SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

COURT OF APPEAL

Case Title: / Volanne Pty Ltd v International Consulting and Business Management (ICBM) Pty Ltd
Citation: / [2016] ACTCA49
Hearing Date: / 12 August 2015
DecisionDate: / 30 September 2016
Before: / Refshauge ACJ, Perry J and Walmsley AJ
Decision: /
  1. Within 21 days of judgment, the parties are to file draft orders, agreed or otherwise, giving effect to these reasons.
  2. If so advised, within 21 days of judgment, the parties are to file and serve brief written submissions on the appropriate order as to costs.

Category: / Principal Judgment
Catchwords: / CONTRACT – whether interest payable on loans – whether interest payable at Westpac indicator lending rate + 2% - whether implied tem that interest is to be calculated as compound interest.
Cases Cited: / BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266
Briginshaw v Briginshaw (1938) 60 CLR 336
Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337
Morton v Elgin Stuczynski [2008] VSCA 25; (2008) 19 VR 294
RailPro Services Pty Ltd v Flavel [2015] FCA 504
Parties: / Volanne Pty Ltd (ACN 077 412 232) (First Appellant/ First Cross-Respondent)
John Fragopoulos (Second Appellant/ Second Cross-Respondent)
Anthoula Fragopoulos (Third Appellant/ Third Cross-Respondent)
International Consulting and Business Management (ICBM) Pty Ltd (ACN 080 349 855) (First Respondent/ Cross-Appellant)
Skybase (Vic) Pty Ltd (ACN 067 591 955) (Second Respondent)
Representation: / Counsel
Mr J Sexton SC and Mr Arthur(Appellants/Cross-Respondents)
Ms K Rees SC and Mr Sharwood (Respondents/ Cross-Appellant)
Solicitors
Donohue & Co Solicitors (Appellants/ Cross-Respondents)
Moray & Agnew, Lawyers (Respondents/ Cross-Appellant)
File Number(s): / ACTCA 54 of 2014
Decision under appeal: / Court:Supreme Court of the ACT
Before:Harper M
Date of Decision:25 July 2014
Case Title:International Consulting And Business Management & Anor V Volanne Pty Ltd & Ors
Citation:[2014] ACTSC 175

THE COURT:

1. INTRODUCTION

1.The first respondent, International Consulting and Business Management Pty Ltd (ICBM), instituted proceedings against the second and third appellants, John and Anthoula Fragopoulos,pursuant to a deed of guarantee and indemnity with respect to a series of loans by ICBM to the first appellant, Volanne Pty Ltd (Volanne). By the deed of guarantee and indemnity,Mr and Mrs Fragopoulosguaranteed payment of monies owing by Volanne. ICBM alleged that Volanne had defaulted on its repayment obligations with respect to the loans.

2.On the appeal, the issues are limited to whether the Master correctly held that:

(a)interest was payable on the loans made by ICBM to Volanne after 1 July 2001;

and, if so, whether his Honour correctly held that interest was:

(b)payable at the rate of Westpac indicator lending rate (roughly averaging 9%per annum from 1 July 2001 to the date of trial) plus an additional 2% or alternatively was payable at 8% only; and

(c)calculated as compoundinterest.

3.A cross-appeal was also filed by ICBM against the orders made by the Master as to costs. The cross-appeal is not opposed and is dealt with shortly at the end of these reasons.

2.BACKGROUND

2.1 The parties

4.Both Mr and Mrs Fragopoulos were born in Greece where they married before moving to Australia in 1978. Mr and Mrs Fragopoulos ran a fish shop at Belconnen called FishCo which they started in 1997. The business sold to the public at the shop and also undertook some wholesale selling to restaurants, hotels and clubs. MrFragopoulos describes himself as a seafood merchant. He employed staff for the business and secured stock for the retail and wholesale side of the business. MrsFragopoulos worked full-time in the fish shop, attending to bookkeeping, paying staff and paying accounts. She also served in the shop from time to time. She had undertaken a course in bookkeeping and business management.

