Choice Homes (Qld) Pty Ltd v Marshall [2012] QDC 363

DISTRICT COURT OF QUEENSLAND CITATION: Choice Homes (Qld) Pty Ltd v Marshall [2012] QDC 363 PARTIES: CHOICE HOMES (QLD) PTY LTD (plaintiff) v JOHN EDWARD MARSHALL (defendant) FILE NO/S: D 88/2011 DIVISION: PROCEEDING: Trial ORIGINATING COURT: District Court at Southport DELIVERED ON: 19 December 2012 DELIVERED AT: Brisbane HEARING DATE: 25 October 2012 JUDGE: McGill DCJ ORDER: Judgment that the defendant pay the plaintiff $258,333 including $58,333 by way of interest. Order the defendant to pay the plaintiff’s costs of and incidental to the proceeding to be assessed. CATCHWORDS: CONTRACT – effect of contract in writing – whether contract sham – whether contract took effect according to its terms. Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471 – applied. COUNSEL: P W Hackett for the plaintiff The defendant appeared in person SOLICITORS: Cronin Litigation Lawyers for the plaintiff The defendant was not represented. [1] By this action the plaintiff claims payment of $200,000 as money lent by the plaintiff to a company associated with the defendant which the defendant as guarantor has not repaid. The loan was made pursuant to a written agreement which -- 1 of 7 -- 2 was put in evidence at the trial.1 The defendant does not dispute payment of the money, though there is on the pleadings some issue as to whether it was paid to or on behalf of the borrower, but submits that the money is not repayable because it was really not money lent, but an advance payment of money which his company was entitled to receive in connection with a transaction by which some land was to be sold by another company with which he was associated to the plaintiff or a company with which the plaintiff was associated. Background [2] The defendant was until February 2010 the chief executive officer of a number of companies in a group described as the No Limit Group of companies.2 In February 2010 receivers and managers for most of the companies in the group were appointed by mortgagees, and most of the companies have been liquidated. From June 2004 one of the companies to the group, No Limit 12 Pty Ltd, of which the defendant was sole director, acquired a parcel of land at Raceview which was suitable for subdivision. It was subdivided in four stages, with a number of parcels of land in the first three stages being sold to the plaintiff; most of the parcels of land in stage 3 were sold to the plaintiff. These transactions were all ultimately completed satisfactorily, although there were some delays in finalising the transactions in relation to some of the lots in stage 3, which were completed in a somewhat unconventional fashion; the details of this are not relevant to the present proceeding. [3] In about the middle of 2009 the chief executive officer of the plaintiff began to talk to the defendant about the purchase of stage 4 of the development. It was proposed that the land the subject of stage 4 would be sold as one parcel to a company associated with the plaintiff, and that a total consideration of $2.5 million would be paid, although this was be paid under two separate documents, a property sale contract and an introduction agreement.3 Each said that the idea of doing things in this way came from the other.4 Ultimately this is how the contracts were set up: a contract for the sale of the stage 4 land from No Limit 12 Pty Ltd to Raceview Developments Pty Ltd dated 8 February 2010 was executed5, while an introduction fee agreement was entered into between the plaintiff and Yolla Holdings Pty Ltd, a company associated with the defendant (p 30), dated 2 February 2010.6 [4] Mr Knight in oral evidence maintained that the idea of having two contracts in this way emerged after December 2009: p 25.7 Nevertheless, it was common ground that the total price of $2.5 million had been discussed previously: p 26. When the solicitor for the plaintiff sent an email to Mr Knight on 16 December 2009 to confirm his instructions she referred to a price for the land of $1.5 million8 and that 1 Most of the relevant documents (and a lot of others) are in a folder, part B of which was made Exhibit 1. This is document 5 in that exhibit. 2 For the defendant’s background, see his affidavit Exhibit 5. 3 Exhibit 4, affidavit of Knight filed 14 November 2011, para 7; Exhibit 5, affidavit of Marshall filed 8 November 2011, para 22. 4 Knight, p 11; Exhibit 4, para 11; Marshall, p 31; Exhibit 5, para 22. 5 Exhibit 1, document 23. 6 Exhibit 1, document 19. 7 See also p 10, line 35. 