prove extravagance and exorbitance lies with the defendant. See PT Thiess v PT Arutmin Indonesia [2015] QSC 123 at [157]. [62] There is also a recent discussion of the relevant cases of principals in respect of the doctrine of penalty in Taycon Pty Ltd v Williams [2023] QSC 297 at [202] and [210]. [63] As I said, the defence contains a bare assertion If the defence is intended to contend that the interest rate of 20 per cent is a penalty, I reject that contention because -- 15 of 21 -- 16 primarily it is simply the agreed interest rate. I also take into account the other contextual matters that I have identified. [64] Furthermore, there is no plea or evidence of any special disadvantage suffered by the defendant. There is no plea or evidence of a plaintiff knowing about some special disadvantage. There is no plea or evidence that the defendant was a volunteer. There is no plea identifying conduct on the part of the plaintiff that is contended to be unconscionable in the relevant sense. And there is no evidence of such conduct. There is no plea of any contravention of the Australian Consumer Law or any other consumer protection legislation. [65] It may be that the defence is intended to convey that the capitalisation of the interest is a penalty. On the proper construction of the loan agreement, capitalisation will only occur if there has been a breach in the sense of a payment or payments not having been made. In that sense, the question of penalty arises. So, can capitalisation of interest exceed what can be regarded as a genuine pre-estimate of the damage likely to be caused by the breach? [66] The sum will be a penalty if it is extravagant and unconscionable in comparison with the greatest loss that could conceivably be proved to have followed from the breach. [67] Now, I note in Kellas-Sharpe the trial Judge held that the lender’s conduct was unconscionable, but he did so by reference to the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) and the Trade Practices Act 1974 (Cth), that concerned a charge of 7.5 per cent per month, capitalised monthly for an extended period when the loan ceased to be a short-term loan. [68] The trial Judge concluded that to continue to capitalise interest at such a rate for periods of months and years is irreconcilable with what is right and reasonable. In the matter before me there is no plea in the defence in respect of the ASIC Act or the Australian Consumer Law. Furthermore, in Kellas-Sharpe, and importantly, there was a higher interest rate to be charged and capitalised in the event of default. That is clear from the reasons of the trial Judge; see [113] and [114] of the trial Judge’s decision which is PSAL Ltd v Kellas-Sharpe & Ors [2012] QSC 31. [69] The situation that comes before me is very different. The interest rate to be capitalised is the agreed interest rate of 20 per cent. It is true that the term of the loan -- 16 of 21 -- 17 went from an initial six months to ultimately in the order of one and a-half years. That occurred at the request of the borrower, noting that the defendant is one of the directors. So the defendant made the requests for the extensions. [70] In relative terms, that is still a short-term loan, although perhaps at the outer limit of what might be considered to be a short-term loan. The capitalisation of the interest results in an increase in the capital amount owed. The calculations show that the capital owed went from $250,000 to $489,753.84 as at the date of commencement of the trial. [71] It is important to understand that that $489,000 figure is the capital plus all the interest capitalised annually. It is important to note also that the plaintiff has been without its capital since 15 December 2020. The evidence was that the plaintiff conducts an investment business. The evidence does not establish whether this sum is extravagant or unconscionable in amount in comparison to the greatest loss that could conceivably be proved to have followed from the breach, noting of course the defendant bears the onus. [72] However, I note – and I am grateful to counsel for the defendant for undertaking a calculation which appears on its face to be correct – if capitalisation is ignored and the calculation is done, simply adding interest at 20 per cent for the period of the loan to date, the position is that the capital of $250,000 is owed, and the interest less payments made is $181,938.76. That gives a total of $431,938.76. Conclusion [73] In my judgment, in the context of the difference between the debt calculated with interest calculated, and the debt calculated without interest being capitalised, it cannot be said to be extravagant or unconscionable in the relevant sense, in an objectively obvious way. And I note also what I have already indicated the High Court has said, it is not enough that the penalty is lacking in proportion. It must be out of all proportion. Now, in my judgment, that is not the case. It is not out of all proportion. The defendant bears the onus. The defendant chose not to appear and did not cross examine the defendant’s witnesses. I am not prepared to find that the interest is a penalty. This aspect of the defence fails. -- 17 of 21 -- 18 “The wrong borrower is noted in one of the deeds of variation” [74] Turning to the next matter in the defence, being that, “The wrong borrower is noted in one of the deeds of variation”. The defendant says in the defence that the wrong borrower is identified in the first variation deed. And that is true, it is a different company. Linzen Developments is recorded in the deed. The borrower is Linzen Dakabin Pty Ltd. The defendant does not, however, plead what is asserted to flow from that error. The evidence is that there is only one loan agreement. No loan was made to Linzen Developments Pty Ltd by the plaintiff. The error is an obvious one. The error does not affect or alter the contractual rights of the parties to the loan agreement. [75] It is not as though the variation deed purports to create obligations to guarantee alone that the defendant had not already guaranteed. The error does not affect the validity of the loan agreement or the fact that the debt is owed and not repaid. Furthermore, the defence – at paragraph 37 – in effect acknowledges that there was an error in the name of the borrower on the deed. There is nothing that turns on this aspect of the defence. Trust deed [76] The next matter is assertions in relation to the plaintiff’s trust deed. The defence