5.Mr and Mrs Fragopoulos are the directors of Volanne to whom the loans in question were made. It was not in issue that the knowledge of Mr and Mrs Fragopoulos was also the knowledge of Volanne; nor that Mr and Mrs Fragopoulos were authorised to enter into transactions on behalf of Volanne.

6.It appears that Mr Godfrey was introduced to Mr Fragopoulos in late 2000 by MrMakas, who was a longstanding friend of Mr Godfrey and a businessman. MrGodfrey was at all relevant times a director of the first and second respondents, ICBM and Skybase Pty Ltd(Skybase) respectively, and had effective control of both companies (Master’s reasons at [5]). He was a Commonwealth public servant for many years achieving the position of Deputy Secretary of the Department of Administrative Services before his retirement from the public service in 1997 (Master’s reasons at [34]). Mr Godfrey has a doctorate in labour economics. Upon his departure from the public service, he undertook a number of consultancy projects through ICBM (which he formed for that purpose), including in relation to the Sydney Olympic Games in 2000, the two following Olympic Games and the Commonwealth Games in Melbourne. In addition, between 2001 and 2005 he provided consultancy services to the NSW Department of Transport. He has not undertaken any consultancy work since 2007 and was retired when he gave his evidence.

7.Save for one of the claims relating to a loan in 2004, the issues in the appeal largely relate to ICBM and not Skybase: see further [37] below.

2.2 The Mobutu scam (late 2000)

8.In late 2000, Mrs Fragopoulosreceived a fax in the office at FishCo. The fax purported to be a letter from a Dr Phillips who was seeking assistance to move $US40m from South Africa to Australia. The letter stated that he was prepared to pay 20% of the total amount for that assistance. The letter referred to King Mobutu trying to take his money and his family out of South Africa and provided a mobile telephone number.

9.Unfortunately for all concerned and understandably described by her as the biggest mistake of her life, Mrs Fragopoulosgave the fax to her husband as a joke, telling him that it was clearly a scam. Despite her wise words, Mr Fragopoulos decided to make further enquiries.

10.Mr Fragopoulos arranged to meet Dr Phillips during a trip to South Africa in September 2000 with respect to (ultimately unsuccessful)negotiations for the potential export of fish to South Africa. The Master summarised Mr Fragopoulos’ evidence with respect to the meeting with Dr Phillips as follows:

129. Mr Fragopoulos booked into his hotel in Johannesburg and rang the mobile number. Dr Phillips came to meet him at the hotel. He told Mr Fragopoulos that the money to be transported out of South Africa had first to be washed with a liquid which was very expensive. Only the banks had access to it. He also told Mr Fragopoulos that King Mobutu was in Morocco with refugee status and that there were only a few countries he was allowed to enter. He asked Mr Fragopoulos whether he had access to bank accounts in US dollars. He said that if Mr Fragopoulos was interested, he would be able to provide the liquid to wash the money in South Africa and then bank it in order to transport it out of the country. The liquid would cost $60,000.00 to $70,000.00. He told Mr Fragopoulos that he would need to provide the money to buy the liquid. MrFragopoulos told him that he would think about it and let him know.

130. He was subsequently informed that the bank notes were coated with some kind of powder and that this was the way large sums of money were transported from country to country for security reasons. If a note was coated with a white powder it appeared to be simply white paper. No printing on it was visible.

11.As later explained (see [16] below), Mr Fragopoulos encouraged Mr Godfrey to become involved with the scheme and they both travelled to Europe in an attempt to arrange for the money to be transported out of South Africa. Mr Godfrey made a number of advances of significant funds to Mr Fragopoulos for the purposes of these trips and associated expenses.Ultimately, apart from a couple of banknotes, no currency was ever exported. Indeed, as the Master noted at [280], all money put into the scheme was lost and there was no prospect of recovery let alone profit.