8 Exhibit 1, document 1. -- 2 of 7 -- 3 was the price shown in the draft contract which she forwarded to Mr Knight under cover of an email dated 21 December 2009.9 There was no suggestion that the overall consideration went from $1.5 million to $2.5 million after 16 December, so the idea of having the consideration split between the two agreements must have been current prior to 16 December 2009.10 [5] There were things which had to be investigated by the plaintiff prior to entering into the contract, and perhaps some other things had to be done in relation to the land; both Mr Knight and the defendant referred to a process of “due diligence”, though the content of that was never clarified, and does not matter. The point is that by late December the two agreements had not been executed. [6] The introduction fee agreement which was ultimately signed provided for a fee of $200,000 payable upon the formation of that contract, and the balance of $800,000 upon settlement of the contract for the sale of land: Exhibit 1, document 9, cl 2.1. There was also a requirement that the introducer, Yolla Holdings Pty Ltd be registered for GST purposes and provide a tax invoice to the plaintiff for payment: cl 2.2. Clause 2.4 provided that the $200,000 would become immediately repayable if the land sale contract was not settled. Circumstances surrounding the payment [7] According to the defendant on about 23 December 2009 Mr Knight apologised for the length of time that matters were taking, and said he would arrange for advance payment for part of the introduction fee immediately.11 Mr Knight on the other hand maintained that the idea for this payment came from Mr Marshall. In all the circumstances I accept that it was Mr Marshall who raised the idea of an advance payment, but I also accept that it was initially spoken of as an advance on the money which would ultimately become payable upon the execution of the introduction agreement: p 31. [8] According to the defendant on 30 December 2009 he received a phone call from Mr Knight who told him that his lawyer had advised him to have an agreement signed in respect of the advance payment, he had received that agreement and that it was “very lawyerish” but it was what he had been advised to do: Exhibit 5, para 31.12 In fact on that day Mr Knight had received from the plaintiff’s solicitor a draft of the loan agreement that was ultimately executed; he forwarded that draft by email to the defendant the same day.13 The defendant said that he read the draft agreement and understood that it provided for a loan from the plaintiff to No Limit 12 Pty Ltd the repayment of which he was to guarantee. [9] The defendant said that at the time his solicitors were closed for the holidays, so he was not able to get legal advice on the agreement. He took it with him to meet Mr 9 Exhibit 1, document 2. 10 See also what Knight said in his affidavit, Exhibit 4, para 7. 11 Exhibit 5, affidavit of defendant, paras 28, 71. 12 See also Marshall p 40, lines 45-50; Exhibit 1 Document 4. 13 Exhibit 1, document 4. -- 3 of 7 -- 4 Knight the same day. They met at a café downstairs from his office, and he struck out a provision in the draft for a caveat to be lodged.14 He then handed over the signed agreement, on which he had written details of the bank to which he wanted the money paid: p 32. Mr Knight went upstairs and came back shortly afterwards and said that the money was in the company’s account. However, Mr Marshall later conceded that he had sent Mr Knight a document which contained the details of the account to which the money was to be paid, and the money was in fact deposited to that account the following day.15 The effect was for the money to be paid to Yolla Holdings Pty Ltd, but because of the way that came about it was a payment by direction of the defendant (p 34) on behalf of No Limit 12 Pty Ltd of the money lent under the agreement. [10] The loan agreement provided that the plaintiff agreed to advance to No Limit 12 Pty Ltd $200,000 to be repaid on 20 January 2010, with the defendant guaranteeing the performance of the borrower and indemnifying the plaintiff against all losses, et cetera, suffered in consequence of an event of default by the borrower: Exhibit 1, document 5. No interest was payable unless the borrower failed to repay the principal sum on the repayment date: cl 6. [11] The defendant said that he was not happy about the transaction being structured in this way, but he required the funds and therefore signed the document: Exhibit 5, paras 34, 40.16 He agreed that what was being documented was not an early payment of the first instalment of the introduction fee, but was a loan to cover the period until the time when it was expected that the first instalment of the introduction fee would become payable: p 41, p 47. Although he looked at this payment as an early payment of the first instalment of the introduction fee (p 48), he knew that the document presented to him for signature did not document it in that way, and still signed the