pleads non-disclosure of various matters concerning the terms of the trust deed of which the plaintiff is trustee. There is no obligation on the plaintiff to disclose the terms of the trust deed to the defendant or the borrower. To the extent that there is an obligation on the plaintiff as lender to disclose something, it is more accurately characterised as a duty not to make implied representations or engage in undue concealment: Commonwealth Bank of Australia v Aspenview Productions Pty Ltd [2001] VSC 444 at [180]. [77] There is nothing in the terms of the trust deed that impacts the defendant or the borrower. Neither the borrower, nor the defendant, are beneficiaries under the trust. There is nothing in the circumstances of this matter that suggests that there is a reason for the matters pleaded in the defence to be disclosed. The terms of the trust deed and the matters set out in the defence in this regard are frankly irrelevant to the defendant. The defence in this regard fails. -- 18 of 21 -- 19 “No credit licence” [78] The next defence pleaded is, “No credit licence”. Again, this is a bare assertion without any material facts and no identification of any legislation by the defendant. The defendant pleads that the plaintiff did not hold a credit licence and at no time was authorised to conduct a financial service business. [79] The plaintiff accepts that it did not hold a licence but submits, in my judgment correctly, that there is no obligation or requirement that it hold any such licence. Counsel for the plaintiff took me through the National Consumer Credit Protection Act 2009 (Cth) sch 1 (National Credit Code). In relation to the National Credit Code, s 5 sets out the transactions to which it applies. It is self-evident from the list in section 5 that the loan agreement and the guarantee do not fall within the section. [80] As to the section 5(1)(d), there is no pleading of any material facts in the defence to suggest that it applies, and there is no evidence to establish the existence of the fact that would result in that subsection applying. And, again, the defendant chose to not come to the trial. The defendant bears the onus. The defendant has failed. [81] Under the Corporations Act 2001 (Cth), section 911A(1) provides, in effect, that a person who conducts a financial services business must hold an Australian Financial Services Licence. Section 766A defines when a person conducts a financial service. It is self-evident that most of the matters identified in that section just simply do not apply. The service that might apply is dealing in a financial product. [82] Section 763A defines what a financial product is. When one goes to the section, it is obvious that none of those matters apply. And it is important to note that no pleading of any kind is in the defence raising any of these provisions or any other provision, and no evidence at the trial that would satisfy any of the provisions that I have discussed to establish the need for a licence. [83] The only evidence before the Court is the subject transaction and evidence of Mr Izzard that the plaintiff has also undertaken some loans. As I have said more than once, the defendant chose not to appear. No cross-examination about the nature or character or volume of the loans undertaken by the plaintiff. This aspect of the defendant fails. -- 19 of 21 -- 20 “Breach of good faith” [84] The next matter pleaded is something described as, “Breach of good faith”. There is no more than a bare assertion of there being an asserted breach of good faith. Other than an obligation to negotiate in good faith about a substitute provision if a provision is invalid or unenforceable, there is no express term of good faith in the loan agreement. In general, there is no implied term in guarantees that the parties will act in good faith: Perpetual Nominees v McGoldrick (No. 3) [2017] 317 FLR 227, at [243]. [85] Even if there is such a duty of good faith, what that duty would be and whether it is a breach, are fact-based concepts. There is nothing pleaded and there is no evidence of any special disadvantage, or the defendant was vulnerable in some relevant way, or that the plaintiff somehow took advantage of the defendant in some relevant way. [86] There is no factual foundation for the assertion of the defence that the plaintiff had an obligation to act in the best interests of the borrower or the defendant. The parties were at an arm’s length commercial transaction and commercial relationship. Critically, the borrower and the defendant were legally represented. The plaintiff was not, in the transaction. This aspect of the defence also fails. “Legal advice” [87] The next matter raised under the pleading is about, “Legal advice”. The defendant pleads that she and the borrower were not provided adequate legal advice by their lawyer and that there was no certificate of independent advice. Any failure on the part of the defendant’s solicitor does not mean that the guarantee cannot be enforced against the defendant. There is no evidence that the defendant was a volunteer or a person with a special disadvantage. There is no pleading or evidence of misleading or deceptive conduct. There is no plea or evidence of undue influence. [88] There is no statutory or contractual obligation for the plaintiff to seek an independent solicitor’s certificate in respect of advice to the defendant or borrower. In any event, and as I have said, critically, the defendant had solicitors. The principles arising from decisions such as Commercial Bank v Amadio (1983) 151 CLR 447, Garcia v National Australia Bank (1998) 194 CLR 395, and National Australia Bank v Rose [2016] VSCA 169, simply do not arise. This aspect of the defence fails. -- 20 of 21 -- 21 “Material nondisclosure” [89] Finally, there is an allegation in the defence of “Material nondisclosure”. There is a general assertion on material nondisclosure that the defendant says would have resulted in the defendant not signing the guarantee. In this respect no new matter is pleaded by the defendant. I have already discussed the issue of disclosure. This aspect of the defence also fails. ORDERS [90] Accordingly, the orders I make are: 1. The plaintiff has judgment against the defendant in the sum of $489,753.84, which includes interest to 20 May 2024. 2. The defendant pay the plaintiff’s costs on a standard basis. 3. To the extent that there are reserved costs, the defendant pay the plaintiff those costs. -- 21 of 21 --