2.3 The initial meeting between Mr Fragopoulos and Mr Godfrey

12.Mr Godfrey gave evidence that, when he met Mr Fragopoulous,Mr Fragopoulos had explained how his business functioned and that he had recently returned from South Africa where he had been investigating the potential for exporting fish from Australia. MrFragopoulos also said that he had met a South African, Dr Phillips, who was looking for an agent in Australia to transfer money out of South Africa to Australia. MrFragopoulos said that his seafood business might need some money to operate. MrGodfrey’s evidence was that:

(a)he said that he would be in a position to lend money but would have to charge interest because he would otherwise be putting the money into his superannuation fund;

(b)he said that he would charge the rate being used by the organising committee for the Olympic Games in Sydney being the Westpac indicator lender rate plus, 2% compounded daily; and

(c)he agreed with Mr Fragopoulos to visit the fish shop the following weekend to look at the way the business operated and talk about what he could offer.

(Master’s reasons at [42])

13.It was at this meeting that the November 2000 oral agreement was said to have been reached.

14.Mr Godfrey made a note in a notebook about the initial meeting later that evening or early the next morning. That note mentioned among other things the Westpac indicator lender rate plus 2% but made no reference to interest being compounded daily: see further below at [69]. The pleaded case for ICBM was also that the term as to compound interest was implied and not express. As such, we do not accept that MrGodfrey said that he would charge compound interest at the meeting: see also the Master’s unchallenged findings as to credit below at [26]-[29].

15.As arranged, Mr Godfrey met Mr Fragopoulos and Mr Makas at the fish shop at the Belconnen Markets on the next weekend. He also met Mrs Fragopoulos then for the first time. He was shown around the fish shop, and inspected the cold storage and ice-making equipment (Master’s reasons at [46]). Mr Godfrey said that they discussed DrPhillips’ offer. Mr Godfrey also gave evidence that if he was asked to provide business assistance, it would be on the basis of a consultancy arrangement. At that time, Mr Godfrey said he was very busy with work relating to the Olympic Games which continued almost full-time until June 2001 (Master’s reasons at [48]).

2.4 Subsequent collaboration between Messrs Fragopoulos and Godfrey in pursuit ofthe scam (late 2001-late June 2002)

16.The Master set out in detail the evidence as to subsequentcollaboration betweenMrFragopoulos and Mr Godfrey in pursuit of the opportunities which they believed were offered by Dr Phillips’ proposal. These included Mr Fragopoulos taking a further trip to South Africa, a joint trip by Mr Fragopoulos and Mr Godfrey to Amsterdam in March 2001 (Master’s reasons at [58]-[63]), and a trip by Mr Fragopoulos to Spain in June 2001 (at [69]-[70] and [234]). They also included the transfer of considerable sums of money to DrPhillips to purchase liquid to wash the allegedly powdered notes. Substantial sums were also contributed early on to the scam by others, namely,a friend who put in some $50,000.00, the Pangallo family who put in a total of $150,000.00,MrMakas who put in $5000.00, and Mr and MrsFragopoulos’ sonwho contributed $21,000.00. These appear to have been loans made to the respondents which were largely repaid: Master’s reasons at [246]-[247], [251]-[252].

2.5 Circumstances leading to conclusion of the deed of guarantee and indemnity and deed of loan

17.Mr Godfrey gave evidence that towards the end of June 2001, when Mr Fragopoulos was away in Spain, he became aware of the parlous financial situation of FishCo and took steps to protect his interests. The Master summarised his evidence on this point as follows:

71.ICBM’s bank statement for June 2001 records cheques for the two amounts mentioned, on 6 June and 19 June. There is another cheque on 22 June for $6,000.00. Mr Godfrey’s evidence about that was that he thought that he had received a telephone call from Mr Fragopoulos saying that his wife needed money to pay the Sydney fish market. His recollection was that he went to the bank and cashed a cheque for $6,000.00 and took it to her at the fish shop. He said that he was extremely concerned that the business did not have adequate funds to buy stock for a weekend.