document: p 45. [12] It may well be that in the functional sense the arrangement which was put in place by way of the loan agreement served to put the defendant or his company in funds in respect of the money which would be payable in due course under the introduction agreement on the execution of that agreement, and the completion of the other prerequisites for payment, which ought to have been essentially a formality. I do not doubt that it was expected that this would occur prior to the “repayment date” stated in the loan agreement: p 46. Nevertheless, the defendant was well aware of the terms and effect of the document that was being signed, and I accept that he was aware that the transaction was being structured as a loan. It must have been apparent to him at the time that if for any reason the introduction agreement did not come to be executed or the first instalment of the introduction fee did not come to be payable prior to the repayment date, he would have to repay the money unless an agreement were reached with the plaintiff for an extension of time. 14 Marshall p 32; Knight p 14. 15 Exhibit 5, para 37, 38; Marshall, p 41; Exhibit 1, documents 6, 33. At one point Knight seemed to agree this was handed over at the meeting: Exhibit 3, paras 6,7. However, his oral evidence was different: p 16. 16 In oral evidence the defendant initially denied that he had needed the funds at the time, but when reminded of the content of his affidavit he agreed that what was in the affidavit was correct: p 47. -- 4 of 7 -- 5 [13] In the event the introduction fee agreement was not executed until after the repayment date had passed, but no attempt was made by the plaintiff to recover the amount lent at that stage.17 The agreement was executed on 2 February 2010, 13 days later, but the other prerequisites for the first payment, registration of Yolla Holdings Pty Ltd for the purposes of GST and the forwarding of a tax invoice, did not occur.18 On 8 February 2010 the solicitor for the defendant suggested to the solicitor for the plaintiff that it be agreed that the money lent be treated as the initial payment under the introduction agreement, so that the repayment of it would be governed by the terms of that agreement: Exhibit 1, document 22. In response the solicitor for the plaintiff pointed out that the initial payment was not due until such time as Yolla Holdings Pty Ltd was registered for GST purposes and supplied a tax invoice, which had not yet occurred: Exhibit 1, document 25. [14] No doubt it was appropriate in terms of the plaintiff’s GST arrangements for this to be done before the payment was made under the introduction fee agreement. In the event however these formalities were never completed, so it is not known whether the plaintiff would have treated the money in that way had they occurred. The land sale contract was not completed, because of the appointment of receivers and managers19 so that if the money had been treated as paid under the introduction fee agreement, it would have been repayable under the terms of that agreement anyway. Credibility [15] There were only three witnesses, Mr Knight, the solicitor for the plaintiff, and Mr Marshall. I accept the evidence of the solicitor for the plaintiff. I do not regard either of the other two witnesses as particularly reliable witnesses; neither had a good recollection of the events surrounding the loan agreement. As mentioned, Mr Knight denied that there had been any discussion about a second agreement prior to January 2010, but that must not have been the case.20 On the other hand, the account of the circumstances surrounding the handing over of the contract and the payment of the money given in oral evidence by the defendant (p 32) was inconsistent with what he said in his affidavit, and when reminded of that he agreed that the affidavit would have been correct: p 34, p 41. He was also not very frank about his need for the money: p 47. The existence of that need justifies a conclusion that it was the defendant who raised this arrangement rather than Mr Knight.21 I am acting on such evidence as I regard as inherently plausible in all the circumstances. 17 Indeed, it was only on 10 September 2012, after the land contract was terminated by the receivers of No Limit 12 Pty Ltd, that the plaintiff first demanded repayment of the loan: Exhibit 1 document 27. 18 That agreement did not treat the $200,000 which was paid on 31 December 2009 as the first instalment of the introduction fee; it provided for that sum to be paid. 19 In September 2010 the receivers of No Limit 12 Pty Ltd terminated the land sale contract, and later sold the land to someone else; Exhibit 5, para 55; Exhibit 1, document 26; Marshall, p 33. 20 As well, what he said in Exhibit 4 para 23 was inconsistent with Exhibit 1 document 26. 