72.The evidence was corroborated by a note in his notebook to the effect that MrFragopoulos had rung from Spain on 22 June saying that he was confident that the deal was “going down”. He spoke to Mr Fragopoulos who told him that his wife would be ringing about the fish market. Mrs Fragopoulos then rang and asked for the $6,000.00 to cover fish from Sydney.

73.A further note in the notebook is to the effect that on 24 June he returned a call from Mr Fragopoulos in Spain and said that he was concerned about the business having debts, after his discussion with Mr Fragopoulos. Mr Fragopoulos told him not to worry. He said that they would talk about it when he returned but that he was positive he would have the money on his return.

74.Mr Godfrey said that when he went to the fish shop on that occasion Mrs Fragopoulos told him for the first time that her husband had borrowed a lot of money and that they were having trouble meeting business commitments. She did not say who they had borrowed the money from.

75.Mr Godfrey said that he became concerned and wanted some security for the money his company had lent. The day Mr Fragopoulos got back from Spain he asked him for a full set of accounts to the end of the financial year, so that he could make an assessment of the financial position of the business. Mrs Fragopoulos sent some documentation, and after further prompting, most of the financial data to 30 June 2001. By that time ICBM had lent approximately $51,000.00. The figures showed that the business had a quarterly turnover of over $600,000.00.

76.Mr Godfrey told Mr Fragopoulos that he would be instructing solicitors to draw up agreements to document and secure the loan funds. He instructed Phillips Fox.

77.At about the same time, Mr Godfrey said that he had discussions with Mr Fragopoulos about regular repayments. They agreed on repayments of $1,000.00 per week, starting from 1 September 2001.

18.Mrs Fragopoulos gave evidence that after her husband returned from Spain, he had further meetings at the office at FishCo with Mr Godfrey, who would use the office to send faxes and emails and to make phone calls. She also gave evidence as set out in the Master’s reasons that:

235…One day Mr Godfrey asked her for copies of some FishCo financial records, which he said he needed “to keep the tax man happy”. Mr Godfrey put $40,000.00 into the FishCo account, and subsequently two further amounts of $20,000.00 each, between mid-July and early August 2001. By that time, the business had repaid $50,000.00 to the Pangallo Family Trust and was in a desperate financial position.

19.With respect to the preparation of the deed of loan, deed of charge and deed of guarantee and indemnity by Phillips Fox, the Master found that:

78. Phillips Fox prepared three documents: a deed of loan between ICBM and Volanne; a deed of fixed and floating charge in favour of ICBM over the assets of Volanne; and a deed of guarantee and indemnity between Mr and Mrs Fragopoulos and ICBM. Mr Godfrey said that he took those documents to Mr and Mrs Fragopoulos and left them with them to read. He subsequently went out and got the three documents executed. He left one set of the documents with them, and took the other set away. He instructed Phillips Fox to register the charge. All of the documents are dated 17 September 2001, although it is apparent that they had been prepared in July of that year.

20.The Master accepted at [280] that Mr Godfrey provided copies of the three documents to Mr and Mrs Fragopoulos during July 2001 notwithstanding that they were not executed until September 2001.

2.6 Loans and repayments from July 2001

21.Following execution of the documentation, Mrs Fragopoulos gave evidence to the effect that:

237. Early in September 2001 she began making payments to Mr Godfrey or his company, initially of $1,000.00 and subsequently of other varied amounts. Most payments were of the order of $1,000.00 or $2,000.00. With one or two exceptions, she made the payments by handing cash to Mr Godfrey in an envelope. She said that he never asked for payments and that there was no discussion between them as to when the payments were to be made. She never got a receipt for any of the payments. She paid in cash because the business was a cash business. The bank account was often very close to its limit and it was safer for her to take cash out of the till and hand it to Mr Godfrey. It was less work for her. She recorded each of the payments on the computer.

238. On 21 May 2002 Mrs Fragopoulos noticed that a credit had appeared to the business bank account of $75,000.00. She did not know what it related to. She rang Mr Godfrey and asked him whether he had put the money in the account. He said that he had and asked her to put it down as a loan.