21 The evidence of Knight at p 11 lines 44-50 had the ring of truth about it. -- 5 of 7 -- 6 Conclusion [16] The only defence argued on behalf of the defendant was that from his point of view he received the money as the first payment of the introduction fee: p 48. I expect that in a practical sense that was what this transaction was intended to achieve, bearing in mind the coincidence between the amount paid and the amount of the first instalment of the introduction fee22, but the parties entered into a contract which clearly documented the transaction as a loan agreement, and the defendant was well aware of this and signed the contract knowing that that was the situation and accepting it, even if reluctantly. In these circumstances, it is clear that he is bound by the terms of the contract.23 The transaction was not a sham24 and there is no reason why effect should not be given to the contract according to its terms. The plaintiff is therefore entitled to enforce against him the guarantee included in the loan agreement. The plaintiff is therefore entitled to judgment for $200,000 together with interest by statute from the repayment date, 20 January 2010, an amount of $58,333.25 Indemnity costs [17] The plaintiff also sought costs on an indemnity basis, because it was said that the defendant had defended the proceeding where the defence relied on was known to be false, by the defendant and by his solicitor: p 2. In relation to this counsel for the plaintiff relied particularly on para 27 of an affidavit sworn by the solicitor for the defendant and filed in response to a summary judgment application on 24 October 2011: Exhibit 6. That paragraph said: “The defendant instructs and I verily believe that the $200,000 advanced by [the plaintiff] on 30 December 2009 was an advance payment on this introduction fee.” [18] It was submitted that the email sent by the same solicitor on 8 February 2010, suggesting that it be agreed that the funds were now the initial payment under the introduction agreement, was necessarily inconsistent with that belief. However I do not think that is the case. What the email proposes was that the parties agree that the funds be treated in that way, and strictly speaking that is not inconsistent with the notion that the defendant, and indeed the defendant’s company and the solicitor, were already treating the funds as being, at least in substance, the first instalment of the money paid under the introductory fee agreement,26 and the function of the email was to secure agreement about that situation from the plaintiff. [19] Interestingly, the response did not assert that the loan had nothing to do with the first instalment of the introduction fee, but merely drew attention to the fact that the formal requirements in relation to GST had not yet been complied with; the fairly 22 And that the money was in fact paid to Yolla Holdings Pty Ltd, the other party to the introduction fee agreement. 23 Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471 at [33], [36]. 24 Ibid, at [46]. 25 2 years and 11 months at 10%. 26 See Exhibit 1 document 10. -- 6 of 7 -- 7 clear implication is that the plaintiff may well have agreed to treat the money already paid as the first instalment of the introduction fee once those requirements had been met. I do not consider that this involved a knowingly false statement in the affidavit on the part of the solicitor; insofar as it purported to be a reference to the true legal effect of the payment, it involved an error of law in view of the conclusion that I have reached, but that was all. I suspect however that it was only ever intended to reflect the way in which the payment was characterised by the defendant, and in that respect it was accurate, though not reflecting the legal position between the parties. [20] Insofar as this was a statement about the functional position of the payment, it was correct; however, because of the terms of the loan agreement, the money was repayable under that agreement unless the time of the payment were extended, or unless the money in question had become payable under the introduction fee agreement by the time it was repayable under the loan agreement, which did not occur. Accordingly I do not consider that there was in the defence of this action the sort of misconduct that would justify awarding indemnity costs to the plaintiff.27 The plaintiff would be entitled to costs on the standard basis, unless there was some relevant offer which affects the situation. For that reason, I will invite further submissions as to costs when the judgment is delivered. 27 Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 412; Di Carlo v Dubois [2002] QCA 225 at [37]-[40]; contrast Remely v O’Shea [2008] QCA 111. -- 7 of 7 --